UNIT - 1

• What is Enterprise ?
– An enterpriseis the group of people with a common goal, which
has certain resources at its disposal to achieve this goal.
• Business Functions and Business Process
Ø Organizations that make products to sell have the following
functional areas of operation - marketing and sales, production
and materials management, accounting and finance, human
resources etc.
Ø A business process is a collection of activities that takes one or
more kindsof input and creates an output that is of value to the
customer.
The Enterprise
Common ERP Myths
• ERP means more Work and Procedures
• ERP will make many employees Redundant and Jobless
• ERP is the sole responsibility of the management
• ERP is just for the Managers/Decision-makers
• ERP is just for the manufacturing Organizations
• ERP slows down the organization
• ERP is just to impress Customers
• ERP packages will take care of everything
• One ERP package will suit everybody
• ERP is very expensive
• Organizations can succeed without ERP
ERP means more Work and Procedures

• Change from traditional system to ERP

• Learning new skills
• General mind-set : Difficult to handle
• Proper implementation of ERP and proper
• training of software to employees
• Realizing the potential benefits in long run
• ERP automates many difficult, tedious
• procedures, tasks and processes
ERP will make many employees Redundant and
Jobless
• Because of Automation
• Employees will lose their jobs
• Changes in Job description and activities carried
out
• Some redundant employees become unnecessary
• While it also creates job opportunities
• ERP is a people system made possible by
computer software and hardware
ERP is the sole responsibility of the management
• All employees are involved
• Virtually every department and every person
• Management alone is not responsible
• Management is involved in activities :
– Development of ERP policies
– Usage guidelines
– Allocation of Budget
– Package Selection
– Appointment of Competent Professionals
• Proper training to employees
• Success of ERP depends on each employee using the
system properly and in a satisfied manner
ERP is just for the Managers/Decision makers

• Managers benefit the most from ERP

• They get high quality, timely and relevant
information
• Other employees do benefit from ERP
• Example, Store clerk, production supervisor
• Proper training and experience
• Realize the benefits of using ERP
ERP is just for the manufacturing Organizations

• History of ERP : MRP and MRP – II

• ERP is not limited to any particular segment of the
industry
ERP slows down the organization
• Manual tasks : time-consuming
• ERP example, Order placing –
– Trigger a host of events like
• material procurement
• Production planning
• Invoice preparation
• Informing Suppliers
• Making and collecting payments
• Completely integrated system
• Hence, providing Automation
• Improves the response time dramatically
ERP is just to impress Customers

• Helps in serving the customers better

• Improves customer goodwill and customer
relations
• CRM included
• Satisfied customers
ERP packages will take care of everything

• Not a silver bullet

• Properly implemented, operated and maintained ERP :
– Improves productivity
– Automates tasks
– Reduces wastage
– Improves profit
• Improper usage, will lead to failure of ERP
• Many activities need human intervention and
judgment
• Not a substitute for human intelligence and decision making
One ERP package will suit everybody

• Hundreds of tools in market

• With different features, size, functionality,
price, technical support, customizability,
scalability.
• All enterprise differ from each other
• Selecting a correct package is important
– Analyzing enterprise’s requirements
• Check ERP packages compatibility with the
organization
ERP is very expensive

• Available in different flavors and sizes

• Comparing between expenses incurred and
the profits to be gained in future
Organizations can succeed without ERP

• Manual process of handling Organization

• Example, small businesses
• Today's huge organizations having more than
100’s of employees require control to be
established with the help of ERP
A brief History of ERP

• MRP (Material Requirement Planning) : fundamental

concept for Production industries.
• MRP – II (Manufacturing Resource Planning) : included
Order Inventory Management, personnel planning and
distribution planning
• ERP : includes financial accounting, human resources,
etc
MRP

• Material Requirements planning

• Began in 1960’s and became prominent in
1970’s.
• Manufacturing and production people
emphasizes on better and more efficient
methods for ordering materials and
components.
MRP asks questions:
– What products are we going to make?
– What are the materials needed to make the
products?
– What are the materials that we have in stock?
– What are the items that need to be purchased?
• MRP uses:
– MPS (Master Production Schedule)
– BOM (Bills of Materials)
Closed-loop MRP

