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CHAPTER 1. INTRODUCTION TO ERP
1.1 INTRODUCTION : Information technology is revolutionising the way in which we live and work. It is changing all aspects of our life and lifestyle. The digital revolution has given mankind the ability to treat information with proper precision and manipulate it when needed. Therefore, computers and communications are becoming integral part of our lives. For any organisation to succeed, all business units or departments should work towards a common goal. But each department or business function or an organisation will have its own goal and procedures.For example, the production planning department wants to reduce the inventory level, but the production people might want to have more stocks, this may lead to conflicts in the department, for this information is critical. Everybody should know what is happening in the other parts of the organisation. So that each department moves its activities efficiently and that would also help the other department function efficiently. For this to happen Enterprise Resource Planning (ERP) is an extremely powerful tool which provides seamless information system to support the various functional business modules of an enterprise. Most organisations are turning to the available ERP package for solution to their information management problems. ERP package if chosen correctly, implemented judiciously and used efficiently will raise the productivity and profit of companies dramatically. The term ERP is coined in the early 90s. ERP is essentially the successor of both Material Requirement Planning (MRP-I) and Material Resource Planning (MRP-II) software that was an outcome of the need for greater control and efficiency in manufacturing problems. [1]
1.2 WHAT IS ERP? To draw real benefits from a technology as IT (Information Technology), one has to devise a system with a holistic view of the enterprise. Such a system has to work around core activities of the organisation and should facilitate seamless flow of information across department barriers. Such systems can optimally plan and manage all the resources of the organisation and hence they can be called as ERP systems. ERP cover the techniques and concepts employed for the integrated managemaent of business as a whole, from the point view of the effective use of management resources, to improve the efficiency of an enterprise. ERP packages are integrated software packages that support the above ERP concepts. ERP software to model and automate many of the basic processes of company from finance to shop floor, with the goal of integrating information across the company and eliminating complex expensive links between computer system- ERP solution for any organisation is a package solution. By package solution, we mean that the organisation forms a group of consultants- called vendors, the ERP package is selected. If the selection process of all this is correct and the organisation sticks to the same then rapid changes in the Information Technology(IT) will not affect the ERP solution. ERP system, produces the dramatic improvements that they are capable only when used to connect parts of an organisation and integrate its various processes seamlessly. Industry analysts are forecasting growth rates of more than 30% for at least the next five years. The ultimate winner in that race will be the customers who will set better products and better service at affordable prices. [1]
1.3 WHY DO MANY ERP IMPLEMENTATIONS FAIL? ERP packages, if chosen correctly implemented judiciously and used efficiently, will raise the productivity and profits of companies diametrically. But many a company fails in this because of wrong product, incompetent and haphazard implementation and inefficient and ineffective usage. To work successfully, the ERP solutions need a lot of factors to clock. There should be good people who know the business. The vendors should be good and his package should be one of the best suited for the company’s needs. The introduction of ERP system will dramatically change the job description and functions of many employees. Employees who were earlier doing the work of recording information will be transformed into decision makers, for example, in past a clerk’s job was to enter the orders that came to him. With the implementation of good ERP, the order entry clerk becomes an action initiator, which triggers a chain of action via sales, distribution and finance modules, manufacturing modules etc. Many employees find this transformation difficult to accept. If the employees are not given proper training, well in advance, then the system will fail. Another factor is the fear of unemployment. When procedures become automated the people who were doing these jobs become redundant. So it is quite natural to have resistance from the employees. But the same employees can be trained in this new system and can work in more challenging and stimulating environment. Without support from the employees, even the best system will fail. [1]
1.4 WHY ARE ERP PACKAGES BEING USED NOW? Let’s see how do conventional application packages and ERP packages differ? The first answer to this question is that ERP packages cannot only handle individual business functions such as accounts and inventors, but also the entire range of business functions necessary for the company’s operation. The second difference is that ERP packages are targeted at every thing from small business to the largest organisation. The third difference is global adoption represented by ERP packages multilingual and multicurrency capacity. In the present day, when companies irespective of their size & market share are manufacturing and selling in various areas of the world, the globalization of management platform is being hastened, along with global adoption of enterprise information system. [1]
CHAPTER 2. ENTERPRISE – AN OVERVIEW
2.1 WHAT IS AN ENTERPRISE? An enterprise is anything from a sidewalk coffee shop to an organisation as large as LARSEN AND TOUBRO OR RELIANCE. An enterprise is a group of people with a common goal, which has certain resources at its disposal to achieve the goal. The enterprise acts as a single entity. In traditional approach, the organisation is divided into different units based on the functions they perform. So we have the manufacturing or production departments, purchasing dept., the finance dept. and the R&D dept. Each of these departments are compartmentalized and have their own goals and objectives. Each of these departments function in isolation and have their own systems of data collection and analysis. So the information that is created or generated by the various departments, in most cases, are available only to the top management and not the other departments. The result is that instead of taking the organisation inwards the common goal, the various departments end up pulling it in different directions. But in the enterprise way, the entire organisation is considered as a system and all the departments are its sub systems. The information about all the aspects of the organisation is stored carefully and is available to all departments. [1]
2.2 INTEGRATED MANAGEMENT INFORMATION : An information system is an open purposive system that produces information using “ Input process, output “ cycle. The input system consists of 3 elements – people, procedures and data to produce information. MIS produces information products that support many of the day to day decision making needs of the managament. But the problem with these information systems is that they operate at a department level and that they only give information that has been predefined. This method of information gathering has two major disadvantages. One, people in one department do not have any information about what is happening in the other department. And second drawback is that these systems give all the information that they were designed to produce at the time they were built. Suppose a manager wants some information which is not in the reports, then systems are of no help. The three fundamental characteristics of information are accuracy, relevancy and timeliness. The information has to be accurate, it must be relevant for the decision maker and must be available to decision maker when he needs it. So what is needed is a system that treats the organisation as a single entity and cater to the information that is generated is accurate, timely and relevant. [1]
2.3 BUSINESS MODELLING : Business modelling or creating a business model is one of the first activities in any ERP project. Based on the organisation’s goal objective and strategic plans, a business model consisting of the business process is developed. These business processes are controlled by different individuals in the organisation to achieve common goals. Based on the business model, ERP system is developed. In business modelling, we model the business as an integrated system, taking the process managing its facilities and materials as resources. The business model is usually represented in the graphical form using flow charts and flow diagrams. From the business model, the data model of the system is created. [1]
2.4 INTEGRATED DATA MODEL : One of the most critical step in the ERP implementation is the creation of an integrated data model. One of the advantage of having an ERP system is that all the employees from the different depts. get access to the data, the integrated data. For the integrated database to be effective, it should clearly depict the organisations, it should reflect the day to day transaction, audit should be updated continously. So if an order is entered, the sale is done and the goods are despatched, then the database should reflect those changes. The inventory should be reliased and the account receivables should be increased. All these things have to happen simultaneously and automatically. This is the challenge and that the advantage of the integrated database and the integrated data model. [2]
CHAPTER 3 . EVOLUTION OF ERP
3.1 PRE 1960 : Manufacturing system were based on traditional production planning control system. The problems which were faced were that . Different functions worked in isolation . Reactive in nature . Long manufacturing lead time . Inefficient inventory management . Chasing for work order . Duplication of efforts.
