ENTERPRISE RESOURCE PLANNING Enterprise: “ Enterprise is a group of people work together to achieve common goal ”. It acts as a Single Entity. In Traditional approach Organization is divided into different units based on the functions they perform. Ex. Production Dept, Marketing Dept., HR Dept. These Department Function have their own systems of Data collection and analysis. So Information generated by various departments are available to TOP management not to other departments. One department does not know what other does.
- In the Enterprise Way, Entire organization is considered as a system. • All the departments are its sub system. • Information related to all the departments are stored centrally and available to all other departments. • Each sub-system knows what others are doing why they are doing and what they are doing. • ERP system can make this task easier by integrating information system and help organization to work as a single entity. • .
Organization where little or no communication between Departments Production Planning Finance Dept Marketing Dept Sales & Distribution R&d HR Dept Enterprise where all the Department Knows what others are doing Marketing Dept Production Planning Finance Dept Central Database Sales & Distribution R&d HR Dept
Business Functions & Business Processes Business Functions are functional area of operations. Ex. To make Products and to sell product functional area are production & material management, finance & accounting, Human Resource etc. • One Functional area is not related to other functional area so they don’t know what happen in other functional area. Business Process is a collection of activities that take one or more input and creates an output. - Through Business Process Manager can think as per Customer’s Demand. Ex. CAR
Ex. - Customer wants to purchase a CAR. At that time the important things are the information about Product ,Price, Quality, Deliver of Product, choice, quick and efficient service, fast order processing. • Customer has not worry who is giving information, from where raw material are purchased what is the price of its raw material etc • To provide customer satisfaction functional area must be integrated • To share data effectively and efficiently between functional area leads to more business processes. • Information system can be design so that accurate and timely data are shared between functional area. • These system is called Integrated Information system..
Definitions Data Raw facts such as an employee’s name and number of hours worked in a week, inventory part numbers or sales orders. Information A collection of facts organized in such a way that they have additional value beyond the value of the facts themselves. Information Data $35,000 12 Units $12,000 J. Jones Western Region $100,000 100 Units 35 Units Salesperson: J. Jones Sales Territory: Western Region Current Sales: 147 Units = $147,000 Data Processing
Information System An information system(IS) is typically considered to be a set of interrelated elements or components that collect(input), manipulate(processes), and disseminate (output) data and information and provide a feedback to meet an objective.
An Information System is an organized combination of people, hardware, software, communication networks and the data resources that collects, transforms and disseminates(Distribute) information in an organization.
Disadvantages of Information System - Management Information System is that they operate at departmental level. - This System provide information which is pre-defined. • Each department have its own database and information system. • The people in one department do not have information about other department. • Top Management Level circulate summary report but may be it can be fail in capturing the real picture. • Suppose manager wants some information which is not in the reports then these system is useless.
System work is isolation that’s why collection and analyzing data related to one department only. • To gather information is difficult task because one department is dependent on another. • So Decision Maker can not take good decision with the isolated data. • so if all the information islands were integrated into a single system then the impact of that would be dramatic.
In today’s Competitive business environment Information is a key resource of every organization. • So all the organization must have some mechanism which provide information at the right time. • Information must be accurate, relevant and timely available so decision maker can take right decision. • So if organization work as a single entity then it can easily go in the direction of it’s goal.
Role of the Enterprise • The main goal of Enterprise is successful implementation of Project. • For that they have decision maker who have to do correct job of selecting a s/w package and right people. • ERP implementation project consist lot of people and groups and each of having different roles. • Successful implementation of project is a common goal for group of people, company employees, package vendors, hardware vendor, communication experts and so on. • Success of project depend on how each one who are including in the project , play their role. • Organization not only work as integrator but it has many of other roles.
- company has no. of employees so it has to decide about to whom they have to give all the authority regarding the project. • They have to choose that type of person who can act like owner of the project. • Company can also take help of consultant to clarify role of company representatives like which task they have to do or about their responsibility related to projects. • The most important and difficult task of company is to designate right people to lead the project. • Those people must acquire reasonable degree of knowledge. • They should able to manage ERP package after consultants leave the place.
The vendor’s and consultant’s documentation will also help in understanding the system and its work. • But employee must have knowledge where to need and how to use the information. • As per above points we can know that success of Project Implementation is partially depend on which persons allocate to project, how much time they devote to the project, and how much knowledge regarding project they share to their colleague or subordinate. • To spread knowledge about project, company has to reallocate responsibility. • So we can say that company should motivate its employee to change and to learn new technologies. • company should change their mind and prepare them for the new task. • In short if ERP system can grow, succeed and produce dramatic benefits then company should create that type of Environment.