• MRP : Better way to order

• MRP : has more capabilities than producing
material re-ordering schedules.
• MRP : maintained order due-dates
– Used to detect and warn an item did not arrive on due
date.
• Techniques for planning capacity requirements
merged with MRP.
• Tools : Planning of sales and production levels
– Development of production schedules, forecasting, sales
planning, capacity planning and order processing
• Developments resulted in a closed loop system
• Not only MRP but a series of functions for
• automating the production process.
• • Contains tools and techniques to address both
• priority and capacity and supports both planning
• and execution.
• • Provisions for accepting feedback from the
• execution functions back to the planning
• functions
• • Enabling plans to be revised and updated
• depending on the actual execution or changes in
• priorities
MRP II
• Manufacturing Resource Planning
• Third stage in the evolution of ERP
• Contains : Sales and operational planning, financial
interface and simulation capabilities (for better decision
making)
• Method for effective planning of all resources of a
manufacturing company
• Solves operational planning in units, financial planning in
dollars and a simulation capability to answer ‘what if’
questions.
• Made up of variety of functions , each linked together:
• Business planning, sales and operational planning,
Demandmanagement, production planning, master
scheduling,material requirement planning, capacity
requirements planning and the execution support systems
for capacity and material.
• Output is integrated with : financial reports such as
business plan, purchase commitment report, shipping
budget, etc
ERP
Final system in emergence
• Same fundamentals as MRP II
• Capable of dealing with broader scope of more business
functions
• Capable of integrating with other tools like –
– CRM (Customer Relationship Management)
– SCM (Supply Chain Management)
• ERP predicts and balances demand and supply
• Enterprise wide : Forecasting, planning and scheduling
• Links customers and suppliers into a supply chain
• Employs process for decision making and coordinates
sales,
marketing, operations, logistics, purchasing, finance, etc
• Includes high levels of customer service, productivity, cost
reduction and inventory turnover
• Foundation for SCM and E-commerce
• Managing Right resources : Manpower, Materials,
Machinery and Money
• Extension of MRP II
• Provides single set of resource planning tools
• Provides real time integration of sales, operating and
financial data
• • Goals :
• – Includes high level of customer service
• – Improved productivity
• – Cost reduction
• – Better inventory turnover
• • Primary purpose:
• – Run the business efficiently and effectively in a
competitive and
• rapidly changing business environment
Evolution of ERP
Timeline System Description
1960s Inventory Management The activities of inventory management include identifying
and Control inventory requirements, setting targets, providing
replenishment techniques and options, monitoring item usages,
reconciling the inventory balances, and reporting inventory
status.
1970s MRP MRP utilizes software applications for scheduling production
process.
1980s MRP|| MRP|| utilizes software applications for coordinating
manufacturing processes, from product planning, parts
purchasing, inventory control to product distribution.
1990s ERP For improving the performance of the business
-Business processes rather than business functions
-Supporting different departments and integrating as a whole
-Marketing, HR, Finance, Sales, Purchase and etc.
Justifying ERP Investment
• Measurable ROI (Return on Investments)
– Customers demand ROI Analysis be a critiical factor in their decisions.
– Without demonstrable demand, few customers are willing to invest scare capital and
HR in new ERP.
• Comprehensive ROI models
– Demonstrate quantifiable measures of return
– Unable to identify qualitative success factors (Intangible benefits)
• Enterprise Software Paybacks
– Quantifiable Improvements in bottom and top-line functionality
– Qualitative Measures like
– New Business Opportunity
– Improved Customer Satisfaction and Customer Goodwill
– Better relationship with partners, suppliers and others
– Improved time to market
Cont.
• Enterprise Software Paybacks
– Ability to define broad range of payback benefits
– Important addition to the understanding of how software provides value
across the organization
• Key Payback Parameters
– Faster time to market
– Improved business processes
– Improved Customer Support
– Rapid capitalization of new business opportunities
– Lower implementation costs
• Tangibles : Profits and Margins
• Intangibles : All qualitative parameters
• ROI : Cost justification, motivation for investing in ERP
Quantitative (Tangible) vs Qualitative (Intangible)
Benefits