3.2 1960 : The evolution of computer integrated system in manufacturing industries began in USA as Materials Requirements Planning (MRP) .[3]
3.2.1 MATERIALS REQUIREMENTS PLANNING (MRP) : It involves determining when to order raw materials and components for assembled products. It can also be used to reschedule orders in response to changing production priority and condition. The team priority planning is now widely used in describing computer based systems for time phased planning of raw materials, work in progress and finished goods. It was based on 1) MPS (Master Production Schedule ) – What are we going to make, how much and when 2) BOM ( Bill Of Materials) - For what 3) IR ( Inventors Record ) – What and how much we have.
The MPS is a detailed schedule for finished goods or end items that provides the major input to the materials requirements planning process. A Associated with each finished product is a BOM which describes the dependent demand relation ships that exist among the various components- raw materials, parts, subassemblies etc. comprising the finished product. The entire set of BOMs for the company’s finished products is called the BOM file. Inventory status data for each product or component such as stock on hand, stock on order etc. are provided by the inventory records, which also contain planning factors like lead time, sales stocks, re order level and so on. The MRP system calculates the release date and due date taking into consideration the lead time required to produce or procure the components and by recognising the order in which they are assembled into the finished product. [2]
3.2.2 PROBLEMS : 1) MRP checks only one resource i.e. material and talks nothing about men, machine and finance . 2) A customer order / sales forecast based on MRP creates move on factors floor due in accuracies and frequent changes in customer order and sales priorities.
3.3 1970 AND 1980s : During 1970s and 1980s, techniques for helping to plan capacity requirements were tied up with MRP. Tools were developed to support the planning of aggregate production levels and the development of anticipated production schedules. Systems to use in erecting the plans were incorporated – shop floor control for ‘in house factory’ and vendor scheduling for the ‘outside factories’. The expanded closed loop MRP to provide the ability to translate the operating plan expressed in manufacturing terms such as units and kilograms – into financial terms – rupees and have the capability to stimulate the effects of
various plans in terms of both units and rupees. The new system, which was called Manufacturing Resource Planning (MRP-II) was a comprehensive approach for the effective planning of all the resources of a manufacturing organisation. [3]
3.3.1 MANUFACTURING RESOURCE PLANNING (MRP II) :
MRP II is an expansion of closed loop MRP for managing entire manufacturing company. MRP-II system provides information that is useful to all functional areas. MRP-II supports sales and marketing by providing a order promising capability. Order promising is a method of tying customers orders to finished goods in the MPS. This allows sales personnel to have accurate information on product availibility and gives the ability to give customers accurate achieved dates. MRP-II provides the purchasing department with more than just purchase requisition it also provides them with information for developing long range business plans. Information in the MRP-II is used to provide accounting with information or material receipts to determine accounts payable. Shop floor information is used to track workers hour for payable purpose. MRP-II systems increase a company’s efficiency by providing a central source of management information.[2]
3.4 1990s : The drawback associated with the MRP system led to development of a new concept – Enterprise Resource Planning (ERP) by considering MPS as a key to integrate customers and suppliers. The integration of enterprise resource with suppliers and customers as a part of the overall supplies chain approach to planning and control system is called ERP.[3]
CHAPTER 4. ERP IMPLEMENTATION CYCLE
INTRODUCTION : Like any other project the ERP implementation project also has to go through different phases. There are no clear separating lines between these phases and in many cases one phase will start before the previous one is completed. The different phases of the ERP implementation are given below: 1) Pre evaluation screening 2) Package evaluation 3) Project planning phase 4) Gap analysis 5) Re engineering 6) Configuration 7) Implementing team training 8) Testing 9) Going live 10) End – user training 11) Post implementation. Although the phases may seem very linear and distinct from each other , in reality throughout an actual implementation, the phases are in fact quite fluid.[1]
4.1 PRE EVALUATION SCREENING : Once the company has decided to go for ERP system, the search for the perfect package starts. But there are hundreds of ERP vendors – of all shapes and sizes. Analyzing all these packages is not a viable solution and also a very time consuming process so its better to limit the number of packages
that are evaluated to less than five. Obviously analyzing less no of packages is better. Hence the company should do a pre evolution screening to limit the number of packages that are to be evaluated by the committee. Sometimes most ERP packages are stronger in certain areas than in others, and each one is madly trying to add functionally in areas where they have been lacking e.g. People soft is strong in HR and less so in manufacturing ; Baan on the other hand, is historically stronger in manufacturing than in finance and so on. While making the analysis it would be a good idea to investigate the origins of the different packages.
