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PART ONEConceptual Framework
1. ERP Systems: An Introduction 2. ERP II 3. ERP and E-Commerce 4. ERP Architecture
C H A P T E R
ERP Systems: An IntroductionLEARNING OBJECTIVESAfter reading this chapter, you should be able to Appreciate the signicance of ERP systems Describe the evolution and concept of Enterprise Resource Planning systems Known what you need to know about ERP systems Discuss the role of ERP in business Understand the components and modules of ERP systems Understand the IS perspective of ERP systems and know some of the challenges of ERP systems
INTRODUCTIONThe advancement in computers and communication technology has revolutionized the eld of Information Systems (IS) and Information Technology (IT). Over the time, many new terminologies emerged and some of them became magic words, popularly known as fads. Enterprise Resource Planning (ERP) Systems, a term used for highly integrated information systems in business organizations has become popular in the last decade. Because of its potential applications ERP System is a highly integrated and benets, the term has become a buzzword, and nowadays, is considered and enterprise wide information as the backbone of an organization. In other words, ERP System is a highly system that covers all the integrated and enterprise wide information system. Implementation of ERP functional areas or departments System requires crores of investment as it is enterprise wide and covers all in an organization. the functional areas or departments in an organization. An organization should judiciously decide whether to implement ERP systems or not.
NEED FOR ENTERPRISE RESOURCE PLANNING SYSTEMSThe traditional computerized systems were developed to cater to the needs of the respective functional areas like marketing information system, accounting and nance information systems; production information systems, human resources information systems and so on. However, these systems were designed for their
4 Enterprise Resource Planningrespective functional areas or the departments that were independent of each other. Obviously, these systems could provide information support for the functioning of their respective departments; and could not cater to the information needs of any business process that cuts across more than one functional area or department. In other words, these systems could not provide information support required for the entire organization, which is not only important but is essential these days because of the challenges of business and management. This becomes more critical for large size and with multi-product and with multi-location organizations.
Challenges of BusinessThere are many challenges of business, which are the main driving reasons for adoption of ERP systems. The two main challenges are mentioned below: (a) Competitive environment (b) Information age
Competitive EnvironmentIn order to survive and grow in todays cut-throat competitive environment, an organization should take fast as well as the right decisions. If an organization fails to take quick decisions, it may lose its business to its competitors.
Information AgeToday, in this age of information, large voluminous information is available, which needs to be processed in an integrated manner so that organizations are able to take the right decision. If an organization fails to implement the process, it may cost them a fortune. Thus, an organization must be equipped with some tool or a system, which integrates various functional areas across the entire organization and can provide information support, thereby, enabling it to take operational as well as strategic decisions. Enterprise Resource Planning System is one such computer-based integrated information system that supports an organization in its operations and enables it to take enterprise wide and strategic decisions. Owing to this, today, ERP system is considered to be of great importance and sometimes regarded as the backbone of an organization as well. Such a system, in an organization, assists the decision-makers by providing information and decision support at various stages of decision-making and thus greatly helps the organization to achieve its, goals, and strategies. Since ERP systems integrate various business functions, which otherwise may be disparate or different, it provides a number of benets.
Benets of ERP SystemERP system provide a number of benets, which include Reduced inventory Reduced carrying cost of inventory Reduced workforce Reduced cycle time Reduced data transfer time Reduced errors
ERP Systems: An Introduction 5 Reduced quality costs ERP systems to prove beneImproved information accuracy cial, must be planned well, Improved decision making capability selected carefully, implemented judiciously and used efciently. Improved customer satisfaction, etc In view of the need and the benets from such a system, a large number of organizations have already acquired and implemented these systems and many more are in the process of acquiring such a system. However, ERP systems to prove benecial, must be planned well, selected carefully, implemented judiciously and used efciently. The ERP systems which are poorly conceived and/or poorly implemented are bound to fail and would not be able to yield the desired result and sometimes may even prove to be fatal for an organization.
Scope of ERP SystemNowadays, information systems and information technology have become the vital components of any successful business. Moreover, as already discussed, ERP systems are organizational wide information systems and cover all the functional areas of a typical business organization. The main areas covered by ERP systems are as follows: Production and Manufacturing Planning Finance and Accounting Sales and Distribution Human Resources Quality Plant Maintenance Marketing Inventory Management ERP systems play a vital role in supporting the business of an organization. It supports: The business processes and operations of an organization Decision-making by employees and managers of an organization The strategies of an organization for competitive advantage
What does a Manager Needs to Know about ERP Systems?Every manager irrespective of his/her functional area is required to work in an ERP environment and thus, is supposed to have the knowledge of ERP systems. Here, it must be noted that for working in an ERP environment, one need not be an expert in programming or other complex technologies; rather he/she should be well aware of ERP as a system and its applications. Moreover, ERP is regarded not as a technology solution but as a business solution. Thus, for a successful planning and implementation of ERP system in an organization, one needs to know about the business and should have sound knowledge of ERP systems. That is why, ERP consultants are expected to have an experience in ERP systems along with a degree in Business Management. More precisely, what one needs to understand is
6 Enterprise Resource PlanningThe basic concepts of Information Systems and Information For a successful planning and Technology in general and ERP System in particular implementation of ERP system The Strategic Planning Process for establishing the need for an in an organization, one needs ERP System to know about the business and should have sound knowledge of The Modeling, Analysis and Re-design of business processes ERP systems. The Implementation process for ERP System The Challenges in managing ERP System Figure 1.1 illustrates the major areas that one needs to know about ERP systems.
