MODULE 1: Enterprise resource planning
Enterprise resource planning (ERP) is the integrated management of core business processes, often in real-time and mediated by software and technology.
ERP is usually referred to as a category of business-management software — typically a suite of integrated applications—that an organization can use to collect, store, manage and interpret data from these many business activities.
- ERP provides an integrated and continuously updated view of core business processes using common databases maintained by a database management system.
- ERP systems track business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and payroll.
- The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data.
- ERP facilitates information flow between all business functions and manages connections to outside stakeholders.
- The ERP system integrates varied organizational systems and facilitates error-free transactions and production, thereby enhancing the organization’s efficiency.
- . ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository.
Enterprise system software is a multibillion-dollar industry that produces components supporting a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems.
However, developing an ERP system differs from traditional system development
ERP systems typically include the following characteristics:
- An integrated system
- Operates in (or near) real-time
- A common database that supports all the applications
- A consistent look and feel across modules
- Installation of the system with elaborate application/data integration by the Information Technology (IT) department, provided the implementation is not done in small steps
- Deployment options include: on-premises, cloud-hosted, or SaaS
ERP’s scope usually implies significant changes to staff work processes and practices.
Generally, three types of services are available to help implement such changes—
- customization, and
Implementation time depends on –
- Business size,
- Number of modules,
- The scope of process changes, and
- The readiness of the customer to take ownership for the project.
Modular ERP systems can be implemented in stages. The typical project for a large enterprise takes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years.
Customization can substantially increase implementation times.
Besides that, information processing influences various business functions e.g. some large corporations like Wal-Mart use a just-in-time inventory system. This reduces inventory storage and increases delivery efficiency, and requires up-to-date data. Before 2014, Walmart used a system called Inform developed by IBM to manage replenishment.
Configuration: Configuring an ERP system is largely a matter of balancing the way the organization wants the system to work with the way it was designed to work. ERP systems typically include many settings that modify system operations. For example, an organization can select the type of inventory accounting—FIFO or LIFO—to use; whether to recognize revenue by geographical unit, product line, or distribution channel; and whether to pay for shipping costs on customer returns.
Extensions: ERP systems can be extended with third-party software, often via vendor-supplied interfaces. Extensions offer features such as:
- product data management
- product life cycle management
- customer relations management
- data mining
Data migration is the process of moving, copying, and restructuring data from an existing system to the ERP system. Migration is critical to implementation success and requires significant planning. Unfortunately, since migration is one of the final activities before the production phase, it often receives insufficient attention. The following steps can structure migration planning:
- Identify the data to be migrated.
- Determine the migration timing.
- Generate data migration templates for key data components
- Freeze the toolset.
- Decide on the migration-related setup of key business accounts.
- Define data archiving policies and procedures.
Often, data migration is incomplete because some of the data in the existing system are either incompatible or not needed in the new system. As such, the existing system may need to be kept as an archived database to refer back to once the new ERP system is in place.
Advantages of ERP
The most fundamental advantage of ERP is that the integration of myriad business processes saves time and expense. Management can make decisions faster and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include:
- Sales forecasting, which allows inventory optimization.
- Chronological history of every transaction through relevant data compilation in every area of operation.
- Order tracking, from acceptance through fulfillment
- Revenue tracking, from invoicethrough cash receipt
- Matching purchase orders(what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)
ERP systems centralize business data, which:
- Eliminates the need to synchronize changes between multiple systems—consolidation of finance, marketing, sales, human resource, and manufacturing applications
- Brings legitimacy and transparency to each bit of statistical data
- Facilitates standard product naming/coding
- Provides a comprehensive enterprise view (no “islands of information”), making real-time information available to management anywhere, anytime to make proper decisions
- Protects sensitive data by consolidating multiple security systems into a single structure
- ERP can improve the quality and efficiency of the business. ERP can lead to better outputs that may benefit the company, such as in customer service and manufacturing.
- ERP supports upper-level management by providing information for decision-making.
- ERP creates a more agile company that adapts better to change. It also makes a company more flexible and less rigidly structured so organization components operate more cohesively, enhancing the business—internally and externally.
- ERP can improve data security in a closed
- ERP provides increased opportunities for collaboration. Data takes many forms in the modern enterprise, including documents, files, forms, audio and video, and emails. Often, each data medium has its own mechanism for allowing collaboration. ERP provides a collaborative platform that lets employees spend more time collaborating on content
Disadvantages of ERP
- Customization can be problematic.
- Re-engineering business processesto fit the ERP system may damage competitiveness or divert focus from other critical activities.
- ERP can cost more than less integrated or less comprehensive solutions.
- High ERP switching costscan increase the ERP vendor’s negotiating power, which can increase support, maintenance, and upgrade expenses.
