ENTERPRISE RESOURCE PLANNING ~ SECOND EDITION ~ amy’ iga Published by Tata McGraw-Hill Publishing Company Limited, ‘7 West Patel Nagar, New Delhi 110 008. Copyright © 2008, Alexis Leon No part of this publication may be reproduced or distributed in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise or stored in a database or retrieval system without the prior written permission of the publishers. The program listings (if any) may be entered, stored and executed in a computer system, but they may not be reproduced for publication. Third reprint 2008 RQLYCRYXRCZZC ‘This edition can be exported from India only by the publishers, Tata McGraw-Hill Publishing Company Limited. ISBN (13): 978-0-07-065680-2 ISBN (10): 0-07-065680-0 Managing Director: Ajay Shukla Head—Professional and Healthcare: Roystan La'Porte Publishing Manager: R, Chandra Sekhar Manager—Sales & Marketing: S. 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Typeset at Te} Composers, W2-391, Madipur, New Delhi 110063, and printed at Rashtriya Printers, 25/487 Dilshad Garden, GT Road, Dethi-110 095, Cover Design: Kapil GuptaContents Preface to she Second Edition vii Preface to the First Edition x Part I__INtgopuCTION 1,_Enterprise—An Overview 3 Introduction 3 Business Functionsand Business Processes Integrated Management Information _5 Role of the Enterprise in Implementing the ERP System _7 Business Modeling 8 Integrated DataModel_ 9 Summary _10 Review Questions _11 ‘Selected Biblic B 2. Introduction to ERP ag Introduction _14 Common ERP Myths 14 A Brief History of ERP_18 ‘The Advantages of ERP_21 Why ERP Packages Now _ 22 Over Expectations inERP 23 Roadmap for Successful ERP Implementation _ 23 ‘The Role of ClO_24 ‘The Future of ERP Packages _ 24 Summary 25 Review Questions _ 25 3._Basic Concepts of ERP 29 Introduction_29 Will ERP Fit the Ways a Company docs Business_29 Why is ERP Important toa Company _30 E a il Conil How does ERP Create Value 35ar Contents Summary 37 Review Questions _ 37 Selected Bibliography 40 4, Risks and BenefitsofERP Justifying ERP Investments 41 ‘Quantifiable Benefits from an ERP System 42 The Intangible Benefits of ERP__42 ‘Other Factors 44 Risksof ERP 44 PeopleIssues 47 Process Risks 48 Technological Risks _ 49 Implementation Issues 49 Operation and Maintenance Issues _51 ‘Managing Risk on ERP Projects_51 Benefitsof ERP $2 . Summary 63 Review Questions _64 Selected Bibliography 69 5._ERP and Related Technologies. Zz Introduction 21 Business Process Reengineering (BPR) 72 ‘Data Warehousing 73 Data Mining 74 ‘On-line Analytical Processing (OLAP) 75 Product Life Cycle Management (PLM) 75 ‘Supply Chain Management (SCM) 76 ‘Customer Relationship Management (CRM) 76 Geographical Information Systems (GIS) 77 Intranets and Extranets 77 Advanced Technology and ERP Security 78 Technological Advancements 79 Middleware 60 ComputerCrimes at Securityand ERP 81 Computer Security 82 Crime and Security 83 Suanmnary 83 Review Questions 84 References 85Contents Part ERP Marketplace AND FUNCTIONAL MODULES 6. ERP Marketplace and Marketplace Dynamics Market Overview 89 Marketplace Dynamics 89 The Changing ERP Market 94 Indian Scenario 94 Surnmuary 96 Review Questions 96 Selected Bibliography 96 7. ERP—Functional Modules Introduction 97 Functional Modules of ERP Software 100 Integration of ERP, Supply Chain and Customer Relationship Applications 104 Summary 104 Review Questions 105 Part 10 ERP Imptemen 8. ERP Implementation Basics Introduction 109 WhyERP 109 Technological, Operational, and Business Reasons for Implementing ERP 112 Implementation Challenges 113 Summary 120 Review Questions 121 References 123 Selected Bibliography 123 9. ERP Implementation Life Cycle Introduction 124 Objectives of ERP Implementation 125 Different Phasesof ERP Implementation 126 Why do Many ERP Implementations Fail 133 Summary 134 Review Questions 135 Selected Bibliography 138 10. ERP Package Selection Introduction 139 Why Many ERP Package Implementations Fail 140 ERP Package Evaluation and Selection 147 89 7 109 124 139Part I Introduction ~ Enterprise—An Overview Introduction to ERP Basie Concepls of ERP “Risks and Benefits of ERP ERP and Related TechnologiesChapter 1 Enterprise—An Overview INTRODUCTION ‘What is an enterprise? The term is often used in gencral business situations to describea corporate entity, anything from a sidewalk espresso cart to.an organization as large as TELCO or Hindustan Lever, An enterprise is a group of people with a common goal, which has certain resources at its disposal to achieve this goal (see Figure 1.1). The enterprise acts as a single entity. This view of a company or ‘organization is drastically different from the traditional approach where the organizations divided into different units based on the functions they perform, So we have a manufacturing or production department, production planning department, purchasing department, sales and distribution department, finance department, R&D department and soon. These departments are compartmentalized and have their own goals and objectives, which from their point of view is in line with the organization's objectives, > Fig. 1.1 The Enterprise ‘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 (that tooas summary reports) and not to the other departments (see Figure 1,2). The result is that instead of taking the organization towards the