Business Modeling - To create a Business Model is the first activity in any ERP project. • A Business Model is a representation of the business as a large system. • It shows the interconnection and interdependencies of the various sub systems and business processes. • A business model consist different business processes which are done as per organization’s goal, strategic plan and its objectives. • Based on that business model, ERP system is developed. • Aim of ERP system is to provide required information to various individuals. • Necessary information can get from ERP system so any can perform their business process effectively.
Business Model is represented in the graphical form using Flowchart and Flow Diagrams. Ex.Information flow of an order Orders Purcasing Supplier Reports a demand Pays money Places an order Customer Sales Delivers material Pays money Places an order Manufacturing Shipping Delivers item Checks order Plans, Manufactures Delivers item
BUSINESS MODEL REAL WORLD Process Interrelationship & Interdependencies between Departments
INTEGRATED DATA MODEL REAL WORLD Interrelationship & Interdependencies between Departments Process Program Model Program Function Display Data Model Tables Fields Domains etc.
Reasons for Growth of ERP market 1) To improve business performance • Cycle Time Reduction (order-to-delivery) • Increased Business Ability (capability of a company to rapidly change or adapt in response to changes in the market) • Inventory Reduction • Order Fulfillment Improvement
2) Support Business Growth Requirement • New Product • New Customer • Global Requirement include multiple language & currencies 3) Provide Flexible, integrated real time decision support • Improve responsiveness across organization 4) Advantage of Medium size organization • Increased functionality at medium cost • Vertical Market Solution
ERP MYTHS • ERP means more work and procedures: • Traditional system or manual processing to ERP is difficult • New skills have to be learned • New procedures have to be followed. • Many employees think that ERP will add more work • Force unnecessary procedures. • If Proper training is given, then the transition can be smooth. • Once the employees get used new system, they can know its benefits. • Today's ERP tools automate many of the repetitive and tedious procedures.
2)ERP will make many employees redundant and jobless - Many people think ERP system make many jobs redundant(USELESS) - Because of the automation many employees will lose their jobs. • A properly implemented ERP system will automate many tasks in the organization. • This does not mean that the ERP system will make people redundant. • There will be changes in job descriptions and in the activities people used to do. • ERP system also create new job opportunities. • Whose jobs were automated could be used to fill the new positions after giving them proper training on the new tasks. • Re-location and re-training of the employees by the management • ERP is a people system made possible by computer software and hardware.
3) ERP is just for the ERP implementation team • The ERP implementation team consists of outside consultants, vendor representatives and select group of employees. • But once the implementation and training is over, the consultants and vendor representatives will leave. • Then it is the responsibility of each and every employee of the company to use the ERP system properly and to make the best use of the new features and facilities. 4)ERP is just to impress customers • Properly implemented ERP system can help in serving the customers better. • It helps the organizations to react faster, respond better and deliver high-quality products and services at a right time. • This will improve customer relations. • Using ERP system we can fulfill customer’s demand and get highly satisfied customer.
5)ERP slows down the organization - Before Development of ERP System, most of business tasks were performed manually. - This was a time-consuming process. - Even many of procedures as well as many of information were duplicated. • The ERP system provides information to all the departments. • It remove duplication of information, providing faster and accurate results. • ERP system will take care of the materials procurement, production planning, invoice preparation, informing the suppliers, making and collecting payments and so on Today, the ERP system never functions in isolation. • It is completely integrated with the supply chain management to customer relationship management. • It can improved the response time of organization and has helped them in serving the customers better. • So an ERP system makes the organization efficient and never slows it down.
6)ERP is the sole responsibility of the mgt. • Making an ERP system work is the responsibility of all the employees. • It involves almost every department and every person within the company. • Their main job is to create an organizational environment in which ERP can Beneficial. • Management also be involved in the development of ERP policies, usage guidelines, allocation of budget, package selection and appointment of employees to implement and manage the ERP system. • Only when the ERP team has the full support of the management, they will be able to implement the system smoothly. • Management should monitor implementation and operation of the system. • Management has to check status of ERP system at a particular time period. • The management should also make sure that the ERP implementation team gets the support and co-operation of all the departments. • Employees of the organization who are day-to-day users of the system who will decide the output of the ERP system. • If the employees are not fully appraised, trained, satisfied, not happy with the system and are not using it properly, then the ERP system will be a failure.