• Differences between the two

• Quantitative : Specified in traditional ROI
• Qualitative : Cannot quantify each aspect
• Value in long-run comparison
• Equal importance to both
Quantifiable benefits from an ERP
system

1. Reduced Inventory and Inventory Carrying Costs

2. Reduced Manpower Costs
3. Reduced Material Costs
4. Improved Sales and Customer Service
5. Efficient Financial Management
1. Reduced Inventory and Inventory Carrying
Costs
Inventory planning and status checking with ERP
systems.
• Considers the concepts of Savings, Profits and Margins
• Improved planning and scheduling
– Results in 20% inventory reductions
– Results in savings of inventory carrying cost
• Cost of warehousing, handling, insurance, taxes, damage, etc
• Inventory reduction : can buy what is needed only
when it is needed
• Concept of JIT
2. Reduced Manpower Costs

Fewer shortages and interruptions

• Less re-work and overtime
• 10% reduction in direct and indirect labor
costs
• Better visibility for Supervisors
• Supervisors
– Managing, directing and Training people
• Develop methods to improve the quality
3. Reduced Material Costs

• Improved procurement activities

• Better vendor negotiations for prices,
• Reducing 5% of costs
• Valid schedules
• Focus on quality improvement
• Provides negotiation information
4. Improved Sales and Customer Service

Coordination of Production and sales

• Better customer service and increased sales
• Managing customer contacts
• Shorter order to ship lead-times
• Higher customer satisfaction
• Goodwill and repeat orders
• Leads to fewer lost sales and increase in sales
• 10% increase in Sales
• Diagnose delivery problems
5. Efficient Financial Management

• Improved collection procedures

• Reduce the number of outstanding receivables, providing
additional cash
• Accurate invoice creation
• Reduces receivables by 18%
Intangible benefits of ERP

1. Accounting
2. Product and Process Design
3. Production and Materials Management
4. Sales
5. MIS function
1. Accounting
Common ERP database
• Advantage : No duplication of files and no redundant data
• Example, product costing
• Difference between actual and standard costs
• Order related variance
• Customer Invoice – Based on actual shipments
• Financial Reports can be customized to facilitate decision makers.
• Cash planning : can account for current and projected
sales orders
• Decision support tools : Spreadsheets, SPSS, etc
• Ensures accurate and up-to-date financial information
– Permits tracking of actual versus budgeted expenses
2. Product and Process Design

Planned changes can be adjusted well and

emergency changes can be communicated
• Changes to material and resources : used to
identify affected products
• Lead-time reduction efforts
• Bill comparisons : differences between
products or revisions of the same product
• Custom product configurations
• Cost estimates for custom products
3. Production and Materials Management

• Realistic schedules for production and communicate

• consistent priorities
• • Help production for Capacity problems
• • Help suppliers meet needs
• • Problem: Changes to demands or supply occur
• • Scheduling capabilities : schedules based on capacity
• and material constraints
• • Helps minimize setup times, optimize sequencing
• • Changes in factory demands, available machine time,
• labor headcount, skill levels, etc for simulating
• production
4. Sales

• Making valid delivery promises

• Facilitate customer preferences
• Order status answered efficiently and quickly
• Shortened delivery lead-times
• E-commerce
5. MIS Function

• Advantages of MIS
• Choosing between available software vendors
 ERP and Related Technologies

ERP systems serve an important function by integrating

separate business functions-materials management,
product planning, sales, distribution,finance and
accounting and others-into a single application.
Limitations :

• However, ERP systems have three significant limitations:

