ERP – Overview

– Ch-1

S.Mookherjee
Course Expectations…..

▪ To make you understand ‘WHY ERP’.

▪ To help you understand some of the key product features at a very HIGH
LEVEL
▪ How to take the BEST from an ERP.
▪ To help you understand the REQUIREMENTS from an organization in
IMPLEMENTING an ERP
▪ To educate you on the ‘PROS and CONS’ of an ERP such that as a manager
you should know what to look for before taking the decision to go for ERP in
your organization.
▪ This course will NOT make you a SAP/ERP consultant

Slide 2
Who are YOU ?

CLIENT ORGANIZATION CONSULTING ORGANIZATION

CEO
CFO Partner
CIO
Client- Implementation
Project -Project
Manager Manager

Business Analyst /
ERP Consultant

He has to oversee all dimensions of the project

Slide 3
 Chapter 1: ERP Overview – Defining ERP

▪ ERP is integrated information system built on a centralized database and

common computing platform helps in effective usage of enterprise’s resources,
facilitates the flow of information between all business functions of the enterprise.

Enterprise resource planning (ERP) is a method of efficiently utilizing people,

hardware and software to increase productivity and profit, thus simplifying a
company’s business processes. ERP may include many software applications
or a single (but more complex) software package that smoothly disseminates
data required by two or more unique business departments.

▪ Enterprise: Any organization that has a set of common goals

▪ Resource: Assets of the enterprise in the form of Man, Machine, Material
▪ Planning: Planning for effective utilization of resources
 Chapter 1: ERP Overview – Why ERP
The need for enterprise resource planning (ERP) software grew with big business’ mandate
for a centralized solution to manage all information system requirements. An ERP may
consist of many different business modules, including:
• Manufacturing
• Human Resources/Payroll
• Sales
• Inventory
• Supply Chain/Partners
• Finance and Accounting
• CRM

▪ The Four Major Drivers:

▪ From Department To Enterprise
▪ From Function To Process
▪ From Functional Silos To Integrated Information System
▪ From Departmental Database To Companywide Integrated Database
Stand Alone Solutions – Islands………. PAST ( Pre 80’s )

Materials

Sales

Manufacturing

Finance

Slide 6
Integrated ……… PRESENT

Supplier Materials

Sales

Manufactu
ring

Finance

Slide 7
Order Invoicing Process – An Example

Order entry
Material
requirements planning

Production
order

Invoice

Storage/ Accounts
Delivery receivable

Slide 8
Enterprise Resource Planning ….past

Legacy Systems of Company functions...

Purchase

Manufacturing Finance

Sales
Slide 9
Enterprise Resource Planning…..present

... synchronization of Company functions...

Purchase

Manufacturing Finance

Sales

Question – When , Manufacturing happens , how do Purchase , Sales

and Finance get impacted ?
Slide 10
Enterprise Resource Planning

… and extended to the complete value chain...

Vehicle OEM

Finance

Customer
Transport Fleet Operator
Component
Supplier
Slide 11
 Chapter 1: Problems with Information Silos
Orders for each department need to be created
separately

Finance Purchase / Production

Sales Human
Materials
✓Create Resource
✓Maintain ✓Create Production ✓Payroll
accounts / Purchase ✓Create Sales Plan process
Budgets orders order / ✓Do
Quotation ✓Employee
✓Goods Production
✓Produce movements ✓Invoice Mgmt
database
reports for maintenance
✓Produce ✓Produce ✓Produce
own dept ✓Produce
reports for reports for reports for reports for
own dept. own dept. own dept own dept.

