BUSINESS PROCESS REENGINEERING AND

ERP

UNIT-II

PROF. BIPLAB BISWAS

ERP

ERP is a process of managing all

resources and their use in the entire enterprise in a

coordinated manner

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ERP system: Definition

ERP is a set of integrated business applications, or modules which carry out common business functions such as general ledger, accounting, or order management

What makes ERP different

Integrated modules

Common definitions

Common database

Update one module, automatically updates others

ERP systems reflect a specific way of doing business

Must look at your value chains, rather than functions

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MISCONCEPTION

Seamless Integration: In reality achieving seamless integration comes at a price that not many organization can afford right

away.

Cost effective, time efficient, customer satisfaction: After

initial honeymoon period everything depends on the

organization, how they handle it.

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MISCONCEPTION

Technical issues: Managers think that ERP implementation is a very complex technical issue. But in reality the people issues

are more difficult to solve.

The best practice: Organizations believes that the implementation of ERP brings the best practice. But incorporating the best practice is an ‘on going’ activity and a way of life for progressive organizations.

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EVOLUATION

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CHARACTERISTICS

Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution, etc.

Use centralized common database management system (DBMS)

The modules are integrated and provide seamless data flow among the modules, increasing operational transparency through standard interfaces

They are generally complex systems involving high cost

They are flexible and offer best business practices

They require time-consuming tailoring and configuration setups for integrating with the company’s business functions

The modules work in real time with online and batch processing capabilities

They are or soon they will be Internet-enabled

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ADVANTAGES

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What benefit HowReliable information access

Common DBMS, consistent and accurate data, improved reports.

Avoid data and operations redundancy

Modules access same data from the central database, avoids multiple data input and update operations.

Delivery and cycle time reduction

Minimizes retrieving and reporting delays.

Cost reduction Time savings, improved control by enterprise-wide analysis of organizational decisions.

Easy adaptability Changes in business processes easy to adapt and restructure.

Improved scalability Structured and modular design with “addons.”

Improved maintenance Vendor-supported long-term contract as part of the system procurement

Global outreach Extended modules such as CRM and SCM.

E-Commerce, e-business

Internet commerce, collaborative culture.

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DISADVANTAGE

Disadvantage How to overcome

Time-consuming Minimize sensitive issues, internal politicsand raise general consensus.

Expensive Cost may vary from thousands of dollars to millions.

Business process reengineeringcost may be extremely high.

Conformity of the modules The architecture and components of theselected system should conform to thebusiness processes, culture and strategicgoals of the organization.

Vendor dependence Single vendor vs. multi-vendorconsideration, options for “best of breeds,”long-term committed support.

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DISADVANTAGE

Disadvantage How to overcome

Features and complexity ERP system may have too many featuresand modules so the user needs to considercarefully and implement the needful only.

Scalability and global outreach Look for vendor investment in R&D, long termcommitment to product and services,consider Internet-enabled systems.

Extended ERP capability Consider middle-ware “add-on” facilitiesand extended modules such as CRM andSCM.

WHAT IS SUPPLY CHAIN MANAGEMENT

SupplierManagement

Schedule /Resources Conversion

Stock Deployment Delivery

CustomerManagement

Leads to Business Process Integration

Material Flow

Information Flow

" Is the strategic management of activities involved in the acquisition and conversion of materials to finished products delivered to the customer"

FORMAL DEFINITIONS

Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer.

The Supply Chain Council

MATERIAL FLOWS

INFORMATION FLOWS

FINANCIAL FLOWS

SUPPLY CHAIN INCLUDES

PROCESSES

TECHNOLOGY

STRUCTURE

SUPPLY CHAIN MANAGEMENT IS FACILITATED BY :

Source

Supplier

Supplier

Distributor

Distributor

Retailer

End-User

Converter

Converter Consumers

Information Flow

Funds/Demand Flow

Value-Added Services

Material Flow

Reuse/Maintenance/After Sales Service Flow

SCM

• Demand chain is defined as the system by which organizations manage sales and distribution of products and services to end users.

• Conceptually incorrect to look at demand chain separately

• Look at the pipe as a whole.

SUPPLY CHAIN AND DEMAND CHAIN

Value system of Michael Porter• Why sudden interest?