common goal the various departments tend to pull it in different directions since one department dees not know what the other does. Also, departmental objectives can sometimes be conflicting, e.g. the sales and marketing people—_— Enterprise Resource Planning “> Fig. 1.2 Organization Where There is No or Little Communication between Departments may want more product variety to satisfy the varying needs of the customers while the production: department will want to limit the product variety in order to cut down production costs. So, unless all the departments know what the others are doing and for what purpose, such conflicts will arise and disrupt the normal functioning of the organization. In the enterprise way the entire organization is considered as one system and all the departments are its sub-systems, Information regarding all aspects of the organization is stored centrally and is available to all departments. Production Planning: Finance Marketing ~ LL Central Database Sales 6 Rao Produetion Distribution —> Fig. 1.3. An Enterprise Where All Departments Know What Others are DoingEnterprise—An Overview = This transparency and information access ensures that the departments no longer work in isolation pursuing their own independent goals, Each sub-system knows what others are doing, why they are doing it and what should be done to move the company towards the common goal. The ERP systems help to make this task easier by integrating the information systems, enabling smooth and seamless flow of information across departmental barriers, automating business processes and functions and thus helping the organization to work and move forward as a single entity. BUSINESS FUNCTIONS AND BUSINESS PROCESSES Organizations that make products to sell have the following functional areas of operation—marketing and sales, production and materials management, accounting and finance, human resources, etc. Each functional area comprises a variety of business functions and business activities. Earlier business systems functioned on the basis that what happens in one functional area is not closely related to what happens in others and the information system of one area has no impact on those of the other areas. Managers and organizations have now started to think in terms of business processes rather than business functions. A business process is a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. Thinking in terms of business processes helps managers to look at their organizations from a customer's perspective. For example, the important considerations for a person who wants to buy a car are the information about the product, the available choices, quick and efficient service, fast order-processing and delivery, availability of finance and completion of other formalities such as registration, insurance, etc. with case. He is not concemed with whois speaking to him, the policies of the company with regards to employee selection, where the raw materials are purchased and at what price, and so on, The customer wants a good quality product, delivered to him at a competitive price as fast as possible with minimum hassles. The difference between a business function and.a business process is that a process cuts across more than one business function to get a task done. Assume that a car is damaged during delivery. It isa business function of the customer service department to accept the damaged item and to replace or repair it depending upon the severity of the damage. The actual repair or replacement of the car is a business process that involves several functional areas and functions within those areas. Thus, the customer is looking across the company’s functional areas in the process of buying and obtaining a product. Business managers are now trying to view their business operations from the perspective of a satisfied customer. In order to provide customer satisfaction, a company must make sure that its functional areas of operation are integrated. For example, the people in sales and marketing should have up-to-date details of the latest products, their prices, their features, etc, so that they can provide this information to the customers. Similarly, people in the manufacturing plants should know which models are being ordered in large quantities so that they can buy the necessary materials and manufacture those particular items for delivery to customers. Sharing data effectively and efficiently between and within functional areas leads to more efficient business processes. Information systems can be designed so that accurate and timely data are shared between functional areas. These systems are called Integrated information systems. INTEGRATED MANAGEMENT INFORMATION An information system is an open, purposive system that produces information using the ‘input process-output’ cycle. The minimal information system consists of three elements—people, procedures and data, People follow procedures to manipulate data to produce information. In today’s computerer Enterprise Resource Planning world, the definition of information systems has undergone a slight change, Today, an information systemis an organized combination of people, hardware, software, communications networks and data resources that collects, collates, transforms and disseminates information in an organization. ‘Marlagement information systems