4.2 PACKAGE EVALUATION : The evaluation / selection process is one of the most important phases of the ERP implementation because the package that you select will decide the success or failure of the project. Since ERP system is huge investment, once a package is purchased, it is not an easy task to switch to any another one. The most important factor that should be kept in mind when analyzing the different packages is that none of them are perfect. The objective of selection process is not to identify a package that is flexible enough to meet company’s needs.
4.3 PROJECT PLANNING PHASE : This is the phase that designs the implementation process. The project plan is developed. Roles are identified and responsibilities are assigned. The various organizational resources, used for implementation are decided and the people who are supposed to be the head of the implementation are identified. The implementation team members are selected and task allocation is done.
This phase will decide when to begin the project, how to do it and when project is supposed to be completed. This is the phase at which it is decided that how to monitor the process ; what control measures should be installed and what corrective action should be taken when things get out of control.
4.4 GAP ANALYSIS : This is the most critical phase for the success of ERP implementation. This is the process through what companies create a complete model of where they are now, and in which direction they want to head in future. It has been estimated that even the best ERP package meets only 80% of the company’s functional requirements. The remaining 20% of these requirements present a problematic issue for the company’s BPR.
4.5 REENGINEERING : It is in this phase that the human factors are taken into account. Use of ERP lead to downsizing efforts and reducing significant number of employees. While every implementation is going to involve some change in job responsibilities, as process become more automated the efficient it is better to treat ERP as an investment. ERP should endanger business change, but should not endanger the jobs of thousands of employees. The BPR approach to an ERP implementation implies that there are really two separate; but closely linked implementation involved in an ERP site, a technical implementation and a business process implementation. The BPR approach emphasizes the human element of necessary change within organizations.
4.6 CONFIGURATION : This is the main functional area of the ERP implementation. There is an unwritten rule of ERP implementation is synchronizing existing company practices with the ERP package rather than changing the source code and customizing to it to suit the company. Companies cant shut down their operations during process mapping. Hence the prototype – a simulation of actual business processes of the company will be used. When the ERP consultants configure and test the prototype, they are able to solve any logistical problems before the actual - go live implementation. Configuring a company’s system reveals not only the strengths of company’s processes but also weakness. During ERP implementation these configuring the system are able to explain what wont fit into package and where the gaps in functionally occur.
4.7 IMPLEMENTATION TEAM TRAINING : Around the same time that the configuration is taking place the implementation team is being trained not to so much how to use the system, but how to implement it. This is the phase where the company trains its employees to implement and later, run the system. The ERP vendors and the consultants will leave after the implementation is over. But for the company to be self sufficient in running the ERP system, company has to select those employees who have the right attitude and good functional knowledge.
4.8 TESTING : This is the phase where we try to break system. The system is configured and now we must come up with extreme case scenarios system overheads, multiple users logging on at the same time with the same query, users entering invalid data, hackers trying to access restricted areas and so on. The test case must be designed specifically to find the weak links in these systems, and these bugs should be fixed before going live.
4.9 GOING LIVE : Now, on the technical side, the work is almost complete, data conversion is done, databases are up and running, and on the functional side, the prototype is fully configured and tested and ready to go operational. The system officially becomes operational, even though the implementation team must have been testing it and running it successfully for some time. But once the system is ‘live’ , the old system is removed.
4.10 END USER TRAINING : This is the phase where the actual users of the system will be given training on how to use the system. This phase may start much before the system goes live. The employees who are going to use the new system are identified, their current skills are noted and based on the current skills level, they are divided into groups. Then each group is given training on the new system. This training is very important as the success of the ERP system is in the hands of the end users.
4.11 POST IMPLEMENTATION (MAINTAINANCE MODES) : One important factor that should be kept in mind is that the post implementation phase is very critical. To get the full benefits of the ERP system, it is very important that the system should get enterprise – wide acceptance. The post – ERP organization will need a different set of roles and skills than those will less integrated kinds of systems. At a minimum, everyone who uses these systems needs to be trained on how they work, how they relate to the business process. The training will never end; it is an ongoing process; new people will always be coming in, and new functionality will always be entered the organisation.
CHAPTER 5. ERP MODULES
5.1 INTRODUCTION : All ERP packages contain many modules. The number and features of the modules vary with the ERP package. Most common modules available in almost all packages. ? Finance ? Manufacturing & Production planning ? Sales & Distribution ? Plant Maintenance ? Quality Management ? Material Management, etc. This is by no means a comprehensive list. Some packages will have more modules and / or features. For detailed information, you will have to consult the product literature of the specific ERP system. [1]
5.2 FINANCE : The entire concept of information technology is based on the premise that providing the right information, to the right people, at the right time can make a critical difference to the organisation. Much of this key information could be taken from the financial data. Your financial solution must provide the management with information that can be leveraged for strategic decisions, in order to achieve competitive advantage. In today’s business enterprise, you need to know that your financial decisions are based on today’s data, not numbers from records closed a month ago, or even a week ago. And you need to know that this some today’s data represents every segment of your organisation’s activities, whether your enterprise stretches across a room or around the globe.
This is essential because the most efficient way to get your enterprise to where you want it tomorrow is to know exactly where it is today. Whatever be the financial goals of your organization, the financial application components of the ERP solutions work hand in hand to improve the bottom line. Within the ERP system, all areas work in concert, creating a new level of efficiency in handling your financial data. The finance modules of most ERP systems provide financial functionality and analysis support to thousands of business in many countries across the globe. Hundreds of business processes are covered in these systems. The finance modules of most ERP systems will have the following sub-systems: ? Financial accounting ( General Ledger, Accounts Receivable / Payable, Special Ledgers, Fixed Asset Accounting, Legal Consolidation ) ? Investment Management ( Investment Planning / Budgeting / Controlling, Depreciation Forecast / Simulation / Calculation ) ? Controlling ( Overhead Cost Controlling, Activity – Based Costing, Product Cost Accounting, Profitability Analysis) ? Treasury ( Cash Management, Treasury Management, Market Risk Management, Funds Management ) ? Enterprise Controlling ( Executive Information System, Business Planning and Budgeting, Profit Center Accounting )
5.3 SALES AND DISTRIBUTION : In today’s global business environment, the one thing companies can count on is rapid change. New competition pushes businessmen to achieve higher levels of service while evolving technology compresses product life cycles and forces companies to adopt new technologies. Here increased efficiency in sales and distribution is a key sector to ensure that companies retain a competitive edge and improve both profit margins and customer service.