– Demanding customers– Shrinking product life cycles– Proliferating product offerings– Growing retailer power in some cases– Doctrine of core competency– Emergence of specialized logistics providers– Globalization– Information technology

SUPPLY CHAIN DRIVERS

SUPPLY CHAIN ELEMENTS

• Supply Chain Design• Resource Acquisition• Long Term Planning (1 Year ++)

Strategic

• Production/ Distribution Planning• Resource Allocation• Medium Term Planning (Qtrly, Monthly)

Tactical

• Shipment Scheduling• Resource Scheduling• Short Term Planning (Weekly,Daily)

Operational

. THE STEPS INVOLVED

Step1- Designing the supply chain

Determine the supply chain network

Identify the levels of service required

Determine pathways from suppliers to the end customer

Customer markets to Distribution centers

Distribution centers to production plants

Raw material sources to production plants

Identify constraints at vendors, plants and distribution centers

Get the big picture

Plan the procurement, production and distribution of product groups rather than individual products in large time periods- quarters or years

STEP 2 - OPTIMIZING THE SUPPLY CHAIN

Determine the exact flow and

timing of materials

Arrive at decisions by working back

from the projected demand through

the supply chain to the raw material

resources.

Techniques

ERP

STEP 3- MATERIAL FLOW PLANNING

This is a day to day accounting system which tracks and schedules every

order to meet customer demand.

Order entry, order fulfillment and

physical replenishment

STEP 4 - TRANSACTION PROCESSING AND SHORT TERM SCHEDULING

Reduce Overall Cycle Time : Improve Response

SUPPLY CHAIN MANAGEMENT UNDERLYING PRINCIPLES

Compression

Conformance

Co-operation

Communication

(Planning/Manufacturing/Supply)

(Forecasts/Plans/Distribution) (Cross -Functional)

(Real Time Data)

Magnitude of Supply Chain CostsExample: The Apparel Industry

Manufacturer Distributor Retailer Customer

Cost per Percent

Shirt Saving

$52.72 0%

$41.34 28%

$20.45 62%

Manufacturer Distributor Retailer Customer

Manufacturer Distributor Retailer Customer

SUPPLY CHAIN: THE POTENTIAL

• P&G’s estimated savings to retail customers of $65 million through logistics gains

• Dell Computer’s outperforming of the competition in terms of shareholder value growth over more than two decades by over 3,000% using:– Direct business model– Build-to-order strategy

• Wal-Mart transformation into the world’s largest retailer by changing its logistics system: – highest sales per square foot, inventory turnover and operating profit of

any discount retailer

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MANUFACTURING EXECUTION SYSTEM

It refers to addendum software that fills a specific need. For example, one MES System creates a production plan from all work orders based on due dates, routing times and work center constraints. These systems are independent of ERP Systems and hence the reference to addendum software.

MANUFACTURING EXECUTION SYSTEM

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WHY - MES

According to Robert S. Seeley

"The most compelling reasons for installing an MES are manufacturing productivity, efficient data gathering, and simpler, more accurate management of documentation, which can lead to lower manufacturing and regulatory compliance costs."

ERP VS MES

ERP MES

Integrates & streamlines the core functions & business processes of an organization such as Finance, Inventory, Purchase, Customer Relationship Management etc and manages critical organizational data

Manages plant wide operations & decision making in manufacturing plants of all types. The systems deliver information that allow manufacturing heads to optimize their end to end production activities ranging from work order agreements to delivery of finished goods

Reduces data input, improves efficiency and reduces manual errors

Improves efficiency and reduces manual errors from a production floor perspective with either pre defined or customizable reporting & analytics

Gives an enterprise-wide view and reporting to allow for better, more informed decision making

Gives real time view of plant wide operations (inventory, events, order fulfillment etc)

Improves collaboration internally as well with suppliers and customers

Improves collaboration with suppliers and customers & aids just in time production scheduling, ability to provide confirmed shipping order date etc

ERP VS MES

ERP MES

Increases visibility of business operations and control costs

Improve quality & reduce scraps/rework, improve cycle time, identify reasons for grass root level issues, improve customer satisfaction through increased on-time delivery, reduce costs & drive. profitable plant operations

Transactional time frame in hours/days/months or years

Transactional time frame in hours/minutes/ seconds

Optimum utilization of organizational resources

Optimum utilization of plant resources like Men, Machinery, Material & Methods

Forecasting based on historical data Forecasting is real time and gives what if scenario

ERP VS MES

ERP MES

Integrates & streamlines the core functions & business processes of an organization such as Finance, Inventory, Purchase, Customer Relationship Management etc and manages critical organizational data

Manages plant wide operations & decision making in manufacturing plants of all types. The systems deliver information that allow manufacturing heads to optimize their end to end production activities ranging from work order agreements to delivery of finished goods

Reduces data input, improves efficiency and reduces manual errors

Improves efficiency and reduces manual errors from a production floor perspective with either pre defined or customizable reporting & analytics

Gives an enterprise-wide view and reporting to allow for better, more informed decision making

Gives real time view of plant wide operations (inventory, events, order fulfillment etc)

Improves collaboration internally as well with suppliers and customers

Improves collaboration with suppliers and customers & aids just in time production scheduling, ability to provide confirmed shipping order date etc

WHAT IS CRM ?

