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1. M.C.A. SEM. I Enterprise Resource Planning (ERP) - 2610002

   INTRODUCTIONTO ERP

   Chapter-02
2. Definition of ERP Enterprise :- The enterprise is any organization that has a set of common goals. Resource :- Resources can be in the form of: human resource (manpower), capacity (machine, plants, warehouses, etc), Inventory resources (finished goods, raw material stock), etc.
3. Planning :- For effective utilization of resources, an enterprise needs to plan and undertake a variety of activities like: Demand planning, Distribution planning, Production planning, Capacity planning, Material planning, Maintenance planning, Financial planning, New product planning, etc.
4. What is ERP? “ERP is an abbreviation for Enterprise Resource Planning and means, the techniques and concepts for integrated management of businesses as a whole from the viewpoint of the effective use of management resources to improve the efficiency of enterprise management. “ “ERP is an integrated information system built on a centralized database and having common computing platform that helps in effective usage of enterprise’s resources and facilities the flow of information between allbusiness functions of the enterprise (and with external stakeholders).”
5. ERP is an enterprise-wide information system designed to coordinate all the resources, information, activities needed to complete business processes such as: orderfulfillment billing
6. How ERP Systems Works? A typical ERP system would use multiple component of computer software and hardware to achieve integration. ERP delivers a single database that contains all data for the software modules.
7. Enterprise Resource Planning (ERP)
8. ERP systems automate Business Processes:
9. The organization before ERP
10. Bringing the Organization Together
11. Companies before ERP Systems
12. Exampleto understand how older system works before ERP Industrial Engineering Faculty wants to buy a new Printer. For this reason Secretary gives a purchasing order by filling purchasing order forms. Next slide shows how this purchasing request process flow was working before ERP systems.
13. New Printer Purchasing Process Purchase order form for a new printer Head of Department Confirmation- Faculty Head Purchase order document sent to Account Office Account Office Secretary sents the purchase order to the Responsibles Purchase order- Responsible personal Confirmation Purchasing department- Manager Confirmation Transfer to Finance Department Secretary for processing Finance Department Responsible’s Confirmation Transfer to Rector’s Office Rector’s Secretary- Confirmation Confirmation Transfer, to Purchase Department Secretary Purchase Responsible personal commends with Purchase:
14. Example: Before ERP Systems Transfer to Accounting Office Transfer to Finance Department Transfer to Accounting Office Transfer to Manager Secretary’s New printer application
15. Companies after ERP Systems
16. Example to understand process after ERP System Industrial Engineering Faculty wants to buy a new HP Printer. For this reason Secretary gives a purchasing order with using Online ERP systems. Next slide shows the purchasing order process flow with ERP Systems.
17. After ERP Systems
18. In this real case there the benefits of the ERP systems over Older System Online Data Flow decreases the process time Fast & Online Confirmation Less Paperwork No need for folder storage Database Security Less Employee needed Easy Financial Management Better Inventory Management
19. ERP packages are integrated (covering all business functions) software packages that support the ERP concepts. ERP software is a mirror image of the major business processes of an organization, such as customer order fulfillment and manufacturing.
20. ERPintegrates all business functions into a single, integrated software program that runs on a single database so that the various departments can more easily share information and communicate with each other. The integrated approach of ERP has tremendous power and potential in improving the efficiency, productivity, and competitiveness of the organization.
21. Common Myths about ERP ERP means more work and procedures : Many employees think that ERP will add more work, make the work more difficult and will force unnecessary procedures. Transformation from the old system to the ERP is a difficult process. Proper management, implementation, proper training make transition smooth. ERP can makes life of employee by applying automated tools.
22. ERP will make many employees redundant and jobless :- Another misconception about ERP is that its implementation will make many jobs redundant (jobless/unemployed) because of the automation. Hence, many employees will lose their jobs. There will be changes in job descriptions and in the activities people used to do. ERP creates new job opportunities by giving proper training on the new tasks.
23. ERP is the sole responsibility of the management The job of management is to create an organizational environment in which ERP can succeed. Management should monitor the implementation and operation of system, review progress, take necessary action, if required. Making an ERP system work is the responsibility of all the employees. If employees are not trained, satisfied with system or not happy then ERP system will be a failure.
