Chapter-02

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M.C.A. SEM. I

Enterprise Resource Planning (ERP) - 2610002

Prepared By : Ekta Bhatt

Enterprise :- The enterprise is any organization that has a set of common goals.

Resource :- Resources can be in the form of:

◦ human resource (manpower),

◦ capacity (machine, plants, warehouses, etc),

◦ Inventory resources (finished goods, raw material stock), etc.

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Planning :- For effective utilization of resources, an enterprise needs to plan and undertake a variety of activities like:

◦ Demand planning,

◦ Distribution planning,

◦ Production planning,

◦ Capacity planning,

◦ Material planning,

◦ Maintenance planning,

◦ Financial planning,

◦ New product planning, etc.

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“ERP is an abbreviation for Enterprise Resource Planningand means,◦ the techniques and concepts for integrated management

of businesses as a whole from the viewpoint of theeffective use of management resources to improve theefficiency of enterprise management. “

“ERP is an integrated information system built on acentralized database and having common computingplatform that helps in effective usage of enterprise’sresources and facilities the flow of information between allbusiness functions of the enterprise (and with externalstakeholders).”

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ERP is an enterprise-wide information system designed to coordinate all the

◦ resources,

◦ information,

◦ activities needed

to complete business processes such as:

◦ order fulfillment

◦ billing

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A typical ERP system would use multiple component of computer software and hardware to achieve integration.

ERP delivers a single database that contains all data for the software modules.

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Industrial Engineering Faculty wants to buy a new Printer.

For this reason Secretary gives a purchasing orderby filling purchasing order forms.

Next slide shows how this purchasing request process flow was working before ERP systems.

1. Purchase order form for a new printer

2. Head of Department Confirmation- Faculty Head

3. Purchase order document sent to Account Office

4. Account Office Secretary sents the purchase order to the Responsibles

5. Purchase order- Responsible personal Confirmation

6. Purchasing department- Manager Confirmation

7. Transfer to Finance Department Secretary for processing

8. Finance Department Responsible’s Confirmation

9. Transfer to Rector’s Office

10. Rector’s Secretary- Confirmation

11. Confirmation Transfer, to Purchase Department Secretary

12. Purchase Responsible personal commends with Purchase:

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Secretary’s New printer application

Transfer to Accounting Office

Example: Before ERP Systems

Industrial Engineering Faculty wants to buy a new HP Printer.

For this reason Secretary gives a purchasing order with using Online ERP systems.

Next slide shows the purchasing order process flow with ERP Systems.

SAP SYSTEM ONLINE

HEAD OF DEPARTMENT

REQUEST OF NEW

HP PRINTERCONFIRMATION

SAP SYSTEM ONLINE

PURCHASE

RESPONSIBLE

FINANCIAL

ACCOUNTING

SAP SYSTEM ONLINE

PURCHASEING MANAGERCONFIRMATION

SECRETARY

SAP SYSTEM ONLINE

FINANCE DEPARTMENTCONFIRMATION

SAP SYSTEM ONLINE

RECTORS OFFICECONFIRMATION

SAP SYSTEM ONLINE

PURCHASE DEPARTMENT

PURCHASE

OF NEW

HP PRINTER

Online Data Flow decreases the process time

Fast & Online Confirmation Less Paperwork No need for folder storage Database Security

Less Employee needed Easy Financial Management

Better Inventory Management

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ERP packages are integrated (covering all business functions) software packages that support the ERP concepts.

ERP software is a mirror image of the major business processes of an organization, such as customer order fulfillment and manufacturing.

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ERP integrates all business functions into a single,integrated software program that runs on a singledatabase so that the various departments canmore easily share information and communicatewith each other.

The integrated approach of ERP has tremendouspower and potential in improving the efficiency,productivity, and competitiveness of theorganization.

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1. ERP means more work and procedures :

◦ Many employees think that ERP will add more work, make the work more difficult and will force unnecessary procedures.

◦ Transformation from the old system to the ERP is a difficult process.

◦ Proper management, implementation, proper training make transition smooth.

◦ ERP can makes life of employee by applying automated tools.

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2. ERP will make many employees redundant and jobless :-

◦ Another misconception about ERP is that its implementation will make many jobs redundant(jobless/unemployed) because of the automation.

◦ Hence, many employees will lose their jobs.

◦ There will be changes in job descriptions and in the activities people used to do.

◦ ERP creates new job opportunities by giving proper training on the new tasks.

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3. ERP is the sole responsibility of the management

◦ The job of management is to create an organizational environment in which ERP can succeed.

