Lecture 6 recording

Lecture #6:Lecture #6:

ERP- Enterprise Resource Planning( An Introduction)

Humayun Akhtar

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What is ERP?

• The practice of consolidating an enterprise’s planning, manufacturing, sales and marketing efforts into one management system.1

• Combines all databases across departments into a single database that can be accessed by all employees.2

• ERP automates the tasks involved in performing a business process.1

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Evolution of ERP

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Employees

Managers andStakeholders

How Do ERP Systems Work?

CentralDatabase

ReportingApplications

HumanResource

ManagementApplications

FinancialApplications

ManufacturingApplications

InventoryAnd SupplyApplications

HumanResource

ManagementApplications

ServiceApplications

Sales andDelivery

Applications

Sales ForceAnd CustomerService Reps

Customers Back-officeAdministratorsAnd Workers

Suppliers

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ERP Components

• Finance: modules for bookeeping and making sure the bills are paid on time. Examples:– General ledger– Accounts receivable– Accounts payable

• HR: software for handling personnel-related tasks for corporate managers and individual employees. Examples:– HR administration– Payroll– Self-service HR

• Manufacturing and Logistics: A group of applications for planning production, taking orders and delivering products to the customer. Examples:– Production planning

– Materials management

– Order entry and processing

– Warehouse management

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An ERP Example: Before ERP

Customers

CustomerDemographic

FilesSales Dept.

Vendor

OrdersParts

Accounting

AccountingFiles

PurchasingPurchasing

Files

Order is placedwith Vendor

Invoicesaccounting

InventoryFiles

Warehouse

Checks for Parts

Calls back “Not in stock”

“We ordered the parts”

“We Need parts #XX”

“We ordered the parts”

Sends report

Sends report

Sends report

Ships parts

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An ERP Example: After ERP

Database

Customers Sales Dept.

PurchasingWarehouse

Accounting

Vendor

Inventory DataIf no parts,

order is placedthrough DB

OrdersParts

Order is submittedto Purchasing.

Purchasing recordorder in DB

Order is placedwith Vendor

And invoices accounting

Financial Data exchange;Books invoice against PO

Books inventoryagainst PO

Ships parts

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Who are the main ERP vendors?

• Baan• JD Edwards• Oracle• PeopleSoft• SAP

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Why ERP?

3 Major Reasons:

• To integrate financial data.

• To standardize manufacturing processes.

• To standardize HR information.

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ERP Project and Time

• Real transformational ERP efforts will usually run between 1 to 3 years, on average.

• Short implementations (3 to 6 months):– small companies,

– implementation limited to a small area of the company, or

– the company only used the financial pieces of the ERP system.

• The important thing is not to focus on how long it will take but to understand why you need ERP and how you will use it to improve your business.

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Total Cost of Ownership of ERP

Total cost of ownership (TCO) is a model developed by Gartner Group to analyze the direct and indirect costs of owning and using hardware and software. TCO essentially helps a company determine whether it wins or loses from specific technology implementations.

• Metagroup study among 63 companies surveyed showed that:

– the average TCO was $15 million (the highest was $300 million and lowest was $400k),

– the average TCO per user was $53,320.

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Total Cost of Ownership of ERP

• It also found that:– it took 8 months after the system was in to see any benefits,

– but that the median annual savings from the system was $1.6 million per year.

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Hidden Costs of ERP

• Training

• Integration and testing

• Data conversion

• Data analysis

• Consultants

• Replacing best and brightest staff after implementation

• Implementation teams can never stop

• Waiting for ROI

• Post-ERP depression

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Benefits of ERP Systems

• Improving integration, flexibility

• Fewer errors

• Improved speed and efficiency

• More complete access to information

• Lower total costs in the complete supply chain

• Shorten throughput times

• Sustained involvement and commitment of the top management

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Benefits of ERP Systems (cont’d)

• Reduce stock to a minimum

• Enlarge product assortment

• Improve product quality

• Provide more reliable delivery dates and higher service to the customer

• Efficiently coordinate global demand, supply and production

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Risks with ERP Implementation

• Expensive (can costs 100 thousands to millions of dollars)

• Time-consuming (can take months to years)

• Great risk for the organization

• Transfer of Knowledge

• Acceptance with the company

Definition Of ERP

Software solution that addresses all the needs of an enterprise with the process view of an organization to meet the organizational goals and integrate all the functions of the enterprise

What is ERP ?

• Facilitates Company-wide integrated Information Systems Covering all functional Areas.

• Performs core Corporate activities and increases customer service augmenting Corporate Image.

• Organizes & Optimizes the data input methodologies systematically.

• MIS - Management Information SystemsDecision Support - No

• IIS - Integrated Information SystemsNo Decision Support - No

• EIS - Executive Information SystemsDecision Support - Yes

• CIS - Corporate Information SystemsDecision Support - Yes

• EWS - Enterprise Wide SystemsDecision Support - No

Logistics are considered as a part of system

Evolution of Business Applications

• Materials Requirement Planning (MRP)• Manufacturing Resource Planning ( MRP II)• Enterprise Resource Planning ( ERP)• Distribution Resource Planning ( DRP)

Other terminologies are :• Money Resource Planning (MRP III)• Supply Chain Management• Value Chain Management

Evolution of Planning Systems

Is It Only a Jargon ?

No. MRP and MRP II were there for a long time.

ERP is an enhancement over these.

Introduction of ERP provides you a chance to have a new look at your working.

Is It Going to be there long?

Yes and No.

ERP will be there for a long time, if you are willing to upgrade to new versions with new features as and when the are released in the market

Your ERP may still work after a long time without enhancements, if your company is not growing!

Moral : Upgrading the systems are a must!

Can We wait ?

Wait if you have :• Good systems running.• No immediate threat of Y2K, Euro and

other known/unknown problems.• No management commitment.• Financial problems.

Do not wait if you have :• Tough competition in the market.• Multiple location operations.• Plans to grow Globally.• Management Commitment for change.

Why ERP ?

ProfitabilityProfitability

You have Two Choices :

Increase in sales - Say 30%OR

Reduce Procurement Cost - say by 5-10 %

What IT Dept. shall look into?What IT Dept. shall look into?

Automatic Identification System Hardware & Networking Software DBMS/RDBMS Communication ERP Supply Chain Management EDI Intranet Internet

For Healthy Operations

• Integration of Systems across the Functional Departments in a Company as well as across the Enterprise as a Whole.

• Better Customer Service.• Introduction of Latest Technologies as and when the are

ready for the Industry acceptance• Expertise database • Avoids data redundancy

Competition In the Market!

Manufacturing Challenges.

• Manufacturing Globally.

• Distribution network spread.

• New Product introduction.

• Lower manufacturing lead time.

Focus on industry markets.

• Satisfying the needs of customers.

• Develop specific business methods and processes.

• Integration with third party products.

• Better products at lower costs

• Tough competition

• Need to analyze costs / revenues on a product or customer basis

• Flexibility to respond to changing business requirements

• More informed management decision making

Demands on the Industry

Unable to get accurate, timely information

Applications not complete for existing business practices

Modifications are time consuming or not feasible

What are your Problems ?

A Typical IT Story

Manufacturinglocation 1

Manufacturinglocation 2

Sales Group

Finance

Corporate office

My growthwill be OK . No?

ERP - The Enabler

What is that ERP enables ?

Systematic Look into your Systems & procedures

Optimizing the processes

Enables you to adapt yourself to new technologies

Discipline across the functions

What does ERP integrate ?

• Database

• Applications

• Interfaces

• Tools

What drives ERP ?

• Business • Customer Satisfaction• Business Development - new areas, products, services• Ability to face competition• Efficient processes required to push the company to top gear

• IT • Present Software does not meet business needs• Legacy systems difficult to maintain, Y2K Problem , Euro

currency• Obsolete hardware/software difficult to maintain

Problems Taken Care of

Availability check at the time of Accepting Sales order On-line Material Status & Shortages Productivity Enhancements Material Planning Customer Service Cash Management Inventory Quality

Subsystems of ERP

• Logistics

• Bill Of Materials

• Sales & Marketing

• Master Scheduling

• Materials Requirement Planning

• Capacity Requirements Planning

• Purchasing

• Shop Floor Control

• Accounts Payable/Receivable

• HR

Software Market Share

SAP15.6

Peoplesoft 4.9

Oracle 4.8

Baan 3.0

CA 3.0

JDE 2.2

SSA 2.1

GEAC 2.0

IBM 1.8

JBA 1.7

Others 59.0

Understanding ERP

Integration of Information Systems

Local purchasing, invoice verification

Inventory managementInternal sales,

shipping and billingProfit/loss Capacity utilization

Information Systems:Project MgmtInventory Purchasing SalesBudget Cash Management

Manufacturing Head Quarters Marketing/Sales

IS messages

Sales, shipping and billing

Purchasing of trading goods

Inventory Management

Customer service

IS messages

Definition of Business Intelligence

Any tools enabling people to make better decisions and thus improve their business processes

• Decision support systems (DSS)• Executive information systems (EIS)• Reporting• Data mining• Early warning systems (robots)

Examples:

Enabling Best Business Practices

Business EngineeringWorkbench

New Technologies

Best Business Practices

New Business Concepts

Customer

Supplier’sReference Model

Customer

Require-ments

Changes of Customer Information

Customer Representative

Change customer master data

Sales Manager

Schedule customer

visit

Credit Manager

Increase credit limit

Product Manager

Prepareproduction

Please Accept my new order for 1000

more sets

LaunchWorkflow

The Integrated Supply Chain

Finance Balance sheetCapital Costs

Machines Operating resources Human resources

Purchasing Production Sales. Procurementmarket

Managing Resources

ControlProfit/Loss

Process Automation and Lead Time

Workflow for exception handling, Trigger for mail, transactions, EDI

EDInoteBlocked

EDIentry

ATPATP Credit limitCredit limitPickingPicking

TransportTransportPricingPricing

AllocationAllocation

Standard functionsStandard functions

Scanlog

Loadinglist

EDI Sales orderentry

Delivery Billing EDI

Go Ahead with ERP

Business Process Re-Engineering ( BPR)

• In-depth study of existing systems/processes is required before ERP is considered.

• This study brings out deficiencies of the existing system/process.

• This study is called BPR

• BPR attempts to re-structure and re-organize the human resources, functional areas, Man-Machine interfaces in the organization.

• Hence BPR attempts to maximize productivity

Re-engineering

• Study the current system & Processes• Design and develop new systems• Define Process, organization structure, procedures• Develop/Customize the software • Train people • Implement new system

ERP without Re-engineering• Advantages

– No visible changes in Functionality

– Users find it more acceptable

– Can be completed within time frame.

– Cost can be with in your control

– Impact on Organization will be moderate

• Disadvantages– Best Business practices would have been ignored

– Stability of the system is known only in long run

– May not achieve Corporate wide systems integration

– New technologies have to be studied your self

– Some functionality may be lost

Re-Engineering -a part Life with ERP!

• Re-engineer process before going for ERP• Re-engineer during implementation of ERP• Re-engineer after implementing ERP• Continuous re-engineering through ERP

If It is a Big Change, don’t do it!

If the Modifications are small and important to the business, you may customize and implement.

If the proposed changes are more, discuss with all concerned . Else you may be going towards a dead-end!

The USA Principle

• Understand, Simplify, Automate

Understand Existing Practices

SimplifyProcesses

by Eliminating waste

Automatethe

Process

EDIERP

EliminatingCombiningRearranging

DiagrammingStory-boardingBrain storming

ERP Selection

• Check whether all functional aspects of your Business are covered

• Check whether all the business functions and processes are integrated

• Check whether all latest IT trends are covered• Check whether the vendor has customizing &

implementing capabilities• Check the Service options available

• Check your purse & calculate ROI

Prepare Base for ERP• Do not start without Management commitment • Allocate sufficient funds • Identify Core Project Team• Select specialists from all functional areas• Evaluate and select ERP package • Evaluate Implementation Partner• Make an Implementation Plan• Present plan to Management Committee for sanctions• Present plan to Employee groups for feedback/acceptability• Plan for User Training• Plan for Future upgrades

Define Requirements

• Determine the hardware required• Analyze the existing Processes• Fine tune the processes to be in line with those of

ERP defined • Analyze effect of system changes.• Prototype and present • Refine the prototype & freeze the specifications

ERP Implementation

• Commitment from Management• Form a task force with personnel from all

functional Areas• Take care of Hardware requirements• Step-by-step rather than big-bang introduction• Be patient. ERP implementation takes Time.

• Project Planning

• Business & Operational Analysis, including Gap Analysis

• Business Process Re-engineering (BPR)

• Installation & Configuration

• Project Team Training

• Business Requirements Mapping to Software

• Module Configuration

• System Modification and Interfaces

• Data Conversion

• Custom Documentation

• End User Training

• Conference Room Pilot

• Acceptance Testing

• Production

• Post-Implementation Audit/Support

ERP Involves

Implementation ApproachImplementation Approach

DetailedDiscussions

Design &Customization

Implementation/Prepare to Go Live

Production/Go Live

Project Initialization Evaluation of current processes, business practices, requirements Set-Up Project Organization

Map Organization Map Business Processes Define Functions and Processes ERP S/w Configuration Build ERP System Modifications

Create Go-Live Plan & Documentation Integrate Applications Test the ERP Customization Train Users

Run Trial Production Maintain systems

Accepted norms & Conditions Project Organization Chart Identify Work Teams

Organization Structure Design Specification Process Flow Diagrams Function Model Configuration Recording Systems Modification

Testing Environment report Customization Test Report Implementation Report

Reconciliation Reports Conversion Plan Execution

Tasks Deliverables Phase

Advantages Of ERP

Advantages Of ERP Package

Highly Graphics based User Interface. Zero Down time/ planned down time. Readymade solutions for most of the Problems. Only Customization required. Integration of all functions ensured. ROI earlier than the software developed in-house. Easy enterprise wide information sharing. Suppliers and Customers can be on-line communication. Knowledge transfer between industries guarantees innovation. Automatic adaptation to new technology.

DecideMake Or Buy !

Inhouse Development ERP package

Project Development takes time . Ready made Projects.

Reinventing the wheel. Needs only customization

Process specific to your industry Best Business practices followed

are implemented

Documentation may not be present Documentation is part of system

EDI implementation modifications EDI Compatible. Universally accepted

to be taken care of

Enterprise implementation is The package itself is designed as

difficult as each unit follows Enterprise Package.

different S/W option

Latest Developments to be studied Constant Updates on Technology

as and when they are introduced. and Processes assured

Embrace New Technologies

Internet/Intranet enabled

TransportersTransporters

BanksBanks VendorsVendors

CustomsCustoms Retailers Retailers

Electronic Data Interchange

EDI

Video Conferencing

Summary

• Optimum utilization of resources• Customer satisfaction• Seamless integration between Functions• Reduced overheads & inventory• Timely responsiveness• Market share & image enhancement• Faster design to manufacturability• Keep up with technology changes

• Only way for integrated systems for a client with multiple locations

THANK YOUTHANK YOU