24. ERP is just for the managers/ decision-makers The managers and decision-makers are the major users of the ERP system. Quality of decisions are improved. ERP system provide high quality, timely and relevant information. But every employee in an organization benefits from the ERP system.
25. For example, An ERP system, gives the store clerk access to inventory record and enables him to find out the exact quantity of an item. Allows production supervisor to plan his activity. Allows employees to apply for leave, get loans approved and so on. But for making the best use of the information processing power of an ERP system the users should be trained on how to make the best use of various features available. Otherwise they will find the experience tedious and frustrating.
26. ERP is just for manufacturing organizations This assumption is basically due to the way in which ERP was developed from the methods of MRP (material requirement planning) and MRP-II (manufacturing resource planning). MRP is concerned primarily with manufacturing materials while MRPII is concerned with the coordination of the entire manufacturing production, including materials, finance, and human resources. But the concept of enterprise-wide planning of resources is not limited to any particular segment of industry.
27. ERP is just for the ERP implementation team ERP implementation team usually consists of : Outside consultants, Vendor representatives, and Group of employees But, once the implementation and user training is over, the consultants and vendor representatives will leave. Then, it is the responsibility of each and every employee of the company to use the ERP system properly and make the best use of the new features and facilities.
28. ERP slows down the organization Before the ERP tools, most business tasks were performed manually and this was a time consuming process. The ERP system automated the flow across departments thereby eliminatingduplication and faster and accurate results. In case of ERP system, an order can trigger a host of events that will take care of the: material procurement (acquiring), Production planning, Informing suppliers and so on. So an ERP system makes the organization efficient and never slows it down.
29. ERP is just to impress customers Its true that a properly implemented ERP system can help in serving the customers better as it helps the organizations to : React faster, Respond better and Deliver high-quality products and services. So with ERP system you get more satisfied customers, but that is only of the advantages of an ERP system.
30. ERP package will take care of everything Properly implemented, operated and maintained ERP system can improve: Productivity, Automate tasks, Reduce wastage and improve profits. But it doesn’t mean that ERP tools will take care of everything. ERP system needs people to operate, use and maintain it. There are many business activities that need human intervention and judgment for decision making.
31. One ERP package will suit everybody There are hundreds of ERP tools available in the marketplace. These tools are differ in features, capabilities, size, functionality, price, technical support, etc. Organizations also different from one another. Each has its own characteristics and identity. Assuming that one tool will be suitable for all organization is wrong.
32. For an ERP implementation to be successful, the tool that is implemented should be compatible with organizational culture, practices and procedures. So purchasing an ERP package attention is required on selection of tools that are best suited for the organization.
33. ERP is very expensive ERP packages come in all shapes and sizes. Sophisticated ERP tools are very expensive. ERP system needs people to manage it. Thus, implementing and managing an ERP system is an expensive affair. But, these expenses should be weighted against the benefit of the ERP system like automating task, provide qualitative information, improve customer satisfaction, reduce errors and so on. When the benefits of the ERP system are considered, money spent on ERP system will pay for itself.
34. Organizations can succeed without ERP Before ERP, organizations were run manually. If an organization is very small in size and has very limited scope, then it can be sometimes succeed without ERP. But, today’s organizations are becoming large and becoming more and more complex.
35. Also, a single group does not necessarily build the different components of a product. So this era of multi-site, distributed production. Different groups situated in different parts of world develop the components of a system. In such situation ERP system is helpful in managing the complex activities of an organization.
36. Common 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 manufacturing organizations ERP is just for the ERP implementation team ERP slows down the organization ERP is just to impress customers ERP package will take care of everything One ERP package will suit everybody ERP is very expensive Organizations can succeed without ERP
37. History of ERP Origins in the manufacturing industry: 1960’s – Inventory management and control systems 1970’s – Materials Requirement Planning (MRP) and Closed-loop MRP 1980’s – Manufacturing Requirements Planning (MRP II) 1990’s – Enterprise Resource Planning (ERP)
38. Inventory Management and Control What is Inventory ? Stock of items kept to meet future demand Purpose of inventory management how many units to order (quantity) when to order (timing)
39. Types of Inventory : Raw materials Purchased parts and supplies Work-in-Process (partially completed) products (WIP) Items being transported Tools and equipment
40. WIP Work in process (acronym: WIP) or in-process inventory includes the set at large of unfinished items for products in a production process. These items are not yet completed but either just being fabricated or waiting in a queue for further processing or in a buffer storage.
