Lecture-6 Enterprise Resource Planning

MANUFACTURING PLANNING &
CONTROL
Lecture-6 (Enterprise Resource Planning (ERP)
Dr. Sikandar Bilal Khattak
Department of Industrial Engineering
University of Engineering and Technology Peshawar, Pakistan
This Lecture
■ Evolution
■ Enterprise Resource Planning
■ Components of ERP
■ Benefits of ERP
■ ERP Implementation
Department of Industrial Engineering, UET Peshawar 2

Evolution
MRP-
MRP ERP
II

Enterprise Resource Planning (ERP)
■ ERP systems is a software solution that addresses the enterprise needs.
■ It takes the process view of an organization to meet the organizational goals and tightly
integrates all functions in that organization.
■ The resources under consideration could be
– Capital
– Equipment
– Material
– Intelligence and so on.

■ An ERP system is an attempt to integrate all functions across a company to a single
computer system that can serve all those functions’ specific needs.
■ “Integration” is the key word for ERP implementation.
■ It may also integrate key customers and suppliers as part of the enterprise’s operation.
■ It provides integrated database and custom-designed report systems.
■ It adopts a set of “best practices” for carrying out all business processes.

Why ERP?
■ An ERP system provides a method for
effective planning and controlling of
all the resources required to take,
make, ship, and account for
customer orders in a
manufacturing, distribution, or
service organization.
■ Integrate financial information
– To understand an organization’s
overall performance, managers
must have a single financial view.

■ Integrate customer order information
– With all customer order information in a single system it is easier to coordinate manufacturing, inventory, and
shipping to send a common message to customers regarding order status.
■ Standardize and speed up manufacturing processes
– ERP systems provide standard methods for manufacturing companies to use when automating steps in the
manufacturing process.
– Standardizing manufacturing processes across an organization saves time, increases production, and reduces
head count.
■ Reduce inventory
– With improved visibility in the order fulfillment process, an organization can reduce inventories and streamline
deliveries to its customers.
■ Standardize human resource information
– ERPs provide a unified method for tracking employees’ time, as well as communicating HR benefits and services

Relationships
■ Supply Chain Management (SCM) focuses on Suppliers
■ Customer Relationship Management (CRM) focuses on Customers
■ ERP system focuses on everything (all processes, departments, and operations) of an enterprise.
– It includes the SCM and CRM
■ ERP enables employees across the organization to share information across a single, centralized
database.
– With extended portal capabilities, an organization can also involve its suppliers and customers
to participate in the workflow process, allowing ERP to penetrate the entire value chain, and
help the organization achieve greater operational efficiency

Enterprise Wide View
■ The true benefit of an ERP system is its ability take the many different forms of data from across the
different organizational systems and correlate, aggregate, and provide an enterprise wide view of
organizational information.
■ Without understanding how all of the different divisions, products, departments, etc. are operating you
cannot run the business

Components of ERP
■ Core ERP components
– traditional components included in

most ERP systems and they primarily
focus on internal operations
■ Extended ERP components
– extra components that meet the

organizational needs not covered by
the core components and primarily
focus on external operations

Components of ERP
Core ERP Components
■ Accounting and finance component
– manages accounting data and financial processes within the enterprise with
functions such as general ledger, accounts payable, accounts receivable, budgeting,
and asset management
■ Human resource component
– tracks employee information including payroll, benefits, compensation,

performance assessment, and assumes compliance with the legal requirements of
multiple jurisdictions and tax authorities

■ Production and materials management
component
– handles the various aspects of

production planning and execution
such as demand forecasting,
production scheduling, job cost
accounting, and quality control

Components of ERP
Extended ERP Components
■ Business intelligence
– Tools to help analyze your business information and better understand it so that you can better
understand the business.
– Describes information that people use to support their decision-making efforts
■ Customer relationship management
– involves managing all aspects of a customer’s relationships with an organization to increase customer
loyalty and retention and an organization's profitability
■ Supply chain management
– – involves the management of information flows between and among stages in a supply chain to
maximize total supply chain effectiveness and profitability