Problems with Information Silos

✓Duplication Of Data and chances of making mistakes
✓No Integration between different Systems
✓No online updation of information
Chapter 1: ERPs bring Central Database and Integrated Information System

Warehouse and
Maintain all financial
Transportation helps in
Managing transportation transactions in finance
Maintenance module And warehousing module
Helps in maintaining
equipments

Quality mgmt module ERP Sales module helps

helps in quality inspection, in order entry, Pricing,
Sampling etc Database Quotation, Invoicing etc

Human resource module

helps in employee
Database maintenance Procurement and Production module
And payroll Materials module helps helps
In procurement and In production planning
inventory mgmt and execution
 Covers all aspects
of the enterprise
Integrated

Real Time Characteristics

of ERP
BPR & Best
Practices

C
COON
N TT R
ROO LL LL II N
NGG
Finance Balance sheet Capital Costs

Purchasing Production Sales/distrib

Sales/ distrib..

Procurement Sales
market market

Machines

R
Operating resources

R EE SS O
OUUR
RCCEE SS
Human resources

Strong
Process Online Data Security &
Slide 14
Oriented Validation Control
 Business Process benefits clients expect
from an ERP project
• Global process/ Product management
• Integrated Supply Chain Management
• Leverage purchasing and vendor management
• Order cycle time/ customer service improvement
• Inventory reductions
• Reduced information systems costs on an ongoing basis
• Improved business management through worldwide integration
and information
• A Smarter organization

Vendors Inbound Manufacturing Transportation Distribution Delivery Customer Consumer

Logistics

Slide 15
Logistics and Distribution Sales & Customer Service
 Some of the impacts of ERP
implementation

• ERP will impact

– Communication and information domain
– Intra-Organization Communication and Collaboration
– Inter-Organization Communication and Collaboration
– Leadership and Authority
– Company policies
– Jobs and rewards
– Company structure and Culture
– Skills and Knowledge of employees

Slide 16
 Getting the best out of an ERP – Maximize ROI

• Need to have a comprehensive or thorough business

case for the executives and business stake holders
– It is not merely an IT project
– Provides with an excellent opportunity to transform
business
– It entails significant organizational change
– Without support from business, the ERP implementation
falters and IT often has a hard sell for keeping it around.
• Not keeping track of the numbers
– Many companies do not estimate the ROI to begin with
– Many of them do not have the metrices and key
performance indicators in place to track ROI sufficiently or
drive business goals.
Slide 17
Contd…
 Getting the best out of an ERP – Maximize ROI
• Unnecessary customization, application redundancy and integration
with outdated existing systems
– In depth study of the product and its features is not done
– unnecessary customizations either to compensate for perceived lack of
functionality or in hopes of reducing complexity or to retain existing
Reports
– Not replacing outdated systems instead building interfaces thus
increasing the TCO and maintenance costs.
- Insufficient internal resources
– Business user commitment is a key factor to a successful ERP system,
those from the business side of the company, who will probably use the
system the most, are left out and miss an important opportunity to learn
about all its dimensions and capabilities.
– After “go live,”the members move on to the next project or business
role. The ongoing management of the application is left to IT and
business users are left with very little idea of how the ERP system can
support their business. This can prevent the application from being able
to meet the company’s needs.
Slide 18
Contd…
 Getting the best out of an ERP – Maximize ROI
By addressing the most common reasons that ERP applications fail or
do not yield desired financial results, you can implement an ERP
application that will help you run your business more efficiently and
facilitate decision making and innovation.

• Make the case and get the buy in from the CEO
– Describe the investment in terms of quantifiable benefits for your
company.
– If your CEO knows the plan for how you will install, deploy,
maintain and use the ERP system, then it will be easier for him
or her to support it.
– Include metrics, using existing performance as a baseline. When
you provide key performance indicators and other
measurements that show quantifiable improvement versus the
status quo, the CEO will better understand the benefits.
Slide 19
Contd…
 Getting the best out of an ERP – Maximize ROI

• Follow the numbers

– To determine the ROI, calculate the total costs of your solution
by including components such as Software, Hardware,
Connectivity ( LAN/WAN) , Upgrades, Support, Maintenance,
Training, Customization ,Implementation services and more.
– Compare those costs with the tangible benefits the investment
will provide and you will have your ROI.
– To establish baseline metrices for this process, collect data on
the various measures of operational efficiency, sales and
financial performance, such as Days Sales Outstanding, Days
in Inventory, Accounts Receivable, Sales per Employee and
so on.
– An ERP system also provides many intangible benefits such as
faster response to market dynamics, improved customer
service and reduced risk.