41. Inventory management and control is the combination of : information technology and business processes of maintaining the appropriate level of stock in a warehouse.
42. Stockin a warehouse.
43. Inventory Costs Carrying cost cost of holding an item in inventory Ordering cost cost of replenishing (refilling) inventory Shortage cost temporary or permanent loss of sales when demand cannot be met
44. INVENTORY CARRYING COST
45. The activities of inventory management include: identifying inventory requirements, setting targets, providing replenishment (refilling) techniques and options, monitoring item usages, reconciling the inventory (settle / compatible) balances, and reporting inventory status
46. The basic function of stock (inventory) is to insulate (separate) the production process :
47. Materials Requirement Planning (MRP) MRP is concerned primarily with manufacturing materials. MRP used to help a company to work out how many materials of which types were required and when they were required. It was an outgrowth of bill of material (BOM) processing. (MRP uses a concept called bill of material (BOM) that defines how much of raw material/component is needed to make one finished product.)
48. MRP software answering the following few fundamental questions for manufacturers: Which finished products are we going to manufactured? Or what products are we going to make? MRP uses a concept called Master Production Schedule (MPS) that answer this question. What is the quantity of raw materials/components needed to make these finished products? MRP uses a concept called Bill Of Material(BOM) that defines how much of raw material/component is needed to make one finished product.
49. MPS A Master Production Schedule (MPS) is the plan that a company has developed for production, inventory, staffing, etc. The Master Production Schedule must take into account the forecast, the production plan, and other important considerations such as backlog,availabilityof material, availability of capacity, and management policies and goals.
50. What are the materials that we have in stock? The company’s inventory records give this information. Inventory in hand and inventory in transit both need to be considered. What are the items that need to be purchased? If the items are procured (acquire/buy) from vendors, MRP helps to calculate the quantity (considering if already something is ordered) and when to place the order.
51. How much components/ sub assemblies are to be manufactured in-house? MRP also helps to calculate the quantity to be manufactured in-house. Thus, MRP solved the great manufacturing and production planning problems and made the manufacturing of goods easier.
52. Using the MPS, the MRP program calculates the volume and timing of assemblies, subassemblies and materials required to meet the schedule. If we take a simple example of preparing a lunch box that contains fruit, a foil-wrapped tomato sandwich, and a piece of cherry cake, we can illustrate how this is done. The final output is a box containing the food, but in order to make it we need to know what components are required. At the top level, these are the box itself and the completed ingredients shown in the table below.
53. The simple bill of materials can be shown graphically, as we have above, but is far too unwieldy for a product that may have many levels of sub-assembly and thousands of different parts. MRP systems cope with this by using ‘single-level’ bills of materials and ‘indented’ bills of materials.
54. The calculations that MRP performs are based on the ‘Master Production Schedule’ (MPS), a combination of firm orders-on-hand and estimates of future orders, defined by time and required date. Using the MPS, the MRP program calculates the volume and timing of assemblies, subassemblies and materials required to meet the schedule.
55. MRP finds answer of following questions : What products are we going to make? What is the quantity of raw materials/components needed to make these finished products? What are the materials that we have in stock? What are the items that need to be purchased? How much components/ sub assemblies are to be manufactured in-house?
56. Restrictions of MRP MRP has several restrictions like it will not able to plan looking at: Available capacity, Not able to replan quickly, Not integrated with other organizational processes like quality management, sales, etc. The biggest challenge of MRP logic is that it goes by finished goods requirement and not look at feasibility of the plan.
57. For example, An automobile manufacturer’s forecasting for next year is 1000 cars, MRP tells that it need to manufacture thousand gear boxes (assuming zero stock of gear box) and buy 4000 tires to make 1000 cars. However, if the car manufacturer has capacity of producing only 800 gear boxes and its suppliers can supply only 3000 tires, MRP doesn’t bother about this reality. So, MRP plan always needs to be validated and compared with reality and checked with its feasibility.