■ E-business
– conducting business on the Internet, not only buying and selling, but also serving
customers and collaborating with business partners
■ E-logistics
– manages the transportation and storage of goods
■ E-procurement
– the business-to-business (B2B) purchase and sale of supplies and services

over the Internet

Management Information Systems

Data Vs Information

Functions of an Information System

Types of Information Systems

Potential Benefits of ERP
Internal Benefits
■ Integration of a single source of data
■ Common data definition
■ A real-time system
■ Increased productivity
■ Reduced operating costs
■ Improved internal communication
■ Foundation for future improvement

Potential Benefits of ERP
External Benefits
■ Improved customer service and order fulfillment

■ Improved communication with suppliers and customers
■ Enhanced competitive position
■ Increased sales and profits

ERP Implementation Approaches
■ The big bang
– Install a single ERP system across the entire organization
■ Franchising
– Independent ERP systems are installed in different units linked by common
processes, e.g., bookkeeping.
■ Slam dunk
– install one or several ERP modules for phased implementation of key business
processes.

Phases of ERP Implementation
■ Initiation
– develop business case, project scope, and implementation strategy
■ Planning
– establish implementation team, determine goals and objectives, establish metrics
■ Analysis and process design
– analyze and improve existing processes, map new processes to be adopted by the system
■ Realization
– install a base system, customization, and test the system
■ Transition
– replace the formal system with the new system, data conversion
■ Operation
– monitor and improve system performance, provide continued training and technical support

Ways to Develop ERP System
Method Advantages Disadvantages
Most difficult to develop, most
Develop in-house Best fit with organizational needs
expensive, Slowest
In house system with vendor Gain commercial advantages combined Difficult to develop, Expensive,
supplements with organizational fit slow
Difficult to link modules, slow,

Best-of-breed Theoretically gain best of all systems
potentially inefficient
Retain flexibility while keeping vendor

Customized vendor system Slower, usually more expensive
expertise
If expand, long run time and cost
Selected vendor modules Less risk, relatively fast, least expensive
higher
Full vendor system Fast, less expensive, efficient Inflexible

At the mercy of the provider, no
Least risk, least cost, fastest, least
Application service provider control, and subject to price
subject to vendor change
increases

ERP Risks
■ Although there are great benefits to be realized from ERP systems, there are also failure
stories.
■ ERP systems are very expensive in terms of resources, such as time, money, and effort.
■ Although they can help introduce good business processes, many companies
implementing ERP software must change their business processes to match the
software, which can cause employee resistance.

Challenges to ERP Implementation
■ Limitations of ERP technical capabilities
■ Inconsistency with existing business processes
■ Costs
– implementation (hardware, software, training,
consulting) and maintenance
■ Impact on organizational structure (front office vs. back
office, product lines, etc.)
■ Changes in employee responsibilities
■ Flexibility of software system upgrades
■ Implementation timelines
■ Availability of internal technical knowledge and resources
■ Education and training
■ Implementation strategy and execution
■ Resistance to change

ERP Implementation - Key Enablers (APQC Best-Practice Report)
■ The organization is prepared for the change.
■ The executive leaders are active and visible in their support.
■ The initiative is seen as a business imperative by the organization.
■ The resources are available to conduct the project completely.
■ A good packaged system is used and not customized.
■ The user group is trained to use the software before it is implemented.

Project Management
■ Organizations link implementation teams to both the technical (IS) and

functional departments.
■ They tightly control implementation processes
■ They appropriately use consultants throughout the implementation
process
■ They manage turnover of key implementation employees
■ They have basic business reasons for implementation
■ They align implementation with organizational strategies

Change Management
■ Redesigned jobs call for higher levels of skills and accountability
■ Change management is viewed as more than just increased training and

communication
■ Enterprise-wide systems drive redesigned changes.
■ The executive sponsor is the change agent.
■ Resistance from the work force (including management) is the most

significant obstacle.
Technology Excellence
■ Organizations rely heavily on the ERP package as the majority of their

application configuration.
■ Organizations implement ERP packages on time and within budget
■ Organizations centralize support groups within their IT departments

Critical Success Factors in ERP
1. Clear understating of strategic goals
2. Commitment by top management
3. Excellent implementation project management
4. Great implementation team
5. Successful coping with technical issues
6. Organizational commitment to change
7. Extensive education and training
8. Data accuracy
9. Focused performance measures
10. Multisite issues resolved

New Developments in ERP
■ Availability of web-based and wireless ERP systems
■ Adoption of easy-to-install ERP systems
■ Linkage to other software systems, e.g., supply chain management system, e-commerce,
customer relationship management system
■ Open source ERP Systems

