MI 0038 Enterprise Resource Planning

Contents Unit 1 Introduction to ERP Unit 2 Enterprise – An Overview Unit 3 ERP and Related Technologies Unit 4 ERP Tools and Software and Selection Methodology Unit 5 ERP Modules Unit 6 ERP – A Manufacturing Perspective Unit 7 ERP – A Purchasing and Sales Perspectives Unit 8 ERP – An Inventory Control Perspective
Edition: Spring 2010 BKID – B1324 20 Nov. 2010
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Unit 9 ERP – CRM Perspective Unit 10 ERP – HR Perspective & Finance Perspective Unit 11 ERP Implementation Lifecycle Unit 12 Benefits of ERP Unit 13 ERP Market Unit 14 ERP Vendors, Consultants, and Users Unit 15 Future Directions in ERP 338 320 275 251 229 208 187

Dean Directorate of Distance Education Sikkim Manipal University (SMU DDE) Board of Studies Chairman HOD Management & Commerce SMU DDE Additional Registrar SMU DDE Controller of Examination SMU DDE Dr. T.V. Narasimha Rao Adjunct Faculty & Advisor SMU DDE Prof. K.V. Varambally Director, Manipal Institute of Management, Manipal Content Preparation Team Team Triumph, Triumph India Software Services Pvt Ltd., Bangalore – 56 0094 Instructional Designing Team Triumph, Triumph India Software Services Pvt Ltd., Bangalore – 560 094 Curriculum Revised Printed : Spring 2010 : November 2010 Mr. Pankaj Khanna Director, HR, Fidelity Mutual Fund Mr. Shankar Jagannathan Former Group Treasurer Wipro Technologies Limited Mr. Abraham Mathew Chief Financial Officer Infosys BPO, Bangalore Ms. Sadhna Dash Ex Senior Manager HR Microsoft India Corporation (Pvt.) Ltd. Content Review Mr.Manoj S G Senior Lecturer SMUDDE, First Floor, Manipal Towers, 14 – Airport Road, Bangalore – 560 008 Language Editing Ms. Neelam Singh

This book is a distance education module comprising a collection of learning materials for our students. All rights reserved. No part of this work may be reproduced in any form by any means without permission in writing from Sikkim Manipal University, Gangtok, Sikkim. Printed and Published on behalf of Sikkim Manipal University, Gangtok, Sikkim by Mr. Rajkumar Mascreen, GM, Manipal Universal Learning Pvt. Ltd. Manipal – 576 104. Printed at Manipal Press Limited, Manipal.

SUBJECT INTRODUCTION
Enterprise Resource Planning (MI 0038) Enterprise Resource Planning (ERP) system is an iterative system for identifying, analysing, evaluating, testing, and monitoring the entire process of an organisation or a company. In every Organisation, Enterprise Resource Planning is recognised as, an essential contributor to business and project success. Enterprise Resource Planning mainly focuses on addressing business or project uncertainties, in a proactive manner in order to minimise threats, maximise opportunities, and optimise achievement of objectives. There is wide convergence and international consensus on the necessary elements for an Enterprise Resource Planning system. This course covers these aspects of Enterprise Resource Planning, along with the various technologies it has, the various vendors in the market, the various phases of implementation, and the benefits an organisation can obtain from the system. Analysis and handling of resource, is a very important aspect addressed by the ERP system, these aspects are covered in detail, to give a complete understanding of the process. The course also highlights the techniques, commonly used by organisations in the ERP implementation. There are some strategies that organisations need to adopt, to be able to succeed in the effective implementation of ERP system. These guidelines are also included in this course. It also speaks about the market condition, the major vendors, and the future of ERP. Unit 1: Introduction to ERP This Unit explains the concept of ERP, gives brief history of evolution of ERP, assesses the benefits of ERP, and analyses the reasons for failure of ERP. Unit 2: Enterprise – An Overview This unit defines the role of Enterprise, assesses the need of an Enterprise, evaluates the business modelling approaches, and the method to integrate the management information to the enterprise

Unit 3: ERP and Related Technologies This unit analyses the technologies that are related to ERP systems. It explains how technologies like BPR, enables organisations to analyse their business functions better, thereby facilitating a more efficient ERP implementation. This unit analyses how predecessors of ERP like MIS, DSS, and EIS will slowly phase out. It explains how new technologies and concepts like data warehousing, data mining, OLAP, and Supply Chain Management (SCM) help, to increase the power, usefulness, efficiency, and effectiveness of ERP systems. Unit 4: ERP Tools and Software and Selection Methodology This unit analyses the methodology and criteria used in ERP selection. It explains the ERP selection process, analyses the ERP tools available in the market, identifies different ERP vendors, and also explains the ERP vendor selection process. Unit 5: ERP Modules This unit evaluates different and popular modules of an ERP package like finance, manufacturing, plant maintenance, materials management, and so on. It describes subsystems or sub-modules of these models, and also describes how these modules function together. Unit 6: ERP – A Manufacturing Perspective This unit analyses and introduces the various techniques and technologies that are used in the manufacturing industry. It explains how ERP and other concepts like MRP, MRP-II, CAD/CAM, PDM, and so on to improve the competitiveness of a company, and assess the different types of manufacturing operations like MTS, MTO, ETO, ATO, and CTO, and so on Unit 7: ERP – A Purchasing and Sales Perspectives This unit explains the functioning of purchase department in an organisation. It elucidates the features and benefits of ERP – Purchase module, analyses the importance of Sales and Distribution module, and describes the functioning of various sub module of Sales and Distribution module. Unit 8: ERP – An Inventory Control Perspective This unit explains inventory management and its function, lists out the features of inventory management, elucidates the benefits and drawbacks of inventory management. It analyses how ERP inventory systems can be