Slide 20
Contd…
 Getting the best out of an ERP – Maximize ROI

• Know your ERP and retire your old applications

– There are ERP applications in the marketplace that were created
for midsize businesses. The key is to look for preconfigured,
vertical-specific solutions that are based on industry best
practices and yet can be tailored to meet your company’s
specific needs.
– The standardized information and processes of these
solutions will streamline your operations so that they are more
efficient.
– The industry best practices will prepare you to handle external
pressures, such as competition and compliance.
– Customization will ensure that your particular needs are being
met.
– You should also search for a solution that can “go live” quickly
and be flexible to meet changing business needs.
– In addition, to reduce TCO, your company should make the push
to retire your older systems, rather than integrate them. Contd…
Slide 21
 Getting the best out of an ERP – Maximize ROI
• Cross the IT-Business divide
– ERP Implementation is NOT an IT program but a
Business Program
– ERP applications form the information backbone of your
business. Increasingly, business executives, the ones making
decisions and trying to increase profits, are using these
applications and need the information it can provide.
– So, it is very important to the success of your ERP
implementation that you reach across the line that is often drawn
between business and IT and establish a group of “power users”
or “super users.”
– They should be part of the process of defining functional
requirements for the application.
– In addition to assisting users with the application, power users
make sure that the line of communication between business and
IT regarding the application stays open.
Slide 22
Contd…
 Getting the best out of an ERP – Maximize ROI

• Conclusion
– Do not be tempted by solutions from vendors that claim
high ROI until you have done all your homework. You
should look for solutions that are manageable in terms of
cost and functionality.
– ERP software can be an expensive and time-consuming
IT investment. However, when a company selects an ERP
that meets current and future requirements and it is
implemented properly, it is well worth that investment.
– ERP applications facilitate the standardization and
acceleration of business processes and contribute to the
visibility necessary to run your business well and grow
revenue and profits.
Slide 23
24
 Systems Applications & Products in Data
Processing

SD FI
Financial
Sales &
Distribution Accounting

MM CO

R/3
Materials Controlling
Mgmt.
PP
Product
TR
Planning Treasury

QM Client/ServerPS
Quality Project
Mgmt. System
PM ABAP/4 WF
Plant Mainte- Workflow
nance
HR IS
Human Industry
Launched in 1972 by 5 IBM Resources Solutions

engineers in Germany.

Slide 25
 SAP R/3 : 3 Tier Architecture

Presentation Layer components are installed across many PCs.

The Application Layer

components are installed
across one or more high-
end servers.

The Database Layer

components are installed on
high-end database server.
Slide 26
 The beauty & power of ERP…
SD
Request from a PP
Customer FI MM FI

Credit Management
Dynamic Availability Check
Cash Forecast

?
OK

Slide 27
 Chapter 1: History of ERP and Enterprise Applications

SCM

CRM

PLM

SRM
ERP

MRP II
MRP - I

Closed Loop MRP

2000 – Till Date

60’s-70’s 70’s – 80’s 80’s – Till Date

Time

MRP – Material Requirement Planning

 Chapter 1: ERP Evolution – Closed Loop MRP I

▪ Closed Loop MRP was the next evolution after MRP which partially solved some
of the MRP issues.

Advantages
▪ Provides information on which items to buy or manufacture, how much quantity
and on which date.
▪ Does a manual feasibility check of MRP plan.
▪ Provides alerts / triggers if the plan is not feasible.

Disadvantages
▪ Could not replan quickly
▪ Not integrated with other organizational processes.
 Chapter 1: ERP Evolution – MRP 2

▪ MRP 2 systems were much more stronger compared to MRP / Closed Loop
MRP in terms of functionality. These systems were well integrated with several
organizational business processes and had multiple modules.