In helping business to beat them on delivery the sales and distribution modules of many ERP vendors offer a comprehensive set of best of breed components for both order logistics management. Many of these systems are tightly integrated with the Distribution Requirements Planning ( DRP ) engine of the “for just in time” deliveries. The sales and distribution module very actively interacts with the Material Management and Financial Accounting modules for delivery and billing. Typically, a Sales and Distribution module will contain the following sub – systems : ? Master Data Management ? Order management ? Warehouse Management ? Shipping ? Billing ? Pricing ? Sales support ? Transportation ? Foreign Trade
5.4 MANUFACTURING : Competition in the next millenium places an increased emphasis upon time as expressed by speed, quality, service and global focus. Agility is the watchword. Manufacturers are measured by their ability to react quickly to sudden, often unpredictable change in customer demand for their products and services. To compete successfully beyond the year 2000 requires manufacturing applications that are time and activity based and above all else, focussed on the customer. Increasingly, these manufacturing applications are a center point within the spectrum of a supply chain, running from a customer to a supplier and encompassing the entire enterprise.
A good manufacturing system should provide for multimode manufacturing applications that encompasses full integration of resource management. These manufacturing application should allow an easier exchange of information throughout the entire global enterprise. Manufacturers response to customer demand in two fundamental ways. Manufacturers either make products to stock prior to receipt of a customer order, or they make and ship the products upon receipt of a customer order. The manufacturing module provides the freedom to change manufacturing and planning methods, as and when they need a change. The manufacturing modules of most ERP vendors, do not limit businesses to a single manufacturing method such as make to stock or make to order. Instead, many manufacturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method – or combination of methods – for each product, at each stage throughout its life cycle. The manufacturing module should enable an enterprise to marry technology with business processes to create an integrated solution. It must provide the information based upon which the entire operation should be run. It should contain the necessary business rules to manage the entire supply chain process. Whether a single site implementation, several sites within one country, or hundreds covering the globe, the manufacturing system should provide the foundation for creating concurrent business processes across the supply chain and achieving Return on Assets (RAO) improvement. Some of the major subsystems of the Manufacturing module are: ? Material and capacity planning ? Shop floor control ? Quality management ? JIT / Repetitive manufacturing ? Cost management ? Engineering data management
? Engineering change control ? Configuration management ? Serialization / Lot control ? Tooling.
5.5 HUMAN RESOURCES : The HR modules of most ERP systems have a set of rich features and will integrate seamlessly with the other modules and are thus, invaluable aids in improving productivity. They offer company wide solutions for HR departments to access specific employee data. A human resource management system has to be adaptable to company specific requiremnets, and should constantly grow with increasing HR requirements. It should be flexible enough to allow you to optimise your business processes by tailoring the ERP solution to suit your organisation’s needs. Tody, many businesses cross boundaries. The system should support the organisation’s international needs with country specific versions of the HR components.
Listed below are of the some common subsystems. ? Personnel management ( HR master data, Personnel administration, Information systems, Recruitment, Travel management, Benefits administration, Salary administration ) ? Organizational management ( Organisational structure, Staffing schedules, Job descriptions , Planning scenarios, Personnel Cost Planning ) ? Payroll accounting ( Gross / net accounting , History function, Dialog capability, Multi currency capability, International solutions ) ? Time management ( Shift planning, Work schedules, Time recording, Absence determination )
? Personnel development ( Career and succession planning, Profile Comparisons, Qualification assessments, Additional training determination, Training and event management ).
5.6 PLANT MAINTENANCE : Organisation simply cannot achieve excellence with unreliable equipment. The attitude towards maintenance management has changed as a result of quick response manufacturing, Just in time reduction of work in process inventory and the elimination of wasteful manufacturing practices. Machine breakdown and idle time for repair was once an accepted practice. Times have changed. Today when a machine breks down, it can shut down the production lime and the customer’s entire plant. The Preventive maintenance module provides an integrated solution for supporting the operational needs of an enterprise wide system. The Plant maintenance module includes an entire family of products covering all aspects of plant / equipment maintenance and becomes integral to the achievement of process improvement. The major subsystems of a Plant maintenance module are: ? Preventive maintenance control ? Equipment tracking ? Component tracking ? Plant maintenanace calibration tracking ? Plant maintenance warranty claims tracking
5.7 QUALITY MANAGEMENT : The ISO 9000 series of standards defines the functions of quality management andn the elements of a quality management system. The functions in the Quality management module support the essential elements of such a system. The ISO standards require that quality management systems penetrate all processes within an organisation. In the area of production, quality assurance is no longer viewed in terms of inspection and the elimination of defects alone. Instead, the production process itself become the focus of attention.
Quality management module – Functions The quality management module fulfills the following functions : ? Quality Planning ( Management module fulfills the following functions : inspection planning, Material specifications, Inspection planning ) ? Quality Inspection ( Trigger inspections, Inspection processing with inspection plan selection and sample calculation, Print shop papers for sampling and inspection, Record results and defects, Make the usage decision and trigger follow up actions ) ? Quality Control ( Dynamic sample determination on the basis of the quality level history, Application of statistical process control techniques using quality control charts, Quality scores for inspection lots, Quality notifications for processing internal or external problems and initiating corrective action to correct the problems, Inspection lot processing and problem processing, Quality management information system for inspections and inspection results and quality notifications ) Computer Integrated Quality Management (CIQ) – The integration of Quality management in the ERP systems provides considerable advantages because only an integrated system can support all the elements of a quality management system, according to ISO 9000. The Quality management module supports the exchange of data with other applications in order to prevent related data from being recorded and stored redundantly. For example, the information provided by a goods receipt posting relating to the inspection is triggered.