- Overcoming resistance to sharing sensitive information between departments can divert management attention.
- Integration of truly independent businesses can create unnecessary dependencies.
- Extensive training requirements take resources from daily operations.
- Requires a lot of time, planning, and money.
- ERP EVOLUTION
Material requirements planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for items of dependent demand. Dependent demand items are components of finished goods—such as raw materials, component parts, and subassemblies—for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactured bicycles, dependent demand inventory items might include aluminum, tires, seats, and bike chains.
The first MRP systems of inventory management evolved in the 1940s and 1950s. They used mainframe computers to explode information from a bill of materials for a certain finished product into a production and purchasing plan for components. Before long, MRP was expanded to include information feedback loops so that production personnel could change and update the inputs into the system as needed. The next generation of MRP, known as manufacturing resources planning or MRP II, also incorporated marketing, finance, accounting, engineering, and human resources aspects into the planning process. A related concept that expands on MRP is enterprise resources planning (ERP), which uses computer technology to link the various functional areas across an entire business enterprise.
MRP works backward from a production plan for finished goods to develop requirements for components and raw materials. MRP begins with a schedule for finished goods that is converted into a schedule of requirements for the subassemblies, the component parts, and the raw materials needed to produce the final product within the established schedule. MRP is designed to answer three questions: what is needed? How much is needed? And when is it needed?”
MRP breaks down inventory requirements into planning periods so that production can be completed in a timely manner while inventory levels—and related carrying costs—are kept to a minimum. Implemented and used properly, it can help the production manager plan for capacity needs and allocate production time. But MRP systems can be time-consuming and costly to implement, which may put them out of range for some small businesses. In addition, the information that comes out of an MRP system is only as good as the information that goes into it. Companies must maintain current and accurate bills of materials, part numbers, and inventory records if they are to realize the potential benefits of MRP.
The information input into MRP systems comes from three main sources:
- a bill of materials,
- a master schedule, and
- An inventory records file.
The bill of materials is a listing of all the raw materials, component parts, subassemblies, and assemblies required to produce one unit of a specific finished product. Each different product made by a given manufacturer will have its own separate bill of materials. The bill of materials is arranged in a hierarchy so that managers can see what materials are needed to complete each level of production. MRP uses the bill of materials to determine the quantity of each component that is needed to produce a certain number of finished products. From this quantity, the system subtracts the quantity of that item already in inventory to determine order requirements.
The master schedule outlines the anticipated production activities of the plant. Developed using both internal forecasts and external orders, it states the quantity of each product that will be manufactured and the time frame in which they will be needed. The master schedule separates the planning horizon into time “buckets,” which usually calendar weeks. The schedule must cover a time frame long enough to produce the final product. This total production time is equal to the sum of the lead times of all the related fabrication and assembly operations. It is important to note that master schedules are often generated according to demand and without regard to capacity. An MRP system cannot tell in advance if a schedule is not feasible, so managers may have to run several possibilities through the system before they find one that works.
The inventory records file provides an accounting of how much inventory is already on hand or on order and thus should be subtracted from the material requirements. The inventory records file is used to track information on the status of each item by time period. This includes gross requirements, scheduled receipts, and the expected amount on hand. It includes other details for each item as well, like the supplier, the lead-time, and the lot size.
Using information culled from the bill of materials, master schedule, and inventory records file, an MRP system determines the net requirements for raw materials, component parts, and subassemblies for each period on the planning horizon. MRP processing first determines gross material requirements, then subtracts out the inventory on hand and adds back in the safety stock in order to compute the net requirements.
The main outputs from MRP include three primary reports and three secondary reports. The primary reports consist of: planned order schedules, which outline the quantity and timing of future material orders; order releases, which authorize orders to be made; and changes to planned orders, which might include cancellations or revisions of the quantity or time frame. The secondary reports generated by MRP include performance control reports, which are used to track problems like missed delivery dates and stock-outs in order to evaluate system performance; planning reports, which can be used in forecasting future inventory requirements; and exception reports, which call managers’ attention to major problems like late orders or excessive scrap rates.
Although working backward from the production plan for a finished product to determine the requirements for components may seem like a simple process, it can actually be extremely complicated, especially when some raw materials or parts are used in a number of different products. Frequent changes in product design, order quantities, or production schedule also complicate matters. The importance of computer power is evident when one considers the number of materials schedules that must be tracked.
BENEFITS AND DRAWBACKS OF MRP
MRP systems offer a number of potential benefits to manufacturing firms. Some of the main benefits include helping production managers to minimize inventory levels and the associated carrying costs, track material requirements, determine the most economical lot sizes for orders, compute quantities needed as safety stock, allocate production time among various products, and plan for future capacity needs. The information generated by MRP systems is useful in other areas as well. There is a large range of people in a manufacturing company that may find the use of information provided by an MRP system very helpful. Production planners are obvious users of MRP, as are production managers, who must balance workloads across departments and make decisions about scheduling work. Plant foremen, responsible for issuing work orders and maintaining production schedules, also rely heavily on MRP output. Other users include customer service representatives, who need to be able to provide projected delivery dates, purchasing managers, and inventory managers.
