Erp

Enterprise Resource Planning

(ERP)

And

Integrationwww.a2zmba.com

ERP: What Is It?

“Enterprise resource planning software, or ERP,

doesn't live up to its acronym. Forget about

planning—it doesn't do that—and forget about

resource, a throwaway term. But remember the

enterprise part. This is ERP's true ambition. It

attempts to integrate all departments and

functions across a company onto a single

computed system…”

Darwin’s “Executive Guide”www.a2zmba.com

The Basic Idea

Deliver value added product and services in

shortest possible time.

Optimizing the resources

available.

Integration of specialized

modules; all under one

Roof.

Real time management

.

Automatic discovery, pre

configured control panels, and automatic

alerts .

The Basic Idea

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Characteristics

An ERP system should be flexible to respond to the changing needs of an

enterprise. The client server technology enables ERP to run across

various data base back ends through Open Data Base Connectivity

(ODBC).

ERP system has to have an open system architecture. This means that

any module can be interfaced or detached whenever required without

affecting the other modules. It should support multiple hardware

platforms for the companies having heterogeneous collection of systems.

It must support some third party add-ons also.

Fle

xib

ility

Mod

ula

r &

Op

en

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Bey

ond

Th

e C

omp

any

Characteristics ( Contd…)

It should not be confined to the organizational boundaries, rather

support the on-line connectivity to the other business entities of the

organization.

It must have a collection of the best business processes applicable world-

wide.

Last but not the least, it must simulate the reality of business processes

on the computers. In no way it should have the control beyond the

business processes and it must be able to assign accountabilities to the

users controlling the system.

Bes

t B

usi

nes

s P

ract

ices

Sim

ula

tion

of

Rea

lity

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Major Suppliers

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Some of the Modules

Sales and Distribution

Human Resource

Finance and Costing

Time and labour

Reporting

Material Management

Supply Chain Management

Asset Management

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Implementation

Complex process of configuration of fit business

Entering rules and

preferences

Loading and standardizing existing data

Hooking up to remaining

applications

Writing custom code

where needed

Also human parts

Retraining users Redesigning

business processes

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Benefits : Operational Efficiency

Lower cost

Better customer service

Allows management of processes across organizational

boundariesData entered only once, used by all

processes and Departments

Current data accessible to all participants. E.g. customer

service rep can see stock levels in other divisions, progress on order, etc.

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Benefit: Lower IT cost

ERP is very

expensive

Future maintenance and upgrades

cheaper

Biggest saving in

integration

Spread costs over a large

base

But expect long term savings from

Elimination of legacy systems

Upgrades, maintenance and

licensing costs

Huge costs for ad-hoc integration of aging applications

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Benefit: Standard Process

ERP is managerial means

to force global standardization in

processes

Centralization of control over

proceduresTechnological enforcement coded into software

Local variation,

workarounds eliminated

May bring efficiency

Will sacrifice

flexibility

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Benefit: Managerial Data

Standardizing processes requires standardization of

Product codes Accounting methods

And Human Resources systems This allows comparisons

between divisions Especially using

financial measures of effectiveness –e.g. Economic Value Added (EVA) analysis

and On global basis

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Issue: Cost

Project cost is 2 to 10 times

software price

High profile implementation

failures

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Issue: Complexity

Inherent complexity of global project

ERP team is permanent

fixture

•Training costs for users easy to underestimate•Existing data often in

worse shape than admit

• Rely on to keep business running

•Will need further work on analysis to

deliver promised benefits

New system gives short-

term efficiency

slump

•Like any major reorganization•But may afflict

whole business at once

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Issue: Inflexibility

ERP standardizes business processes

Possible Problemsnon-standard

modules

•Will be running business the same way

as competitors•Sees its processes as

core competence

•Can’t find better ways to do things

•Tied to capabilities of software

•Limits scope for reengineering, etc except as

software requires and supports

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Issue: Dependence

ERP is not just a new program, it’s a new way of doing business” How

to deal with things it won’t support?

Long-term commitment

•Can users lobby for new features?•What if supplier is taken over?• What if supplier raises prices?

• What if supplier shifts direction of product?

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Issue: Integration

When doesn’t work well in one area

Problems in integrating into other

systems

•Can try to patch the ERP software

•Can rely on external application and links

•Can alter business to fit the software

•Create & maintain custom interfaces

•Not well suited for data warehouses

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Issue: Upgrades

Like all software,

frequent new releases

Can be a year long project, cost 30% of original

installation price

Can cause major

disruption

Users resent having to upgrade

just because vendor is pulling support

Likely to break custom code &

interfaces to other applications

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Trends in ERP

•Increased modularization of suites•Reduces scale of commitment

•Supposed to work better with other applications•Shift to web based front ends

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Consolidation of suppliers

People Soft buys J.D. Edwards

Succeeds, just in time

SAP profits from chaos Market share continues

to rise

Oracle tries to buy People SoftInitially to prevent merger with J.D. Edwards

Announces customers will have to migrate to Oracle applications

Still trying to acquire merged firm

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CRMCustomer Relationship

Management Idea: centralize all processes and data related to interaction with customers

Often offered by ERP suppliers Sold as “next big thing”, though

problems set Hit by slump in IT spending from 2001

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