7)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 the properly implemented ERP system. • They will get all the information they need for making any type of decisions. • The quality of the decisions is best as the ERP systems provide high-quality, timely and relevant information. • But every employee in an organization benefits from the ERP system. • Using ERP system, store clerk access to the inventory record and find out the exact quality of product. • It allows the production supervisor to plan his activities. • It allows all employees to apply for leave, get loads approved, gets the travel expenses reimbursed and so on. • But for making the best use of the information of an ERP system the users should be trained. • If they are not properly trained, they will find the experience frustrating and tedious. • They will see ERP as a waste of time and do it just because they are forced to do it. • This mentality towards ERP can be eliminated if the users are properly educated and make aware of the benefits of the ERP system.
8) One ERP package will suit everybody • There are hundreds of ERP tools available in the marketplace. • These tools differ in features, capabilities, size, functionality, price, technical supportetc. • The organizations are also different from one another. • Each has its own characteristics and identity. • Assuming that one tool will be suitable for all organization is wrong. • Selecting and purchasing an ERP tool without analyzing whether it is suited for the organization will be unsuccessful. For an ERP implementation to be successful, • The tool that is implemented should be compatible(well suited) with organizational culture, practices and procedures. • So when purchasing an ERP package proper attention should be given to the selection of a tool that is best suited for the organization.
9) ERP is very expensive • Different ERP packages are available in market. • High-Quality of ERP tools are very expensive. • ERP system needs people to manage it. • Thus implementing and managing an ERP system is an expensive. • But these expenses is nothing against the benefits of the ERP system. • Update the production process, reduce errors by automating repetitive tasks, • Better management of projects by providing quality information. • Improve customer satisfaction by resolving problems quickly.
10) ERP package will take care of everything - A properly implemented, operated and maintained ERP system can dramatically improve productivity, automate tasks, reduce wastage and improve profits. • But an ERP system needs people to operate, use and maintain it. • If the employees are not interested in using the ERP system or are using it improperly, if managers are not making use of the decision-making capabilities of the system or if the system is not maintained properly, then the ERP will not deliver it promises. • It is a fact that the ERP tools have evolved over-time. • Today's ERP tools automate most business function and processes thus making the lives of the users a lot easier. • But thinking that the ERP tools will take care of everything can be a recipe for disaster. • There are many business activities that need human intervention and judgment. • While the ERP tools make these jobs easier, there is no substitute for human intelligence and decision-making.
11) Organization can succeed without ERP • Before development of ERP, organizations were run manually. • So, we need ERP in order to succeed? If an organization is very small in size, has very limited scope, then it can sometimes succeed without ERP. • But today's organizations are becoming large and the products are becoming more and technologies used. • Also, a single group does not necessarily build the different components of a product. • This is the time of distributed production, where different groups situated in different places of the world develop the components of a system. • In such a scenario, managing the activities of an organization is a very complex task. • If proper control mechanisms and procedures are not in place, very soon the operations can get out of control and products and organizations can fail.
12) ERP is just for Manufacturing Organizations • ERP was developed from the methods of Material Requirement Planning (MRP) and Manufacturing Resource Planning (MRP II). • which are relevant to manufacturing organizations. • In the manufacturing industry, MRP became the fundamental concept of production management. • At this stage BoM (Bill of Materials), which is purchase order management that utilizes parts list management and parts development,. • And this concept comes from order inventory management of materials to plant and personnel planning and distribution planning, which in turn became MRP II. • This incorporated financial account, human resource management functions, distribution management functions and management accounting functions and came to globally cover all areas of enterprise. • Then is called ERP. • But in reality the concept of enterprise-wide planning of resource is not limited to any particular segment of industry.
Basic concept of ERP • Will ERP suitable to the ways company does business? • Why is ERP important to company? • How does ERP create value?
Will ERP suitable to the ways company does business? • To change business processes • To customize ERP package.
Why is ERP important to company? 1)ERP affects almost All Organizations - irrespective of their size and nature of business. • Changed the way to do business • It has many automated business processes. • It helps to serve customer better. - It is for large multinational to small and medium-sized businesses.(SMBs) 2) ERP forces competition to change. - their strategic and processes - It provides competitive advantages. - It helps to beat the competition. - Provides necessary tools to react quickly to change. - To face out competition proper implementation of ERP system is needed.
3) ERP improves profits of the Consulting Firms. • Consulting firms provide different types of services related to ERP • These services include BPR(Business Process Re-engineering) , selecting right ERP package, ERP implementation and post implementation support etc. • Consulting firm get consultancy rate in ERP related areas. • They get good experience and expertise in ERP implementation. • Because of good expertise they can get high rate from the competitors. 4) ERP implementing is very costly. • Average cost of ERP implementation is around $15 million • This estimate include s/w, h/w, professional services , internal staff cost for full implementation and it also include two yr of post implementation support. • So to generate two or three percent of revenue - That's’ why proper implementation of ERP system is very important . • Many company have gone out of business because of failed in ERP implementation • May be it can happen because of wrong product selection, poor employee training, lack of management support, employee resistance etc.