also called information reporting systems, were the original type of mahagement support systems and are still a major category of information systems. MIS produce inforthation produets that support many of the day-to-day decision-making needs of the management. Reports, charts, graphs, displays and responses produced by such systems provide information that managers have specified in advance. Such pre-defined information satisfies the needs of managers who are faced with a structured type of decision-making at the operational levels of the organization. However, the problem with these information systems is that they operate at a departmental level and only provide information that has been pre-defined. So, each department will have its own database and information systems which produce different reports of varying detail that were specified when the systems were built. This method of information gathering has two major disadvantages. Firstly, the people in one department do not have any information about what is happening in the other departments. While the summary reports may be circulated to other departments at top management levels, they often fail in capturing the real picture, The second drawback is that these systems only provide the information that they are designed to produce at the time they were built. If amanager wants some information that is not in the reports, then these systems are of no help. ‘These systems as mentioned, lack the integrated approach, There will be an accounting system for the finance department, a production planning system for the manufacturing department, an inventory management system for the stores department, and so on. All these systems will perform in isolation. Hence, if person wanted some information which has to-be derived from any of these two systems, he would have to get the necessary reports from both systems and then correlate and combine the data. Since the systems work in isolation, collecting and analyzing the data needed for the functioning of their department, getting information about some aspect that is dependent on more than one department isa difficult task. However, no business executive or decision-maker can take good decisions With isolated data that he can obtain from the various reports produced by individual departments. Even if he collates the data and produces the information that he requires, he must have lost valuable time that would have been better spent in decision-making, In reality, an organization cannot functionas islands of different departments, Production planning datais required for the purchasing department; purchase details are required by the finance department, and so on. Thus, if all the information islands functioning in isolation, were integrated into a single system, the impact would be dramatic, For example, if the purchase department can see the production planning details, it can make the purchasing schedule. If the finance department can see the purchase details as soon as itis entered in the system, they can plan for the cash flow that will be necessary for the purchases. We have seen that in today’s competitive business environment, the key resource of every organization is information. If the organization does not have an efficient and effective mechanism that enables it to give the decision-makers the right information at the right time, then the chances of that organization succeeding are very remote. ‘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-maker when he needs it. Any organization that has the mechanism to collect, collate, analyze and present high-quality information to its employees, thus enabling them to make better decisions willEnterprite—An Overview — always be one-step ahead of the competition. Today; the time available for an organization to react to changing market trends is very short. In order to survive, the organization must always be on its tocs, gathering and analyzing data—both intemal and external. Any mechanism that will automate this information gathering and analysis process will enhance the chances of the organization te beat the competition. $0, what is needed is a system that treats the organization as a single entity and caters to the information needs of the whole organization, If this is possible and if the information that is generated is accurate, timely and relevant, then these systems will go a long way in helping the organization to realizeits goals. ROLE OF THE ENTERPRISE IN IMPLEMENTING THE ERP SYSTEM The company’s decision-makers have to doa detailed, consistent and technically correct job of selecting a software package. They have toensure that all the key personnel are involved in one way or another and committed to the project's implementation. The enterprise has to identify a consulting firm that possess all the attributes necessary to conduct the implementation project successfully—qualified professionals, proven methodology and excellent references. 