Enterprise Resource Planning, Evolution of ERP, Benefits of ERP, issues in erp implementation

1. MCA-II Sem-IV
Enterprise
Resource
Management
ERP Demystified (Second Ed.)ERP Demystified (Second Ed.)
- Alexis Leon- Alexis Leon

2. Enterprise
• Enterprise Is a group of people with a common goal to earn
profit by providing goods or services to society by
effectively utilizing available resources.
• Organization & Enterprise difference according to
Traditional approach.
• In Enterprise - Centrally stored data is shared. (No data
duplication, Data Standardization, Data tracking)
• Any enterprise may have sub-units like- Production
Planning, Manufacturing/ Production, Purchase, Sales &
distribution, HR, Finance, R&D, Marketing, Material
Management and so on.
• ERP systems helps in making the task easier by integrating
Information system barriers, automating business processes
and functions.

3. Resources
• Are business components linked
together according to plan to achieve
business objectives
• Any business Organization may have
resources like- Man, Money, Material,
Machines, Time (labor hours)

4. Planning/ Management
• Is a systematic way to achieve
objectives or goals with effectively &
efficiently utilizing the resources.
• Planning processes are done at
different levels of management

5. Enterprise Resource Planning
• ERP Means the techniques and concepts for
integrated management of business by effective
use of management resources to improve the
efficiency of enterprise management. – Alexis Leon
• ERP is an integrated information system built on a
centralized database & having a common
computing platform that helps in effective usage of
enterprise’s resources & facilitates the flow of
information between all business functions of the
enterprise and with external stakeholders.
- V. K. Garg

6. Enterprise Resource Planning
• Its goals include high-levels of customer
service & satisfaction, growth in productivity,
cost reduction and inventory turnover with
effective Supply Chain Management & e-
commerce using ERP software's/packages

9. Common ERP Myths (Pg.13-17)
1. ERP Means More Work and Procedures
(Require new skills & Procedures to be learned, Proper training &
awareness about benefits of ERP to employee needed)
2. ERP will Make Many Employees Redundant and Jobless
(Due to automated system, new job description by re-location &
re-training employee)
3. ERP is the Sole Responsibilities of the Management
(Mgt is only responsible for development of ERP policies, usage
guidelines, allocation of budget, package selection, appointment of
competent professionals. Proper communication with employee is
necessary)
4. ERP is Just for the Managers/Decision-makers
(ERP provides high quality, timely & relevant information on
fingertip of Managers for decision making, likewise proper
education & training on usage of various features of ERP S/w)

10. Common ERP Myths (Pg.13-17)
5. ERP is Just for Manufacturing Organizations
(due to historical development of ERP, ERP covers all segments of industry)
6. ERP is Just for the ERP implementation Team
(consists of outside consultants, vender representative & selected
group of employee. But once implementation & user training is
over, then solely responsibility of employees only)
7. ERP Slows Down the Organization
8. ERP is Just to Impress customers
(Good ERP provides better & high quality products & services at very high speed,
that impress new customers & also improves customer relationship)
9. ERP Package will take care of everything
(ERP system needs people to operate, use and maintain. )

11. Common ERP Myths (Pg.13-17)
10. One ERP Package will Suit Everybody
(tools differ in features, capabilities, size, functionality,
price, technical support, customizability, scalability etc)
11. ERP is Very Expensive
(Cost X Benefit)
12. Organization can succeed without ERP
(Small size organizations no more effect but large scale
industries affects a lot)

12. Evolution of ERP
• Timeline: 1960s
• System: Inventory Management & Control (Bill of
Material BOM Processing)
• Description: Is the combination of IT and business
process of maintaining the appropriate level of
stock in warehouse. The activities of inventory
management includes identifying inventory
requirements, setting targets, providing refill
techniques and options, monitoring item usages,
reconciling the inventory balances, and reporting
inventory status.

13. Evolution of ERP Cont…
• Timeline: 1970s
• System: Material Requirement Planning (MRP)
• Description: Used for scheduling production processes,
MRP generates schedules for the operations and raw
material purchase based on the production requirements
of finished goods, the structure of the production system,
the current inventories levels and the lot sizing procedure
for each operation. (Useful for Manufacturing & Production Planning
Peoples to calculate material required. Scope limited to production team)
• MRP focuses on following questions
1. What products are we going to make?
2. What are the material needed to make the products?
3. What are the material that we have in stock?
4. What are the items that need to be purchased?

14. Evolution of ERP Cont…
• Timeline: 1980s
• System: Manufacturing Requirement Planning (MRP II)
• Description: Utilizes software applications for
coordinating manufacturing processes - from
Product planning, Parts purchasing, Inventory
control to Product distribution. Also useful for
financial planning reports like shipping budget,
purchase commitment report, business plan etc.