MRP systems also have several potential drawbacks. First, MRP relies upon accurate input information. If a small business has not maintained good inventory records or has not updated its bills of materials with all relevant changes, it may encounter serious problems with the outputs of its MRP system. The problems could range from missing parts and excessive order quantities to schedule delays and missed delivery dates. At a minimum, an MRP system must have an accurate master production schedule, good lead-time estimates, and current inventory records in order to function effectively and produce useful information.
Another potential drawback associated with MRP is that the systems can be difficult, time-consuming, and costly to implement. Many businesses encounter resistance from employees when they try to implement MRP. For example, employees who once got by with sloppy record-keeping may resent the discipline MRP requires. Or departments that became accustomed to hoarding parts in case of inventory shortages might find it difficult to trust the system and let go of that habit.
The key to making MRP implementation work is to provide training and education for all affected employees. It is important early on to identify the key personnel whose power base will be affected by a new MRP system. These people must be among the first to be convinced of the merits of the new system so that they may buy into the plan. Key personnel must be convinced that they personally will be better served by the new system than by any alternate system. One way to improve employee acceptance of MRP systems is to adjust reward systems to reflect production and inventory management goals.
In the 1980s, MRP technology was expanded to create a new approach called manufacturing resources planning, or MRP II. “The techniques developed in MRP to provide valid production schedules proved so successful that organizations became aware that with valid schedules other resources could be better planned and controlled,” Gordon Minty noted in his book Production Planning and Controlling. “The areas of marketing, finance, and personnel were affected by the improvement in customer delivery commitments, cash flow projections, and personnel management projections.”
Minty went on to explain that MRP II “has not replaced MRP, nor is it an improved version of it. Rather, it represents an effort to expand the scope of production resource planning and to involve other functional areas of the firm in the planning process,” such as marketing, finance, engineering, purchasing, and human resources. MRP II differs from MRP in that all of these functional areas have input into the master production schedule. From that point, MRP is used to generate material requirements and help production managers plan capacity. MRP II systems often include simulation capabilities so managers can evaluate various options.
- SYSTEM INTEGRATION and INTERFACE
System integration is defined in engineering as the process of bringing together the component sub-systems into one system and ensuring that the subsystems function together as a system.
In information technology it is defined as the process of linking together different computing systems and software applications physically or functionally, to act as a coordinated whole.
The system integrator integrates discrete systems utilizing a variety of techniques such as computer networking, enterprise application integration, business process management, or manual programming.
System integration involves integrating existing, often disparate systems in such a way “that focuses on increasing value to the customer (e.g., improved product quality and performance) while at the same time providing value to the company (e.g., reducing operational costs and improving response time). In the modern world connected by the Internet, the role of system integration engineers is important: more and more systems are designed to connect, both within the system under construction and to systems that are already deployed.
Methods of integration
Vertical integration is the process of integrating subsystems according to their functionality by creating functional entities also referred to as silos. The benefit of this method is that the integration is performed quickly and involves only the necessary vendors, therefore, this method is cheaper in the short term. On the other hand, cost-of-ownership can be substantially higher than seen in other methods, since in case of new or enhanced functionality, the only possible way to implement (scale the system) would be by implementing another silo. Reusing subsystems to create another functionality is not possible.
Star integration, also known as spaghetti integration, is a process of systems integration where each system is interconnected to each of the remaining subsystems. This method often seems preferable, due to the extreme flexibility of the reuse of functionality.
Horizontal integration or Enterprise Service Bus (ESB) is an integration method in which a specialized subsystem is dedicated to communication between other subsystems. This allows cutting the number of connections (interfaces) to only one per subsystem which will connect directly to the ESB. The ESB is capable of translating the interface into another interface. This allows cutting the costs of integration and provides extreme flexibility. With systems integrated using this method, it is possible to completely replace one subsystem with another subsystem that provides similar functionality but exports different interfaces, all this completely transparent for the rest of the subsystems. The only action required is to implement the new interface between the ESB and the new subsystem.
The horizontal scheme can be misleading, however, if it is thought that the cost of intermediate data transformation or the cost of shifting responsibility for business logic can be avoided.
A .common data format is an integration method to avoid every adapter having to convert data to/from every other applications’ formats, Enterprise application integration (EAI) systems usually stipulate an application-independent (or common) data format. The EAI system usually provides a data transformation service as well to help convert between application-specific and common formats. This is done in two steps: the adapter converts information from the application’s format to the bus’s common format. Then, semantic transformations are applied on this (converting zip codes to city names, splitting/merging objects from one application into objects in the other applications, and so on).
