Enterprise Resource Planning: Need, Usage And Advantage

Enterprise Resource Planning Need, Usage and Advantage

ERP – Enterprise Resource Planning PLANNING the RESOURCES of an ENTERPRISE • ERP is a way to integrate the data and processes of an organization into one single system with modules that support core business areas such as manufacturing, distribution, financials and human resources. • ERP allows managers from most or all departments to look vertically and horizontally across the organization to see what they must see (information) to be productive in their managerial roles. • ERP captures data from historical activity and current operations . That data can be transformed into information that, along with external information, is useful in planning and controlling operations, and in developing business strategies. • ERP is evolving into a Multi-Module Application Software Package that automates inter-organizational business processes across the supply chain which involve business partners, suppliers, customers, and more.

BEFORE ERP

Problems: Delays, Lost Orders, Keying into different computer systems invites errors

AFTER ERP

EVOLUTION OF ERP • 1960s – Inventory Control • 1970s – MRP (Material Requirement Planning). – This system helped in translating the master production schedule into requirements for individual units like sub assemblies, components and raw materials. MRP systems helped determine what to order, how much to order, when to order and when to schedule delivery.

• 1980s – MRPII (Manufacturing Resource Planning) – MRPII supported efforts to optimize the entire plant production system by supporting capacity planning, shop floor control, and distribution management activities. MRPII was further extended to support areas like Finance, Human Resources, Engineering, Project Management etc. As MRPII like systems were adopted by non manufacturing enterprises like banks and airlines to support cross-functional coordination and integration of business processes, the “M” no longer fit, thus the name ERP was coined.

• 1990s – ERP – Today, ERP is the foundation system for domestic and global business operations, supporting most or all functional areas in their daily operations. For some organizations, ERP is a source of competitive advantage.

• 21st century – ERPII – ERPII is the name some now use to describe ERP like systems that are evolving to support inter-organizational business processes across the supply chain.

The Evolution of ERP System

Primary Business Need (s)

Scope

Enabling Technology

MRP

Efficiency

Inventory Management and Production planning and control.

Mainframe computers, batch processing, traditional file systems.

MRPII

Efficiency, Effectiveness and integration of manufacturing systems

Extending to the entire manufacturing firm (becoming cross functional).

Mainframes and Mini computers, real-time (time sharing) processing ,database management systems (relational)

Entire organization (increasingly cross functional), both manufacturing and nonmanufacturing operations

Mainframes, Mini and micro Computers, Client server networks with distributed processing and distributed databases, Data warehousing, and mining, knowledge management.

ERP

Efficiency (primarily back office), Effectiveness and integration of all organizational systems.

ERPII

Efficiency, Effectiveness and integration within and among enterprises.

Entire organization extending to other organizations (cross functional and cross enterprise--partners, suppliers, customers, etc.)

Mainframes, Client Server systems, distributed computing, knowledge management, internet technology (includes intranets and extranets).

IRP

Efficiency, Effectiveness and Integration within and among all relevant constituents on a global scale.

Entire organization and its constituents (increasingly global) comprising supply chain from beginning to end as well as other industry and government constituents

Internet, Web Service Architecture, wireless networking, mobile wireless, knowledge management, grid computing, artificial intelligence.

Enterprise Suite, or whatever label gains common acceptance

ERP TODAY • Today’s focus seem more to be external as organizations look for ways to support and improve relationships and interactions with customers, suppliers, partners and other stakeholders. • The focus of ERP in increasingly on Front-Office Applications and interorganizational business processes, thus making it visible to “OUTSIDERS” • The increasing importance of E-Commerce and Globalization of business makes support of inter-organizational processes more important. • ERP Vendors – – – – –

SAP PeopleSoft Oracle Microsoft Business Solutions SSA Global

• ERP vendor products reflect the evolving business needs of clients and the capabilities of IT, perhaps most notably internet related technologies. • ERP helps Organization to – improve competitiveness – increase profits – prosper in the global economy.

ERPII—The Future of ERP •

ERPII is a business strategy and a set of collaborative operational and financial processes internally and beyond the enterprise

•

New multi-enterprise business models like Value Collaboration Networks, customer-centric networks that coordinate all players in the supply chain, are becoming popular as we enter the 21st century

•

These new business models reflect an increased business focus on external integration

•

There is movement away from Client-Server System to Internet Based Architecture

New Technologies in ERPII • • • • • • • • • • •

E-Commerce (Electronic Commerce) M-Commerce (Mobile & Wireless Technologies) C-Commerce (Collaborative Commerce) Middleware Enterprise Portal Technologies Web Services RFID Analytical Capabilities (Data Warehousing & Data Mining) CRM, SCM, SRM Knowledge Management Business Intelligence

Difference Between ERP & ERPII Six key differences between ERP and ERP II Systems Keys

ERP

ERPII

Role

Traditional ERP was concerned with optimizing an enterprise, Internal optimization.

