Information Systems

Lecture 7: ERP

Dr. Sobhan Sarkar

PDF(University of Edinburgh), Ph.D.(IIT Kharagpur)
Assistant Professor
IIM Ranchi
Email: sobhan.sarkar@iimranchi.ac.in

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 Contents
1. Introduction to ERP
2. Drivers of ERP
3. Characteristics of ERP
4. Evolution of ERP
5. Case examples
6. References

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Enterprise resource planning (ERP)

• Issue- Managing the vast amounts of information generated by the activity.

• All relevant information within an organization are kept together.

• For example: when activities should take place, where they should happen, who should be doing them, how much

capacity will be needed, and so on. – Main function of enterprise resource planning (ERP).

• The Gartner Group first used the acronym ERP in the 1990s [1][2] to include the capabilities of material requirements

planning (MRP), and the later manufacturing resource planning (MRP II), as well as computer-integrated

manufacturing.

[1] InfoWorld, Heather Harreld (August 27, 2001). "Extended ERP technology reborn in B2B". Retrieved July 20, 2016.
[2] "A Vision of Next Generation MRP II", Scenario S-300-339, Gartner Group, April 12, 1990

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Enterprise Resource Planning (ERP)

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 • Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day business
activities such as accounting, procurement, project management, risk management and compliance, and supply chain
operations.
• A complete ERP suite also includes enterprise performance management, software that helps plan, budget, predict,
and report on an organization’s financial results.
• ERP systems tie together a multitude of business processes and enable the flow of data between them.
• By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data
duplication and provide data integrity with a single source of truth.

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 ERP integrates information from all parts of the organization

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 Evolution of ERP- MRP

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 The inputs to the MRP system are: (1) A master production schedule, (2) An inventory status file and (3) Bill of materials
(BOM) (Kumar & Suresh, 2006).

• MPS is a series of time phased quantities for each item

that a company produces, indicating how many are to be
produced and when.
• MPS is initially developed from firm customer orders or
from forecasts of demand before MRP system begins to
operate.
• BOM identifies how each end product is manufactured,
specifying all subcomponents items, their sequence of build
up, their quantity in each finished unit and the work centres
performing the build up sequence.

• Inventory status file- It includes on-hand quantities,

gross requirements, scheduled receipts and planned order
releases, planning information such as lot sizes, lead times,
safety stock levels and scrap allowances.

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 • Developed in the 1960s, Material Requirements Planning (MRP) systems for small manufacturers were designed to
schedule and handle inventory (raw material, parts, and components, etc.).
• MRP is manufacturing-centric and focuses on controlling the level of materials required in the production process.
• It helps you get answers to these questions –
• What items are required for production?
• When it is required?
• How many are required?
• The objectives of MRP:
• To maintain minimum required stock
• To ensure raw materials are available for production and finished goods are ready for delivery on time
• To seamlessly plan manufacturing activities
• Black & Decker (an American manufacturer of power tools) used MRP for the first time in the year 1964. Then, in the
1980s, MRP evolved into Manufacturing Resource Planning (MRP II) with added capabilities and functionalities.

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• Enterprise resource planning is the latest, and the most significant, development of the original materials requirements
planning (MRP) philosophy.
• The large companies which have grown almost exclusively on the basis of providing ERP systems include Systems
Applications and Products in Data Processing (SAP) and Oracle.
• The original MRP became popular during the 1970s, although the planning and control logic that underlies it had, by then,
been known for some time. What popularized MRP was the availability of computer power to drive the basic planning and
control mathematics.
• Manufacturing Resource Planning (MRP II) expanded out of MRP during the 1980s.
• It uses additional data from accounting records and sales for further analysis and forecasting of manufacturing
requirements.
• Local-area networks (LANs), together with increasingly powerful desktop computers, allowed a much higher degree of
processing power and communication between different parts of a business.
• MRP II’s extra sophistication allowed the forward modelling of ‘what-if ’ scenarios. The strength of MRP and MRP II lay
always in the fact that it could explore the consequences of any changes to what an operation was required to do. So, if
demand changed, the MRP system would calculate all the ‘knock-on’ effects and issue instructions accordingly.
• This same principle also applies to ERP, but on a much wider basis. ERP is the equivalent of the organization’s central
nervous system.
• Also, the potential of web-based communication has provided a further boost to ERP development. Many companies have
suppliers, customers and other businesses with whom they collaborate who themselves have ERP-type systems.
• Web-integrated ERP (known by some people as ‘collaborative commerce’, or c-commerce) becomes widely implemented.

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ERP Evolution- MRP 2

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Key benefits of ERP software

1.Enhanced Business Reporting:

1. Better reporting tools with real-time information
2. A single source of truth – one integrated database for all business processes
2.Better customer service:
1. Better access to customer information
2. Faster response times
3. Improved on-time delivery
4. Improved order accuracy
3.Improved Inventory Costs:
1. Only carry as much inventory as needed, avoid these common issues
1. Too much inventory, and higher overhead costs
2. Too little inventory, and longer customer fulfillment times
4.Boosted Cash Flow:
1. Better invoicing and better collections tools to bring cash in faster
2. Faster cash means more cash on-hand for the business
5.Cost Savings:
1. Improved inventory planning
2. Better procurement management
3. Better customer service
4. Improved vendor relationship management
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 6. Better Data & Cloud Security:
1. Dedicated security resources
2. Avoid installing malicious software
3. Data distributed across multiple servers
7. Business Process Improvements:
1. Automate manual or routine tasks
2. Implement smarter workflows
3. Gain efficiency
8. Supply Chain Management:
• Effective demand forecasting and lean inventory
• Reduce production bottlenecks
• Transparency through the business

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Disadvantages of ERP system

1.Costs of an ERP Software

1. Third-party software add-ins
2. Implementation costs
3. Maintenance
4. Initial and continuous training
2.Complex Data Conversion
1. Developing a solid data conversion strategy can be difficult
2. You have to define, examine and analyze data sources
3. Bad data conversion will cause delays and increased costs
3.Requires thorough training
1. Training needs to cover all of the ERP system’s features.
2. ERP training sessions need to be in line with business processes
3. IT users need to be trained for the technical aspects of the ERP System

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ERP Applications- Case studies

 Surung, J. S., Bayupati, I., & Ayu Putri, G. A. (2020). The Implementation Of ERP In Supply Chain Management On
Conventional Woven Fabric Business. International Journal of Information Engineering & Electronic Business, 12(3).

 Ikhsan, I., Ridwan, A. Y., & Saputra, M. (2020, June). Green Production Using ERP: Case Study in The Leather
Tanning Industry. In 2020 8th International Conference on Information and Communication Technology (ICoICT) (pp.
1-6). IEEE.

*Note: All the aforementioned papers are attached in the drive.

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References
[1] Laudon, K. C., & Laudon, J. P. (2004). Management information systems: Managing the digital firm. Pearson Educación.

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