Strategic planning: Need for ERP Basic concepts of Business and ERP System Implementation of ERP System
Analysis Tools and BPR
Challenges in ERP System
Figure 1.1 Basic Concept of ERP System
EVOLUTION OF ERPERP systems have evolved from the Materials Requirements Planning (MRP) systems of the 1970s and the Manufacturing Resources Planning (MRP II) systems of the 1980s. Assembly operations involving thousands of parts as in, automobile manufacturing led to large inventories. The need to bring down the large inventory levels associated with these industries led to the early MRP systems that planned the order releases. Such planned order releases ensured proper time phasing and accurate planning of the sub-assembly items, taking into account complex sub-assembly to assembly relationships characterized by the Bill of Materials. A natural evolution from the rst generation MRP systems was the Manufacturing Planning systems (MRP II) that addressed the entire manufacturing function and not just a single task within the manufacturing functions. MRP II systems went beyond computation of the materials required to include loading and scheduling. It could determine whether a given schedule of production was feasible, not merely from material availability but also from the point of view of other resources. Typically, the resources considered by MRP II systems would include production facilities, machine capacities and precedence sequences. Both MRP systems and MRP II systems were fairly successful in the industry. Thanks, to the power of information- system database, algorithms and their integration which helped the organizations in efciently managing the manufacturing functions in the eighties.
ERP Systems: An Introduction 7 The nineties saw unprecedented global competition, customer focus and Nowadays, the advanced ERP shortened product lifecycles. To respond to these demands, corporations systems, which are known as had to move towards agile manufacturing of products, continuous ERP-II or Enterprise Systems, improvements of processes and business process re-engineering. This extend beyond the boundaries called for integration of manufacturing with other functional areas including of an organization, and capt-ure accounting, marketing, nance and human resource development because inter-organizational processactivity-based costing would not be possible without the integration of es such as supply chain management (SCM), customer manufacturing and accounting. Mass customization of manufacturing relationship management (CRM) needed integration of marketing and manufacturing. Flexible manufacturing and so on. with people empowerment necessitated the integration of manufacturing with HRD function. In a sense, the 1990s truly called for integration of all the functions of management. ERP systems are such integrated information systems that helps to meet the information and decision needs of an enterprise spanning all the functions of management. Nowadays, the advanced ERP systems, which are known as ERP-II or Enterprise Systems, extend beyond the boundaries of an organization, and capture inter-organizational processes such as supply chain management (SCM), customer relationship management (CRM) and so on Such enterprise software focuses on supporting integrated groups of business processes rather than information processing requirements of the respective business function. Whereas, ERP focuses on efciency of a rms internal production logistics distribution, HR, and Financial Processes, CRM focuses on acquiring and retaining protable customers through marketing, sales and service processes and SCM focuses on developing the most efcient and effective sourcing and procurement processes with suppliers for the products and services needed by a business. Knowledge Management (KM) applications focus on providing a rms employees with tools that support group collaboration and decision support (Sawhney Mohan, and Jeff Zabin, 2001). Table 1.1 lists the evolution of ERP systems. Table 1.1Period 1960s
Evolution of ERP systems in different periods of timeSystem Inventory Management and Control Platform Mainframe legacy using third generation software (For example COBOL, Fortran) Details This system refers to the use of IT in business processes of maintaining the appropriate stock level. It includes activities like identifying inventory requirements; setting inventory level; purchasing the stock; monitoring usage of items, etc. MRP is a software application, which is used for scheduling production processes. The system generates schedules for the operations and raw material purchases based on various factors such as production requirements; the current inventories level; the lot size procedure for each operation and so on MRP-II, which is a broad term, refers to the software application that is used for coordinating manufacturing processes. It includes processes ranging from product planning; items purchasing; inventory control and nished product distributionTable 1.1 Contd.
Materials Requirement Planning (MRP)
Mainframe legacy using third generation software (For example COBOL, Fortran)
Manufacturing Requirements Planning (MRP-II)
Mainframe legacy using fourth generation applications
8 Enterprise Resource PlanningTable 1.1 Contd.
Enterprise Resource Planning (ERP) System
Mainframe or client-server using fourth generation database; software and package software applications to support organizational functions
Extended ERP or Enterprise Systems (ERP-II)
ERP System refers to a computer based integrated information system, which is designed to process an organizations transactions and to integrate the various functions/departments/divisions within an organization Client-server using web platform, open ERP-II or Enterprise Systems are advanced ERP source and integrated with fth generation systems, which extend beyond the boundaries of applications like supply chain management an organization, and capture inter-organizational (SCM), customer relationship management processes such as supply chain management (CRM), Sales force automation (SFA). (SCM), customer relationship management (CRM) Also available on Software as a Service and so on. They provide anywhere anytime access (SaaS) environments to organizational resources
WHAT IS ERP SYSTEM?Enterprise Resource Planning (ERP) System, as the name implies, should refer to the system meant for planning the resources of an organization. However, the term ERP System does not truly reect its literal meaning. In other words, ERP system does not only help in planning the organizational resources, but also supports the operations of an enterprise. ERP system refers to a computer-based integrated information system, which is designed to process an organizations transactions and to integrate the various functions/ departments/divisions within an organization. Thus, Enterprise Resource Planning (ERP) System is a set of application software package that integrates manufacturing, nance, sales, distribution, human resources and other business functions. ERP serves as a cross-functional enterprise backbone that integrates all the processes of the business and helps manage the resources of the organization. These systems help in focusing on production capacities, logistics management and working out nancial implications of each decision rather than just computing costs. The basic philosophy of an ERP System is that business processes are to be integrated at all levels and all the resources of an organization should be treated as common which, can be further efciently used for meeting the demands of the customers. A diagrammatic representation of the concept of ERP has been shown in Figure 1.2.