58. Closed-loop MRP Merger of capacity planning techniques with MRP Tools developed to support the planning of sales and production levels, development of production schedules, forecasting, sales planning, capacity planning and order processing. Closed-loop MRP contains tools and techniques to address both priority and capacity and supports both planning and execution.
59. Closed loop MRP made it possible where an ERP is always checked against available capacity and alerts/triggers are provided to the planner, if the same is not feasible. Capacity Consideration: Part routings Calculate loads on each work station See if scheduled load exceeds capacity Lead-time long enough to allow some shuffling to make plan feasible
60. Manufacturing Resource Planning (MRP II) Evolved from closed-loop MRP “A method for the effective planning of all resources of a manufacturing company” Contains additional capabilities like: Financial accounting incorporated Sales Operations Planning Simulate capacity requirements of different possible Master Production Schedules
61. Utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution. It integrates : Business plan Financial plan Capacity plan Material plan
62. Enterprise Resource Planning (ERP) Fundamentals of ERP are the same as that of MRP II. ERP is broader in scope and is capable of dealing with more business functions and has a better and tighter integration with the finance and accounting functions. ERP is an enterprise-wide set of forecasting, planning and scheduling tools, which links customers and suppliers into a complete supply chain.
63. Historical Perspective ERP- Enterprise Resource Planning MRP II – Manufacturing Resource Planning mrp – material requirements planning
64. The goals of ERP include high levels of customer service, improved productivity, cost reduction, better inventory turnover (just-in-time inventory), etc. ERP is more powerful because it applies a single set of resource planning tools across the entire enterprise, provides real-time integration of sales, operating and financial data and connects resource planning approaches, to the extended supply chain of customers and suppliers.
65. Time frame and key milestones 1950s EOQ Safety Stock BOMP Work Orders 1970 MRP Theoretical / conceptual Improvements in management techniques MRPII 1980 ERP 1990 ERM / ERPII 2000
66. Time frame and key milestones 1950s EOQ Safety Stock BOMP Work Orders 1970 MRP Computing power enables completely integrated manufacturing solution MRPII 1980 ERP 1990 ERM / ERPII 2000
67. Time frame and key milestones 1950s EOQ Safety Stock BOMP Work Orders 1970 MRP More functions become Integrated in the process MRPII 1980 ERP 1990 ERM / ERPII 2000
68. Time frame and key milestones 1950s EOQ Safety Stock BOMP Work Orders 1970 MRP MRPII 1980 More functions become Integrated in the process + technology improvements ERP 1990 ERM / ERPII 2000
69. Time frame and key milestones 1950s EOQ Safety Stock BOMP Work Orders 1970 MRP MRPII 1980 More functions become Integrated in the process to add up to complete business solution ERP 1990 ERM / ERPII 2000
70. Reasons for the Growth of ERP Enterprise resource planning (ERP) is a software computer system that builds on a centralized database that utilizes a common computing platform. ERP improves business performance: cycle time reduction (The period required to complete a function, job or task from start to finish), inventory reduction, faster response times, streamlined and faster order fulfillment, etc.
71. ERP supports business growth requirements like: new products, product lines, customers As new products and product lines become available in a company, along with new customers. New products always pose a problem because the company has no record of product performance to which to refer. However, ERP allows tools to be used in which you lay out expectations, explain design specifications ,etc
72. Global requirements including multiple language and multiple currency support, etc. Provides flexible, integrated, real time decision support Improve responsiveness across the organization The database that ERP uses can provide general or specific answers to queries. For instance, questions such as "what is the time frame for the production of this product, and how soon does the customer want it?" can be answered through this system, which can also provide alternatives in suggesting a better, less costly but efficient manner .
73. Eliminatelimitation in legacy systems: Legacy systems, that is, old systems that are still used in a business, can present problems for companies. They are slow, inefficient, sometimes costly systems to maintain and they cannot produce the results that a business for obtaining the best in customer or product support. ERP can address the problem by pointing out what information is necessary to produce a workable system. Thus, management will come to realize that the legacy systems are not able to achieve the output or efficiency required, necessitating the input of hardware or software upgrades, or both.