Interface vs Integration
Also known as a bridge, an interface is where two or more separate software products communicate under limited capacity. Data is maintained in multiple locations; thus, requiring more administration.
A fully integrated system means that the products are one. This happens when two or more products work closely together to combine different functionalities into one product. The data is maintained in one location. Clinical is the first fully integrated digital imaging system capable of accommodating multiple imaging devices in a single high-quality solution.
NEED FOR SYSTEM INTEGRATION & INTERFACE
- Saving the end-user client personnel costs – By using independent system integrators, industrial clients save the cost of hiring, personnel evaluation, continuous education, time to stay current on technology, and so forth. Additionally, it is difficult for a non-system integration company to select the right people, and bad hires are an expensive mistake. However, it is advisable to have a small internal staff to manage projects that are contracted to system integrators. The size of that staff depends on the magnitude of projects that are performed. For example, there are many industry standards that apply to automation and information systems that an end-user client may find challenging. Examples are ISA99 on cybersecurity, ISA100 on wireless communications, and ISA101 on human-machine interface devices. Does an end-user client really want to invest in their own staff learning and implementing these standards? A system integrator makes the educational investment. Then, that cost is amortized over many clients and projects, to the benefit of all.
- Improving the quality and reliability of the integration project – No one person or company knows everything. The system integrator often brings to the table an understanding of mechanical, process, and business intelligence issues and knows how to integrate those disciplines into a working system. That’s why our industry is called system integration – we integrate! A common mistake in manufacturing and process industries is that managers wait until later in the project development to contract a system integrator, thinking they have little to offer upfront, yet that couldn’t be further from the truth. It’s best when system integrators are involved in the earliest planning stages so they can contribute their knowledge and expertise and save costs and improve outcomes.
- Accountability for time and resources – System integrators must remain on a budget to maintain a sustainable business. Whether contracts are fixed or variable, costs, labor, and materials must be managed based on the upfront plan and contract. In short, system integrators are accountable for time and resources. Contracts always have definitions of the scope of supply of services and products and also an associated cost structure. The system integrator, for internal purposes and for client relations, must honor the agreement. When a project is implemented by internal project staff, that accountability is often minimized. An attitude of ‘it’ll take as long as it takes’ can exist, so budgets and schedules sometimes suffer
- Knowing and applying current industry standards in safety, environmental and modern technology – Examples of these standards are networks, cybersecurity, and interoperability of equipment. End-user clients can rely on system integrators to get updates on topics such as machine safety, process safety, international programming standards, and networks for intelligent instrumentation, network standards to prevent cyber-attacks, and so on. Granted, there are some standards and regulations on which it’s best for the end-user clients to remain current, typically ones that pertain specifically to their industry. However, it’s incumbent on the system integrator to be knowledgeable about the majority of standards.
- Bringing innovation and experience from working across industries- A large majority of system integrators work in multiple vertical industries. Examples would be consumer products and food and beverage. An integrator may gain experience in an application such as batch processing, material handling, and packaging in the production of hand cream. Then in another project involving the production of chocolate syrup, the production efficiencies and improvements in quality realized in the hand cream application will transfer to chocolate syrup. Their inherent exposure to different industries results in a breadth of knowledge that can’t be learned at a show, through training, or from a magazine. It comes from doing projects. System integrators learn to recognize when the experience gained in one application and industry can be applied in another. This capacity allows system integrators to bring innovative solutions to resolve an end-user client’s challenges.
- Knowing how to manage project risks – Risk is the most significant enemy of a system integrator, so it is taken seriously. Recognizing project risks comes with experience and is a natural process for integrators. Risk management begins at the planning phase of a project and emphasizes once again what was mentioned in the second reason above, namely the importance of a system integrator being involved in the early stages of a project. It stands to reason that good risk management is in the best interest of the end-user clients even though a client-integrator risk discussion can be uncomfortable
- Choosing the best hardware and software for an application – knowing what products are available for an automation solution is important. And knowing which ones are the best solutions is equally important. Independent system integrators are not tethered to any one automation supplier, so they act in the best interest of the end-user client when making selections. And as system integrators, they know how to integrate – how to make best-in-class products from multiple suppliers work in tandem. Some product suppliers also do system integration work but they are biassed towards their own products. Therefore, even if those products are not the best solution and don’t deliver the highest value, they are used anyway. Thereby, the full potential of a project will not be recognized.
- Having the right skill set for project management and execution– Project management and execution skills are very different skill sets. A good system integrator has both. An indication of the importance of these skills to the success of a project is that three of the nine sections of the CSIA Business Best Practices and Benchmarks Manual focus on project management and execution. Those skills are included in a good system integration company’s best practices and make the difference in project SPECIAL success or failure
- Providing proper documentation for future reference – It’s common for internal staff to move onto the next project and not properly provide drawings, software code, and operations manuals. The staff often has good intentions of doing the documentation but it just gets pushed to the background with hopes of doing it later, but later never comes. Since final documentation is typically included in the contracted scope of supply for the system integrator, the integrator is held accountable for providing it and the end-user client can be assured of getting it. Proper documentation is important for maintenance, support, and scalability.
- Providing expert technical staff on demand End-user clients sometimes have a temporary need for additional staff to assist internal staff when there are too many concurrent projects. Most system integrators can provide engineers, designers, programmers, and so forth during those busy periods. Coming from a system integration company, the personnel is effective immediately after safety orientation. When the project load diminishes, they simply return the integrator. There are personnel staffing companies but those from system integrators are inherently more efficient plus equally capable backup is available, if necessary. Are all system integrators created equal? No. As in all industries, some companies are better than others. So how does an end-user client differentiate a good system integrator from a not-so-good one? System integrators who become certified by the Control System Integrators Association have demonstrated through an independent audit, conducted every three years, that they uphold the CSIA’s best practices for management.
- ENTERPRISE-WIDE SOFTWARE SOLUTIONS
Enterprise software, also known as enterprise application software (EAS), is computer software used to satisfy the needs of an organization rather than individual users. Such organizations include businesses, schools, interest-based user groups, clubs, charities, and governments. Enterprise software is an integral part of a (computer-based) information system.
Services provided by enterprise software are typically business-oriented tools, such as online shopping, and online payment processing, interactive product catalog, automated billing systems, security, Business Process Management, enterprise content management, IT service management, customer relationship management, enterprise resource planning, business intelligence, project management, collaboration, human resource management, manufacturing, occupational health and safety, enterprise application integration, and enterprise forms automation.
As enterprises have similar departments and systems in common, enterprise software is often available as a suite of customizable programs. Generally, the complexity of these tools requires specialist capabilities and specific knowledge.
Types OF Enterprise Softwares
- Accounting software
- Business intelligence
- Business process management
- Content management system(CMS)
- Knowledge Management(KM)
- Customer relationship management(CRM)
- Master data management(MDM)
- Enterprise resource planning(ERP)
- Enterprise asset management(EAM)
- Low-code development platforms(LCDP)
- Supply chain management(SCM)
- Backup software
- Product data management(PDM)
- Product lifecycle management(PLM)
- SAP system application products.
ERP software typically consists of multiple enterprise software modules that are individually purchased, based on what best meets the specific needs and technical capabilities of the organization. Each ERP module is focused on one area of business processes, such as product development or marketing.
Some of the most common ERP modules include those for product planning, material purchasing, inventory control, distribution, accounting, marketing, finance, and HR. A business will typically use a combination of different modules to manage back-office activities and tasks including the following:
- Distribution process management
- Supply chain management
- Services knowledge base
- Configure prices
- Improve accuracy of financial data
- Facilitate better project planning
- Automate the employee life-cycle
- Standardize critical business procedures
- Reduce redundant tasks
- Assess business needs
- Accounting and financial applications
- Lower purchasing costs
- Manage human resources and payroll
As the ERP methodology has become more popular, software applications have emerged to help business managers implement ERP in other business activities and may incorporate modules for CRM and business intelligence, presenting it as a single unified package.
The basic goal of using an enterprise resource planning system is to provide one central repository for all information that is shared by all the various ERP facets to improve the flow of data across the organization.
Enterprise ERP Trends
The ERP field can be slow to change, but the last couple of years have unleashed new technology trends which are fundamentally shifting the entire area. The following new and continuing computing trends have an impact on the growth of enterprise ERP software:
· Mobile ERP Executives and employees want real-time access to information, regardless of where they are. It is expected that businesses will embrace mobile ERP for the reports, dashboards and to conduct key business processes.
· Cloud ERP The cloud has been advancing steadily into the enterprise for some time, but many ERP users have been reluctant to place data in the cloud. Those reservations have gradually been evaporating, however, as the advantages of the cloud become apparent.
· Social ERP There has been much hype around social media and how important —or not — it is to add to ERP systems. Certainly, vendors have been quick to seize the initiative, adding social media packages to their ERP systems with much fanfare. But some wonder if there is really much gain to be had by integrating social media with ERP.
· Two-tier ERP Enterprises once attempted to build an all-encompassing ERP system to take care of every aspect of organizational systems. But some expensive failures have gradually brought about a change in strategy – adopting two tiers of ERP.
- EARLY AND NEW PACKAGES
ERP solutions represented a watershed achievement in Industrial Age IT. They were designed when IT was constrained. These systems captured accounting and other internal/operational events and then pushed them from one sub-ledger or subsystem to another. They helped far-flung and disjointed firms finally coordinate activities. They brought a measure of efficiency to countless firms and the results were even apparent in the GDP statistics of countries globally.
In the digital economy, data is often more important than plants, factories, and inventory. The obsession with tangible assets is being replaced by a focus on data and intangibles. Old ERP wasn’t designed for the latter.
If you look at an old ERP system, it’s fixated on the plant, equipment, inventory, cost accounting, and other artifacts of the Industrial Age.
Old ERP was never designed for the digital era. And that’s the next death-blow.
ERP PRODUCTS AND MARKET – PLAYERS AND CHARACTERISTICS
SAP AG: The leading ERP package vendor, with a 32% market share in 1999, is SAP AG. SAP AG was founded in Germany in 1972 by five engineers who wanted to produce integrated business application software for the manufacturing enterprise. Seven years later, the company launched its first enterprise software, R/2, which was designed around a centralized, mainframe-based database. SAP’s client/software product, R/3, was introduced in 1992 and quickly came to dominate the ERP software market.10
In 1999, SAP AG was the third-largest independent software vendor in the world, serving over 11,000 customers (with more than 20,000 installations) in over 100 countries. Leveraging its leading position in the ERP market, SAP developed vertical, industry-specific business solutions for 19 industries. These industry “solution maps” provide functionality from SAP and its partners for a complete, end-to-end industry.
Section SAP followed the lead of focused niche players, and in 1999 it extended its ERP offering to include customer relationship management, data warehousing, and supply chain management modules. SAP recast its entire set of offerings around the Internet, borrowing the “business portal” concept (called mySAP.com Workplace in SAP parlance) to organize all information around the user’s role in the enterprise, and adding functionality for business-to-business and business-to-consumer electronic commerce. SAP started the mySAP.com Marketplace, an electronic inter-company trading community for buying, selling, and collaborating within and across industries.
Oracle: The heavyweight of the database software market, Silicon Valley-based Oracle is the world’s second-largest software company. It has built a solid enterprise application 11 Examples are SAP Automotive, SAP High-Tech, SAP Aerospace and Defense, SAP Banking, SAP Insurance, SAP Utilities, etc. company boundary Web browser access Workplace industry-specific role-based personalized drag & relate Workplace industry-specific role-based personalized drag & relate Marketplace. Internet services Cockpits Cockpits 9 business, which accounted for $2.5 billion of the firm’s $9.3 billion 1999 revenues.
Second to SAP in the enterprise software market, Oracle applications serve over 5,000 customers in 140 countries.
Oracle has been a leader in refocusing its ERP solutions around the Internet, and it launched a barrage of electronic-commerce and Internet-based business-to-business software applications while the other JBOPS companies were slow to react to the changing marketplace. Further, Oracle was the first JBOPS Company to integrate front-office applications with its ERP offering.
PeopleSoft: Started as a software firm for human resource management in 1987, Pleasanton-based PeopleSoft gradually expanded its software to cater to other corporate functions. The company’s revenues grew to $1.3 billion in 1998up forty-fold from $32 million in 1992 (sales remained flat in 1999). PeopleSoft’s ERP system provides enterprise solutions for finance, materials management, distribution, supply chain planning, manufacturing, and human resources.
In 1996, PeopleSoft acquired Red Pepper, a producer of supply chain management software, and in 1999 it acquired Vantive for its customer relationship management offering.
J.D. Edwards: Founded in 1977 by three partners from an accounting firm, Denver-based J.D. Edwards addresses business processes in finance, manufacturing, distribution/logistics, and human resources, and encompasses the entire supply chain from planning and scheduling through execution. Growing from $120 million in revenues in 1992 to $944 million in 1999, the software maker has served over 5,000 customers in over 100 countries. Its OneWorld system is considered to be more flexible than its competitors, and the company made headway in smaller enterprises. And, rather than build its own customer relationship management system, J.D. Edwards developed tight integration with Siebel’s leading offering.
Baan: The Baan Company was founded in The Netherlands in 1978 making financial software. Baan’s products have been simpler to use than SAP’s, leading to the company’s growth in the early nineties. Today, the company operates in 80 countries, 10 serving more than 2,800 customers. Baan’s net revenues have increased from $47 million in 1992 to $736 million in 1998. The Baan Series is its primary enterprise system, which incorporates a variety of functionalities from sale order management and manufacturing to supply chain management. Since October of 1998, Baan suffered a series of setbacks including management turmoil, accounting irregularities, multiple-quarter losses, and CEO turnover.
- ERP IMPLEMENTATION- Methodology
Several steps are involved in the implementation of a typical ERP package. These are:
- Identifying the Needs: Some of the basic questions, which are to be answered, are
- Why should an ERP package be implemented?
- Will it improve profitability?
- Can the delivery times of products be reduced?
- How does it improve customer satisfaction in terms of quality, cost, delivery time, and service?
- Will it help to reduce the cost of products?
- How can it help to increase business turnover and at the same time reduce manpower?
- Will it be possible to reengineer the business processes?
- Evaluating the “AS IS” situation of the business: To understand the present situation of the business, the various functions should first be listed.
- Total time taken by the business processes.
- A number of decision points existing in the present scenario.
- A number of Departments/Locations of businesses process.
- The flow of information and its routing.
- The number of reporting points currently available.
- 3. ‘Would be’ situation: Deciding the desired ‘Would Be’ situation: The concept of ‘Benchmarking’ is used to see that processes achieved are the best in the industry. Benchmarking is done on various factors like cost, quality, service, etc. This concept enables to optimize the processes to gain overall benefits.
- Reengineering the business process: Reengineering of business processes is done to
- Reduce the business process cycle time.
- To reduce the number of decision points to a minimum.
- Streamlining the flow of information and eliminating the unwanted flow of information.
- Evaluation of various ERP packages: Evaluation of ERP packages are done based on the following criteria:-
Flexibility: It should enable organizations to respond quickly by leveraging changes to their advantage, letting them concentrate on strategically expanding to address new products and markets.
Comprehensive: It should be applicable across all sizes, functions, and industries. It should have in-depth features in accounting and controlling, production and materials management, quality management and plant maintenance, sales and distribution, human resources management and plant maintenance, sales and distribution, human resources management, and project management.
Beyond the company: It should support and enable inter-enterprise business processes with customers, suppliers, banks, government, and business partners and create complete logistical chains covering the entire route from supply to delivery, across multiple geographies, currencies, and country-specific business rules.
Best business practices: The software should enable integration of all business operations in an overall system for planning, controlling, and monitoring and offer a choice of multiple ready-made business processes including best business practices that reflect the experiences, suggestions, and requirements of leading companies across industries. In other words, it should intrinsically have a rich wealth of business and organizational knowledge base.
New technologies: It should incorporate cutting-edge and future-proof technologies such as object orientation into product development and ensure inter-operability with the Internet and other emerging technologies. It should be Y2K and Euro compliant, group up.
Other factors to be considered are:
- Global presence of the package.
- Local presence.
- Market Targeted by the package.
- Price of the package.
- Obsolescence of package.
- Ease of implementation of the package.
- Cost of implementation.
- Post-implementation support availability.
- Finalization of the ERP package: Finalisation of the ERP package can be done by making a comparison of critical factors through a matrix analysis.
- Installation of Hardware and Networks: This work is carried out in a phased manner depending on the schedule of implementation and need of the hardware components.
- Finalizing the Implementation Consultants: The factors of selection for consultants are
- industry-specific experience
- cost of hiring consultants
- Implementation of ERP package
- formation of the team I preparation of the plan
- mapping of business process to package
- gap analysis
- development of user-specific reports and transaction
- uploading of data from the existing system I
- Test run I user training I Parallel run.
- Concurrence from user I Migration to the new system
- User documentation.
- Post-implementation support.
- System monitoring and fine-tuning Implementation
Guidelines for ERP:
There are certain general guidelines, which are to be followed before starting the implementation of an ERP package.
- Understanding the corporate needs and culture of the organisation and then adopt the implementation technique to match these factors.
- Doing a business process redesign exercise prior to starting the implementation.
- Establishing a good communication network across the organisation.
- Providing a strong and effective leadership so that people down the line are well motivated.
- Finding an efficient and capable project manager
- Creating a balanced team of implementation consultants who can work together as a team.
- Selecting a good implementation methodology with minimum customisation.
- Training end users.
- Adapting the new system and mating the required changes in the working environment to make effective use of the system in future.
To start at the beginning, many post implementation problems can be traced to wrong expectations and fears. The expectations and fear that corporate management have from an ERP have been greatly published. Of course, some of the blame for this is on the ERP vendors and their pre-implementation sales hype. A few of the popular expectations are:
- An improvement in processes
- Increased productivity on all fronts.
- Total automation and disbanding of all manual processes.
- Improvement of all key performance indicators.
- Elimination of all manual record keeping.
- Real-time information systems available to concerned people on a need basis.
- Total integration of all operations.
- CRITICAL SUCCESS FACTORS
ERP implementation also engenders a host of fears
Some of them are:
- Job redundancy.
- Loss of importance as information is no longer an individual prerogative.
- Change in the job profile.
- An organizational fear of loss of proper control and authorization.
- Increased stress caused by greater transparency.
