Enterprise Resource Planning:
ERP is a platform that
facilitates the database control in a company. The working mechanism of ERP is
simple and easy to understand. ERP aims to unite the data processed in various
departments and division of a company. The central unit referred as the
platform controls the entire system. It aims at providing connectivity in order
to access the information from all faculties. The benefit of ERP is largely
felt nowadays when operations are becoming global in the true sense.
With the intervention of ERP it becomes equally easy for the other
departments of the company to check the information regarding the order.
Similarly it is not necessary for departments to keep working on it all through
to know their chance or in other words discharging their respective area of
work in the whole process. On the contrary ERP intimates them as soon as it is
their chance. ERP software solution is the one step answer. Implementing ERP in
an organization depends upon that whether it could yield necessary benefits
rather than the troublemaker.
Enterprise resource planning (ERP)
is an integrated computer-based system used to manage internal and
external resources including tangible assets, financial resources, materials,
and human resources. It is a software architecture whose purpose is to
facilitate the flow of information between all business functions inside the
boundaries of the organization and manage the connections to outside
stakeholders. Built on a centralized database and normally utilizing a common
computing platform, ERP systems consolidate all business operations into a
uniform and enterprise wide system environment.
An ERP system can either reside on a centralized server or be distributed
across modular hardware and software units that provide "services"
and communicate on a local area network. The distributed design allows a
business to assemble modules from different vendors without the need for the
placement of multiple copies of complex, expensive computer systems in areas
which will not use their full capacity.
Origin of the term
The initialism ERP was first employed by research and analysis firm
Gartner Group in 1990 as an extension of MRP (Material Requirements Planning;
later manufacturing resource planning) and CIM (Computer Integrated
Manufacturing), and while not supplanting these terms, it has come to represent
a larger whole. It came into use as makers of MRP software started to develop
software applications beyond the manufacturing arena. ERP systems now attempt
to cover all core functions of an enterprise, regardless of the organization's
business or charter. These systems can now be found in non-manufacturing
businesses, non-profit organizations and governments.
To be considered an ERP system, a software package should have the
following traits:
• It should be integrated and operate in real-time with no periodic batch
updates.
• All applications should access one database to prevent redundant data and
multiple data definitions.
• All modules should have the same look and feel.
• Users should be able to access any information in the system without
needed integration work on the part of the IS department
ERP Components
Transactional Backbone
• Financials
• Distribution
• Human Resources
• Product lifecycle management
Advanced Applications
• Customer Relationship Management (CRM)
• Supply chain management
o Purchasing
o Manufacturing
o Distribution
• Warehouse Management System
Management Portal/Dashboard
• Decision Support System
These modules can exist in a complete system or utilized in an ad-hoc
fashion.
Commercial Applications
Manufacturing
Engineering, bills of material, scheduling, capacity, workflow
management, quality control, cost management, manufacturing process,
manufacturing projects, manufacturing flow
Supply chain management
Order to cash, inventory, order entry, purchasing, product configurator,
supply chain planning, supplier scheduling, inspection of goods, claim
processing, commission calculation
Financials
General ledger, cash management, accounts payable, accounts receivable,
fixed assets
Project management
Costing, billing, time and expense, performance units, activity
management
Human resources
Human resources, payroll, training, time and attendance, rostering,
benefits
Customer relationship management
Sales and marketing, commissions, service, customer contact and call
center support
Data services
Various "self-service" interfaces for customers, suppliers,
and/or employees
Access control
Management of user privileges for various processes
Implementation
Businesses have a wide scope of applications and processes throughout
their functional units; producing ERP software systems that are typically
complex and usually impose significant changes on staff work practices.
Implementing ERP software is typically too complex for "in-house"
skill, so it is desirable and highly advised to hire outside consultants who
are professionally trained to implement these systems. This is typically the most
cost effective way. There are three types of services that may be employed for
- Consulting, Customization, Support. The length of time to implement an ERP
system depends on the size of the business, the number of modules, the extent
of customization, the scope of the change and the willingness of the customer
to take ownership for the project. ERP systems are modular, so they don't all
need be implemented at once. It can be divided into various stages, or
phase-ins. The typical project is about 14 months and requires around 150
consultants. A small project (e.g., a company of less than 100 staff) can be
planned and delivered within 3–9 months; however, a large, multi-site or
multi-country implementation can take years. The length of the implementations
is closely tied to the amount of customization desired.
To implement ERP systems, companies often seek the help of an ERP vendor
or of third-party consulting companies. These firms typically provide three
areas of professional services: consulting; customization; and support. The
client organization can also employ independent program management, business
analysis, change management, and UAT specialists to ensure their business
requirements remain a priority during implementation.