◦ Management should monitor the implementation and operation of system, review progress, take necessary action, if required.

◦ Making an ERP system work is the responsibility of all the employees.

◦ If employees are not trained, satisfied with system or not happy then ERP system will be a failure.

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4. ERP is just for the managers/ decision-makers

◦ The managers and decision-makers are the major users of the ERP system.

◦ Quality of decisions are improved.

◦ ERP system provide high quality, timely and relevant information.

◦ But every employee in an organization benefits from the ERP system.

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For example,

◦ An ERP system, gives the store clerk access to inventory record and enables him to find out the exact quantity of an item.

◦ Allows production supervisor to plan his activity.

◦ Allows employees to apply for leave, get loans approved and so on.

◦ But for making the best use of the information processing power of an ERP system the users should be trained on how to make the best use of various features available.

◦ Otherwise they will find the experience tedious and frustrating.

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5. ERP is just for manufacturing organizations

◦ This assumption is basically due to the way in which ERP was developed from the methods of MRP (material requirement planning) and MRP-II (manufacturing resource planning).

◦ MRP is concerned primarily with manufacturing materials while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human resources.

◦ But the concept of enterprise-wide planning of resources is not limited to any particular segment of industry.

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6. ERP is just for the ERP implementation team

◦ ERP implementation team usually consists of :

Outside consultants,

Vendor representatives, and

Group of employees

◦ But, once the implementation and user training is over, the consultants and vendor representatives will leave.

◦ Then, it is the responsibility of each and every employee of the company to use the ERP system properly and make the best use of the new features and facilities.

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7. ERP slows down the organization

◦ Before the ERP tools, most business tasks were performed manually and this was a time consuming process.

◦ The ERP system automated the flow across departments thereby eliminating duplication and faster and accurateresults.

◦ In case of ERP system, an order can trigger a host of events that will take care of the:

material procurement (acquiring),

Production planning,

Informing suppliers and so on.

◦ So an ERP system makes the organization efficient and never slows it down.

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8. ERP is just to impress customers

◦ Its true that a properly implemented ERP system can help in serving the customers better as it helps the organizations to :

React faster,

Respond better and

Deliver high-quality products and services.

◦ So with ERP system you get more satisfied customers, but that is only of the advantages of an ERP system.

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9. ERP package will take care of everything

◦ Properly implemented, operated and maintained ERP system can improve:

Productivity,

Automate tasks,

Reduce wastage and improve profits.

◦ But it doesn’t mean that ERP tools will take care of everything.

◦ ERP system needs people to operate, use and maintain it.

◦ There are many business activities that need human intervention and judgment for decision making.

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10. One ERP package will suit everybody

◦ There are hundreds of ERP tools available in themarketplace.

◦ These tools are differ in features, capabilities, size,functionality, price, technical support, etc.

◦ Organizations also different from one another.

◦ Each has its own characteristics and identity.

◦ Assuming that one tool will be suitable for allorganization is wrong.

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◦ For an ERP implementation to be successful,the tool that is implemented should becompatible with organizational culture,practices and procedures.

◦ So purchasing an ERP package attention isrequired on selection of tools that are bestsuited for the organization.

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11. ERP is very expensive

◦ ERP packages come in all shapes and sizes.

◦ Sophisticated ERP tools are very expensive.

◦ ERP system needs people to manage it.

◦ Thus, implementing and managing an ERP system is an expensive affair.

◦ But, these expenses should be weighted against the benefit of the ERP system like automating task, provide qualitative information, improve customer satisfaction, reduce errors and so on.

◦ When the benefits of the ERP system are considered, money spent on ERP system will pay for itself.

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12. Organizations can succeed without ERP

◦ Before ERP, organizations were run manually.

◦ If an organization is very small in size and has very limited scope, then it can be sometimes succeed without ERP.

◦ But, today’s organizations are becoming largeand becoming more and more complex.

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◦ Also, a single group does not necessarily build the different components of a product.

◦ So this era of multi-site, distributed production.

◦ Different groups situated in different parts of world develop the components of a system.

◦ In such situation ERP system is helpful in managing the complex activities of an organization.