CRM (Customer Relationship Management) are the concepts used by organizations to manage their relationships with customers. This includes

• Capturing Leads• Storage and analysis of the customers, vendors

and partners• Internal information (organizational)

34

“The approach of identifying, establishing, maintaining, and enhancing lasting relationships

with customers.”

“The formation of bonds between a company and its customers.”

WHAT İS CRM?

CRM

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HISTORY OF CRM

B&S CIMS CRM RM

B&S – Buying & SellingRM – Relationship MarketingCIMS – Customer Information Management SystemsCRM – Customer Relationship Managemente-CRM- A subset of CRM that focuses on enabling customer

interactions via e-channels (The web, email and wireless)

Time line

e-CRM

Late 80’s

Mid 90’s

2002 - Future

Early 90’s

CRM ECOSYSTEM

Coined in by META group CRM has 3 aspects

• Operational• Collaborative• Analytical

Operational aspect of CRM is automation to Customer’s processes including front office sales / service and marketing representative.

Any customer interaction is recorded by CRM, so that any one can retrieve the customer information at anytime without having to interfere about interaction history

Direct interaction with customers without interference of sales representative. Cost reduction and better customer services through automated voice response, email feedbacks, SMS, IVR etc.

Analysis of Customer Data for purposes like optimizing marketing effectiveness, customer retention, behavioral analysis, decision making

KEY FEATURES OF CRM

A Typical CRM consists of 3 Sub Modules:

• Marketing• Sales• Services

KEY FEATURES OF CRM

A Typical CRM consists of 3 Sub Modules:

Marketing, Sales And Services

DECENTRALIZED WAREHOUSE MANAGEMENT (DWM)

A Decentralized Warehouse Management (DWM) system is designed to only run warehouse operations : Goods receiving, Stock placement, Stock removal (Picking), Packing and Cycle counting. DWM runs on a different SAP server to the main SAP ECC server.

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DECENTRALIZED WAREHOUSE MANAGEMENT (DWM)

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BUSINESS MODELLING

The business model is a representation of the actual business, the various business functions or the organization, how they arc related, their interdependencies, and so on. The business model Is usually

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BUSINESS MODELLING - Why

Established companies have to find new and innovative business models to compete against growing competition and to fend off insurgents

Entrepreneurs want to find new and innovative business models to carve out their space in the marketplace.

BUSINESS MODELLING

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9 building blocks that constitute the business model canvas: The value proposition of what is offered to the market;

The segment(s) of clients that are addressed by the value proposition;

The communication and distribution channels to reach clients and offer them the value proposition;

The relationships established with clients;

The key resources needed to make the business model possible;

The key activities necessary to implement the business model;

The key partners and their motivations to participate in the business model;

The revenue streams generated by the business model (constituting the revenue model);

The cost structure resulting from the business model.

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BUSINESS MODELLING

ROLE: ERP VENDPRS

INNOVATOR

•ERP vendors are frequently coming out with inventions and modular improvements.

ADVISOR

•ERP vendor plays the role of an advisor in all the implementation phases

CHANGE AGENT

•The vendor will lead the company successfully through change process. As a change agent, the vendor will reduce the complexity of business transformation and will prepare organization ready for change.

TRAINER

•The vendor will provide initial training for key users of the company. The objective of the vendor training is to show the key users how the system works.

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RESPONSIBILITIES: ERP VENDORS

An ERP vendor should deliver the product along with its documentation to the company after the contract has been signed.

The vendor should provide a preliminary implementation plan even before the contract is signed

The software provider must identify and learn about the various business processes of the company.

The vendor should suggest best ways to implement the system.

The ERP vendor should fix any problem in the software that the implementation team encounters by offering ready to shift customization facility.

The vendor should carefully review the software competencies in the organization and take all necessary steps to remove the software deficiencies before going ahead with running the ERP system .

The vendor should conduct a Formal survey to understand and document the current business processes and give appropriate suggestions for improvement.

RESPONSIBILITIES: ERP CONSULTANTS

The involvement of the users in the early implementation stages makes it easier to understand the system’s requirements, select the right ERP package and plan the customization issue.

The user’s timely involvement during ERP implementation helps in early detection and correction of mistakes.

After implementation the users should help the company in modifying and upgrading the ERP system.