74. Take Advantage of Untapped Markets mid-market (medium-size organizations): Increased functionality at a reasonable cost Client-server technology So these are some of the reasons of the growth of the ERP markets and ERP vendors. As more and more companies are joining the race, ERP vendors are shifting their focus from big companies to medium-size, small-size. The ultimate winner in this race will be the customer, who will get better products and better services at affordable prices.
75. Advantages of ERP Business integration - ERP packages integrates the information processing and automates data updating (automatic data exchange among applications) between related business components. Flexibility - Diverse multinational environments such as language, currency, accounting standards, etc. are covered in one system, which makes the ERP systems very flexible.
76. Better analysis and planning capabilities – ERP systems enables the comprehensive and unified management of related businesses and its data. This unification makes it possible to fully utilize many types of decision support systems and simulation functions. Use of latest technology - ERP vendors uses the latest developments in the field of information technology. This technology adoption benefits the organizations using the packages as they get better products and with better capabilities.
77. ERP can reduce order fulfillment cycle time: Before ERP when every department were using their own separate applications, if a customer calls the company to place the an order for a particular product, departments needed to pass the information to other departments explicitly. But now in ERP world, as soon as customer enquires about a product, the sales team can check its availability online and if it’s not available in stock, within minutes production team knows that this need to be produced. This automation and instant sharing of information can reduce the cycle time of the whole process.
78. ERP can provide Better Customer Satisfaction: ERP can provide better customer satisfaction by offering capabilities like: Online order status tracking, Customized pricing, Better field service, etc. New generation application, called customer relationship application that is targeted to provide better customer service through capabilities like: Internet sales and service, Mobile sales and service, Call center, Multi-channel ( for example, customers can buy an online channel and take deliveries in a physical store), etc.
79. ERP Benefits : Business integration Flexibility Better analysis and planning capabilities Use of latest technology ERP can reduce order fulfillment cycle time ERP can provide Better Customer Satisfaction Reduced Data Redundancy (data entered once in the system, need not be recreated and available to everyone.) Inter-organization collaboration (i.e., with suppliers and partners)
80. Why ERP? Why ERP? ERP offers solutions for all business functions Packages available for organizations of all sizes and types Global nature (multi-lingual and multi-currency support)
81. Over Expectations about ERP (One of the main reasons for failed implementations) Insufficient pre-implementation preparation Lack of awareness among employees Lack of awareness among management about costs Wrong concepts about ROI (Return On Investment) and payback period (The length of time required to recover the cost of an investment.)
82. Successful ERP Implementations Conduct Gap analysis to find out company requirements and the functions a package possesses. (how to avoid redundant business processes) Select experienced and professional consultants Select the right package Select employees with the right attitude for implementation team Ensure that knowledge transfer happens between consultants and employees as well as between vendors and employees Ensure that there is enough in-house consultants and integrators during the operation and maintenance phase
83. The Role of CIO Chief information officer (CIO), or information technology (IT) director, is a job title commonly given to the most senior executive in an enterprise responsible for the information technology and computer systems that support enterprise goals. The CIO's job is to make systems meet needs. Develop information system that will deliver high-quality information to all the decision-makers when they need it. Generally, the CIO reports to the chief executive officer (CEO), chief operations officer (COO) or chief financial officer (CFO).
84. Revised Important Definitions : ENTERPRISE RESOURCE PLANNING ERP PACKAGE MRP CLOSED LOOP MRP MRP II VENDORS INVENTORY INVENTORY MANAGEMENT AND CONTROL
85. WIP BOM MPS LEAD-TIME CYCLE TIME REDUCTION INTEGRATED LEGACY SYSTEM UNTAPPED MARKET DATA REDUNDANCY ROI CIO
86. Review Questions Discuss ERP and its uses. Discuss the common myths about ERP and find practical solutions for dispelling them in your organization. Discuss the history and evolution of ERP. What is MRP and what was it used for? Explain the difference between MRP and closed-loop MRP. What is MRP-II? Explain what you mean by ERP. Discuss the various reasons for the growth of ERP. Explain the advantages of ERP. Discuss the roadmap for a successful ERP implementation. What is the role of the CIO in implementing an ERP system? Discuss the future of ERP systems