Data migration is one of the most important activities in determining the
success of an ERP implementation. Since many decisions must be made before
migration, a significant amount of planning must occur. Unfortunately, data
migration is the last activity before the production phase of an ERP
implementation, and therefore receives minimal attention due to time
constraints. The following are steps of a data migration strategy that can help
with the success of an ERP implementation
1. Identifying the data to be migrated
2. Determining the timing of data migration
3. Generating the data templates
4. Freezing the tools for data migration
5. Deciding on migration related setups
6. Deciding on data archiving
Process preparation
ERP vendors have designed their systems around standard business
processes, based upon best business practices. Different vendor(s) have
different types of processes but they are all of a standard, modular nature.
Firms that want to implement ERP systems are consequently forced to adapt their
organizations to standardized processes as opposed to adapting the ERP package
to the existing processes neglecting to map current business processes prior to
starting ERP implementation is a main reason for failure of ERP projects. It is
therefore crucial that organizations perform a thorough business process
analysis before selecting an ERP vendor and setting off on the implementation
track. This analysis should map out all present operational processes, enabling
selection of an ERP vendor whose standard modules are most closely aligned with
the established organization. Redesign can then be implemented to achieve
further process congruence. Research indicates that the risk of business
process mismatch is decreased by:
• linking each current organizational process to the organization's
strategy;
• analyzing the effectiveness of each process in light of its current
related business capability;
• understanding the automated solutions currently implemented.
ERP implementation is considerably more difficult (and politically charged)
in organizations structured into nearly independent business units, each
responsible for their own profit and loss, because they will each have
different processes, business rules, data semantics, authorization hierarchies
and decision centers. Solutions include requirements coordination negotiated by
local change management professionals or, if this is not possible, federated
implementation using loosely integrated instances (e.g. linked via Master Data
Management) specifically configured and/or customized to meet local needs.]
A disadvantage usually attributed to ERP is that business process
redesign to fit the standardized ERP modules can lead to a loss of competitive
advantage. While documented cases exist where this has indeed materialized,
other cases show that following thorough process preparation ERP systems can
actually increase sustainable competitive advantage.
Configuration
Configuring an ERP system is largely a matter of balancing the way you
want the system to work with the way the system lets you work. Begin by
deciding which modules to install, then adjust the system using configuration
tables to achieve the best possible fit in working with your company’s
processes
Modules — Most systems are modular
simply for the flexibility of implementing some functions but not others. Some
common modules, such as finance and accounting are adopted by nearly all
companies implementing enterprise systems; others however such as human
resource management are not needed by some companies and therefore not adopted.
A service company for example will not likely need a module for manufacturing.
Other times companies will not adopt a module because they already have their
own proprietary system they believe to be superior. Generally speaking the
greater number of modules selected, the greater the integration benefits, but
also the increase in costs, risks and changes involved
Configuration Tables – A configuration table enables
a company to tailor a particular aspect of the system to the way it chooses to do
business. For example, an organization can select the type of inventory
accounting – FIFO or LIFO – it will employ or whether it wants to recognize
revenue by geographical unit, product line, or distribution channel.
So what happens when the options the system allows just aren't good
enough? At this point a company has two choices, both of which are not ideal.
It can re-write some of the enterprise system’s code, or it can continue to use
an existing system and build interfaces between it and the new enterprise
system. Both options will add time and cost to the implementation process.
Additionally they can dilute the system’s integration benefits. The more
customized the system becomes the less possible seamless communication between
suppliers and customers
Consulting services
Many organizations do not have sufficient internal skills to implement an
ERP project. This results in many organizations offering consulting services
for ERP implementation. Typically, a consulting team is responsible for the
entire ERP implementation including
1. selecting
2. planning
3. training
4. testing
5. implementation
6. delivery
of any customized modules. Examples of customization includes creating
processes and reports for compliance, additional product training; creation of
process triggers and workflow; specialist advice to improve how the ERP is used
in the business; system optimization; and assistance writing reports, complex
data extracts or implementing Business Intelligence
For most mid-sized companies, the cost of the implementation will range
from around the list price of the ERP user licenses to up to twice this amount
(depending on the level of customization required). Large companies, and
especially those with multiple sites or countries, will often spend considerably
more on the implementation than the cost of the user licenses—three to five
times more is not uncommon for a multi-site implementation
Unlike most single-purpose applications, ERP packages have historically
included full source code and shipped with vendor-supported team IDEs for
customizing and extending the delivered code. During the early years of ERP the
guarantee of mature tools and support for extensive customization was an
important sales argument when a potential customer was considering developing
their own unique solution in-house, or assembling a cross-functional solution
by integrating multiple "best of breed" applications
"Core system" customization vs configuration
Increasingly, ERP vendors have tried to reduce the need for customization
by providing built-in "configuration" tools to address most
customers' needs for changing how the out-of-the-box core system works. Key
differences between customization and configuration include
• Customization is always optional, whereas some degree of configuration
(e.g., setting up cost/profit centre structures, organisational trees, purchase
approval rules, etc.) may be needed before the software will work at all.