Advantages
▪ Include processes for Business planning, Sales planning, Demand management
etc.
▪ Helped in several supply chain execution processes (like Purchase and
Production order execution, Sales execution etc.).

Disadvantages
▪ Not fully integrated with all organization processes (like: HR , QM , PM etc.)
 Chapter 1: ERP – Some Early History of few Leading ERPs

• 1972: Five engineers ( IBM ) in Mannheim , Germany started the

company SAP, with the idea of producing and marketing standard
software for integrated business solutions.
• 1975: Richard Lawson, Bill Lawson, and John Cerullo started Lawson
Software, a pre-packaged enterprise technology solutions as an
alternative to customized business software applications.
• 1977: Jack Thompson (J), Dan Gregory (D), and Ed McVaney (ED)
formed JD Edwards.
• 1978 Jan Baan begins The Baan Corporation that offered leading Baan
ERP for several years. It is currently known as Infor Solutions.
• 1987: PeopleSoft was founded by Dave Duffield and Ken Morris.

JD Edwards and PeopleSoft have been taken over by Oracle and merged
with Oracle ERP
Baan is now known as Infor.
 Advantages of ERP – An example

A simple Goods Receipt transaction can trigger several activities

, e.g.
• Stock and Value of inventory get updated
• Inspection Lot gets created to trigger a quality inspection
• Stock and consumption account updated
• Purchase order history gets updated
• A transfer request is created to move the goods to the
warehouse
• Vendor gets quality rated
 Bill Of Material

Bicycle(1)
Part No 1000

Handle Bars (1) Frame Assembly (1)

Part No 1001 Part No 1002

Wheels (2) Frame (1)

Part No 1003 Part No 1004
 MRP - Process Flowchart

Customer Independent Sales Budget

MRP
Orders requirements / Promotions

Planned order

Conversion

CAPACITY PLANNING Purchase Scheduling

Production Order requisition Agreement

Purchase Orders
For Bought out
Order Processing components
For In-house
Manufacturing

FINAL COSTING
INVOICE VERIFICATION

Warehouse
 ERP Benefits

• Reduce Order to Cash cycle times

• Improved Customer Service
• Better Data Management ( Single point of data entry )
• Automate transactions ( e.g MRP run )
• Better Planning , Analysis and Decision Making
• Inter and Intra Organization communication
• Brings in Best Practices
• Facilitates BPR ( Business Process Reengineering )
• Integration
• On Line Real time information and MIS reports
• Decision Support systems
 Chapter 1: ERP Challenges
Implementation Challenges Support / Maintenance Challenges
✓Scope Changes ✓Getting right people
✓Huge Budget ✓Managing multiple vendors
✓Long Timeline ✓Managing regular upgrades
✓Process redesign challenges ✓Technology obsolescence
✓Unrealistic expectation ✓Large application portfolio
✓Complex Interfaces ✓Managing transition
✓Realizing benefits

Managing People
✓Managing Change
✓Managing large project team
✓Managing employee retention and relocation
✓Top management support
✓Managing Communication
 Some Critical Success factors ……………
➢ Ownership & Support from top management
(Project Sponsor & Steering Committee)
➢ Commitment to the Product ( e.g.SAP )
➢ COMMITMENT TO CHANGE
➢ Full time presence of dedicated project core team
members having expert functional knowledge,
change management skills and exposure to IT.
➢ Quick decision making and avoid lengthy
discussions on trivial issues.
➢ Avoid frequent changes to requirements
➢ Strict adherence to the project plan

Slide 37
 Chapter 1: ERP – Recent Trends

✓ ERP vendors are moving into Enterprise Applications space

( CRM,SRM,PLM,SCM etc.)
✓ SME clients are everybody’s focus
✓ ERP vendors are going vertical i.e. building more industry specific extensions
✓ New ERP deployment models are emerging in the form of SAAS, Cloud
Computing etc.

✓ Continuous consolidation is going on in ERP vendor base

✓ ERP upgrade is becoming a big business
✓ Newer types of ERP projects are emerging – Migration, Consolidation,
Harmonization etc.
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