Degrees of ERP Modules Used by Companies
Module Degree of module used by companies
Financial and Accounting 91.5%
Materials management 89.2%
Production Planning 88.5%
Order entry 87.7%
Purchasing 86.9%
Financial Control 81.5%
Distribution/logistics 75.4%

Market Trend
■ According to a recent report published by Allied Market Research, titled, Enterprise
Resource Planning Market by Component, Deployment Model, Business Function, End
User, and Industry Vertical: Global Opportunity Analysis and Industry Forecast, 2021-
2028,” The global ERP market size was valued at $39,340 million in 2019, and is
projected to reach $ 86,303 million by 2026, growing at a Compound Annual Growth
Rate (CAGR) of 9.8% from 2020 to 2027.

Vendors
■ Over fifty vendors, such as
– SAP
– Oracle
– Baan
– J.D. Edwards

Sources
References
■ https://www.csus.edu/indiv/w/wangc/mgmt186/docs/notes/enterprise%20resource%2
0planning%20(erp)%20systems.ppt
■ https://castle.eiu.edu/pingliu/ResearchGroup/ERP_systems_Jing_Shao.ppt
■ https://repository.dinus.ac.id/docs/ajar/erp.pptx
■ https://www.alliedmarketresearch.com/press-release/global-ERP-software-market-is-ex
pected-to-reach-41-69-billion-by-2020.html
■ Chapter 1 and 2 of Management Information Systems by Laudon, K. and Laudon, J.,

Thank You
Any Questions?

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MANUFACTURING PLANNING &

■ Enterprise Resource Planning

Department of Industrial Engineering, UET Peshawar 2

Department of Industrial Engineering, UET Peshawar 3

■ The resources under consideration could be

– Intelligence and so on.

Department of Industrial Engineering, UET Peshawar 4

■ “Integration” is the key word for ERP implementation.

■ It provides integrated database and custom-designed report systems.

Department of Industrial Engineering, UET Peshawar 5

Department of Industrial Engineering, UET Peshawar 6

■ Standardize and speed up manufacturing processes

■ Standardize human resource information

Department of Industrial Engineering, UET Peshawar 7

■ Customer Relationship Management (CRM) focuses on Customers

– It includes the SCM and CRM

Department of Industrial Engineering, UET Peshawar 8

Department of Industrial Engineering, UET Peshawar 9

– traditional components included in

■ Extended ERP components

– extra components that meet the

Department of Industrial Engineering, UET Peshawar 10

■ Accounting and finance component

■ Human resource component

– tracks employee information including payroll, benefits, compensation,

Department of Industrial Engineering, UET Peshawar 11

– handles the various aspects of

Department of Industrial Engineering, UET Peshawar 12

– Describes information that people use to support their decision-making efforts

■ Customer relationship management

■ Supply chain management

Department of Industrial Engineering, UET Peshawar 13

– manages the transportation and storage of goods

– the business-to-business (B2B) purchase and sale of supplies and services

Department of Industrial Engineering, UET Peshawar 14

Department of Industrial Engineering, UET Peshawar 15

Department of Industrial Engineering, UET Peshawar 16

Department of Industrial Engineering, UET Peshawar 17

Department of Industrial Engineering, UET Peshawar 18

■ Integration of a single source of data

■ Common data definition

■ Reduced operating costs

■ Improved internal communication

■ Foundation for future improvement

Department of Industrial Engineering, UET Peshawar 19

■ Improved customer service and order fulfillment

Department of Industrial Engineering, UET Peshawar 20

Department of Industrial Engineering, UET Peshawar 21

– develop business case, project scope, and implementation strategy

– establish implementation team, determine goals and objectives, establish metrics

■ Analysis and process design

– install a base system, customization, and test the system

Department of Industrial Engineering, UET Peshawar 22

Difficult to link modules, slow,

Retain flexibility while keeping vendor

Full vendor system Fast, less expensive, efficient Inflexible

Department of Industrial Engineering, UET Peshawar 23

Department of Industrial Engineering, UET Peshawar 24

Department of Industrial Engineering, UET Peshawar 25

■ The organization is prepared for the change.

■ The executive leaders are active and visible in their support.

■ The initiative is seen as a business imperative by the organization.

■ The resources are available to conduct the project completely.