15. Master Product Schedules
Master Requirement Plan
Purchasing Production Schedules
Performance Measures
Resource OK
Resource OK
Business Plan
Sales and Operating Plan
Marketing Plan Production Plan
Yes
Yes
No
No
Feedback
Feedback
MRP-II has five major levels
1.Business Plan- talks about long term
goals and objectives & Jointly agreed by
all teams in the organization
2.Sales and operation plan-
developed by Sales & marketing teams
together, describes quantities of
different product that need to be
produced, resources needed, and
capacity availability.
3.Master Production Scheduling-
contains plan of finished products to be
made along with the promise date of
delivering product to customer
4.Material requirement Planning- this
plan tells about how much quantity is
needed and when it is needed.
5.Purchase and Production Activity
Control- this is implementation phase of
production planning and control system

16. Evolution of ERP Cont…
• Timeline: 1990s
• System: Enterprise Resource Planning (ERP) (ERP often
referred as back-office S/w)
• Description: Uses multi-module application software for
improving the performance of the business processes. ERP
systems often integrate business activities across-
functional departments from product planning, part
purchasing, inventory control, product distribution,
fulfillment, to order tracking. ERP software systems may
include application modules for supporting marketing,
finance, accounting and human resources. ERP systems
are capable of integration of different technologies like
BPR, Data warehousing, CRM, SCM etc.

17. Reasons for the growth of ERP Market
Industry Analysts are forecasting Growth Rate 30% for Next 5
yrs
• Enable improved business performance
– Cycle time reduction (Placing order and delivery of product)
– Increased business agility/quickness
– Inventory reduction
– Order fulfillment improvement
• Support business growth requirement
– New product/product lines, new customers.
– Global requirements including multiple languages and
currencies.
• Provide flexible, integrated, real-time decision support
– Improve responsiveness across the organization.

18. Reasons for the growth of ERP Market Cont…
• Eliminate limitation in legacy systems like-
–Century dating issues
–Fragmentation of data & processing
–Inflexibility to change
–Insupportable technologies
• Take advantage of the untapped mid-market
–Increased functionality at a reasonable cost
–Client-server/ open system technology
–Vertical market solution

19. The Advantage of ERP
Direct Advantages
1. Improved efficiency
2. Information integration for better
decision making
3. Faster response time to customers
queries.
4. Business integration due to
automatic data updation.
5. Flexibility in managing multi-
national environment diversity.
6. Better analysis and planning
capabilities due to central database
7. Use of latest technology to cope-up
with advanced IT Technologies.
Indirect Advantages
1. Better corporate image
2. Improved customer
goodwill
3. Customer satisfaction

20. Importance of ERP to a Company
• ERP affects almost all ways of organizations to do business
(Due to automation of many business processes & streamlining day-to-
day operations, also better service to customer)
• ERP forces Competitor to change their business strategies
& processes.
• ERP Forces Business Partners to become More Competitive
for Decision making
• ERP Improves the Profits of the Consulting Firms
(Services like BPR, selecting right ERP package, ERP implementation, end-user
training, post implementation support, etc)
• ERP is the Most Important tool for Business Process
Reengineering
(BPR: Analysis & re-design of workflow, necessary to lower costs and increase quality
of service)

21. Importance of ERP to a Company Cont…
• ERP Enforces “Best Practice Business Processes” in
Organization
(Better service, sustainable benefit over-time, improved business performance)
• ERP fully utilizes the True potential of Client-Server
Computing to Deliver an Enterprise Product
• ERP has Changed the Nature of IS Functions & IT
Professionals
(Traditional IS funn
: Designing, Developing & Implementing S/w., only
has knowledge about firm-specific legacy applications)
• ERP has Changed the Nature of Jobs in All Functional Areas.
(Industry needs awareness about IT technology as well as business activities)
• ERP Implementation is Very Costly
(S/w, H/w, consultancy, internal staff, implementation support etc.)

22. (ROI) Benefits from an ERP Systems
• Quantifiable/ Quantitative/Tangible benefits
– Reduces Inventory & Inventory carrying costs
(The cost of holding goods in stock. it includes capital, warehousing, process,
depreciation, insurance, taxation costs.)
– Reduces Personnel costs (Successful ERP reduces 10% Personnel cost)
– Reduces Material costs (better Vendor negotiation for price, 5% cost redn
)
– Improves Productivity (better utilization resources)
– Improves sales and customer service
(CRM, Accepts feedback from customer)
– Efficient Financial Management
(improved collection procedure, accurate invoice creation, e-banking support)
– On-time delivery (Shipments) improvements
– IT Cost reduces

23. Source: Survey conducted by Deloitte Consultancy

24. Benefits from an ERP Systems
• Qualitative/Intangible/non-financial benefits: Quantified in
terms of cost savings used to show impacts on financial results
– Accounting (Avoids duplicate data entry, speedup invoice processing,
Financial reports easily generated, help for cash planning & Decision support)
– Product & Process design (Proper control over process design)
– Production & Material Management (helps to establish schedules
for production on priority & communicates to everyone)
– Sales (Supports e-commerce facility, customer support & Satisfaction)
– MIS Function
– Customer Satisfaction
– Improved Supplier Performance (Schedules, reminders)
– Use of Latest Technology

25. Source: Survey conducted by Deloitte Consultancy

26. Benefits from an ERP Systems
• Other benefits
– Reduces Implementation Costs (Selecting Proper implementation
strategy: Big bang, incremental approach etc.)
– Lower Production &Business Transaction Costs ( By improving
business functions, better Scheduling, monitoring & control
– Lower-cost of Reporting
– Lower Business Process Change & Enhancement Costs
(Using BPR technology)
– Customer and Partners support & Satisfaction (CRM &
Feedback mechanism helps for better product design & cost reduction)
– Enabling New Business Opportunities (CRM S/w for warranty
offerings & other support facilities)
– Reduction of Lead-time (Time between Placing order & receiving)
– Reduction in Cycle time (Placement of order & delivery of product)
– Improved Resource Utilization

27. Risk Factors of ERP Implementation
ERP fundamentally changechange the way companies do
business and the way people work.
3 basic sides of ERP Issues are-
•People Issues
•Process Issues
•Technology Issues
Source: Survey conducted by Deloitte consultancy

28. Risk to ERP : People Issues
People: Employees, Management, Implementation team,
Consultants and Vendors.
‘ERP means Change’ & Human nature is to resist change
Forcing the system on unwilling people creates risk.
•Main Issues are
– Change Management: ERP Changes Job profile, require proper management
– Internal Staff Adequacy: Skilled employees problem, consultancy charges
increases
– Project Team: members should be initiative, dedicative, team building skill,
enthusiasm & excellent communication skill
– Training: Availability of good trainer
– Employee Re-location & Re-Training: reluctant to change
– Staffing (Includes Turnover): ERP require qualified & trained emp. Preserve
trained employee from Leaving company

29. Risk to ERP : People Issues cont…
• Main Issues are
– Top Management Support & permissions
– Consultants: Right consultant, must familiar with internal
working & organizational culture
– Discipline: from Mgt and employees.
– Resistance to change: ignorance, can be reduced by
proper education & training

30. Risk to ERP : Process Risk
Processes were used to improve, streamline & make the
business processes more effective, productive & efficient.
ERP introduces hundreds of new processes to improve, streamline
and make business processes more efficient, productive and effective.
•Main Issues are:
– Program Management: Accuracy, easiness, availability
– Business Process Reengineering: achieved by the patch-up of
organization structures, management systems, job descriptions,
performance measurement, skill development, training & use of
IT.
– Stage Transition: Who is responsible after ERP go live? (ERP Expert,
process expert, site leader, the project management, steering committee, IT peoples)
– Benefit Realization: No proper involvement of employees in training,

31. Risk to ERP : Technological Risk
ERP systems should keep update of the latest
technological development for better survive.
•Technological issues are:
– Software Functionality: Simple & adequate otherwise
frustrations and errors
– Technological Obsolescence: due to rapid development in technology,
should be ease to enhancement/up-gradation, quality of vender support
– Application Portfolio/selection Management: focus on the
selection of new business application. easy to maintain
– Enhancement/Upgrades: should be in regular contact with ERP
vender for day-to-day update. Risk occurs when vender either
closing shop or stopping support for the system.

32. ERP Implementation Issues
• Project scope & size- Vary scope: vary size: vary persons: vary
cost: vary technological environment
• Lengthy Implementation Time- May take 1-4 yrs, employee
turnover rate
• High initial investment- if implementation fails the company
will suffer from huge loss & can go bankrupt.
• Unreasonable deadlines- Management insist on
unreasonable deadlines, so implementation team takes shortcuts,
may tends to failure of system
• Insufficient funding- if budgets are not allotted without proper
homework & without consulting expert hidden cost increases
• Interface- must follow HCI principles,
Company –Consultant-Vender

33. Implementation Issues
• Organizational politics- consultant, vender & implementation
team members must away from organizations politics
• Scope Creep- to prevent ‘never-ending project’
• Unexpected Gaps- promise of an ERP system & actually
delivered system
• Configuration Difficulties- problems in customization &
adopting different technologies

34. Operation &Maintenance Issues
• System operation & maintenance is en-ending
process, always requires new
modules/features, versions, technologies,
new persons to be trained etc.