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Enterprise Resource Planning (ERP)

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Enterprise Resource Planning (ERP) Enterprise Resource Planning (ERP) Dr. Kanika Prasad Assistant Professors Department of Production and Industrial Engineering NIT Jamshedpur Before ERP Orders Part Sends Report Customer Sales dept. Demographics file Customer Check for Parts Call back “Not in Stock” Accounting We ordered the parts Files Accounting Sends Report Invoices Sends Report Accounting Vendor Warehouse Inventory Files Purchasing Files Purchasing We ordered the Parts Before ERP After ERP Need for ERP In the ever-growing business environment, the following demands are placed on the industry: • Aggressive cost control initiatives • Need to analyse costs/revenues on a product or customer basis • Flexibility to respond to changing business requirements • More informed management decision making • Changes in ways of doing business. Applications and planning systems introduced into the business world • Management Information Systems (MIS) • Integrated Information Systems (IIS) • Executive Information Systems (EIS) • Corporate Information Systems (CIS) • Enterprise Wide Systems (EWS) • Material Requirement Planning (MRP) • Manufacturing Resource Planning (MRP II) • Money Resource Planning (MRP III) • ERP has evolved from the system known as MRPII system with the integration of information between Vendor, Customer and Manufacturer using networks such as LAN, WAN and INTERNET etc. History of ERP Resource Contd. Resource Resource Contd. • MRPII system evolved from MRP system. MRP is a technique that explodes the end product demands obtained from Master Production Schedule for the given product structure which is taken from Bill of Material into a schedule of planned orders considering the inventory in hand. • MRPII has a number of drawbacks. • The main problem is that it has not been able to effectively integrate the different functional areas to share the resources effectively. • The traditional application systems, which the organizations generally employ, treat each transaction separately • They are built around the strong boundaries of specific functions that a specific application is meant to cater. Evolution of ERP • 1960s - centralized computing systems, mostly automating their inventory control systems using inventory control packages (IC). These were legacy systems based on programming languages such as COBOL, ALGOL and FORTRAN. • 1970s - MRP systems involved mainly planning the product or parts requirements according to the master production schedule. • 1980s - MRP II emphasized on optimizing manufacturing processes by synchronizing the materials with production requirements. MRP II included areas such as shop floor and distribution management, project management, finance, human resource and engineering. • 1990s - ERP systems with the power of enterprise-wide inter-functional coordination and integration. • During the 1990s - ERP vendors added more modules and functions as “add-ons” to the core modules giving birth to the “extended ERPs.” These ERP extensions include advanced planning and scheduling (APS), e-business solutions such as customer relationship management (CRM) and supply chain management (SCM). Business process • collection of activities that takes one or more kinds of input and creates an output that is of value to the customer. • four main functional areas of operation • Marketing and Sales (M/S), • Supply Chain Management (SCM), • Accounting and Finance (A/F) and • Human Resources (HR). • ERP software supports the efficient operation of business processes by integrating throughout a business tasks related to sales, marketing, manufacturing, logistics, accounting, and staffing. Sample business processes related to sale of a personal computer Examples of functional areas of operation and their business functions Difference between Business process and Business function • The customer’s computer is damaged during shipment. • Only one functional area is involved in accepting the damaged item, receipt of the return is a business function and is handled by the customer relationship management function of Marketing and Sales. • Several functional areas are involved in repair and return of the computer, the handling of the repair is a business process. • Thus, the customer is dealing with many of the company’s functional areas in her process of buying and obtaining a computer. The M/S functional area exchanges data with customers and with HR, A/F and SCM functional areas Inputs for M/S include: ● Customer data ● Order data ● Sales trend data ● Per-unit cost ● Travel expense company policy Outputs for M/S include: ● Sales strategies ● Product pricing ● Employment needs The SCM functional area exchanges data with suppliers and with HR, A/F and M/S functional areas Inputs for SCM include: ● Product sales data ● Production plans ● Inventory levels ● Layoff and recall company policy Outputs for SCM include: ● Raw material orders ● Packaging orders ● Resource expenditure data ● Production and inventory reports ● Hiring information The A/F functional area exchanges data with customers and with HR, SCM and M/S functional areas Inputs for A/F include: ● Product sales data ● Production plans ● Inventory levels ● Layoff and recall company policy Outputs for A/F include: ● Raw material orders ● Packaging orders ● Resource expenditure data ● Production and inventory reports ● Hiring information The HR functional area exchanges data with A/F, SCM and M/S functional areas Inputs for HR include: ● Personnel forecasts ● Skills data Outputs for HR include: ● Regulation compliance ● Employee training and certification ● Skills database ● Employee evaluation and compensation Introduction to ERP • An ERP system - a fully integrated business management system covering functional areas of an enterprise like • Logistics, • Production, • Finance and Accounting • Human Resources • One of the objectives of ERP is to design an efficient information system by integrating and automating the activities to make them faster and transparent. • ERPs help organizations to achieve competitive advantage. Contd. • organizes and integrates operation processes and information flows to make optimum use of resources such as men, material, money and machine. • helps to manage companywide business processes, using a common database and shared management reporting tools. • ERPs are cross-functional and enterprise wide. ERP Definition - A Systems Perspective • ERP, often like other IT and business concepts, are defined in many different ways. • It provides a base for defining more detailed concepts in the field - ERP software, ERP systems, ERP implementation etc. • It provides a common ground for comparison with related concepts - CRM, SCM etc. • It helps answer the basic questions in the field - benefits of ERP, the causes of ERP failure etc. Goal, components, and boundary of ERP The Goal - to improve and streamline internal business processes, which typically requires reengineering of current business processes. The Components - common components of a MIS. ERP Software - core of an ERP system. Software modules (product planning, parts purchasing, inventory control, product distribution, order tracking, finance, and accounting and human resources) automate business activities of a functional area within an organization Business Processes - three levels strategic planning, management control and operational control. Contd. ERP Users - employees of the organization at all levels, from workers, supervisors, and mid-level managers to executives. Hardware and Operating Systems - UNIX based. Windows NT and Linux . The Boundary of an ERP System - usually smaller than the boundary of the organization that implements the ERP system. In contrast, the boundary of supply chain systems and ecommerce systems extends to the organization's suppliers, distributors, partners and customers. In practice, however, many ERP implementations involve the integration of ERP with external information systems. Modules of ERP information systems Current ERP systems evolved as a result of • Advancement of hardware and software technology (computing power, memory, and communications) needed to support the system, • Development of a vision of integrated information systems, and • Reengineering of companies to shift from a functional focus to a business process focus. Enabling Technologies • Sophisticated information technology infrastructure. • The earlier ERP systems were built only to work with huge mainframe computers. • The new era of PC, advent of client server technology and scalable Relational Database Management Systems (RDBMS) • Most of the ERP systems exploit the power of Three Tier Client Server Architecture. • The other important enabling technologies for ERP systems are Workflow, • Work group, Group Ware, Electronic Data Interchange (EDI), Internet, Intranet, Data warehousing, etc. Information and material flows in a functional business model Limited competition Flexibility not required Rapid decision making not required top-heavy & overstaffed organizations incapable of reacting quickly to change Information and material flows in a process business model flow of information and management activity is “horizontal” SAP - Systems Analysis and Program • In 1972, IBM systems analysts in Mannheim, Germany— • Dietmar Hopp, • Claus Wellenreuther, • Hasso Plattner, • Klaus Tschira, and • Hans-Werner Hector • Systemanalyse und Programmentwicklung • SAP’s goal - develop a standard software product that could be configured to meet the needs of each company. • Internal programming language - Advanced Business Application
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