• Managers cannot generate custom reports or queries without help
from a programmer and this inhibits them from obtaining
information quickly, which is essential for maintaining a
competitive advantage.
• ERP systems provide current status only, such as open orders.
Managers often need to look past the current status to find trends
and patterns that aid better decision-making.
• The data in the ERP application is not integrated with other
enterprise or division systems and does not includeexternal
intelligence.
Technologies :

• When technologies are integrated with the ERP system,

the companies will do their business at Internet Speed.
• These technologies used are :
1. BPR (Business Process Reengineering)
2. Data Warehousing and Data Marts
3. Data Mining
4. Online Analytical Processing (OLAP)
5. Supply Chain Management (SCM)
6. Customer Relationship Management (CRM)
Cont.

7. Geographical Information System (GIS)

8. Electronic Data Interchange (EDI)
9. Electronic Funds Transfer (EFT)
10. Cryptography
BPR (Business Process Reengineering)

• Proper execution of Business Process Reengineering can

be a game-changer to any business. If properly handled,
business process reengineering can perform miracles on
a failing or stagnating company, increasing the profits and
driving growth.
• It involves enforcing change in an organization – tearing
down something people are used to and creating
something new.
• Business process reengineering is the act of recreating a
core business process with the goal of improving product
output, quality, or reducing costs.

• Typically, it involves the analysis of company workflows,

finding processes that are inefficient, and figuring out
ways to get rid of them or change them.
Founder of BPR

• The founder of the Business Process Reengineering

concept is Michael Hammer. Michael Hammer published
the article ‘Reengineering Work: Do not Automate,
Obliterate‘ in 1990. With this title, Hammer was saying
that just automating processes is not enough.
• Dr. Michael Hammer defines BPR as “The fundamental
rethinking and redesign of business processes to achieve
dramatic improvements bin critical, contemporary
measures of performance such as cost, quality, service
and speed.”
Business Process Reengineering Steps

• Unlike business process management or improvement,

both of which focus on working with existing processes.

• This can be extremely time-consuming, expensive and

risky. Unless you manage to carry out each of the steps
successfully, your attempts at change might fail.
Benefits :

• Shorten lead times

• Increase productivity
• Improve quality and customer focus
• Improve competitive position
• Implement a new technology
BPR Example: Ford Motors
• One of the most referenced business process
reengineering examples is the case of Ford, an
automobile manufacturing company.
• In the 1980s, the American automobile industry was in a
depression, and in an attempt to cut costs, Ford decided
to scrutinize some of their departments in an attempt to
find inefficient processes.
• One of their findings was that the accounts payable
department was not as efficient as it could be: their
accounts payable division consisted of 500 people, as
opposed to Mazda’s (their partner) 5.
• They analyzed the current system, and found out that it
worked as follows:
• When the purchasing department would write a purchase
order, they sent a copy to accounts payable.
• Then, the material control would receive the goods, and
send a copy of the related document to accounts payable.
• At the same time, the vendor would send a receipt for the
goods to accounts payable.
• Then, the clerk at the accounts payable department would
have to match the three orders, and if they matched, he
or she would issue the payment. This, of course, took a
lot of manpower in the department.
• So, as is the case with BPR, Ford completely recreated
the process digitally.

• Purchasing issues an order and inputs it into an online

database.
• Material control receives the goods and cross-references
with the database to make sure it matches an order.
• If there’s a match, material control accepts the order on
the computer.
DATA WAREHOUSING

• Data warehouses vs. databases

• The term "Data Warehouse" was first coined by Bill Inmon
in 1990.
• A data warehouse is a repository for all the data collected
by an enterprise's various operational systems. Data
warehousing emphasizes the capture of data from
different sources for access and analysis.
• It is electronic storage of a large amount of information by
a business which is designed for query and analysis
instead of transaction processing. It is a process of
transforming data into information and making it available
to users in a timely manner to make a difference.
• data warehouse is not a product but an environment. It is
an architectural construct of an information system which
provides users with current and historical decision support
information which is difficult to access or present in the
traditional operational data store.
Data warehouse system is also known by the
following name: