Introduction to ERP

                        Enterprise resource planning (ERP) systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application. Their 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.

ERP systems can run on a variety of computer hardware and network configurations, typically employing a database as a repository for information.

CHARACTERISTICS:- ERP (Enterprise Resource Planning) systems typically include the following characteristics:

• An integrated system that operates in real time (or next to real time), without relying on periodic updates.
• A common database, which supports all applications.
• A consistent look and feel throughout each module.
• Installation of the system without elaborate application/data integration by the Information Technology (IT) department.

Origin of "ERP"

            In 1990 Gartner Group first employed the acronym ERP as an extension of material requirements planning (MRP), later manufacturing resource planning and computer-integrated manufacturing. Without supplanting these terms, ERP came to represent a larger whole, reflecting the evolution of application integration beyond manufacturing. Not all ERP packages were developed from a manufacturing core. Vendors variously began with accounting, maintenance and human resources. By the mid–1990s ERP systems addressed all core functions of an enterprise. Beyond corporations, governments and non–profit organizations also began to employ ERP systems.

COMPONENTS:-

• Transactional database
• Management portal/dashboard
• Business intelligence system
• Customizable reporting
• External access via technology such as web services
• Search
• Document management
• Messaging/chat/wiki
• Workflow management

BEST PRACTICES:-

            Best practices are incorporated into most ERP systems. This means that the software reflects the vendor's interpretation of the most effective way to perform each business process. Systems vary in the convenience with which the customer can modify these practices.[11] Companies that implemented industry best practices reduced time–consuming project tasks such as configuration, documentation, testing and training. In addition, best practices reduced risk by 71% when compared to other software implementations.

MODULARITY:-

            Most systems are modular to permit automating some functions but not others. Some common modules, such as finance and accounting, are adopted by nearly all users; others such as human resource management are not. For example, a service company probably has no need for a manufacturing module. Other companies already have a system that they believe to be adequate. Generally speaking, the greater the number of modules selected, the greater the integration benefits, but also the greater the costs, risks and changes involved.

CONNECTIVITY TO PLANT FLOOR INFORMATION:-

            ERP systems connect to real–time data and transaction data in a variety of ways. These systems are typically configured by systems integrators, who bring unique knowledge on process, equipment, and vendor solutions.

Direct integration—ERP systems have connectivity (communications to plant floor equipment) as part of their product offering. This requires the vendors to offer specific support for the plant floor equipment that their customers operate. ERP vendors must be expert in their own products, and connectivity to other vendor products, including competitors.

Database integration—ERP systems connect to plant floor data sources through staging tables in a database. Plant floor systems deposit the necessary information into the database. The ERP system reads the information in the table. The benefit of staging is that ERP vendors do not need to master the complexities of equipment integration. Connectivity becomes the responsibility of the systems integrator.

Enterprise appliance transaction modules (EATM)—These devices communicate directly with plant floor equipment and with the ERP system via methods supported by the ERP system. EATM can employ a staging table, Web Services, or system–specific program interfaces (APIs). The benefit of an EATM is that it offers an off–the–shelf solution.

Custom–integration solutions—Many system integrators offer custom solutions. These systems tend to have the highest level of initial integration cost, and can have a higher long term maintenance and reliability costs. Long term costs can be minimized through careful system testing and thorough documentation. Custom–integrated solutions typically run on workstation or server class computers.

IMPLEMENTATION:-

            ERP's scope usually implies significant changes to staff work processes and practices. Generally, three types of services are available to help implement such changes—consulting, customization, and support. Implementation time depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. Modular ERP systems can be implemented in stages. The typical project for a large enterprise consumes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years.[citation needed] Customization can substantially increase implementation times.

PROCESS PREPARATION:-

            Implementing ERP typically requires changes in existing business processes. Poor understanding of needed process changes prior to starting implementation is a main reason for project failure. It is therefore crucial that organizations thoroughly analyze business processes before implementation. This analysis can identify opportunities for process modernization. It also enables an assessment of the alignment of current processes with those provided by the ERP system. Research indicates that the risk of business process mismatch is decreased by:

• linking current processes to the organization's strategy;
• analyzing the effectiveness of each process;
• understanding existing automated solutions.