End-users who are frequently participating in the ERP implementation process and training programs becomes experienced. These experienced users are easier to train as in-house experts.

ROLE: CONSULTANTS

ADVISOR

•The consultants are involved in the implementation process of the organization.

IMPLEMENTOR

•They consultant should guarantee the success of the project and should be able to show the results such as reduction in cycle time, increased response time, improved productivity, etc to the satisfaction of the customer.

ADMINISTRATOR

•They are responsible for the administration of all the phases of the implementation so that the activities occur at the scheduled time and at the desired level of quality with effective participation with all those who must participate.

VALUE ADDER

•They add value to the project as they provide knowledge about the packages & the implementation process which gives the employees the practical experience.

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ROLE: USERS

EVALUATOR

•They also analyze & provide the suggestion where customization needs to take place.

TEAM MAN

•They should be able to balance their loyalty to the client & the project.

INFORMER

•They should have a clear cut context & scope of the work so that they can provide the management with the decision that are to be taken for the implementation process.

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RESPONSIBILITIES: ERP USERS

An ERP vendor should deliver the product along with its documentation to the company after the contract has been signed.

The vendor should provide a preliminary implementation plan even before the contract is signed

The software provider must identify and learn about the various business processes of the company.

The vendor should suggest best ways to implement the system.

The ERP vendor should fix any problem in the software that the implementation team encounters by offering ready to shift customization facility.

The vendor should carefully review the software competencies in the organization and take all necessary steps to remove the software deficiencies before going ahead with running the ERP system .

The vendor should conduct a Formal survey to understand and document the current business processes and give appropriate suggestions for improvement.

IMPLEMENTATION -ERP

Identification of the needs for implementing an ERP pac1age.

• Why should I implement an ERP package

Evaluating the “as-is" situation of your business.

• Designing the existing business processes in the whole syseem

Deciding upon the desired would-be situation for your business.

• Benchmarking technique would be used to finalize the planned system

Reengineering of the business processes to achieve the desired results.

• Reengineering would be done in terms of.• Reducing cycle time.• Reducing decision points.• Streamlining the flow of information.

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IMPLEMENTATION -ERP

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Evaluation of the various ERP packages. • Packages are evaluated in-terms of

• Local presence• Global presence• Investment in R&D• Target market• Price• Modularity.• Obsolesce etc.

Finalizing of the ERP package.

• After through evaluation of all packages considering various criteria based on the organization, the best package is selected.

Installing the requisite hardware and networks.

Skill set

• Installation base• Experience• Finances involved

IMPLEMENTATION -ERP

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Implementation of the ERP package.

• This step involves.• Formation of Implementation team• Preparation of Implementation Plan • Mapping of business processes on to the package • Gap analysis • Customization • Development of user-specific reports and transactions • Uploading of data from existing systems • Test runs • User training • Parallel run • Concurrence from user on satisfactory working of the system • Migration to the new system • User documentation • post-implementation support • System monitoring and fine tuning.

POST IMPLEMENTATION - ERP

whether the

implemented ERP systems

could achieve

the stated objectives,

both operationa

l and strategic. as per the business

case

whether the ERP

system is performing as per the expectations/standar

ds

whether the system needs any changes/modifications so as to improve

its efficiency

and effectivene

ss

which of the areas

need modificati

ons, if any; and the scope of

the changes/modification

s required \

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Post-implementation review/audit or evaluation of ERP system is required to determine the following:

POST IMPLEMENTATION - ERP

Efficiency Effectiveness

Competitive

advantage

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The review of an ERP system may be done on the broad classification of performance measurement. These broad classes of performance measurement may be classified as:

TYPES OF REVIEWS

Product based ERP review.

Process based ERP review.

Cost benefit based review.

Integrated review. Balanced scorecard

review.

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In this type of review the quality of the product is reviewed.This review focuses at the effectiveness or the processes (sub-processes) used in implementing an ERP system. The sub-processes involved in the RP system implementation includes need assessment: business case: selection of consultant: selection of vendor/package:

It is an economic evaluation of the system, in which the benefits that are realized/to be realized from implementing the ERP system are measured against the costs incurred/to be incurred in implementing the system.This refers to a combined approach, in which any two or more approaches ot review may be used to assess the ERP systems. Integrated review is generally considered as a more balanced review, as this gives a holistic picture of the implemented ERP system.

This is a technique used to measure the performance against strategic objectives. This technique which is given by Kaplan and Norton. in 1992, seeks to develop an organizational wide view of performance based on an appropriate balance of four measures. Namely: Financial Internal effectiveness Customers Innovation/ learning