- Individual fear of loss of authority. Balancing the expectations and fears is a very necessary part of the implementation process.
RISK AND GOVERNANCE ISSUES IN AN ERP
- Organizations face several new business risks when they migrate to real-time, integrated ERP systems. Those risks include:
- Single point of failure: Since all the organization’ data and transaction processing is within one application system and transaction processing is within one application system. Structural changes significant personnel and organizational structures changes associates with reengineering or redesigning business processes.
- Job role changes: transition of traditional user’s roles to empowered-based roles with much greater access to enterprises information in real-time.
- Online, real-time: An online real-time system environment requires a continuous business environment capable of utilizing the new capabilities of the ERP application and responding quickly to any problem requiring re-entry of information.
- Change management: It is challenging to embrace a tightly integrated environment when different business processes have existed among business units for so long. The level of user acceptance of the system has a significant influence on its success. Users must understand that their actions or inaction have a direct impact upon other users and, therefore, must learn to be more diligent and efficient in the performance of their day-to-day duties. Considerable training is therefore required for what is typically a large number of users.
- Distributed computing experience: Inexperience with implementing and managing distributed computing technology may pose significant challenges.
- Broad system access: Increased remote access by users and outsiders and high integration among application functions allow increased access to applications and data.
- Dependency on external assistance: Organizations accustomed to in-house legacy systems may find they have to rely on external help. Unless such external assistance is properly managed, it could introduce an element of security and resource management risk that may expose the organizations to greater risk.
- Program interfaces and data conversions: Extensive interfaces and data conversions from legacy systems and other commercial software are often necessary. The exposures of data integrity, security, and capacity requirements for ERP are therefore often much higher.
- Audit expertise: Specialist expertise is required to effectively audit and control an ERP environment. The relative complexity of ERP systems has created specialization such that each specialist may know only a relatively small fraction of the entire ERP’s functionality in a particular core module.
More recently, some of the additional risks and good governance issues introduced by the enabled ERP environments concern:
- Single sign-on: It reduces the security administration effort associated with administrating web-based access to multiple systems, but simultaneously introduces additional risk in that an incorrect assignment of access may result in inappropriate access to multiple systems.
- Data content quality: As enterprise applications are opened to external suppliers and customers, the need for integrity in enterprise data becomes paramount.
- Privacy and confidentiality: Regularity and governance issues surrounding the increased capture and visibility of personal information, i.e. spending habits.
Why do ERP projects fail so often (PITFALLS)?
- If the people in the different departments that will use ERP don’t agree that the work methods embedded in the software are better than the ones they currently use, they will resist using the software or will want IT to change the software to match the ways they currently do things. This is where ERP projects break down.
- Political fights erupt over how or even whether the software will be installed. IT gets bogged down in long, expensive customization efforts to modify the ERP software to fit with powerful business barons’ wishes.
- Customizations make the software more unstable and harder to maintain when it finally does come to life. Because ERP covers so much of what a business does, a failure in the software can bring a company to a halt, literally.
- The mistake companies make is assuming that changing people’s habits will be easier than customizing the software. If people are resistant to change, then the ERP project is more likely to fail.
LIFE AFTER IMPLEMENTATION
- Change integration has to be necessarily embedded in the task list for any ERP implementation. The main tool for this is the process of communication in all forms-written, oral, workshops, meetings, etc.
- Also, at the start of the project, the critical success factors (CSFs) for the company as a whole should be listed.
- These should be drilled down to CSFs for respective functionalities or departments.
- From these CSFs, performance measures required to address these CSFs should be culled out.
- The numeric figures against these performance measures can be classified as the Key Performance Indicators (KPIs). The process of firming up the above is usually done through workshops.
- The KPIs derived from the organizational goals & CSFs should be kept in mind too.
- Having evolved the processes while the configuration, construction and implementation are in progress, the organization needs to ready itself for the post-implementation period
Some of the tasks that are to be performed are:
- Develop the new job descriptions and organization structure to suit the post ERP scenario.
- Determine the skill gap between existing jobs and envisioned jobs.
- Assess training requirements, and create and implement a training plan.
- Develop and amend HR, financial and operational policies to suit the future ERP environment
- Develop a plan for workforce logistics adjustment.
The major task is to monitor the KPIs and take the correct business decisions to improve them. Certain KPIs, though existing in the system, are better monitored and controlled after the ERP system attains maturity.
Even with all the preparations during the implementation, during post-implementation, there will be a need for course correction many times. It may be because of the following reasons
- A change in the business environment requires a change in the CSFs, resulting in a new or changed set of KPIs necessitating reconfiguration.
- A review indicates a need for change in some processes.
- Vision changes in the ERP and improvements in hardware and communication technology necessitate changes.
- New additions to the business require extra functionality.