ENTERPRISE RESOURCE PLANNING

(ERP)

Abhilash.R.Krishna

S1 MBA IB,
Roll No. 1,
School of Management Studies,
CUSAT, Kochi- 22.
E-mail: abhilashrkrishna@gmail.com

Abstract: Enterprise resource planning (ERP) is a term used to describe a

software system providing multiple application modules to run a business in
the areas of Financial Management, Logistics, Manufacturing, Human
Resources and extended supply chain operations.

Keywords: ERP, ERP Modules, Implementation steps

1.0 INTRODUCTION

Enterprise resource planning (ERP) is the industry term used to describe a broad set of
activities supported by multi-module application software that helps a manufacturer or
other business manage the important parts of its business. Enterprise Resource Planning
is an extremely powerful tool which provides a seamless information system to support the
various functional business modules of an enterprise. Most organizations 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 was originated in the early
90’s. ERP is essentially the successor of both Material Requirement Planning (MRP-I) and
Material Resource Planning (MRP-II) software that were an outcome of the need for
greater control and efficiency in manufacturing system. MRP was one of the first
computerized procedures which significantly improved the way things were done. Since
MRP was first implemented, many additional improvements in production management
have been introduced by taking the advantage of the data processing and computational
powers of the computer.

2.0 EVOLUTION

The evolution of computer integrated system in manufacturing industries began in USA as

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.
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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.

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 could 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 organization.

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 customer orders to finished goods in the MPS. This allows sales
personnel to have accurate information on product availability 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.

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.

3.0 NEED FOR ERP

ERP covers the techniques and concepts employed for the integrated management 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 ERP concepts. ERP software is designed to model and automate many of
the basic processes of company from finance to the shop floor, with the goal of integrating
information across the company and eliminating complex expensive links between
computer systems. ERP systems produce the dramatic improvements that they are
capable of only, when used to connect parts of an organization 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 this race will be the customer, who will
get better products and better service at affordable prices. In short an ERP software is
needed
 For Management – to know what is happening in the company
 As a one solution for better Management
 For cycle time reduction
 To achieve cost control & low working capital
 To marry latest technologies
 To shun the geographical gaps
 To satisfy the customers with high expectations
 To be Competitive & for survival

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 4.0 ERP MODULES

Ideally, ERP delivers a single database that contains all data for the software modules,
which would include:

1. Manufacturing :Engineering, bills of material, scheduling, capacity, workflow

management, quality control, cost management, manufacturing process, manufacturing
projects, manufacturing flow
2. Supply chain management: Order to cash, inventory, order entry, purchasing, product
configuration, supply chain planning, supplier scheduling, inspection of goods, claim
processing, commission calculation
3. Financials :General ledger, cash management, accounts payable, accounts
receivable, fixed assets
4. Project management: Costing, billing, time and expense, performance units, activity
management
5. Human resources: Human resources, payroll, training, time and attendance, rostering,
benefits
6. Customer relationship management :Sales and marketing, commissions, service,
customer contact and call center support

5.0 ERP IMPLEMENTATION PROCESS

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 4) GAP analysis 5) Reengineering 6) Team training 7) Testing 8) 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.

5.1 Pre evaluation Screening

Once the company has decided to go for the ERP system, the search for the package
must start as there are hundreds of packages it is always better to do a through and
detailed evaluation of a small number of packages, than doing analysis of dozens of
packages. This stage will be useful in eliminating those packages that are not suitable for
the business process.

5.2 Evaluation Package

This stage is considered an important phases of the ERP implementation, as the package
that one selects will decide the success or failure of the project. Implementation of an ERP
involves huge investments and it is not easy to switch between different packages, so the
right thing is ‘do it right the first time’. Once the packages to be evaluated are identified,
the company needs to develop selection criteria that permit the evaluation of all the
available packages on the same scale.

5.3Project Planning

This is the phase that designs the implementation process. It is in this phase that the
details of how to go about the implementation are decided. Time schedules deadlines, etc
for the project are arrived at. The plan is developed, roles are identified and
responsibilities are assigned. It will also decide when to begin the project, how to do it and
it completion. A committee by the team leaders of each implementation group usually does
such a planning.

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5.4 GAP analysis

This is considered the most crucial phase for the success of ERP implementation. This is
the process through which the companies create a complete model of where they are now,
and in which direction will they opt in the future. It has been estimated that even the best
packages will only meet 80% of the company’s requirements. The remaining 20%
presents problematic issues for the company’s reengineering.

5.5 Reengineering

It is in this phase that human factors are taken into consideration. While every
implementation is going to involve a significant change in number of employees and their
job responsibilities, as the process becomes more automated and efficient, it is best to
treat ERP as an investment as well as cost cutting measure.

5.6 Team training

Training is also an important phase in the implementation, which takes place along with
the process of implementation. This is the phase where the company trains its employees
to implement and later, run the system. Thus, it is vital for the company to choose the right
employee who has the right attitude- people who are willing to change, learn new things
and are not afraid of technology and a good functional knowledge.

5.7 Testing

This is the phase where one tries to break the system. One has reached a point where the
company is testing the real case scenarios. The system is configured and now you must
come up with extreme cases like system overloads, multiple users logging on at the same
time, users entering invalid data, hackers trying to access restricted areas and so on. This
phase is performed to find the weak link so that it can be rectified before its
implementation.

5.8 Post implementation

One the implementation is over, the vendor and the hired consultants will go. To reap the
fruit of the implementation it is very important that the system has wide acceptance. There
should be enough employees who are trained to handle problems those crops up time to
time. The system must be updated with the change in technology. The post
implementation will need a different set of roles and skills than those with less integrated
kind of systems.

6.0 ERP VENDORS

The ERP market is a very competitive and fast growing market. The vendors in the ERP
market are segmenting in two tires and are focusing on expanded product functionality,
new target markets and higher penetration rates. The top tire consists of five vendors – 1)
SAP 2) ORACLE 3) THE SAGE GROUP 4) MICROSOFT DYNAMICS 5) SSA GLOBAL
TECHNOLOGIES. SAP is the world leader in ERP market.
All the key players in the ERP global market are practically present in India. SAP with their
flagship product R/3, BaaN Company with their BaaN IV product, Oracle with their Oracle
Applications and the world-class ERP Product Marshall from the rising Indian star Ramco
Systems. The other major player in the global ERP Market, namely, PeopleSoft has
entered the Indian market only very recently. Yet another leading product MFG/ PRO from
QAD has been present for a while (the two customers Hindustan Lever & Godrej have
been using it for over two years). SAP has been exceptionally successful in India with
nearly two-thirds of the Indian market share. The major industrial houses Tata, Reliance,
Essar, Mahindra & Kirloskar have embraced SAP. BaaN has been very successful in
major manufacturing companies such as TVS. Oracle has been a playing a dominant role
in the telecom centre with a stronghold among all cellular phone companies. Ramco
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Marshall has a good client base among the process industry in the south and a few public
sector undertakings.

7.0 ADVANTAGES OF ERP

 Help reduce operating costs

 Facilitate Day-to-Day Management
 Support Strategic Planning
 Integration among different functional areas to ensure proper communication,
productivity and efficiency
 Design engineering (how to best make the product)
 Order tracking, from acceptance through fulfillment
 The revenue cycle, from invoice through cash receipt
 Managing inter-dependencies of complex processes bill of materials
 Tracking the three-way match between purchase orders (what was ordered),
inventory receipts (what arrived), and costing (what the vendor invoiced)
 The accounting for all of these tasks: tracking the revenue, cost and profit at a
granular level.

8.1 DISADVANTAGES OF ERP

 Customization of the ERP software is limited.

 ERP systems can be very expensive
 ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and
business process of some companies—this is cited as one of the main causes of their
failure.
 Once a system is established, switching costs are very high for any one of the
partners (reducing flexibility and strategic control at the corporate level).
 The blurring of company boundaries can cause problems in accountability, lines of
responsibility, and employee morale.
 Resistance in sharing sensitive internal information between departments can reduce
the effectiveness of the software.
 Some large organizations may have multiple departments with separate, independent
resources, missions, chains-of-command, etc, and consolidation into a single
enterprise may yield limited benefits.
 The system may be too complex measured against the actual needs of the
customers.
 ERP Systems centralize the data in one place. This can increase the risk of loss of
sensitive information in the event of a security breach

9.0 CONCLUSION

ERP implementation is the need of every industry today. Enterprises today employ a
mixture of several approaches to manufacturing. It must be possible to operate the
company in all these approaches. The emerging trend of amalgamations, acquisitions and
strategic alliances among competing corporation require more capable software to
manage such multi-facility enterprises. The only solution to this is ERP software.
Integration is the main benefit of ERP. Manufacturers need their systems to unify all parts
of their operations under one roof and be able to see the impact of each decision on the
bottom line. So, ERP is the integrated system which links all the activities under one roof
and sets up the work flow so that information is passed on to the next area in the channel
automatically. To the company’s purpose to deliver consistently high quality products and
services to its customers and global challenges can be met successfully by integrating the
entire enterprise through ERP system.

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10.0 REFERNCES

1 “ERP: tools, techniques, and applications for integrating the supply chain”,
by Carol A. Ptak, Eli Schragenheim
2 Enterprise Resource Planning,
http://en.wikipedia.org/wiki/Enterprise_resource_planning , downloaded on
21.08.2009
3 ERP Fundamentals, http://www.erpwire.com/erp-articles/erpfundamentals.htm,
downloaded on 01.10.2009
4 ERP info, http://www.erpfans.com/?page_id=3 , downloaded on 09.09.2009
5 What is ERP? http://www.tech-faq.com/erp.shtml, downloaded on 02.10.2009
6 ERP definition, http://www.erpandmore.com/erp-definition/ , downloaded on
02.10.2009
7 ERP definitions and Solutions,
http://www.cio.com/article/40323/ERP_Definition_and_Solutions, downloaded on
02.10.2009
8 ERP Implementation, http://www.implement-erp.com/erp-implementation-process.html
,downloaded on 02.10.2009
9 Implementing a ERP Life cycle, http://www.management-hub.com/marketing-erp.html,
downloaded on 02.10.2009
10 History and Evolution of ERP, http://www.sysoptima.com/erp/history_of_erp.php,
downloaded on 02.10.2009
11 Evolution of ERP, http://www.docstoc.com/docs/6250389/Evolution-of-ERP, visited on
02.10.2009
12 Market Leaders of ERP, http://www.iiitb.ac.in/ss/erp-faq/main4pg1.htm, visited on
02.10.2009
13 Merits and Demerits of ERP, http://www.erpwire.com/erp-articles/erp-advantages-
disadvantages.htm, downloaded on 02.10.2009.
14 The Advantages and Disadvantages of ERP,
http://www.exforsys.com/tutorials/erp/the-advantages-and-disadvantages-of-erp.html,
visited on 02.10.2009
15 ERP Advantages & Disadvantages, http://gleez.com/erp-advantages-disadvantages
,visited on 02.10.2009.