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1. ERP means more work and procedures

2. ERP will make many employees redundant and jobless

3. ERP is the sole responsibility of the management

4. ERP is just for the managers/ decision-makers

5. ERP is just for manufacturing organizations

6. ERP is just for the ERP implementation team

7. ERP slows down the organization

8. ERP is just to impress customers

9. ERP package will take care of everything

10. One ERP package will suit everybody

11. ERP is very expensive

12. Organizations can succeed without ERP

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Origins in the manufacturing industry:

1960’s – Inventory management and control systems

1970’s – Materials Requirement Planning (MRP) and Closed-loop MRP

1980’s – Manufacturing Requirements Planning (MRP II)

1990’s – Enterprise Resource Planning (ERP)

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What is Inventory ?

◦ Stock of items kept to meet future demand

◦ Purpose of inventory management

how many units to order

(quantity)

when to order (timing)

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Types of Inventory :

◦ Raw materials

◦ Purchased parts and supplies

◦ Work-in-Process (partially completed) products (WIP)

◦ Items being transported

◦ Tools and equipment

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Work in process (acronym: WIP) or in-process inventory includes the set at large of unfinished items for products in a production process.

These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage.

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Inventory management and control is the combination of :

◦ information technology and business processes

◦ of maintaining the appropriate level of stock in a warehouse.

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Carrying cost

◦ cost of holding an item in inventory

Ordering cost

◦ cost of replenishing (refilling) inventory

Shortage cost

◦ temporary or permanent loss of sales when demand cannot be met

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The activities of inventory management include:

identifying inventory requirements,

setting targets,

providing replenishment (refilling) techniques and options,

monitoring item usages,

reconciling the inventory (settle / compatible) balances, and reporting inventory status

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The basic function of stock (inventory) is to insulate (separate) the production process :

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MRP is concerned primarily with manufacturing materials.

MRP used to help a company to work out how many materials of which types were required and when they were required.

It was an outgrowth of bill of material (BOM) processing.

(MRP uses a concept called bill of material (BOM) that defines how much of raw material/component is needed to make one finished product.)

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MRP software answering the following few fundamental questions for manufacturers:

◦ Which finished products are we going to manufactured? Or what products are

we going to make?

MRP uses a concept called Master Production Schedule (MPS) that answer this question.

◦ What is the quantity of raw materials/components needed to make these finished products?

MRP uses a concept called Bill Of Material(BOM) that defines how much of raw material/component is needed to make one finished product.

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A Master Production Schedule (MPS) is the plan that a company has developed for production, inventory, staffing, etc.

The Master Production Schedule must take into account the forecast, the production plan, and other important considerations such as backlog,availability of material, availability of capacity, and management policies and goals.

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◦ What are the materials that we have in

stock?

The company’s inventory records give this information.

Inventory in hand and inventory in transit both need to be considered.

◦ What are the items that need to be purchased?

If the items are procured (acquire/buy) from vendors,

MRP helps to calculate the quantity (considering if already something is ordered) and when to place the order.

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◦ How much components/ sub assemblies are to be manufactured in-house?

MRP also helps to calculate the quantity to be manufactured in-house.

Thus, MRP solved the great manufacturing and production planning problems and made the manufacturing of goods easier.

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Using the MPS, the MRP program calculates the volume and timing of assemblies, subassemblies and materials required to meet the schedule.

If we take a simple example of preparing a lunch box that contains fruit, a foil-wrapped tomato sandwich, and a piece of cherry cake, we can illustrate how this is done.

The final output is a box containing the food, but in order to make it we need to know what components are required. At the top level, these are the box itself and the completed ingredients shown in the table below.

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The simple bill of materials can be shown graphically, as we have above, but is far too unwieldy for a product that may have many levels of sub-assembly and thousands of different parts.

MRP systems cope with this by using ‘single-level’ bills of materials and ‘indented’ bills of materials.

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The calculations that MRP performs are based on the ‘Master Production Schedule’ (MPS), a combination of firm orders-on-hand and estimates of future orders, defined by time and required date.

Using the MPS, the MRP program calculates the volume and timing of assemblies, subassemblies and materials required to meet the schedule.

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What products are we going to make?

• What is the quantity of raw materials/components needed to make these finished products?

• What are the materials that we have in

stock?

• What are the items that need to be purchased?

• How much components/ sub assemblies are to be manufactured in-house?

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MRP has several restrictions like it will not able to plan looking at:

Available capacity,

Not able to replan quickly,

Not integrated with other organizational processes like quality management, sales, etc.

The biggest challenge of MRP logic is that it goes by finished goods requirement and not look at feasibility of the plan.

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For example,

◦ An automobile manufacturer’s forecasting for next year is 1000 cars,

◦ MRP tells that it need to manufacture thousand gear boxes (assuming zero stock of gear box) and buy 4000 tires to make 1000 cars.