Functional applications Data Base Client User interface applications
The Concept of ERP
ERP Systems: An Introduction 9 As the needs of customers keep on changing, ERP systems provide Enterprise Resource Planning adaptability to these changing needs. ERP systems enable a manager to (ERP) System is a set of take an overall view of the business as a whole instead of having a myopic application software packages view of business functions, and thus, offer the benets of synergy of various that integrate manufacturing, functions in achieving the mission, goals, and strategies of an organization. nance, sales, distribution, These systems also offer exibility to business processes as the entire human resources and other process itself, instead of some function in the process, is automated. All business functions. the required changes are implemented quickly with ERP systems. For example, SAP-R/3, an ERP software package provides more than 700 processes that are automated and integrated with each other. Figure 1.3 illustrates a typical ERP system. In this system, the sales order processing interacts with the inventory system, work order maintenance and accounts receivable sub-systems. In other words, three important functional areas of a business, namely, marketing, production and nance are integrated. In the system, integration of some other activities like production planning, production scheduling, procurement of raw materials, material resource planning (MRP) has also been achieved.
Bill of Material
Materials Resource Planning
Sales Order Processing
Work Order Maintenance
Shop Floor Control
Raw Material Purchase
Figure 1.3 A Typical ERP System
10 Enterprise Resource Planning Components of ERP SystemsThe ERP System, which is an integrated computer based information system, comprises the following components. These components are shown diagrammatically in Figure 1.4. (a) People (Users and IT staff) (b) Hardware (servers, peripherals) and Software (Information Systems software, Operating systems and databases) (c) Database (organizational data from within and outside) (d) Model base (e) Processes (Business processes, procedures, and policies) Let us describe these components, in brief. People: As ERP systems are user machine systems, people are one of the important components of ERP system. Thus, this component includes all the people, may be users, top management and IT personnel and so on. Hardware and Software: This component represents the computers that include hardware like servers, desk tops, peripherals; and software like enterprise resource systems software, operating systems and so on. Database: This is the repository of an organizational data from within and outside the organization. Model base: This is the group of various models like mathematical model, arithmetical model, statistical model, nancial model, forecasting model, and descriptive model etc., which are essential to process the data into information. Processes: Include business processes, procedures, and policies of an organization.
esses/Business Proc Lo gicHardware
Figure 1.4 Components of ERP System
ERP Systems: An Introduction 11
ERP ModulesERP system is an integrated system, which comprises various modules covering different functions of an organization. Although, the features of ERP systems vary from application to application, the typical ERP functionality covers the core enterprise functions and the associated sample modules. A typical ERP system, as shown in Figure 1.5, consists of the following modules Sales and Distribution (SD) module Materials Management (MM) module Production Planning (PP) module Quality Planning (QM) module Plant Maintenance (PM) module Asset Management (AM) module Human Resources (HR) module Project Systems (PS) module Financial Accounting (FI) module Controlling (CO) module Workow (WF) moduleQM: Quality Management PM: Plant Maintenance HR: Human Resources PP: Production Planning MM: Materials Management SD: Sales and Distribution
QM PM HR ERP Data Base
FI CO AM
PS: Project systems WF: Work Flow IS: Industry solutions
FI: Financial Accounting CO: Costing and Controlling AM: Asset Management
Figure 1.5 Modules of a Typical ERP System
These modules are discussed below in brief.Sales and Distribution (SD) module:
This module tracks sales order and scheduled deliveries. It provides information about the customer which includes pricing, shipping of products, billing and so on.
Materials Management (MM) module: Purchasing of raw materials needed to manufacture products, handling of raw materials inventory, from storage to work-in-progress goods and so on.
12 Enterprise Resource PlanningProduction Planning (PP) module: This module maintains production information, performs capacity planning and creates a daily production schedule. The module is responsible for recording activities like production planning, scheduling and so on.
QM module plans and records quality control activities, such as product inspections and material certications.Quality Planning (QP) module: Plant Maintenance (PM) module: This module manages maintenance resources and planning for preventive maintenance of plant machinery to minimize equipment breakdowns. Asset Management (AM) module:
It helps in managing the xed asset like plant and machinery purchases This module facilitates employee recruiting, hiring, training, payroll and
and related depreciation.Human Resource (HR) module:
benets.Project Systems (PS) module:
PS module includes the activities pertaining to planning and control over various projects such as R & D, construction, marketing and IT. This module records transactions in the general ledger accounts, generates nancial statements, monitors and analyses cash holdings, nancial deals, investments and so on.
Financial Accounting (FI) module: Controlling (CO) module:
It supports the organization in controlling and decision making. By assigning costs to products and to cost centres the module helps in analyzing the protability of various activities of the company.Workow (WF) module: This module, in fact, cannot be called an ERP module as it does not automate any of the organizational activity; rather, this module is a set of tools that can be used to automate any of the activities in ERP package. It can perform task-ow analysis and prompt employees for action. Besides, these modules, ERP can have other modules, which can also be integrated with the system. The other modules include the following: Product Lifecycle Management (PLM) Supply Chain Management (SCM) Customer Relationship Management (CRM) Advanced Planning and Optimization (APO) Business Information Warehouse (BIW) Strategic Enterprise Management (SEM) Enterprise Portals (EP)
INFORMATION SYSTEMS PERSPECTIVE OF ERPOver the past four decades, Information systems have evolved from simple Electronic Data Processing (EDP) to todays highly integrated Enterprise Resource Planning Systems. Thus, ERP systems can be viewed as a logical extension of EDP, management information systems (MIS), decision support systems (DSS) and knowledge based systems (KBS). EDP systems concentrate on the efciency aspect to get routine things like payroll calculation, inventory reports or census reports faster and more accurately. The MIS systems addressed operational information need through effectiveness measures like exception reporting, insights into processes and so on. DSS used extensive modeling tools such as optimization, simulation and statistical
ERP Systems: An Introduction 13 analysis to reveal patterns in the information generated by MIS systems to genuinely support tactical and even strategic decisions. KBS systems went beyond data, information and models to capture the knowledge of the decision-maker and to use the captured knowledge to propose superior solutions. Fortunately, this permitted an evolution of ideas and maturity of computer applications in management. A related development categorized the applications through the tasks addressed ofce automation system (OAS), online transaction processing (OLTP), and Decision Support System (DSS). Unfortunately, these approaches missed out the key issue of Enterprise Resource Planning integration. The EDP, MIS, DSS and KBS based classication assumes (ERP) System is a set of appa compartmentalization across the layers of management (Sadagopan S., lication software packages that 1999). The OAS, OLTP, DSS classication assumes that the tasks are integrate manufacturing, nance, independent. Both assumptions are invalid in the real-world scenario. sales, distribution, human reERP systems capture the essence of the business processes. It is driven by sources and other business business needs and not IT needs. An IT driven solution often attempts to functions. formulate a way of using a technique to solve a known business problem. The emphasis is on the usage of a technique or a technology. ERP systems take a business driven view and solve the business problem using a combination of tools and implement the best practices using contemporary technology. ERP systems are often called a software package because many vendors like SAP-AG, Oracle Corporation, Infor, Epicor and so on developed these systems on the basis of the best industry practices and implemented these in an organization after some customization either in the ERP package or in the business processes. Figure 1.6 illustrates the ERP scenario in the Indian marketplace.FAD Necessity
ERP Maret Scenario
?Confusion People Issue
Figure 1.6 ERP in the Indian Marketplace
ROLE OF ERP IN BUSINESSERP system plays a very crucial role in almost all kinds of organizations irrespective of their size and nature of business. It is this crucial role that has been the main reason for its popularity and use. ERP system has changed the way organizations do business and has increased the efciencies and competitiveness of various organizations. The system has played a major role in automating business transactions, streamlining routine operations and has also helped organizations to take quick and well informed decisions and thus, enable
14 Enterprise Resource Planningthe organizations to serve their customers better. In view of the role ERP system can play, organizations are implementing these systems replacing their old or legacy systems. Various roles of ERP systems in business are discussed below. (i) Integration of functional areas: ERP systems play a very important role in integrating the various functional areas of a business organization. Because ERP systems are designed on the premise of a common database for all the functional areas and thus, have the ability to automatically update data among related functions or activities. For example, when a customer places an order and the order is entered into the system (either online or off line), it triggers many actions across various departments or functional areas like inventory management, production planning; nance, marketing and so on. The invoices are generated, production schedule is planned, the inventory status is veried, the items, if not available in the stock, are ordered, and the customer is informed about the likely date of the delivery of the ordered item. All these actions are taken automatically and data updation happens instantaneously. This role of ERP in integrating various functional areas leads to improved responsiveness across an organization, and thus, enables better decision-making and problem solving in organizations. This, in turn, leads to reduced lead time (the elapsed time between placing an order and receiving it); reduced cycle time (the time between placing an order and delivery of the product); efcient use of resources; on time delivery of products; transparency and overall customer satisfaction. (ii) Redesigning of business processes: Since, ERP System is process oriented and one of the prerequisites for the implementation of ERP systems is business process re-engineering (BPR). Thus, ERP systems force an organization to re-engineer or re-design their obsolete function-oriented business processes. To implement ERP system, organizations have to either adopt ERP based processes or modify ERP system so as to match its existing business processes. Since, ERP systems are designed and developed on the basis of the best practices of industry, it is generally recommended to adopt ERP processes. Thus, implementation of ERP system enables an organization to re-design its business processes which in turn enhances the efciency of its operations. (iii) Standardization of systems and procedures: ERP systems, which are based on an integration approach, enable an organization to follow standardized systems and procedures across the organizational units. This brings about consistency in the entire organization and becomes all the more important for the organizations, which have either acquired other company or got merged with some other company. ERP ensures that the new companies after the acquisition or merger uses the same information systems throughout and follow the similar procedures. (iv) Networked business: The integration of ERP System nowadays is extended beyond the boundaries of an organization leading to network with the business partners of the organization like supply chain management (SCM), customer relationship management (CRM) and so on. This network with the partners of an organization enables it to exchange electronically various business documents like purchase orders, sales order, invoices, billing and so on.
CHALLENGES OF ERPThere are many technical and organizational challenges in implementing ERP, which depend upon the organization, scope of implementation, business processes, and skill level of the users. The success of ERP implementation depends signicantly on redesigning the business processes and customizing the technology to t those processes. Customization is expensive and therefore, generally not
ERP Systems: An Introduction 15 recommended as ERP systems are designed and developed on the basis of the best practices of industry and the modications in ERP systems would not give the desired efciency. At the same time, redesigning of the business processes would change the structure as well as the way an organization does its business thus, leading to changes in organizational culture. ERP System, being a transformation and an expensive project, is not an easy decision, and thus, needs to be dealt with great care. Whether the organization needs an ERP system or not must be analysed properly based on the sound logic and should not be left to the IT people alone. While emphasizing on the challenges of ERP system implementation, Kalakota and Robinson (2000) cautioned the organizations when they said that an ERP implementation is like the corporate equivalent to a brain transplant. The risk was certainly disruption of business, because if you do not implement ERP properly, it can ruin your company. They stressed this fact further, and said that the fact cannot be denied that the implementation of ERP system is a complete business transformation which provides a competitive edge over other competitors but the costs and risks are also quite high. There have been different ERP implementation experiences from different companies. Many companies like Hershey Food, Nike, A-DEC and others sustained loses running into hundreds of millions of dollars. In the case of FoxMeyer Drugs, a $5 billion pharmaceutical wholesaler, the company had to le for bankruptcy protection, and then was bought out by its arch competitor McKesson Drugs (Kalakota and Robinson, 2000). The main reason for the failure of these systems has been lack of understanding of the complexity of the planning, development and implementation required for new ERP system. ERP system should not be regarded as another IT application; rather it is Whether the organization needs a complete business transformation which radically changes the business an ERP system or not must be processes as well as information systems of an organization. analysed properly based on the Another typical cause of unsuccessful ERP systems is the failure to sound logic and should not be involve all the affected users in all the stages of ERP system in a hurry. left to the IT people alone. Detailed discussion on such issues has been done in various chapters of this book.
ERP IN INDIAN COMPANIESGenerally, for ERP implementations, rst large companies take a lead to implement ERP System to increase internal efciency and external competitiveness and then the small companies follow suit. Sometimes, it is the large companies that they want their suppliers to be as effective as the effectiveness of their operations depends upon their chain partners like suppliers. As a chain is only as strong as its weakest link; the large companies would not like to have the weak links, and start expecting an increasing efciency from their suppliers as well. Hence, the next level companies are pressurized to implement ERP systems. Indian industry has recognized the fact that in order to work at maximum efciency, ERP must There is a lot of potential for be implemented at all levels. Some of the rst Indian companies to have ERP systems in the Indian adopted ERP practices are HLL, ONGC, ESSAR, Godrej Soaps, Cadburys, service sector. Transportation, BASF, Telco, Maruti Udyog Ltd., Century Rayon, Citibank, ACC, ANZ medical care, hospitality, courier Grindlays, German Remedies, Blue Star, Mahindra & Mahindra, Rallis service, telecommunication, India, Sony India Pvt. Ltd., Ceat Ltd., Indal, Ford Motors, Kirloskar, Knoll banking and nancial services, Pharmaceuticals, Glaxo and many others. and entertainment represent Some industry categories, such as Automotive, Steel, Consumer the major components of Indias service sector. Durables, Engineering, and Textiles have shown a very high ERP
16 Enterprise Resource Planningpenetration. It has been found that besides, these sectors; there is a lot of potential for ERP systems in the Indian service sector. Transportation, medical care, hospitality, courier service, telecommunication, banking and nancial services, and entertainment represent the major components of Indias service sector. Where the courier, transportation, and entertainment industries may not have specic current needs for ERP; Banking and telecommunication sectors have very specialized requirements that the manufacturing-inclined software solutions on the market would not effectively address. The same holds true for the medical care and hospitality sectors. New software and processes will need to be developed to meet the specic demands of the service industry, and thus has a tremendous potential in the future. The other positive factors, which go in favour of a good potential for ERP markets in India include development of good infrastructure for ERP; availability of ERP trained personnel; and the changing Indian mindset with the times; and a big success story of implementing ERP systems at the national level in the Indian Railways.
SUMMARYIn order to survive in todays cut-throat competitive environment, an organization needs to take quick as well as the right decisions. In such circumstances, the comport-based ERP systems come to the rescue. Judicious implementation of the same can help an organization in its operations and enable it to take apt decisions. However, an organization must plan well in advance, select carefully and then implement ERP systems. Poorly conceived and/or poorly implemented ERP systems are bound to fail and thus would not be able to provide the desired results and sometimes may even prove fatal for an organization. ERP system plays a crucial role in almost all kinds of organizations irrespective of their size and nature of business. This feature of ERP system has increased its popularity and use. It has changed the way organizations carry out business and has increased the efciencies and competitiveness of organizations. It has also helped organizations in automating business transactions, streamlining routine operations and taking quick and wellinformed decisions, thus enabling the organizations to serve their customers better. Some of the rst Indian companies to have adopted ERP practices are HLL, ONGC, ESSAR, Godrej Soaps, Cadbury, BASF, Telco, Maruti Udyog Ltd, Century Rayon, Citibank, ACC, ANZ Grindlays, German Remedies, Blue Star, Mahindra & Mahindra, Rallis India, Sony India Pvt Ltd, Ceat Ltd., Indal, Ford Motors, Kirloskar, Knoll Pharmaceuticals, Glaxo and many others.
OBJECTIVE TYPE QUESTIONS1. The term ERP stands for (a) Enterprise Resources Programme (b) Enterprise Resources Planning (c) Enterprise Requirement Plan (d) None of the above 2. ERP System is a highly integrated, and enterprise wide information system that covers (a) All the functional areas of an organization (b) Manufacturing area of an organization (c) Materials department of an organization (d) Finance and accounting area of an organization 3. Important business challenges of business, which are the main driving reasons for adoption of ERP systems, are (a) Competitive environment (b) Information age (c) Enterprise Systems (d) (a) and (b)
ERP Systems: An Introduction 17 4. ERP systems provide a number of benets, which include (a) Reduced Inventory (b) Reduced manpower (c) Reduced cycle time (d) All of the above 5. The ERP Systems which are poorly conceived and/or poorly implemented, will (a) fail and would not be able to provide the desired results (b) may even prove fatal for the organization (c) succeed after two years (d) (a) and (b) 6. The scope of an ERP system comprises (a) Quality (b) Plant Maintenance (c) Marketing (d) All the functional areas 7. ERP Systems play a vital role in supporting (a) The business processes and operations of an organization (b) Decision-making by employees and managers of an organization (c) The strategies of an organization for competitive advantage (d) All of the above 8. Any manager in an organization needs to understand (a) The basic concepts of ERP System (b) The strategic planning process and the implementation process for ERP System (c) (a) and (b) (d) the computer programming used in ERP Systems 9. ERP systems have evolved from (a) The Materials Requirements Planning (MRP) systems (b) The Manufacturing Resources Planning (MRP II) (c) (a) and (b) (d) Articial Intelligence Systems 10. The advanced ERP systems, are known as (a) ERP-II or Enterprise Systems (b) ERP Plus (c) ERP 2011 (d) ERP Forte 11. ERP II extends beyond the boundaries of an organization and (a) Manages relations of the employees (b) Capture inter-organizational processes such as SCM, CRM (c) Acts as a spying system (d) All of the above 12. ERP Systems may be dened as a set of application software/package that integrates (a) Manufacturing, nance, sales, distribution (b) Human resources and other business functions (c) (a) and (b) (d) None of the above
18 Enterprise Resource Planning13. ERP Systems comprise the various components, which comprises (a) People and Processes (b) Hardware and Software (c) Database and Model Base (d) All of the above 14. A typical ERP system consists of various modules that include (a) The Sales and Distribution (SD) module (b) The DSS module (c) The Production Planning (PP) module (d) (a) and (c) 15. The OAS, OLTP, DSS classication assumes (a) The tasks are dependent (b) The tasks are independent (c) Both (a) and (b) (d) None of the above 16. The ERP system has played a major role in (a) Automating business transactions (b) Streamlining routine operations (c) Helping the organizations take quick and well informed decisions (d) All of the above 17. The main reason for the failure of ERP systems has been the lack of understanding of (a) Its functioning (b) Complexity of the planning, development and implementation required for new ERP system (c) Technicalities (d) None of the above 18. The Indian companies, which have shown a very high ERP penetration, are (a) Automotive, Steel, Consumer Durables, Engineering, and Textiles (b) Transportation, medical care, hospitality, courier service, and telecommunication (c) Education Sector (d0 Small businesses 19. The positive factors, which go in favor of a good potential for ERP markets in India include (a) Development of good infrastructure for ERP (b) Availability of ERP trained personnel (c) The changing Indian mindset with the times (d) All of the above 20. ERP should not be considered just another IT project, rather it should be taken as (a) A complete business transformation project (b) More important project than starting an other factory (c) Important than acquiring another business (d) Internet Project
REVIEW QUESTIONS1. Do you think ERP systems are important for any type of the organization? Discuss. 2. How is the role of ERP System different from traditional information systems? Can an ERP System support all levels of management? Discuss.
ERP Systems: An Introduction 19 3. Discuss the evolution of ERP systems. Do you think ERP systems overcome the limitations of traditional information systems? How? 4. Briey discuss the concept of ERP systems. How are they different from ERP-II? 5. Discuss the various modules of ERP system. Take suitable example. 6. Illustrate the role of ERP systems in business. Do you also think that ERP systems act as a backbone for the organizations? Justify your answer. 7. Do you think Business Process Re-engineering is a pre requisite for the implementation of an ERP System? Why? 8. What are the main challenges for implementing an ERP System in an organization? Discuss.
ASSIGNMENTS1. Suppose you are to select an ERP system for a small manufacturing company. The company has 250 employees spread across India, Europe and United States of America. Search any ve prominent ERP vendors and visit their websites to nd information on: (a) The functional areas that the ERP supports (b) The industry focus of ERP and the size of business that ERP supports (c) The average cost of ERP system or any license fee per user (d) Credibility of the vendors (e) Any other critical information on the vendor 2. Find any three ERP systems specically to be used for educational institutions. Find out information on the following aspects: (a) All the features of these systems (b) How these three systems differ from one another (c) Cost of these systems 3. M/S Green Build Corporation, which is in the business of construction, is having many large projects on hand. The company has already implemented some of the computerized information systems like salary management system, leave management system, accounting and nance management systems, but they do not have any information system for monitoring the projects and many of its projects failed, because of poor monitoring of projects. Find out whether the company should implement an ERP system? Discuss the scope of proposed ERP systems. 4. Princess Beauty Parlour is a chain of Beauty Parlours across the country. They have been fairly successful in the past, but have now started facing intense competition from several people who operate from home, and therefore have lower costs. Customers do not see too much difference between the service offerings of Princess and its unorganized, home-based competitors, and are therefore, quite willing to switch. The Directors of Princess have organized a brainstorming session to gure out how to regain and constantly grow market share. You have been invited to this session as a Consultant, and you need to advise the company on what it should do, and where Information Technology based solutions can help.
20 Enterprise Resource Planning
BIBLIOGRAPHYGoyal, D.P., Management Information Systems, Managerial Perspectives, Third edition, Macmillan Publishers India Limited, Delhi, 2010. Han, J. and Kamber, M., Data Mining Concepts and Techniques, Elsevier, San Francisco, 2004. Jaiswal MP and Vanapalli Ganesh: Text book of Enterprise Resource Planning, Macmillan India Limited, New Delhi, 2005. Kalakota R. and Robinson M., E-Business 2.0, Roadmap for success, Addison Wesley, Boston, 2001. Leon Alexis: ERP Demystied, Tata McGraw Hill Education Private Limited, New Delhi, 2008. Monk, Ellen f. and Wagner Bret J.: Enterprise Resource Planning, Course Technology a part of Cengage Learning, New Delhi, 2009. Motiwalla, Luvai F and Thomson Jeff, Enterprise Systems for Management, Pearson Education, Inc., New Delhi, 2009. Olson, David L., Managerial Issues of Enterprise Resource Planning Systems, Tata McGraw-Hill Publishing Company Limited, New Delhi, 2004. Turban Efraim, Mclean Ephraim and Wetherbe James, Information Technology for Management, John Wiley & Sons, Inc., New York, 2001.
ANSWERS TO OBJECTIVE TYPE QUESTIONS1. (b) 9. (c) 17. (b) 2. (a) 10. (a) 18. (a) 3. (d) 11. (b) 19. (d) 4. (d) 12. (c) 20. (a) 5. (d) 13. (d) 6. (d) 14. (d) 7. (d) 15. (b) 8. (c) 16. (d)
ERP Systems: An Introduction 21
Is ERP the Solution for Sawhney & Sawhney?INTRODUCTIONSawhney & Sawhney is a popular chain of family restaurants mainly in the states of Punjab, Haryana, Uttar Pradesh, Uttaranchal and Delhi NCR. On an average over 80,000 people visit Sawhney & Sawhneys 5 hotels, 47 Family Style Restaurants, 8 Fine-Dine Restaurants, 3 Specialty Restaurant, 24 Pastry Shops and 6 Bars every day. This proves that their efforts to maintain high quality standards both at production as well as service level have been recognized and commended. To cater to all these restaurants Sawhney & Sawhney has two production units one at Noida and the other at Patiala. The logistics at these facilities are staggering 8.5 lakh kg of our, 29 lakh litres of milk, 15 lakh eggs, 97 tonnes of meat, 310 tonnes of chicken, 180 tonnes of cream, 330 tonnes of sugar, 37 tonnes of milk powder, 52 tonnes of butter and 2.5 lakh litres of oil are used in a year at Sawhney & Sawhney. But despite these huge quantities, quality has never been compromised. 28 food and dairy technologists and other management personnel work round the clock to ensure that the best reaches the consumers. The Noida production unit includes the Vegetable Food Commissary, Food Processing Unit, Cheese Processing Unit, a Bakery and a Confectionery. The detailed description of each unit is given below. Vegetable Food Commissary: The Vegetable Food Commissary produces a whole range of semiprocessed and nished vegetable food products ranging from curries, soups, vegetable burger patties and South Indian dishes. Food Processing Unit: This division produces 6070 products ranging from a variety of ketchups to jams, fruit toppings and syrups. These are sealed in airtight pouches and dispatched to Sawhney & Sawhney outlets for consumption as well as to be sold in the retail markets. Cheese Processing Unit: Sawhney & Sawhney is one of the largest manufacturers of cheese in India, processing at least 10 varieties of cheese such as Processed Cheese, Mozzarella, Cream Cheese, Cottage Cheese, Monterey Jack, Feta, Cheese Spreads and so on. The Cheese processing unit has a capacity to process 12000 litres of milk per shift. In winters, the unit produces 2022 tonnes of cheese and in summer the production is about 68 tonnes per month. Special stretching and moulding machines have been imported from Italy for this purpose. Bakery: Spread across 15,000 square feet, the bakery unit at Sawhney & Sawhney produces 4550 items every day. The unit produces three varieties of Pizza bases, 20 types of breads, wafe cones and bread cones. The Bakery division uses high-speed mixture machines, which prepares the dough in just three minutes. Sawhney & Sawhney also makes 45 types of pastries with 2022 different avours apart from a huge variety of cakes, 18 types of cookies, chocolates, mint sticks and stick jaws. Patiala facilities contain the Central Commissary, Non-Veg Food Commissary, Ice Cream Manufacturing Unit, Confectionery and Central Distribution Unit. The detailed description of each facility is given below. Non-Veg Food Commissary: The Non-Veg Food Commissary produces a whole range of semiprocessed and nished non-veg food products ranging from curries, soups and patties/toppings for burger/pizza. Non-veg specialties such as tandoori chicken, seekh kebab, frankfurter, hamburger patty,