CONFIGURATION:-

            Configuring an ERP system is largely a matter of balancing the way the customer wants the system to work with the way it was designed to work. ERP systems typically build many changeable parameters that modify system operation. For example, an organization can select the type of inventory accounting—FIFO or LIFO—to employ, whether to recognize revenue by geographical unit, product line, or distribution channel and whether to pay for shipping costs when a customer returns a purchase.

CUSTOMIZATION:-

            ERP systems are theoretically based on industry best practices and are intended to be deployed "as is". ERP vendors do offer customers configuration options that allow organizations to incorporate their own business rules but there are often functionality gaps remaining even after the configuration is complete. ERP customers have several options to reconcile functionality gaps, each with their own pros/cons. Technical solutions include rewriting part of the delivered functionality, writing a homegrown bolt-on/add-on module within the ERP system, or interfacing to an external system. All three of these options are varying degrees of system customization, with the first being the most invasive and costly to maintain. Alternatively, there are non-technical options such as changing business practices and/or organizational policies to better match the delivered ERP functionality.

Key differences between customization and configuration include:

• Customization is always optional, whereas the software must always be configured before use (e.g., setting up cost/profit center structures, organizational trees, purchase approval rules, etc.)
• The software was designed to handle various configurations, and behaves predictably in any allowed configuration.
• The effect of configuration changes on system behavior and performance is predictable and is the responsibility of the ERP vendor. The effect of customization is less predictable, is the customer's responsibility and increases testing activities.
• Configuration changes survive upgrades to new software versions. Some customizations (e.g. code that uses pre–defined "hooks" that are called before/after displaying data screens) survive upgrades, though they require retesting. Other customizations (e.g. those involving changes to fundamental data structures) are overwritten during upgrades and must be reimplemented.

EXTENSIONS:-

            ERP systems can be extended with third–party software. ERP vendors typically provide access to data and functionality through published interfaces. Extensions offer features such as:

• archiving, reporting and republishing;
• capturing transactional data, e.g. using scanners, tills or RFID
• access to specialized data/capabilities, such as syndicated marketing data and associated trend analytics.
• advanced planning and scheduling (APS)

DATA MIGRATION:-

            Data migration is the process of moving/copying and restructuring data from an existing system to the ERP system. Migration is critical to implementation success and requires significant planning. Unfortunately, since migration is one of the final activities before the production phase, it often receives insufficient attention. The following steps can structure migration planning:

• Identify the data to be migrated
• Determine migration timing
• Generate the data templates
• Freeze the toolset
• Decide on migration-related setups
• Define data archiving policies and procedures.

COMPARISON TO SPECIAL–PURPOSE APPLICATIONS

ADVANTAGES:-

            The fundamental advantage of ERP is that integrating the myriad processes by which businesses operate saves time and expense. Decisions can be made more quickly and with fewer errors. Data becomes visible across the organization. Tasks that benefit from this integration include:

• Sales forecasting, which allows inventory optimization
• Chronological history of every transaction through relevant data compilation in every area of operation.
• Order tracking, from acceptance through fulfillment
• Revenue tracking, from invoice through cash receipt
• Matching purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced)

ERP systems centralize business data, bringing the following benefits:

• They eliminate the need to synchronize changes between multiple systems—consolidation of finance, marketing and sales, human resource, and manufacturing applications
• They bring legitimacy and transparency in each bit of statistical data.
• They enable standard product naming/coding.
• They provide a comprehensive enterprise view (no "islands of information"). They make real–time information available to management anywhere, any time to make proper decisions.
• They protect sensitive data by consolidating multiple security systems into a single structure.[29]

DISADVANTAGES:-

• Customization is problematic.
• Re–engineering business processes to fit the ERP system may damage competitiveness and/or divert focus from other critical activities
• ERP can cost more than less integrated and/or less comprehensive solutions.