◦ However, if the car manufacturer has capacity of producing only 800 gear boxes and its suppliers can supply only 3000 tires,

◦ MRP doesn’t bother about this reality.

◦ So, MRP plan always needs to be validated and compared with reality and checked with its feasibility.

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Merger of capacity planning techniques with MRP

Tools developed to support the planning of sales andproduction levels, development of production schedules,forecasting, sales planning, capacity planning and orderprocessing.

Closed-loop MRP contains tools and techniques to addressboth priority and capacity and supports both planning andexecution.

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Closed loop MRP made it possible where an ERP is always checked against available capacity and alerts/triggers are provided to the planner, if the same is not feasible.

Capacity Consideration:

◦ Part routings

◦ Calculate loads on each work station

◦ See if scheduled load exceeds capacity

◦ Lead-time long enough to allow some shuffling to make plan feasible

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Evolved from closed-loop MRP

“A method for the effective planning of all resources of amanufacturing company”

Contains additional capabilities like:

◦ Financial accounting incorporated◦ Sales◦ Operations Planning◦ Simulate capacity requirements of different possible

Master Production Schedules

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Utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution.

It integrates :

◦ Business plan

◦ Financial plan

◦ Capacity plan

◦ Material plan

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Fundamentals of ERP are the same as that of MRP II.

ERP is broader in scope and is capable of dealing withmore business functions and has a better and tighterintegration with the finance and accounting functions.

ERP is an enterprise-wide set of forecasting, planning andscheduling tools, which links customers and suppliers intoa complete supply chain.

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mrp – material

requirements

planning

MRP II – Manufacturing

Resource Planning

ERP- Enterprise

Resource Planning

The goals of ERP include high levels of customerservice, improved productivity, cost reduction,better inventory turnover (just-in-timeinventory), etc.

ERP is more powerful because it applies a singleset of resource planning tools across the entireenterprise, provides real-time integration of sales,operating and financial data and connectsresource planning approaches, to the extendedsupply chain of customers and suppliers.

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EOQ Safety Stock BOMP Work Orders

MRP

MRPII

ERP

ERM / ERPII

1950s

1970

1980

1990

2000

Theoretical /

conceptual

Improvements in

management

techniques

EOQ Safety Stock BOMP Work Orders

MRP

MRPII

ERP

ERM / ERPII

1950s

1970

1980

1990

2000

Computing power

enables completely

integrated

manufacturing

solution

EOQ Safety Stock BOMP Work Orders

MRP

MRPII

ERP

ERM / ERPII

1950s

1970

1980

1990

2000

More functions

become

Integrated in the

process

EOQ Safety Stock BOMP Work Orders

MRP

MRPII

ERP

ERM / ERPII

1950s

1970

1980

1990

2000

More functions

become

Integrated in the

process +

technology

improvements

EOQ Safety Stock BOMP Work Orders

MRP

MRPII

ERP

ERM / ERPII

1950s

1970

1980

1990

2000

More functions

become

Integrated in the

process to add up

to complete

business solution

Enterprise resource planning (ERP) is a software computersystem that builds on a centralized database that utilizes acommon computing platform.

1. ERP improves business performance:

◦ cycle time reduction (The period required to complete afunction, job or task from start to finish),

◦ inventory reduction,

◦ faster response times,

◦ streamlined and faster order fulfillment, etc.

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2. ERP supports business growth requirementslike:

◦ new products, product lines, customers

As new products and product lines become available in a company, along with new customers.

New products always pose a problem because the company has no record of product performance to which to refer. However, ERP allows tools to be used in which you lay out expectations, explain design specifications ,etc

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◦ Global requirements including multiple language and multiple currency support, etc.

3. Provides flexible, integrated, real time decision support

◦ Improve responsiveness across the organization◦ The database that ERP uses can provide general or specific

answers to queries. ◦ For instance, questions such as "what is the time frame for the

production of this product, and how soon does the customer want it?"

◦ can be answered through this system, which can also provide alternatives in suggesting a better, less costly but efficient manner .

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4. Eliminate limitation in legacy systems:

◦ Legacy systems, that is, old systems that are still used in a business, can present problems for companies.

◦ They are slow, inefficient, sometimes costly systems to maintain and they cannot produce the results that a business for obtaining the best in customer or product support.

◦ ERP can address the problem by pointing out what information is necessary to produce a workable system.

◦ Thus, management will come to realize that the legacy systems are not able to achieve the output or efficiency required, necessitating the input of hardware or software upgrades, or both.

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5. Take Advantage of Untapped Markets mid-market (medium-size organizations) :

◦ Increased functionality at a reasonable cost◦ Client-server technology

◦ So these are some of the reasons of the growth of the ERP markets and ERP vendors.

◦ As more and more companies are joining the race, ERP vendors are shifting their focus from big companies to medium-size, small-size.

◦ The ultimate winner in this race will be the customer, who will get better products and better services at affordable prices.

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Business integration - ERP packages integrates theinformation processing and automates dataupdating (automatic data exchange amongapplications) between related businesscomponents.

Flexibility - Diverse multinational environmentssuch as language, currency, accounting standards,etc. are covered in one system, which makes theERP systems very flexible.

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Better analysis and planning capabilities – ERP systemsenables the comprehensive and unified management ofrelated businesses and its data. This unification makes itpossible to fully utilize many types of decision supportsystems and simulation functions.

Use of latest technology - ERP vendors uses the latestdevelopments in the field of information technology. Thistechnology adoption benefits the organizations using thepackages as they get better products and with bettercapabilities.

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ERP can reduce order fulfillment cycle time:

◦ Before ERP when every department were using their own separate applications, if a customer calls the company to place the an order for a particular product, departments needed to pass the information to other departments explicitly.

◦ But now in ERP world, as soon as customer enquires about a product, the sales team can check its availability online and if it’s not available in stock, within minutes production team knows that this need to be produced.

◦ This automation and instant sharing of information can reduce the cycle time of the whole process.

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ERP can provide Better Customer Satisfaction:

◦ ERP can provide better customer satisfaction by offering capabilities like:

Online order status tracking,

Customized pricing,

Better field service, etc.

◦ New generation application, called customer relationship application that is targeted to provide better customer service through capabilities like:

Internet sales and service,

Mobile sales and service,

Call center,

Multi-channel ( for example, customers can buy an online channel and take deliveries in a physical store), etc.

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Business integration

Flexibility

Better analysis and planning capabilities

Use of latest technology

ERP can reduce order fulfillment cycle time

ERP can provide Better Customer Satisfaction

Reduced Data Redundancy (data entered once in the system, need not be recreated and available to everyone.)

Inter-organization collaboration (i.e., with suppliers and partners)

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Why ERP?

◦ ERP offers solutions for all business functions

◦ Packages available for organizations of all sizesand types

◦ Global nature (multi-lingual and multi-currencysupport)

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Over Expectations about ERP (One of themain reasons for failed implementations)

◦ Insufficient pre-implementation preparation◦ Lack of awareness among employees◦ Lack of awareness among management about

costs◦ Wrong concepts about ROI (Return On

Investment) and payback period (The length oftime required to recover the cost of aninvestment.)

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◦ Conduct Gap analysis to find out company requirementsand the functions a package possesses. (how to avoidredundant business processes)

◦ Select experienced and professional consultants◦ Select the right package◦ Select employees with the right attitude for

implementation team◦ Ensure that knowledge transfer happens between

consultants and employees as well as between vendorsand employees

◦ Ensure that there is enough in-house consultants andintegrators during the operation and maintenance phase

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Chief information officer (CIO), or information technology (IT) director, is a job title commonly given to the most senior executive in an enterprise responsible for the information technology and computer systems that support enterprise goals.

The CIO's job is to make systems meet needs.

Develop information system that will deliver high-quality information to all the decision-makers when they need it.

Generally, the CIO reports to the chief executive officer (CEO), chief operations officer (COO) or chief financial officer (CFO).

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ENTERPRISE RESOURCE PLANNING ERP PACKAGE MRP CLOSED LOOP MRP MRP II VENDORS INVENTORY INVENTORY MANAGEMENT AND CONTROL

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WIP

BOM

MPS

LEAD-TIME

CYCLE TIME REDUCTION

INTEGRATED

LEGACY SYSTEM

UNTAPPED MARKET

DATA REDUNDANCY

ROI

CIO

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1. Discuss ERP and its uses.

2. Discuss the common myths about ERP and find practical solutions fordispelling them in your organization.

3. Discuss the history and evolution of ERP.

4. What is MRP and what was it used for?

5. Explain the difference between MRP and closed-loop MRP.

6. What is MRP-II?

7. Explain what you mean by ERP.

8. Discuss the various reasons for the growth of ERP.

9. Explain the advantages of ERP.

10. Discuss the roadmap for a successful ERP implementation.

11. What is the role of the CIO in implementing an ERP system?

12. Discuss the future of ERP systems

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Ekta K. Bhatt

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