22 Enterprise Resource Planningchops and so on are processed at the butchery in Patiala. Quality control measures are strictly adhered to at every point right from processing to storing at sub-zero temperatures and later, transportation in special refrigerated vans. Ice Cream Manufacturing Unit: Sawhney & Sawhney is one of the pioneers in the ice cream industry in India, manufacturing ve thousand litres of ice cream on a daily basis. This ice cream is stored in cold storage rooms with temperatures as low as 25 degrees celsius before being dispatched to various outlets. At any given point of time, a minimum of 21 different avours of ice creams are available at various Sawhney & Sawhney outlets. Confectionery: Sawhney & Sawhney has a well-organized confectionery at Patiala manned by experienced chefs who come up with a variety of cakes, pastries, cookies, savouries, caramels and chocolates. The other departments that help the processes at Sawhney & Sawhney are given below: Quality Assurance Department: The Quality Assurance Department (QAD) has 18 qualied and experienced Food Technologists/Chemists and Microbiologists for monitoring the quality systems at Sawhney & Sawhney. The QAD reports to the Managing Director for his personal review. The department has a well-established laboratory with modern testing facilities at each Production Centre (Patiala and Noida). Various tests of raw materials, under-process material and nished products on the lines of ISO 9000 and HACCP are carried out to ensure that all the products fulll the desired standards. Raw Material Specications: Sawhney & Sawhney QAD has formulated stringent quality standards for all raw materials conforming to the regulatory requirements. The products are checked at every stage: Analysis of Raw Material Analysis of Under-Process Material Analysis of Finished Product Monitoring During Production 1. Recipes and Manufacturing Procedures The Quality assurance staff monitors production and ensures adherence to the approved recipes and procedures. This is done through regular recipe audits at all the production levels. 2. Hygiene and Sanitation Periodic audits are conducted at all production centres, the report of which is sent to the production heads for compliance. The hygiene of individual workers is examined on a daily basis, apart from their regular medical check-up. QAD conducts fortnightly audits at the service outlets covering following parameters: Restaurant Sanitation Audit Storage Temperature Food Safety Audit Regulatory Requirements R & D: The department is actively involved in product improvement and product development activities.
ERP Systems: An Introduction 23 Environment: At Sawhney & Sawhney, special attention is paid to ensure that no harm is done to the environment. Before being discharged into a public sewer, efuents are sent through special efuent treatment plants. Solid waste/garbage is sent to the farms for conversion into compost. The Efuent Treatment Plant is monitored by the Sawhney & Sawhney Quality Assurance Department.
Information System RequirementsConsidering the size and complexity of operations at Sawhney & Sawhney, it is evident that there must be an efcient information system already at work in Sawhney & Sawhney. This is true since they produced highly perishable goods. Some of the products had a life span of only one day and thus, the information systems had to be extremely efcient and stable. Each Sawhney & Sawhney restaurant or food outlet had a POS (Point of Sale) system, which recorded all sales transactions. Because of the sheer volume of transactions conducted every day, analysis of sales data was a daunting task. The sales data collected is cleaned and sent to the head ofce daily where another transactional system collates it. The simplest of queries would take a long time to process and the management was dependent on their MIS Staff to generate standard reports. The Sawhney & Sawhney management needed a system that would provide them with current sales data that could quickly be analyzed without depending on the manual effort of the MIS Department. This would also have the additional benet of freeing up the time of the MIS Department to perform other strategic tasks. To understand the requirements at Sawhney & Sawhney, a risk-consultant from a leading B-School was invited, who has identied the following requirements which are listed below. The Management should see, in almost real-time, sales trends across their business. It should also allow them to conduct ad hoc queries. Any authorized person should be able to enquire for the required information from their desktops. The system should generate reports as per the requirements of the managers. The system should learn from the repetitive queries of the managers and generate reports pertaining to those queries. The system should also be designed in such a manner that it can be customized to the various positions in the organization. For example, a manager in the quality assurance division should be given a report on the amount of rejected products generated per day without him/her having to ask for it. The manager should be provided with a cumulative report of all the deviations from the standards at the end of the month.
Questions for Discussion1. Do you think Sawhney & Sawhney needs an ERP System for their business problems? Justify your answer. 2. What benets, do you think, Sawhney & Sawhney can get by implementing ERP systems? Illustrate. 3. Suppose, Sawhney & Sawhney decides to go in for ERP systems, Identify the scope for ERP system to be implemented at the company.