CHAPTER 1 Introduction to ERP
INTRODUCTION-
ERP stands for Enterprise Resource Planning. ERP systems are the kind of software tools which are used to manage the data of an enterprise. ERP system helps different organizations to deal with different departments of an enterprise. Different departments like receiving, inventory management, customer order management, production planning, shipping, accounting, human resource management, and other business functions. Basically, it is the practice of consolidating an enterprise’s planning, its manufacturing, its sales and marketing efforts into one management system. It combines all databases across different departments into a single database which can be easily accessible to all employees of that enterprise. It helps in automation of the tasks involved in performing a business process.
Before ERP:
After ERP :
After ERP system, databases of different departments are managed by one system called ERP system. It keep tracks of all the database within system. In this scenario, employee of one department have information regarding the other departments.
ERP software is very useful for large organization. It comes in many modules:
o SAP
o Oracle
o Microsoft
o Epicor
o Infor
o QAD
Implementation of ERP-
Time and Cost are important factors that need to be considered before buying or implementing an ERP system. The implementation can take several months to a couple of years. The cost is also not fixed and varies on the basis of your requirements and the features provided by the vendor. So, it is advisable to thoroughly analyze the vendor's ERP package modules, features, and supporting infrastructure before implementing the ERP.
ERP implementation is the process of installing, configuring, and deploying an enterprise resource planning (ERP) system in an organization. ERP systems integrate all aspects of an organization's operations, including finance, manufacturing, supply chain management, human resources, and more, into a single, centralized system. ERP implementation can be a complex and time consuming process, requiring careful planning and management to ensure success.
Here are the key steps involved in ERP implementation:
Project Planning:
The first step in ERP implementation is project planning, which involves defining the scope of the project, identifying the objectives and goals, and outlining the timelines and resources required. The project team should be selected, and a project manager should be appointed to oversee the implementation.
System Selection:
The next step is to select the ERP system that best meets the organization's needs. This involves evaluating different vendors and software solutions based on factors such as functionality, ease of use, scalability, and cost.
Configuration:
Once the ERP system has been selected, the next step is to configure it according to the organization's requirements. This involves customizing the system settings, workflows, and business processes to match the organization's needs.
Data Migration:
Data migration is the process of transferring data from the old system to the new ERP system. This involves mapping the data fields and ensuring that the data is accurate and consistent.
Integration:
The ERP system needs to be integrated with other systems and applications, such as CRM software, inventory management systems, and e-commerce platforms. This ensures that data is consistent and accurate across all systems.
Testing:
Once the ERP system has been configured and integrated, the next step is to test it thoroughly. This involves running tests to ensure that the system functions as expected and that data is accurate and consistent.
Training:
The final step is to train the employees on how to use the new ERP system. This involves providing training materials, conducting workshops and training sessions, and offering ongoing support to ensure that employees can use the system effectively.
ERP implementation can be a challenging process, but by following these key steps and working with experienced consultants and vendors, organizations can ensure a successful implementation that delivers the expected benefits and improvements in efficiency, productivity, and cost savings.
Benefits of ERP:
1. This system helps in improving integration.
2. It is the flexible system.
3. There are fewer errors in this system.
4. This system improved speed and efficiency.
5. There is a complete access to information.
6. Lower total costs in complete supply chain.
7. This system helps in Shortening the throughput times.
8. There is sustained involvement and commitment of the top management.
9. Enhanced Decision-Making: ERP provides real-time access to critical business data, enabling decision-makers to quickly identify and respond to issues, make informed decisions, and improve business outcomes.
10. Improved Collaboration: ERP facilitates collaboration and communication between different departments and stakeholders, enabling them to work together effectively towards common business goals.
11. Standardization of Processes: ERP ensures that business processes are standardized across the organization, reducing the risk of errors and inconsistencies and improving efficiency.
12. Effective Resource Management: ERP enables efficient management of resources such as personnel, equipment, and inventory, ensuring optimal utilization and reducing wastage.
13. Scalability: ERP is highly scalable and can be customized to meet the evolving needs of the business, ensuring that the system remains relevant and effective over the long term.
14. Regulatory Compliance: ERP systems can help businesses comply with regulatory requirements by providing accurate and timely reporting, ensuring data privacy and security, and facilitating audits.
Limitations/Risk of ERP:
ERP system has 3 significant limitations:
1. Managers generate custom reports or queries only with the help from a programmer and this will create a problem that they did not receive information quickly, which is essential for making a competitive advantage.
2. There is no proper decision-making scenario i.e. this systems provide only the current status, such as open orders. Whenever there is need to look for past status to find trends and patterns it become difficult. That aid better decision making.