ERP II systems are about optimizing the supply chain through collaboration with trading partners.

Domain

ERP systems focused on manufacturing and distribution.

ERP II systems will cross all sectors and segments of business.

Function

As ERP systems cross sectors and segments, they will no longer be able to present all things to all people.

ERP II vendors to pick the industries in which they’re going to play, and focus on providing deep functionality for those users.

In ERP systems, the processes were focused on the four walls of the enterprise.

ERP II systems will connect with trading partners, to take those processes beyond the boundaries of the enterprise.

Old ERP systems were monolithic and closed.

ERP II systems will be Web-based, open to integrate and interoperate with other systems that allow users to choose just the functionality they need.

Information in ERP systems is generated and consumed within the enterprise.

In an ERP II system, that same information will be available across the supply chain to authorized participants.

Process

Architecture

Data

ERP Characteristics Real Time Integrated System

Best Practice

Customizing (Configuration)

Process Oriented

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ERP Characteristics (cont.) • • • • • • • •

Modular design comprising many distinct business modules such as financial, manufacturing, accounting, distribution, etc. Use centralized common DBMS Integrated modules provide seamless data flow among the modules, increasing operational transparency through standard interfaces Generally complex systems involving high cost Flexible and offer best business practices Require time-consuming tailoring and configuration setups for integrating with the company’s business functions Work in real time with online and batch processing capabilities They are Internet-enabled

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Core ERP Modules • • • • • • • • • •

Accounting management Financial management Manufacturing management Production management Transportation management Sales & distribution management Human resources management Supply chain management Customer relationship management E-Business

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Advantages & Disadvantages of ERP Advantages • Centralized database & common software infrastructure • Communicates with supply chain members • Helps reduce supply chain inventories. Supply chain visibility leads to reductions of the bullwhip effect (buildup of supply chain safety stock inventories) • Standardizes processes & eliminates redundant resources while increasing productivity • Tracks employees’ time & performance • Integrates financial, production, supply, & customer information.

ERP Advantages What benefits

How

Reliable information access

Common DBMS, consistent and accurate data, improved reports.

Avoid data and operations redundancy

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

Delivery and cycle time reduction

Minimizes retrieving and reporting delays.

Cost reduction

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

Easy adaptability

Changes in business processes easy to adapt and restructure.

Improved scalability

Structured and modular design with

Improved maintenance

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

Global outreach

Extended modules such as CRM and SCM

E-Commerce, e-business

Internet commerce, collaborative culture 15

Advantages & Disadvantages of ERPCont. Disadvantages • •

Substantial capital investment is needed to implement the system. The average total cost of ERP ownership was $15 million. Software is designed around a specific business model based on specific business processes. The adopting firm must change its business model & associated processes to fit the built-in business model designed into the ERP system.

ERP Disadvantages Disadvantages

How to overcome

Time-consuming

Minimize sensitive issues, internal politics and raise general consensus

Expensive

Cost may vary from thousands of dollars to millions. Business process reengineering cost may be extremely high

Conformity of the modules

The architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization

Vendor dependence

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

Features and complexity

ERP system may have too many features and modules so the user needs to consider carefully and implement the needful only

Scalability and global outreach

Look for vendor investment in R&D, long-term commitment to product and services, consider Internet-enabled systems

Extended ERP Capability

Consider middle-ware and extended modules SCM. 17

ERP Vendors •

There were five dominating ERP software suppliers: SAP, Oracle, PeopleSoft, Baan and J.D. Edwards. • They controlled more than 60% of the multi- billion dollar global market. • Each vendor had a specialty in one particular module area such as – – – –

Baan in manufacturing, PeopleSoft in human resources management, SAP in logistics, and Oracle in financials

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CONCLUSION • Enterprise systems are evolving because organizations are changing. • To know what the future of ERP holds, one must look to the changing environment of business and changing business needs. • Systems will evolve to meet the business needs. Based on current trends, these will be increasingly inter-organizational and global. • Inter-organizational systems (ERPII) will pose challenges beyond the ones faced with ERP because of the need to integrate the diverse systems of different organizations. • Global supply chains mean inter-organizational systems that span different cultures and countries. That will bring even greater challenges due to cultural differences, legal issues, and more.