• Configuration is available to all customers, whereas customization
allows individual customer to implement proprietary "market-beating"
processes.
• Configuration changes tend to be recorded as entries in vendor-supplied
data tables, whereas customization usually requires some element of programming
and/or changes to table structures or views.
• The effect of configuration changes on the performance of the system is
relatively predictable and is largely the responsibility of the ERP vendor. The
effect of customization is unpredictable and may require time-consuming stress
testing by the implementation team.
• Configuration changes are almost always guaranteed to survive upgrades
to new software versions. Some customizations (e.g. code that uses pre-defined
"hooks" that are called before/after displaying data screens) will
survive upgrades, though they will still need to be re-tested. More extensive
customizations (e.g. those involving changes to fundamental data structures)
will be overwritten during upgrades and must be re-implemented manually.
By this analysis, customizing an ERP package can be unexpectedly
expensive and complicated, and tends to delay delivery of the obvious benefits
of an integrated system. Nevertheless, customizing an ERP suite gives the scope
to implement secret recipes for excellence in specific areas while ensuring
that industry best practices are achieved in less sensitive areas.
Extensions
In this context, "Extensions" refers to ways that an ERP
environment can be "extended" (supplemented) with third-party
programs. It is technically easy to expose most ERP transactions to outside
programs that do other things, e.g:
• archiving, reporting and republishing (these are easiest to achieve,
because they mainly address static data);
• performing transactional data captures, e.g. using scanners, tills or
RFIDs (also relatively easy because they touch existing data);
However, because ERP applications typically contain sophisticated rules
that control how data can be created or changed, some such functions can be
very difficult to implement.
Advantages
In the absence of an ERP system, a large manufacturer may find itself
with many software applications that cannot communicate or interface
effectively with one another. Tasks that need to interface with one another may
involve.
• ERP systems connect the necessary software in order for accurate
forecasting to be done. This allows inventory levels to be kept at maximum
efficiency and the company to be more profitable.
• Integration among different functional areas to ensure proper
communication, productivity and efficiency
• Design engineering (how to best make the product)
• Order tracking, from acceptance through fulfillment
• The revenue cycle, from invoice through cash receipt
• Managing inter-dependencies of complex processes bill of materials
• Tracking the three-way match between purchase orders (what was
ordered), inventory receipts (what arrived), and costing (what the vendor
invoiced)
• The accounting for all of these tasks: tracking the revenue, cost and
profit at a granular level.
ERP Systems centralize the data in one place. Benefits of this include:
• Eliminates the problem of synchronizing changes between multiple
systems - consolidation of finance, marketing and sales, human resource, and
manufacturing applications
• Permits control of business processes that cross functional boundaries
• Provides top-down view of the enterprise (no "islands of
information"), real time information is available to management anywhere,
anytime to make proper decisions.
• Reduces the risk of loss of sensitive data by consolidating multiple
permissions and security models into a single structure.
• Shorten production leadtime and delivery time
• Facilitating business learning, empowering, and building common visions
Some security features are included within an ERP system to protect
against both outsider crime, such as industrial espionage, and insider crime,
such as embezzlement. A data-tampering scenario, for example, might involve a
disgruntled employee intentionally modifying prices to below-the-breakeven
point in order to attempt to interfere with the company's profit or other
sabotage. ERP systems typically provide functionality for implementing internal
controls to prevent actions of this kind. ERP vendors are also moving toward
better integration with other kinds of information security tools.
Disadvantages
Problems with ERP systems are mainly due to inadequate investment in
ongoing training for the involved IT personnel - including those implementing
and testing changes - as well as a lack of corporate policy protecting the integrity
of the data in the ERP systems and the ways in which it is used.
Disadvantages
• Customization of the ERP software is limited.
• Re-engineering of business processes to fit the "industry
standard" prescribed by the ERP system may lead to a loss of competitive
advantage.
• ERP systems can be very expensive (This has led to a new category of
"ERP light" solutions)
• ERPs are often seen as too rigid and too difficult to adapt to the
specific workflow and business process of some companies—this is cited as one
of the main causes of their failure.
• Many of the integrated links need high accuracy in other applications
to work effectively. A company can achieve minimum standards, then over time
"dirty data" will reduce the reliability of some applications.
• Once a system is established, switching costs are very high for any one
of the partners (reducing flexibility and strategic control at the corporate
level).
• The blurring of company boundaries can cause problems in
accountability, lines of responsibility, and employee morale.
• Resistance in sharing sensitive internal information between
departments can reduce the effectiveness of the software.
• Some large organizations may have multiple departments with separate,
independent resources, missions, chains-of-command, etc, and consolidation into
a single enterprise may yield limited benefits.