1s anything still lacking for the project to work, foritto-be a success? We have seen that an enterprise is the group of people with a common goal, which has certain resources at its disposal to achieve this goal. The group has some key functions to perform in order to achieve the goal. We have seen that an ERP implementation project consists of many people and groups, each playing different roles. There are a group of people—the company employees, the package vendors, the hardware vendors, the communications experts, the implementation consultants, and so on—all with a common goal namely, the successful implementation of the project. They have a lot of resources at their disposal to enable them to achieve this goal. This makes the ERP implementation project an enterprise in its own right. Thave said that it is the duty of the organization to select the package and the people. Since all the ingredients are present and have been carefully chosen, the results should be quite adequate. But as with any recipe, we must measure the quantity of cach ingredient so that the mixture will create something that is more than a mere sum of the parts. An ERP implementation project does not depend solely on the software vendor, the consultants of the dedication of the company’s personnel. Success for a project of this magnitude and scope depends largely on each party playing its role well, because the roles are singular in nature; there can be no substitution without there being a decline in the quality of the final ‘outcome. It isin this task—the integration of the various components—that the enterprise has to play a vital role, ie. the role of the facilitator. and the success of the ERP implementation project depends on how well this is done. Apart from playing the role of the integrator and facilitator the organization has to play several other roles in the implementation. The company—represented in the person on certain professionals—must act like the true owner of the project, the party most interested in the success of the work, the entity that will do anything and everything to comply with what was originally set forth in the schedule. 1t may sound ridiculous, but experience has shown that many a times, the company has lost sight of the final goal and has thus allowed the projects to fail. So itis a good idea to get the help of consultants to clarify therole of the company representatives, the tasks they have to do, the activities they have to perform and soon. The consultants have done the implementation before and have seen both success and failures. They know the warning signs and when to take corrective action. So, if they can developa job description= Enterprise Resource Planning orjob profile and list out the important tasks and activities that the company has to perform, it will be of tremendous help for the company personnel. The most important and ctitical activity the company management has to perform is to designate the right people to lead the project. These people should be high up in the corporate ladder and should be willing to dedicate themselves to learning how te operate the package correctly in order to provide for the needs of the business. These individuals must acquire a reasonable degree of knowledge about the ERP package. They should also be involved with all aspects of the implementation and be able tomanage the system after the consultants leave. The task of the employees can be made casicr if the consultants document everything in great detail (including why a particular parameter has a particular value and why some aption is disabled and so on, thus creating a knowledge base). The vendor's documentation will also help in understanding the system and it’s working, but its important that the employees know where tolook and how to use the information. It is thus the responsibility of the organization tolearn and to assimilate information about the software package in order to achieve a reasonable level of independence. Therefore, the success of the implementation depends partially on which employees are allocated to the project and the extent to which they can devote their time to the project, assimilate knowledge and successfully transfer this to their colleagues and subordinates. This means that the company personnel involved in the implementation project should attain a level of proficiency in managing the ERP package and request additional support only for problems that justify the cost of the consulting fees that will be charged to resolve them. Inaddition to understanding the package, the enterprise should assume additional responsibilities. For example, it must guarantee that all users who are supposed to participate in any way, or to participate in specific tasks or phases be made available for a part of their time at the necessary times established by. the project schedule. This will involve reallocating their responsibilities (although temporarily). It will also mean putting on hold for the time being, everything that is not absolute priority. Finally itis the company that should motivate its employees to change and to learn new technologies and prepare them toassume their new responsibilities. In short, the company should create an environment in which the ERP system can grow, thrive and produce the dramatic benefits itis capable of. BUSINESS MODELING Business modeling or creating a business model is one of the first activities in any ERP project. As said earlier, the ERP systems should mirror the business processes, A business model is not a mathematical model, but a representation of the business as one large system showing the interconnections and interdependencies of the various sub-systems and business processes. A business model consisting of the business processes is developed based on the goals, objectives and strategic plans of the organization. The different individuals in the organization (the people) control these business processes in order to achieve the common goals. Based on the business model, the ERP system is developed with the aim of providing the various individuals with the information and necessary assistance they require in order to perform their business processes more effectively and efficiently, Inbusiness modeling, the business is modeled as an integrated system, and the processes managing its facilities and materials are the resources. Information is a very important resource and is very critical in managing all the other resources. Thus the business model is a representation of the actual business, the various business functions of the organization, how they are related, their interdependencies, and soon. The business model is usuallyProcesses Interelationships & Interdependencios Plant Material im Business Modal (Customer Order] —> Fig. 1.4 Real World and the Business Model represented in the graphical form using flowcharts and flow diagrams. The data model of the system is created from the business model. INTEGRATED DATA MODEL One of the most critical steps in the ERP implementation is the creation of an integrated data model. As we have scen carlier, one of the advantages of having an ERP system is that all the employees from the different departments get access to the data—the integrated data, The company uses this integrated data for analysis and decision-making, With the implementation of ERP systems the departmental information systems and the departmental databases will have to go. There can no longer be isolated databases, which cater to the needs of a particular department, All the data has to-be from the integrated database. This approach will reduce data redundancy and provide updated and upto the minute information about the entire organization to all employees. For the integrated database to-be effective it should clearly depict the organization, reflect the day- to-day transactions and be updated continuously. At any given time, it should give a snapshot of the organization at that point in time. So if orders are entered, the sales are executed and the goods are dispatched, then the database should reflect all those changes. The inventory should be reduced and the account receivables should be increased. All this must happen instantaneously and automatically. That is the challenge and the advantage of the integrated database and the integrated data model. Hence, when designing the data model for the ERP system, the most important thing that should be kept in mind is the information integration and the process/ procedure automation, The data model should reflect the entire organization and should successfully depict and integrate the data structures of the entire organization.To" Enterprise Resource Planning ii Business —> Fig. 1.5. Daia Model and its Relationship with the Real World SUMMARY An enterprise is a group of people with a common goal, which has at its disposal certain resources for achieving this goal. The enterprise acts as a single entity. The enterprise view of a company or organization is drastically different from the traditional approach where the organization is divided into different units based on the functions they perform, In the enterprise way the entire organization is considered asa system and all the departments are its sub-systems, Information regarding all aspects of the organization is stored centrally and is available to all departments, The ERP systems help to make this task easier by integrating the information systems, enabling smooth and seamless flow of information across departmental barriers, automating business process and functions and thus helping the organization to work and move forward as a single entity. Abusiness process is a collection of activities that takes one or more kinds of input and creates an output thatis of value to the customer. Thinking in terms of business processes helps managers to look at their organizations from a customer's perspective. The difference between a business function and a business process is that a process cuts across more than one business function to get a task done. Sharing data effectively and efficiently between and within functional areas leads to more efficient business processes. Information systems can be designed so that accurate and timely data are shared between functional areas, These systems are called integrated information systems, So, what is needed is a system that treats the organization asa single entity and caters to the information needs of the whole organization. If thisEnterprise—An Overview =r is possible and if the information that is generated is accurate, timely and relevant, then these systems will go a long way in helping the organization to realize its goals. REVIEW QUESTIONS Short Answer Questions 1. Whatis an enterprise? 2. How do ERP systems help enterprises to function more efficiently? 3. What is a business process? 4. Whatis the difference between a business function and a business process? 5. What are integrated information systems? 6. What are management information systems and why are they also called information reporting systems? 7. Why are management information systems not suited for unstructured decision-making? 8. Whatare the three fundamental characteristics of information? 9. Whatis business modeling? 10. Whatis an integrated data model? Descriptive Type Questions 1, Explain with the help of a neat sketch what an enterprise means, 2. Explain the difference between the current and traditional approaches regarding enterprises. 3. Explain with the help of an example how different departments have conflicting requirements. 4, Describe with the help of a neat sketch, an organization where there is little or no communica- tion between departments. 5, Explain with the help of a diagram an enterprise where all departments know what others are doing. 6. Whatis an information system? 7. What was the limitation of the management information system? 8, What are the fundamental characteristics of information? Explain with examples, 9. Explain business modeling with the help of a diagram. 10, Explain the integrated data model and its relationship with the real world, Essay Questions 1, Explain with examples why itis important to have interdepartmental communication for the smooth and efficient functioning of an organization. 2, “Thinking in terms of business processes helps managers tolook at their organizations froma customer's perspective”. Explain with an example. 3. Explain management information systems and their limitations with examples. Also explain why the scenario where each department has its own information gathering system and infor- mation system is not efficient or good for the organization, 4, Explain theneed of integrated management of information with examples.7 Enterprite Resource Planning 5. Whatis the role of the enterprise in the ERP implementation project? Explain. 6. Explain the duties and responsibilities of the various groups—management, employees, ven- dors, consultants, and so on—in the ERP implementation. 7. Explain integrated data model, how it is created, how it is used, and its advantages using a diagram. Fill in the Blanks 1, ———_-is the group of people with a common goal, which has certain resources at its disposal to achieve this goal. 2, Inthe _, the organization is divided into different units based on the functions they perform, 3, Inthe ___ way the entire organization is considered as a system and all the departments are its sub-systems. 4. Inthe _____, information about all the aspects of the organization is stored centrally and is available toall departments. 5. The _____ help to make this task by integrating the information systems, enabling smooth and seamless flow of information across departmental barriers, automating business process and functions and thus helping the organization to work and move forward as a single entity 6. A____ is a collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. 7. Information systems can be designed so that accurate and timely data are shared between func- tional areas and these systems are called 8 Anis an organized combination of people, hardware, software, communications networks and data resources that collects, collates, transforms and disseminates in an organiza- tion. 9, ____were the original type of management support systems, 10, —__ are useful only for structured type of decision-making, 14, ‘The most important and critical activity the company management has to do for making the ERP implementation a success is to designate the __to lead the project. 12, ____isone of the first activities in any ERP project. 13. The business model is usually represented in the graphical form using and 14, The company uses the integrated data for its ____ and True or False 1. The sidewalk espresso cart is an example of an enterprise. 2, Theenterprise acts as a single emtity. 3. Inthe modern approach, the various departments are compartmentalized and have their own goals and objectives, which from their point of view is in line with the organization's objectives. 4, Unless alt the departments know what the others are doing and for what purpose, interdepart- mental conflicts will arise thus disrupting the normal functioning of the organization. 5. The transparency and information access in an enterprise does not ensure that the departments will no longer be working in isolation pursuing their own independent goals.Enterprie—An Overview =" 6. Business managers are now trying to view their business operations from the perspective of a satisfied customer, 7. Sharing data effectively and efficiently between and within functional areas leads to more effi- Gient business processes. 8. Management information systems are also called information reporting systems. 9. The ERP implementation project is an enterprise in its own right. 10. ERP systems should not mirror the business processes. Multiple Choice Questions 1, Which of the following is part of the enterprise? @ People @ Common goal @ Resources a Allof the above 2. What are the different components of a business functional area? @ Business functions Q Business activities @ Business rules @ Allof the above 3. What are the elements of an information system? © People, procedures and data @ Data, information and knowledge @ Hardware, software and information processing @ None of the above 4, What are the characteristics of information? @ Accuracy @ Relevancy @ Timeliness @ Allof the above 5. Which of the following people are involved in the implementation of the ERP system? @ Management @ Employees Vendors and consultants Q Allof the above SELECTED BIBLIOGRAPHY 1, Bums, M., Howto Select and Implement an ERP System, 180 Systems (httpywww.180systems.com/) 2. Donovan. R.M., Successful ERP Lmplementation the First Time, Process Improvement, 2005. 3. Fleisch, E,, et. al., Rapid Implementation of Enterprise Resource Planning Systems, Journal of Organiza- tional Computing and Electronic Commerce, 2004. 4. Guha, I. B., Moving outside the ERP Comfort Zone, Express Computer, December 2006.Chapter 2 Introduction to ERP INTRODUCTION ERP is an abbreviation for Enterprise Resource Planning, and means the techniques and concepts for integrated management of businesses as a whole from the viewpoint of the effective use of management resources to improve the efficiency of enterprise management. ERP packages are integrated (covering all business functions) software packages that support these ERP concepts. Originally, ERP packages were targeted at the manufacturing industry and consisted mainly of functions for general planning and management of core business such as sales management, production management, accounting and financial affairs, etc, However, in recent years adaptation not only to the manufacturing industry, but also to diverse types of industry has become possible and the expansion of implementation and use has been progressing ona global level. ERP software is designed to model and automate many of the basic processes of a company from finance tothe shop floor, with the goal of integrating information across the company and eliminating complex, expensive links between computer systems that were never meant to talk to each other, ERP software is a mirror image of the major business processes of an organization such as customer order fulfillment and manufacturing. Its success depends upon teach—a circumscribed ERP system is, not better than the legacy system it replaces. In many cases, it is worse because the old code was at least written specifically for the company and the task, ERP systems’ set of generic processes produces the dramatic improvements that it is capable of only when used to connect parts of an organization and integrate its various processes scamilessly. For example, when a warehouse in Noida enters a customer order, that data should automatically flow to others in the company who need to see it—to the finance department at headquarters in Mumbai and to the manufacturing department in Chennai. The lure of information integration struck a chord with CEOs and CFOs—ERP vendors’ primary targets—and sales of ERP took off in the early 90s. COMMON ERP MYTHS There are many myths surrounding the concept, infrastructure, implementation and practice of enterprise resource planning. Very often people are not willing to adopt ERP because of these wrong notions. In this section we will see some of the most common myths about ERP and try to demystify them. ERP Means More Work and Procedures Properly implementing and managing an ERP system is not an easy task, The transition from the traditfonal system or manual processing to ERP is difficult as new skills have to-be learned, newIntroduction to ERP = procedures and processes have to-be followed, and soon. Many employees think that ERP will add more work, make the work more difficult and will force unnecessary procedures. Transformation from the old system to the ERP system isa difficult process, However, if the management and the implementation team do their job properly, ensuring that employees are told what to expect and given proper training, then the transition can be smooth. Once the employees get used to the new system they will understand the potential benefits and the effort saved through automation of tasks and jobs. Today’s ERP tools automate many of the repetitive, monotonous and tedious procedures, tasks and processes, thus making the life of the employees a lot easier. ERP will Make Many Employees Redundant and Jobless Another popular misconception about ERP systems is that its implementation will make many jobs redundant (because of the automation) and hence many employees will lose their jobs, A properly implemented ERP system will automate many tasks in the organization, but this does not mean that it will make people redundant. Yes, there will be changes in job descriptions and the activities people used to perform. Many tasks will be automated and the people who were doing those jobs will no longer be needed. But ERP systems also create new job opportunities and the very same people whose jobs were automated could be used to fill the new positions after they are given proper training on the new tasks. Here, the amount of planning that goes into re-location and re-training of the employees by the management and the implementation team can go a long way in reducing the anxieties of the employees. ERP isa people system made possible by the computer software and hardware, ERP is the Sole Responsibility of the Management Making the ERP system work is the responsibility of all the employees. It involves virtually every department and every person within the company. The company management is not responsible for the day-to-day operation of the ERP system. Their main job is to create an organizational environment in which ERP can thrive and give ERP their full backing. They should also be involved in the development Of ERP policies, usage guidlines, allocation of budgct, package selection and appointment of competent professionals to implement and manage the ERP system. Only when the ERP team has the full backing and support of the management will they be able to implement the system smoothly. Management should monitor the implementation and operation of the system, review the progress/status periodically and should take necessary corrective actions, if required. It should also ensure that the ERP implementation team gets the support and co-operation {rom all the departments. However, assuming that the ERP system will succeed just because the management is fully committed to its implementation and operation is one of the biggest mistakes that an organization can make. In fact, itis the employees— the day-to-day users of the system—who will decide the fate of the ERP system. If the employees are not fully appraised, trained, satisfied and are not happy with the system, or are not using it properly, then the ERP system will be a failure, ERP is Just for the Managers/Decision-Makers The managers and decision-makers are the major users of the ERP system. They are the people who benefit the most from a properly implemented system as they will have all the information they need in order to make informed decisions at their fingertips. The quality of the decisions and the speed with which these are made are dramatically improved as the ERP systems provide high-quality, timely and relevant information. In fact, every employee in an organization benefits from the ERP system. ERP system gives the store clerk to access and inventory record to find out the exact quantity of an item—itT= Enterprise Resource Planning allows the production supervisor to plan his activities; it allows all employces to apply for leave, get loans approved, get travel expenses reimbursed, and soon, However, in order to make the best use of the information processing power of an ERP system, users should be tained to fully utilize the various features available. If people are ignorant about these features, they will find it useless and if they are not properly trained, they will find the experience frustrating and tedious. People will not use the ERP system or if forced, will use it but not to its fullest potential. They will see ERP as a waste of time and do it ust because they are forced to do so. This hostility towards ERP can be eliminated if users are properly educated and made aware of the benefits of the ERP system. ERP is Just for Manufacturing Organizations This assumption is basically due to the way ERP was historically developed from the methods of Material Requirement Planning (MRP) and Manufacturing Resource Planning (MRP II), which are relevant to manufacturing organizations. [n the manufacturing industry, MRP became the fundamental concept of production management and control in the mid-1970s. At this stage BOM (Bill of Materials}, which is purchase order management that utilizes parts list management and parts development, was the prevailing trend. This concept unfolded from order inventory management of materials to plant and personnel planning and distribution planning. which in turn became MRP-II. This incorporated financial accounting, human resource management functions, distribution management functions and management accounting functions, and came to globally cover all areas of enterprise mainstay business and eventually came to-be called ERP. But in reality, the concept of enterprise-wide planning of resources is not limited to any particular segment of industry. ERP is Just for the ERP Implementation Team The ERP implementation team usually consists of outside consultants, vendor representatives and a select group of employees. However, once the implementation and user training is over, the consultants and vendor representatives will leave, It is then the responsibility of each and every employce of the company touse the ERP system properly and to make the best use of the new features and facilities. ERP Slows Down the Organization Before the advent and popularity of ERP tools, most business tasks were performed manually and this was a time-consuming process. Often a lot of effort was duplicated. The ERP systems automated the information flow across departments thereby eliminating duplication of efforts and providing faster and more accurate results, In the case of an ERP system, an order can trigger a host of events that will take care of the materials procurement, production planning, invoice preparation, informing suppliers, making and collecting payments, and so on. Today, the ERP system never functions in isolation. 1t is completely and seamlessly integrated with the supply chain tools and techniques right from customer relationship management to supply chain management and logistics management. This level of automation has dramatically improved the response time of organizations and has helped them to serve customers beiter. So, an ERP system makes the organization efficient and never slows it down. ERP is Just to Impress Customers [tis truc that a properly implemented ERP system can help in serving customers better as it helps the organization to react faster, respond better and deliver high-quality products and services at astonishing