5) ERP has changed the Nature of jobs in All Functional Business Areas: • ERP can change jobs of manufacturing function. • It can make link between IT and users. • For ERP implementation professional level IT person is needed. • Only technology related knowledge is not important. • It is more important to understand how you have to flow information through the organization. 6) ERP has changed nature of IS function and IT Professional • Job of IS function was designing, developing and implementing s/w. • With ERP design and development functions are outsourced. • ERP system replacing major portion of s/w as per firm’s need. • One Analyst and programmer needed knowledge of another one who has worked at existing system. • Not only to change in s/w but also to replace employees who work with ERP package as per their knowledge and skills. • Information system personnel have knowledge only about specific organization. • ERP system personnel(consultant and IT Professionals) have knowledge which can also be used with any other organization.
7) ERP is most important tool for Business Process Reengineering: • BPR is analysis and re-design of workflow within an enterprise. • Michael Hammer and James Champy promote their idea about re-design of an enterprise was necessary to lower cost and increase quality of service. • After analysis they got idea that most of organization based on technologies , people and organizational goals that was no longer valid. • They suggest 7 principal for re-engineering to improve quality, time management and cost • Organize around outcomes, not tasks. • Identify all processes in an organization and prioritize them in order of re-design urgency. • Integrate information processing work • Treat geographically isolated resources as they were centralized. • Link parallel activities in the workflow instead of just integrating their results. • Capture information once and at the source • Put design point where the work is performed & build control into process.
8) ERP fully utilizes client server computing • ERP is only available for mainframe platform • In 1990s Client Server computing was offered many advantages compare to mainframe. • So ERP also support client server computing. 9) ERP enforces “Best Practice Business Processes” in organization
How Does ERP create Value • Integrate Organizations activities • Force the use of “best Practices” • Eliminate information asymmetry • Provide On-line and Real-time information • Allow simultaneous access to the same data for planning and control • Facilitate intra-organization communication • Enable inter-organization collaboration
Force the use of “best Practices” • ERP system integrated with no. of business processes • This best practice can improve the way to do business • Implementation of ERP requires best practices. • And so, organization force to adopt new and efficient way to complete task • That is also helpful to become more competitive
Eliminate information asymmetry • All the information put into one database • It eliminate redundancies and duplication • It can increased control • Any one can access information • Improve quality to take decision • Information are widely available so no one can engage to do this work
Provide On-line and Real-time information • Traditional system capture information on paper then passed to another one • So one has to put it into computer based format • With ERP information gathered from source and put into computer • Because it provides On-line and Real-Time information.
Allow simultaneous access to the same data for planning and control • ERP uses single database • Information is entered only once • Information also available online so many user can access same information at a same time.
Facilitate intra-organization communication • ERP also provide facility to intra-organization for communication. • Intra-organization that mean different function and location • Processes also facilitate collaboration(team work) • Single database facilitate communication by providing by providing information to each function.
Enable inter-organization collaboration • ERP system also support for collaboration with other organization • Firms unlock their database to partners • Arrangement of work need to be Single repository(store house) to which partner can go.
Justifying ERP Investments 1) Quantitative Benefits(Tangible) 2) Qualitative Benefits(Intangible) 3) Other factors
Tangible and Intangible • Tangible benefits are those measured in monetary terms. • Intangible benefits cannot be measured in monetary terms but they do have a very significant business impact.
Quantitative Benefits(Tangible) • Reduced Inventory and Inventory carrying Cost • ERP is useful to reduced process and material cost. • ERP system allows customer to obtain information about costs. • It also used to check and plan for inventory and shortages in supplies. • Improve planning and scheduling process • It can reduced 20% inventory cost • It can also reduce carrying cost of inventory. • Carrying cost includes cost of warehousing, taxes, insurance and damage. • ERP is used to produced product as per customer need.
Reduced Manpower Cost • Manufacturing lead to Fewer shortage & overtime and less to re-work. • Labor cost can be saved up to 10% • By, minimizing jobs and parts shortage, less time is needed for material planning and extra setups. • Production supervisor has better visibility of required work and capacity or loads to meet schedule. • Supervisor has more time to manage and to provide training to people. • Production personnel have more time to develop new production method
Reduced Material Cost - Enough time to find out better vendor for less prices • Material cost can be reduced up to 5%. • Purchasing person can focus on vendor negotiations and quality improvement. • And make those suppliers for future requirements on as lower cost.