5.8 MATERIALS MANAGEMENT : The Materials management module optimises all purchasing processes with workflow – driven processing functions, enables automated supplier evaluation, lowers procurements and warehousing costs with accurate inventory and warehouse management and integrates invoice verification. The main modules of the Materials management module are: ? Pre-purchasing activities ? Purchasing ? Vendor evaluation ? Invoice verification and material inspection.
CHAPTER 6. ERP MARKET
6.1 INTRODUCTION : The ERP market is a very competitive and fast growing market. According to the AMR Research Inc., the leading industry and market analysis firm specializing in enterprise applications and enabling technologies. The Enterprise Resource Planning ( EPR) software market grow at a compound annual growth rate of 37% over the next five years. According to the firm Enterprise Resource Planning Software Report, 1997 – 2002, total company revenue will top $ 52 billion by the year 2002. The vendors in the ERP market are segmenting in two tires and are focussing on expanded product functionality, new target markets and higher penetration rates. The top tire consists of five vendors – 1) SAP AG 2) BAAN 3) PEOPLE SOFT 4) ORACLE APPLICATIONS 5) J. D. EDWARDS. These companies – the big 5 – account for 64% of the ERP market revenue and have grown over the past year at the furious pace of 61%. In addition, Baan , People Soft, Oracle Applications and J.D. Edwards are each expected to approach or exceed $1 billion in total revenue in 1998, while SAP will approach $5 million. The top 5 vendors, on the basis of the total projected company revenue for 1998 as shown in the figure given below,[1] & [4]
SAP AG
Oracle Application
People Soft
BaaN
J.D. Edwards
Others
0 1 2 3 4 5
IN US $ MILLION
The Indian scenario is slightly different, with the Indian ERP package Ramco’s Marshal accounting for 9% of the total market share. According to the Dataquest survive (Dataquest, April 15, 1999), in India also, SAP is the market leader with 20% market share. According to the survive ERP does not appear to be new to the Indian market. This is indicated by the proliferation of the solutions, which have been implemented. While SAP R / 3 AND ‘QAD’s MFG / PRO continue to dominate the Indian market scene, there is also an undeniable presence of lesser known breeds like J.D. Edwardds and SSA’s BPCS. Other familiar stalwarts like Oracle Financials, Ramco Marshal and Baan also dominta the second and third rungs of the domestic ERP market. [4]
INDIAN ERP MARKET SHARE [4]
Amongst the organisation planning to implement ERP in the future, SAP still remains the number one preferred solution. This is followed by Oracle Financials, MFG / PRO Baan. Homegrown solutions like Marshal and Makess have also been indicated as preferred options.
6.2 SECTION OF ERP PACKAGE : The following points should be considered while selecting an ERP product: ? Is the ERP product covering all the aspects of the business? Due to current bloom in the ERP business many vendors have started calling their solutions as “ERP Products”. They should investigate whether the product is covering all aspects of the business. ? Is it truly integrated? The real benefits of ERP is in integration. We do have excellent information in “island”. They may be serving the needs of the individual business functions but are not integrated. One should always depict and simulate the actual business process and test the products for the integration. ? Does it address current trends in IT? The IT scenario is changing very fast. The user must check if vendor is committed to incorporate the latest trend of IT in the products. ? What is the installed base of the ERP products, and how much in ones type of business ? One should not become the guinea pig and suffer the pains of being the first customer. ? Are the best busdiness practices covered and supported in the ERP ? The world’s leading ERP vendors have implemented the best global practices in their ERP product. It is for this reason that the organisation should not look at ERP as a software solutions but as a process advisor.
6.3 ERP – MAIN DISTRIBUTORS IN INDIA : [5]
COMPANY DISTRIBUTOR(S) PRODUCT
SAPAG, Germany
SISL Mumbai
SAP R / 3
Oracle Software India Ltd. New Delhi
WIPRO Infotech
Oracle Applications
Ramco Systems Chennai SRA systems Ramco Marshal
QAD Inc USA. Mafatlal Consultancy Services, Mumbai
MFG / PRO
BaaN Info Systems India, Mumbai ALIT, Bangalore TATA Infotech CMC Advanced Synergic Systems, Bangalore.
BaaN 1V
CHAPTER 7. BENEFITS OF ERP
7.1 INTRODUCTION : Installing an ERP system has many advantages – both direct and indirect. The direct advantages include improved efficiency, information, integration for better decision-making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. In this chapter we will see some of the benefits of the ERP systems. They are ? Reduction of lead time ? On-time shipment ? Reduction in cycle time ? Better customer satisfaction ? Improved supplier performance ? Increased flexibilty ? Reduction in quality costs ? Improved resource utility ? Improved information accuracy and decision-making capability.
7.2 REDUCTION OF LEAD TIME : The elapsed time between placing an order and receiving it is known as the lead time. It plays a significant role in purchasing and inventory control. Most purchasing departments urge the managers to anticipate material demands well ahead of actual need. All inventory systems have safety machanisms like safety stock re-order level and so on built into them, to avoid the situation where the material is out of stock. The consequences of the non availibilty of an item that is required for production can result in a lot of problems like missing the delivery schedules, losing the customer goodwill due to delayed delivery or even losing the customer to the competition. One can avoid this situation by requesting for the materials well in advance rather than when they are actually needed, (early request), or by keeping a large buffer stock, of by maintaining a very high re-order level. But all this means that larger inventories must be kept, which blocks the money. In this era of just-in-time manufacturing the knowledge of the exact lead times for each and every item is of paramount importance for uninterrupted production. For a company dealing with hundreds and thousands of raw materials and components keeping track of the lead times for each and every individual item manually is practically an impossible task. The ERP systems help in automating this task and thus, make the inventory management more efficient and effective. Also, since the ERP system is integrated and the materials management module is integrated with other modules like sales, marketing, purchasing, manufacturing and production planning, the demand for a particular item can be known as early as an order is received. For example, consider that an order is received for supplying say, 100 cars with air conditioners. As soon as the order details are entered into the system, a lot of actions are triggered. The system will check whether the items are available in the finished goods inventory. Then it will generate a BOM for the order and will check whether all the items are available in the inventory. Since all the records are kept in the system’s database and since everything is up to date, finding out the parts that are to be ordered takse no time ( a task which could have taken days in the case of a manual or non integrated system ) . Once the items that are to be manufactured are identified, and once the production planning system prepares a production plan, the material management module will prepare purchase orders for each item taking into account the lead times and when the items are required for production. If the purchasing process has to go through the ‘invitation of quotations, vendor selection, etc.’ the system also does that. Since most suppliers are also connected to the organisation’s system as soon as a purchase order or requisition is issued, the
suppliers system is updated with that information. So the supplier knows what items are to be supplied and when. Since the activities like preparation of contracts, issuing of purchase orders and payments happen through the system electronically, the time saved is phenomenal. ERP systems, virtue of their integrated nature and by the use of latest technolies [ like Electronic Funds Transfer (EFT), Electronic Data Interchange (EDI) ], reduce the lead times and make it possible for the organisations to have the items at the time they are needed ( just in time inventory systems ).
7.3 ON TIME SHIPMENT : Today, the ERP systems provide the freedom to change manufacturing and planning methods as needs change, without modifying or reconfiguring the workplace or plant layouts. With ERP systems, businesses are not limited to a singles manufacturing method, such as make to stock or make to order. Istead, many manufaturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method or combination of methods for each product at each stage throughout its life cycle. Products that are assembled to order can be planned using the extensive production planning capabilities of these ERP packages. Also, since the different fuctions involved in the timely delivery of the finished goods to the customer - purchasing, materials management, production planning, palnt maintenance, sales and distribution are integrated and the procedures automated, the chances of errors are minimal and the production efficieny will be high. Another step to shorter product development cycles is increased efficiency in design and development activities. The ERP system automatically implements the change in theproduction database. Thus, by integrating the various business functions and automating the procedures and tasks, the ERP systems ensure on time delivery of goods to the customers.
7.4 REDUCTION IN CYCLE TIME : Cycle time is the time between receipt of the order and delivery of the product in a make to order situation the manufacturer starts making the product or designing the product only after receiving the order. On the other end of the manufacturing operations is the make to stock approach, where the products are manufactured and kept in the finished goods inventory before the order is placed. In both cases the cycle time can be reduced by the ERP systems, but the reduction will be more in the case of make to order systems. In the case of make to stock, the items are already manufactured and kept in warehouses or with distributors for the sales. Here, the cycle time is reduced not in the shop floor, but during the order fulfillment. With an ERP system, as soon as the order is entered into the system, the systems checks the availibiltiy of the items. If it is not available eith the nearest manufcturer, then the warehouse that is closest to the customer and which has the item in stock is identified. The warehouse is informed about the order and the shipment details are sent to the distribution module, which will perform the necessary tasks like packaging and picking so that the delivery is effected,. The finance module is also alerted about the order so that they can raise the invoice. All these actions are triggered by the click of the button by the order entry clerk almost all of these activities are done without human intervention. This efficiency of the ERP systems helps in reducing the cycle time. In the case of make to order items, the ERP systems save time by integrating with CAD/ CAM systems. Dramatic time and cost reductions are possible when CAD engineering designs are converted automatically into software program for computerised production machines using CAD/CAM systems. These systems reduce cycle times by 30-50%.
7.5 IMPROVED RESOURCE UTILISATION : The creation of an accurate, achievable production schedule requires the availability of both material an dcapacity. It is useless, and indeed wasteful, to have finacial resources tied up in material, if the capacity is insufficient or improperly planned. The capacity planning features of most ERP systems offer, both rough cut and detailed capacity planning. The system loads each resource production requirements form Master Production Scheduling, Material Requirements Planning, and Shop Floor Control (detailed capacity planning). All planned, firm planned, and relesed production is evaluated and loaded against capacity definitions for each resource, and all capacity requirements are pegged back to the orders comprising the load. The ERP systems also have simulation capabilities that help the capacity and resource planners to simulate the various capacity and resource utilization scenarios and choose the best option. The efficient functioning of the different modules in the ERP systems like manufacturing, materials management, plant maintenance, sales and distribution ensures that the inventory is kept to a minimum level, the machine down time is minimum, the goods are produced only as per the demand and the finished goods are delivered to the customer in the most efficient way. Thus, the ERP systems help the organization in drastically improving the capacity and resource utilization.
7.6 BETTER CUSTOMER SATISFACTION : Customer satisfaction means meeting or exceeding Customers’ requirements for a service or product. Assessment of degree of satisfaction is usually made on at least three measures: ? Whether the product or service includes the features that are most impoprtant to the customer. ? Whether the company can respond to the customers’ demands in timely manner, a criteron that is especially important for customers products and services. ? Whether the product or service is free of defects and performs as expected. ERP systems have proved that they can produce goods at the flexibility of make to order approach without losing the cost and time benefits of made to order operations. This means that the customer will get invidual attention and the features that he / she wants, without spending more money or waiting for long periods. Also, with the introduction of the web enabled ERP systems, the customers can place the order, track the status of the order and make the payment sitting at home. The customer could get technical support by either accessing the company’s technical support knowledge base (help desk) or by calling the technical support. Since all the details of the product and the customer are available to the person at the technical support department, the company will be able to better support the customer. All this is possible because of the latest developments in information technology by the ERP systems, and this will go a long way in improving the customer satisfaction.
7.7 IMPROVED SUPPLIERS PERFORMANCE : The quality of the raw material or components and the capability of the vendor to deliver them on time, are of critical importance for the success of any organisation. So, an organisation needs to choose its suppliers or vendors very carefully and monitor their activities closely, so that problems can be corrected before it can disrupt the functions of the company. The ERP systems provide vendor management and procurement process. They support the organisation in its efforts to effectively negotiate, monitors, and control procurement costs and schedules while assuring superior product quality. Here is a growing trend for organisations to establish partnership agreements with their suppliers. The ERP systems have features that will enable the companies to realize the benefits associated with established partnership agreements. Supplier quotations and contracts can be created to support the procurement of all products and services required by the enterprise. First, after contracts are established, purchase orders and requisitions are tracked as they are realised against a corresponding contract. The ERP system searches for the best fit supplier contract and automatically assigns it to the corresponding purchase order or requisition. Also, since most suppliers have their systems connected to the company’s system, the information regarding an order is transmitted to the supplier’s systems almost instantaneously. This saves a lot of time and gives the supplier more time in fulfilling the order.
7.8 INCREASED FLEXIBILITY : The window of opportunity is often quite small. The manufacturing process must be flexible enough to accommodate new product designs with minimal disruption or time loss. ERP systems not only improve the flexibility of the manufacturing operations, but also the flexibility of the organisation as a whole. A flexible organisation is one that can adapt to the changes in the environment rapidly. With the technological revolution, the rules of the marketplace are changing at a rapid pace. New competitors are emerging each day. New and complex problems have to be tackled everyday. New market segments have to be penetrated not to succeed but to stay in business. New marketing strategies have to be devised and implementated at very short notices. Companies have to constantly find new ways to keep the customer satisfied. For doing all these, the company has to be flexible. The old methods of functioning will no longer work. ERP systems help the departmental barriers and by making the company information available across the departmental barriers and by automating most of the process, the processes and procedures, thus enabling the company to react quickly to the changing market conditions.
7.9 REDUCED QUALITY COSTS : Quality is defined in many different ways – excellence, conformance to specifications, fitness for use, value for the price, and so on. Typically the quality costs are in the range of 20% of the cost of goods sold. Carefully planning quality improvement activities not only improves quality, but lowers quality related costs. Specification Control Systems in ERP packages, offer a state of the art approach for documenting specifications and enable an organisation to standardise and simplify its quality assurance and control functions. The ERP system’s central database eliminates redundant specifications and ensures that a single to standard procedures takes effects immediately throughout the organisation. The ERP systems also provide tools for implementing Total Quality Management programs within an organisation. Thus, by ensuring that the company has an efficient and effective quality assurance and management system, the ERP systems play a vital role in reducing the cost of quality.
7.10 IMPROVED INFORMATION AND ACCURACY DECISION MAKING CAPABILITY : To survive, thrive and beat the competition in today’s brutally competitive world, one has to mange the future. Managing the future means managing the information. In order to manage the information, in order to deliver high quality information to the decision makers at the right. The three fundamental characteristics of information are accuracy, relevancy and timeliness. The information has to be accurate, it must be relevant for the decision – maker and it must be available to the decision makers when he needs it. One of the major drawbacks of the legacy system was that it did not have an integrated approach. All these systems would perform in isolation. So the all information islands, which were functioning in isolation were integrated in single system then impact of that would be dramatic. For example, if the purchase department can see the production planning details, it can make the purcahsing schedule. If the finance department can see the details of the purchase as soon as it is entered in the system, it can plan for the cash flow that will be necessary for the purchases. So what is needed is system that treats the organisation as a single entity and enters to the information needs to the whole organization. If this is possible, and the information that is generated is accurate, timely and relevant, then these systems will go a long way in the helping the organisation to realise its goals. This is the strength of ERP systems integration and automation and that is why implementation of ERP systems help in improving the accuracy of information and thus help in better decision making. [1]
CHAPTER 8. ERP FAILURE
8.1 ADVANCED TECHNOLOGY : ERP is basically a computer based software which interlinks various business processes. It asks for advance technology in terms of both software as well as business processes knowledge. Most of the times, company experts fail to adopt the advance technology. Also the ERP software which is to be implemented is designed to meet requirements of various industries. It is therefore required to customize it to suit organisation requirements. It is very essential that the company experts should be able to analyse needs of their businesses and the areas of the software to be worked upon to meet the needs and to make the implementation effective. Once put into the service, the package needs to be upgraded regularly as per the latest versions coming in the market. Also customisation is required to absorb the changing needs of the business. If the organisation fails to manage the changes, purpose of the ERP implementation is not served. As ERP is computer based system, company needs to build proper infrastructure for successful implementation. It calls for complte computerisation of activities and data, proper networking, etc. Also company needs to work upon end users’ computer education to adopt the systems.
8.2 LACK OF FLEXIBILITY : Any ERP package provides good user friendly interphase to enable the user to work the way he wants. But the logic build up in the system to link the activities is difficult to change and if changed, the purpose and efficiency of the system is affected. Also it is not easy to gauge the implication. The system doesn’t provide facility to change activity or operation. In such cases, business activities are required to be changed to suit the software logic, which is not practically possible.
8.3 COMPLEXITY : Complexity in various areas like new technology, business reengineering and change management.
8.4 MANAGEMENT APPROACH : In the process of ERP implementation, management approach plays an important role. ERP implementation needs organisational change, change in business activities, which management is required to handle effectively. If the management is not ready itself for adopting the changes or is unable to analyse the requirements and consequences of the ERP system, the system may not perform in desired manner.
8.5 END USER’S APPROACH : End user is the key person in ERP implementation as he is the person using the system, having more functional knowledge. End users’ approach has great impact on the success of the ERP implementation. There is a common human tendency of resistance to change. People are so much well settled with running system that they are reluctant to change due to the built up paradigms. Due to this paradigm, they can’t even think out of way and explore new alternatives. If end user is willing to adopt the changes it leads to major failure.
8.6 TRAINING : With ERP implementation, organisation is going towards complete change in organisation structure operating system and computerisation. During the course of implementation, it is always necessary to educate the people on all levels on all fronts including new activities, change in work flow, operating system etc. Also it is essential to inform them about change in organisation structure, responsibilities to get overall idea about changed business scenario. Training to each and every user upto root level thoroughly is a major task and therefore difficult to accomplish successfully. Most of the organisation cascades the training to simplify it and to complete it quickly. Due to this cascading, information is transferred from top to down through various levels. There is a danger of filtering and twisting the information, which may misguide the end user.
8.7 DATA MISMATCH : As ERP is computer based system, all data and transactions are reported very precise and accurate. Therefore the information fed to system is required to be highly accurate. If the same is not followed strictly in execution area, there exists a difference between reported and actual and it gives a false picture. For example – If system shows ‘n’ no of units in stock at the beginning of month and as per average rate of consumption the no. of units are getting consumed per production run and inventory is reduced accordingly. If some items are misplaced or are used during rework or rejected, such data can not be captured in the system unless until fed to it. In such cases, the reporting goes wrong, it misguides the user and all activities based on it like ordering of items etc. goes wrong.
8.8 CONSULTANTS AND EXPERTISE : Sometimes company expert team is not selfsuffient and upgraded to the latest knowledge to implement ERP successfully. In such cases, organisation needs to take consultant’s help for implementation. These consultants as outside person are not able to absorb or get the requirements of
the organisation to construct the logic into ERP software. Many times, it results in loop holes in the system. Also at the time of upgradation, company needs consultant’s help. Thus companies are not self sufficient to tackle the technical, operational problems and ERP can not be implemented successfully.
8.9 UNCERTAIN CIRCUMSTANCES : Today’s business environment is changing drastically also very fast. As per the changing environment, the business and market needs keep on changing frequently. Due to the changing environment, there arises a need to change business goals, activities and management attitude. Most of the companies fail to incorporate these changes in their ERP systems and run effectively. Following is the outcome of the detail study of Price Water House Ltd., Germany, a leading ERP expert and consultant, on ERP failure : ? Perfection of ERP to be a computer system rather than a people’s system made possible by computer. ? Failure to recognise that the major challenge will be for a lot of people to make the transition from the informal or semi-formal to a formal system. ? Failure to gauge the impact of introducing it on other dimensions.(e.g. business processes, structure) of the organisation and manage the transition.[3]
CONCLUSION
Necessity of study of ERP modules & benefits arises due to its dramatic results which it gives after implementation. ERP allows integration of all the departments of enterprise and seamless flow of information through departments of barriers. It uses advanced techniques in information technology, resulting in increased efficiency and productivity of enterprise. ERP market is getting continuously growing trend at this stage. Number of companies have already implemented ERP and number of others are going for that. According to experts, in next five years. ERP market will be one of the most influential market in globe.
CONTENTS Page No. CHAPTER 1 : INTRODUCTION TO ERP 1 1.1 Introduction 1.2 What is ERP? 1.3 Why do many ERP implementations fail? 1.4 Why are ERP packages being used now.
CHAPTER 2 : ENTERPRISE – AN OVERVIEW 4 2.1 What is an enterprise ? 2.2 Integrated management information 2.3 Business modelling 2.4 Integrated data model
CHAPTER 3 : EVOLUTION OF ERP 7 3.1 Pre 1960 3.2 1960s 3.3 1970 & 1980s 3.4 1990s
CHAPTER 4 : ERP IMPLEMENTATION CYCLE 10 4.1 Pre evaluation screening 4.2 Package evaluation 4.3 Project planning phase 4.4 Gap analysis 4.5 Reengineering 4.6 Configuration 4.7 Implementation team training 4.8 Testing 4.9 Going live 4.10 End user training 4.11 Post implementation
CHAPTER 5 : ERP – MODULES 15 5.1 Introduction 5.2 Finance 5.3 Sales & distribution 5.4 Manufacturing 5.5 Human resources 5.6 Plant maintainence 5.7 Quality management 5.8 Materials management
CHAPTER 6 : ERP MARKET 23 6.1 Introduction 6.2 Selection of ERP package 6.3 ERP main distributors in India
CHAPTER 7 : BENEFITS OF ERP 28 7.1 Reduction of lead time 7.2 On the shipment 7.3 Reduction in cycle time 7.4 Improved resource utilization 7.5 Better customer satisfaction 7.6 Improved suppliers performance 7.7 Increased flexibility 7.8 Reduced quality costs 7.9 Improved information & accuracy making capability
CHAPTER 8 : ERP FAILURE 37 8.1 Advanced technology 8.2 Lack of flexibility 8.3 Complexity 8.4 Management approach 8.5 End user’s approach 8.6 Training 8.7 Data mismatch 8.8 Consultants and expertise 8.9 Uncertain circumstances.
REFERENCES
BOOKS: -
(1) ALEXIS LEON, ENTERPRISE RESOURCE PLANNING, TATA MCGRAWHILL, New Delhi,1999. (2) P. RADHAKRISHNAN AND S.SUBRAMANYANM, CAD/CAM/CIM, NEW AGE INTERNATIONAL (P) LTD., New Delhi, 1999.
PAPERS: - (3) SEMINAR ON ERP,PARAG REDKAR, SIEMENS,KALWA
MAGAZINES: -
(4) DATAQUEST MAGAZINE
INTERNET SITES: -
(5) SITES SUCH AS - WWW.ERPSUPERSITES.COM - WWW.ERPQAD.COM - WWW.FINDARTICLES.COM - WWW.GOOGLE.COM
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