ERP VENDORS:-

The largest vendors worldwide in 2005 according to Gartner Dataquest:

Market share 2005 according to Gartner Dataquest
#	Vendor	Revenue (million $)
1	SAP	1949
2	Oracle Applications	1374
3	The Sage Group	1121
4	Microsoft Dynamics	916
5	SSA Global Technologies[2]	464

Vendors of popular ERP software (total revenue for the whole company):

Vendor	Revenue (Native currency)	Revenue (million $)	Year
SAP	9.4 billion EUR	12401.4	2006
Oracle Applications	14.38 billion USD	14380.0	2006
Infor Global Solutions	2.1 billion USD	2100.0	2006
The Sage Group	935.6 million GBP	1832.0	2006
Microsoft	44.3 billion USD	44282.0	2006

ERP SYSTEM SELECTION METHODOLOGY :-

            An ERP system selection methodology is a formal process for selecting an enterprise resource planning (ERP) system. Existing methodologies include:

• SpecIT Independent Vendor Selection Management
• Kuiper's funnel method
• Dobrin's 3D decision support tool
• Clarkson Potomac method

            Irrespective of whether the company is a multi-national, multi-million dollar organization or a small company with single digit million turnover, the goal of system selection is to source a system that can provide functionality for all of the business processes; that will get complete user acceptance; management approval and, most importantly, can provide significant return on investment for the shareholders.

Attempting to select an ERP system is further exacerbated by the fact that some systems are geared for discrete manufacturing environment where a distinct amount of items make up a finished product  while others are more suited to process industries such as chemical and food processing where the ingredients are not exact and where there might be re-work and byproducts of a process.

In the last decade, companies have also become interested in enhanced functionality such as customer relationship management and electronic commerce capability.

Given all of the potential solutions, it is not uncommon for companies to choose a system that is not the best fit for the business and this normally leads to a more expensive implementation. Thus, it is understandable[by whom?] that "ERP Costs can run as high as two or three percent of revenues" . A proper ERP system selection methodology will deliver, within time and budget, an ERP system that is best fit for the business processes and the user in an enterprise. it is used in small scale Enterprises for implement their organization towards the MIS.

Inability to understand offering by ERP vendor:-

            "It is estimated that approximately 90% of enterprise system implementations are late or over budget" [8]. A plausible explanation for implementations being late and over budget is that the company did not understand the offering by the vendor before the contract was signed.

A PROPER SYSTEM SELECTION METHODOLOGY:-

            To address the common mistakes that lead to a poor system selection it is important to apply key principles to the process, some of which are listed here under:

STRUCTURED APPROACH

            The first step in selection of a new system is to adopt a structured approach to the process. The set of practices are presented to all the stakeholders within the enterprise before the system selection process begins. Everyone needs to understand the method of gathering requirements; invitation to tender; how potential vendors will be selected; the format of demonstrations and the process for selecting the vendor. Thus, each stakeholder is aware that the decision will be made on an objective and collective basis and this will always lead to a high level of co-operation within the process.

FOCUSED DEMONSTRATIONS

            Demonstrations by potential vendors must be relevant to the business. However, it is important to understand that there is considerable amount of preparation required by vendors to perform demonstrations that are specific to a business. Therefore it is imperative that vendors are treated equally in requests for demonstrations and it is incumbent on the company [and the objective consultant assisting the company in the selection process] to identify sufficient demonstrations that will allow a proper decision to be made but will also ensure that vendors do not opt out of the selection process due to the extent of preparation required.

OBJECTIVE DECISION PROCESS

            "Choosing which ERP to use is a complex decision that has significant economic consequences, thus it requires a multi-criterion approach.". There are two key points to note when the major decision makers are agreeing on selection criteria that will be used in evaluating potential vendors. Firstly, the criteria and the scoring system must be agreed in advance prior to viewing any potential systems. The criteria must be wide-ranging and decided upon by as many objective people as possible within and external to the enterprise. In no circumstance should people with affiliations to one or more systems be allowed to advise in this regard.

Full involvement by all personnel

            The decision on the system must be made by all stakeholders within the enterprise. "It requires top management leadership and participation… it involves virtually every department within the company". Representatives of all users should:

• Be involved in the project initiation phase where the decision making process is agreed;
• Assist in the gathering of requirements;
• Attend the Vendor Demonstrations;
• Have a significant participation in the short-listing and final selection of a vendor.