3. No doubt that data is integrated within the system, but there is no integration of data with other enterprise or division systems and it does not include external intelligence.
4. High implementation costs: Implementing an ERP system can be expensive and time-consuming. It requires significant investment in hardware, software, and personnel, as well as training and consulting costs.
5. Complex customization: Customizing an ERP system to meet the specific needs of an organization can be complex and require specialized knowledge. This can lead to delays and additional costs.
6. Resistance to change: ERP systems often require significant changes to an organization’s processes and workflows, which can be met with resistance from employees who are comfortable with existing practices.
7. Data security risks: Centralizing sensitive business data in an ERP system creates potential security risks, especially if the system is not properly secured or if there are vulnerabilities in the software.
8. Limited flexibility: ERP systems are designed to provide standardization and control, which can limit the flexibility of an organization to respond to changing business needs and market conditions.
9. Dependence on vendor support: Organizations that use ERP systems are often heavily dependent on the vendor for support, maintenance, and upgrades. This can create a risk of vendor lock-in and limit an organization’s ability to switch to other systems or providers.
Evolution of ERP System
Enterprise Resource Planning (ERP) is made to automate any task. With ERP, it is easy to manage every department under one single database. This consumes not much time and is easy and fast way to do work with.
Example- :
Any enterprise’s planning, manufacturing, sales and marketing efforts are put under one management system and then it combines to one single database system.
Evolution of ERP System :
1. Material Requirement Planning (MRP)
– Developed in 1970s, Material Requirement Planning is widely used approach for CHAPTER-1 Introduction to ERP Page 6 of 15 production planning and scheduling in industry. It is the approach embedded in many commercially available software applications. The function of MRP is to provide material availability i.e, it is used to produce requirement quantities on time. This process involves monitoring of stocks and demand, leading to automatic creation of procurement proposals for purchasing or production. The main objective of MRP is to determine which material is required, quantity required and by when it is required.
2. Manufacturing Resource Planning (MRP II) –
Developed in 1980s, Manufacturing Resource Planning is an expansion of closed loop MRP for managing an entire manufacturing company. This system provides an information that is useful to all functional areas and encourages cross-functional interactions. It supports sales and marketing by providing and orders promising capability. It is a broad-based resource co-ordination system involving other areas of a firm in planning processes, such as marketing, finance and HR.
4. Enterprise Resource Planning(ERP II) –
Developed in 2000s, ERP II is name now use to describe ERP. Basically, it is successor of ERP. It is a business strategy and set of collaborative operational and financial processes internally and beyond enterprise. These new business models reflect an increased business focus on internal integration. It’s domain is in all sectors and segments. Data in this is internally and externally published and subscribed. It includes departmental modules, CRM, SCM and other stakeholders modules. It emphasis on intangible assists.
The Evolution of Enterprise Resource Planning
The 1960s: – Growth of Enterprise Information Systems (EIS)- Early systems were based on automation for individual functions, like financial accounting or inventory management.
EIS systems were a major improvement. However, they were also very limited in scope. Additionally, their high costs prevented most businesses from using them.
The 1970s: – Shift to Material Requirements Planning (MRP)- MRP systems tapped into the master production schedule, allowing businesses to plan the parts and product requirements.
This is the start of the continuous development seen in ERP solutions up through the present day. However, the same problems with EIS software — cost and accessibility — remained The 1980s: – Manufacturing Resource Planning (MRP II) Introduced- MRP II software emphasized an optimized manufacturing process that coordinated materials and production requirements, extending services to:
The shop floor
Finance
Human resources
Engineering
Project management
Distribution management
Connecting different teams and departments across a business is a foundational concept in today’s ERP. These wider-reaching benefits also began to build more interest in ERP (or MRP II, at the time). It started to become an option outside of the manufacturing industry.
The 1990s – Birth of Enterprise Resource Planning- By the early ‘90s, MRP-II had been extended to include enterprise-wide functions and integration.
Extended MRP II systems were renamed enterprise resource planning systems. This is the same concept that applies to modern ERP solutions.
ERP uses a single database containing all the data that keeps the processes running smoothly, ensuring visibility, accessibility, and consistency.
2000s and Beyond: – Extended Enterprise Resource Planning- Extended ERP systems include:
Customer relationship management
Supply chain management
Advanced planning and scheduling Continuing ERP trends include capabilities for:
Cloud
Mobile
Analytics
ERP continues to develop, expand, and improve. The cloud, along with mobile access, has made ERP far more accessible. The addition of analytics offers even more insight into your company’s operations.
Reasons for Growth of ERP
An ERP system not only helps an organisation in managing its resources well but also increases its productivity. As per an ERP history report, the growth rate of ERP has been recorded 30% every year since 1970.
As per a report presented by Forrester Research, the overall ERP market is expected to grow $50.3 billion by 2015. The main reason for such growth is that ERP systems have provided organizations with accurate and real-time information for business decision-making.
Apart from this, the following are some other reasons for the growth of ERP.
Globalization-
This is one of the major reasons for the growth of ERP. Earlier, organizations were restricted to their national boundaries, and the size of businesses was comparatively small. However, with the advent of globalization, organizations are attracted to operate across borders.
Managing and operating businesses at multiple locations with uniformity in processes is not possible without real-time information on market trends, changes in business environment, etc. An ERP system provides integrated information that can be accessed from any location across the world.
Advancement in technology-
As discussed earlier, organizations were using traditional methods for managing their resources. However, advancement in technology led to the evolution of many automated systems like ERP, which could integrate the different business processes of organizations.
Increased focus on high efficiency-
With the advent of globalisation and increased competition, it became difficult for organizations to remain efficient and sustain their businesses. To overcome such challenges, many organizations have implemented ERP systems, which help in reducing lead times, cycle times, inventory levels, etc. This in turn improves organisations’ efficiency and decision-making.
Rich Analytics-
With an ERP system being a centralized information database, this means it’s an incredibly rich resource as a business intelligence tool, that is highly functional for developing various reports that would otherwise take days to compile to just mere minutes, additionally ERP solutions like Triumph, provide visual dashboards for data that key stakeholders can access and make informed business decisions for the future of your organization.
Increased Customer Satisfaction-
Offering goods and services with the needs of the consumer in mind is the best method to increase customer happiness. There are several ways that ERP offers this. Firstly, most enterprise resource planning (ERP) systems come with or can be easily connected with a customer relationship management (CRM) solution. Your CRM gets access to data from all corporate operations thanks to an ERP.
An integrated CRM can provide facts like order history and invoice information in addition to contact information. This enables your team to view your clients more holistically and comprehend their needs and wants better. Your sales strategy for improved lead generation is formulated with the support of the increased client visibility.
Simplify Compliance and Risk Management across your business-
taying on top of everything while your business continues to grow can be messy and confusing, especially when you start providing your business on a statewide or global scale. Challenges just don’t stop at supply and logistics, they can start with complying with cybersecurity, HR and even environmental regulations, these rules can impact a growing business in unfamiliar territory.
ERP solutions are made with these regulations in mind, helping you to keep your business operations in check, this includes auditing and recording tax obligations for example. Simplifying this process through such an automated system not only saves you an incredible amount of time and unnecessary stress but also money, money you can spend back into your business.
Synergistic Production Planning and Resource Management-
ERP oversees manufacturing in addition to inventory management. Moreover, an ERP system offers insight into every aspect of manufacturing, including shop floor operations. This gives users, your employees the ability to maximize capacity by optimizing production schedules, machinery, and Laboure
Conceptual model of ERP
The below figure shows the conceptual model on which ERP theory is based. ERP defines the five measures that govern business policies:
1. Process-based flat organization
2. Assemble-to-order or Make-to-order philosophy
3. Empowered employees
4. Customer and supplier integration
5. Sophisticated IT systems
These business policies lead to critical elements for the ERP system. The success of ERP depends on the level of its adoption in the organization. ERP can be defined in the following ways by keeping the above-mentioned concept in mind :
1. It is a planning methodology or philosophy that is based on the smooth integration of all the business processes of an enterprise.
2. It is a set of software casing major business areas e.g. economics, plans, sales, materials, manufacturing, distribution, all so tightly integrated with one another that any business activity recorded at one place is immediately reflected in all other places.
3. It is the finest expression of the consistency of Info-tech and business. An enterprise-wide system with enabling technology and effective managerial tool for integrating all the levels and improving report ability.
The above definitions explain the fundamental design feature of ERP as a system based business solution. ERP integrates the various departments and functions throughout the organization. It attempts to comprehend everything into a single system that can serve every department and functional needs. While doing so, it focuses on the business plan areas and addresses those problems with an integrated planning approach.
To understand how ERP is a system based business solution, we have to first critically examine the two key words ‘System’ and ‘solution’.
System :-
In the present context, we can say that ERP is a system for a specific set or arrangement of elements that are organized to accomplish a pre-defined goal through the processing of information. This goal invariably could be to support an existing business function, improve the transparency of data, improve efficiency in business, improve decision-making, and provide improved customer satisfaction. The key resource elements of such a system are hardware, software, users, databases, etc.
Solution :-
A business solution can be explained as a framework encompassing strategy, organization structures, key performance indicators, measurements, and IT, which must be aligned to the business processes. Conventionally, there are three kinds of business processes- acquiring and paying for input resources, converting inputs into finished goods and services provided.
Thus ERP as a combination of system and business solution provides the user with a productive planning tool.
Business Process Re-engineering(BPR)
Business Process Re-engineering (BPR) is a management strategy aimed at improving organizational performance by re-designing and optimizing business processes. BPR is a systematic and radical approach to change, focused on transforming and streamlining core business processes to achieve dramatic improvements in quality, efficiency, and customer satisfaction.
BPR involves a comprehensive analysis of existing business processes, identifying inefficiencies, bottlenecks, and waste, and then developing new and improved processes that align with the organization’s strategic objectives. The objective is to eliminate unnecessary steps, reduce cycle time, and improve overall efficiency, while maximizing the value delivered to customers.
BPR requires a fundamental shift in the way an organization thinks about its business processes, emphasizing a customer-centric approach to process design and management. It involves a collaborative and cross-functional approach, involving stakeholders from across the organization to ensure that process improvements are aligned with the organization’s strategic objectives.
The benefits of BPR can include reduced costs, increased productivity, improved quality, faster time-to-market, and greater customer satisfaction. However, implementing BPR can also be a complex and challenging process, requiring significant investment in resources, time, and expertise.
Overall, BPR is a powerful tool for organizations seeking to transform their business processes to meet changing market demands and improve performance. It involves a commitment to continuous improvement and a willingness to challenge existing assumptions and ways of doing things, with the goal of achieving significant and sustainable improvements in business performance.
Business process re-engineering is not just a change, but actually it is a dramatic change and dramatic improvements. This is only achieved through overhaul the organization structures, job descriptions, performance management, training and the most importantly, the use of IT i.e. Information Technology.
BPR projects have failed sometimes to meet high expectations. Many unsuccessful BPR attempts are due to the confusion surrounding BPR and how it should be performed. It becomes the process of trial and error. Phases of BPR : According to Peter F. Drucker, ” Re-engineering is new, and it has to be done.” There are 7 different phases for BPR. All the projects for BPR begin with the most critical requirement i.e. communication throughout the organization.
1. Begin organizational change.
2. Build the re-engineering organization.
3. Identify BPR opportunities.
4. Understand the existing process.
5. Reengineer the process
6. Blueprint the new business system.
7. Perform the transformation.
Objectives of BPR : Following are the objectives of the BPR :
1. To dramatically reduce cost.
2. To reduce time requirements.
3. To improve customer services dramatically.
4. To reinvent the basic rules of the business e.g. The airline industry.
5. Customer satisfaction.
6. Organizational learning.
Challenges faced by BPR process : All the BPR processes are not as successful as described. The companies that have start the use of BPR projects face many of the following challenges :
1. Resistance
2. Tradition
3. Time requirements
4. Cost
5. Job losses
Advantages of BPR : Following are the advantages of BPR :
1. BPR offers tight integration among different modules.
2. It offers same views for the business i.e. same database, consistent reporting and analysis.
3. It offers process orientation facility i.e. streamline processes.
4. It offers rich functionality like templates and reference models.
5. It is flexible.
6. It is scalable.
7. It is expandable.
Disadvantages of BPR : Following are the Disadvantages of BPR :
1. It depends on various factors like size and availability of resources. So, it will not fit for every business.
2. It is not capable of providing an immediate resolution.
3. While Business Process Re-engineering (BPR) can have many potential benefits, there are also several disadvantages that organizations should consider before embarking on a BPR initiative. Some of the key disadvantages of BPR include:
4. High costs: Implementing BPR can be a costly and time-consuming process, requiring significant investment in resources, including technology, training, and consulting fees. This can be a significant barrier for small or cash-strapped organizations.
5. Resistance to change: Implementing BPR can be a difficult and complex process that requires significant changes to an organization’s culture, processes, and people. Employees may resist the changes, especially if they feel their job security is at risk, leading to decreased morale and increased turnover.
6. Risk of failure: BPR is a high-risk strategy that can fail if not implemented properly. The failure to gain employee support, lack of a clear strategy, or poor planning can all lead to a BPR initiative’s failure.
7. Disruption to operations: Implementing BPR can disrupt the day-to-day operations of the organization, leading to decreased productivity, customer dissatisfaction, and revenue loss.
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