installed and implemented, explains Web ERP and its benefits, illustrates the types of inventory management, and the process of transactions in an organisation, and also describes Inventory ERP software module. Unit 9: ERP – CRM Perspective This unit explains the concept of CRM, describes the types and sub modules of CRM, lists out the benefits and challenges of CRM, and elucidates the implementation of CRM. Unit 10: ERP – HR Perspective & Finance Perspective This unit explains the concept of Human Resources (HR), describes the activities of Human Resource Management systems, lists out the benefits and features of Human Resources Management module. It elucidates the role of ERP in Human Resource Management systems, and explains the role and workflow of ERP in the financial module of an organisation. Unit 11: ERP Implementation Lifecycle This unit describes the implementation lifecycle for an ERP package, assess the various approaches for implementation of ERP, and select the right methodology for ERP implementation. Unit 12: Benefits of ERP This unit compares the direct and indirect benefits of ERP implementation. It explains how integration of information and automation of business processes make improvements possible. Unit 13: ERP Market This unit describes the ERP market, explains the major player in it, and their respective market share. It assesses the various market trends in ERP, recognises the target market of ERP, analyses and tells how to potentially use ERP in the market driven economy, and assess the seven major ERP vendors – SAPAG, Baan, PeopleSoft, JD Edwards, Oracle, QAD and SSA. Unit 14: ERP Vendors, Consultants, and Users This unit evaluates the three major players in an ERP implementation and their profiles. It describes the roles of each of these players, and elucidates the reasons for success of an ERP implementation.

Unit 15: Future Directions in ERP This unit describes the future direction of the ERP market and trends. It elucidates how these trends will shape the future ERP products. It also describes how ERP vendors, striving for more market share are making their products more efficient and loaded with features by using new technological innovations. Objectives of studying the subject After studying this subject, you should be able to:  Explain the concept of ERP.  Integrate the management information to the enterprise.  Analyse and know the technologies that are related to ERP systems.  Evaluate different and popular modules of an ERP package like finance, manufacturing, plant maintenance, materials management and so on.  Explain how ERP and other concepts like MRP, MRP-II, CAD/CAM, PDM, etc. improve the competitiveness of a company.  Elucidate the features and benefits of ERP – Purchase module.  Illustrate the types of inventory management and the process of transactions in an organisation.  Explain the role and workflow of ERP in the financial module of an organisation.  Compare the direct and indirect benefits of ERP implementation.  Assess the eight major ERP vendors – SAPAG, Baan, PeopleSoft, JD Edwards, Oracle, QAD and SSA.  Describe the future direction of the ERP market and trends.

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Unit 1

Introduction to ERP

Structure: 1.1 Introduction Objectives 1.2 Evolution of ERP 1.3 What is ERP 1.4 Reasons for the Growth of the ERP Market 1.5 The Advantages of ERP Business integration Flexibility Better analysis and planning capabilities Use of latest technology 1.6 Why Do ERPs fail? 1.7 What is the ERP Packages Used Now? 1.8 Summary 1.9 Terminal Questions 1.10 Answers 1.11 Case Study 1.12 Glossary

1.1 Introduction
This unit familiarises you with Enterprise Resource Planning (ERP) and its history. Information handling and sharing has become a vital process for efficient and effective working of any organisation. The digital revolution has given us the ability to treat information with mathematical precision, to transmit it with very high accuracy, and to manipulate it at will. This Information Technology (IT) has revolutionised the way we live and work. It is changing all aspects of our life and lifestyle, and transforming the world we live into one small global village. The amount of calculation power that is available to us is increasing at an exponential rate. Communication and computers are becoming integral parts of our lives. However, we need to manage the future not just to survive but also to succeed and to beat the competition in today's highly competitive world. Managing the future means managing information. Organisations have to

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make IT an ally, harness its full potential, and use it in the best possible way in order to:    Manage information. Render high quality information to the decision-makers at the right time. Automate the method of data collection, collation, and refinement.

All organisations have certain objectives and goals to achieve. For any organisation to succeed, all business units or departments should work towards this common goal. However, in an organisation, each department or business function has its own goals and procedures. The departmental objectives can sometimes be conflicting. For example, the finance department might want to cut down the advertising budget, whereas the marketing department might want more money. Similarly the productionplanning department might want to reduce the stock level in stores, but the production people might want to have more stocks. Here, information becomes critical not only for resolving the conflicts but, also to make them collectively work for the company as one unit, to meet the company’s objectives and goals. Each department managing its activities efficiently is not enough; it should also help other departments to manage their functions efficiently. This can be achieved only if departments in an organisation stop functioning as discrete units and working in isolation. Every employee should know what the counterparts are doing and how their actions and decisions affect other departments. This kind of information sharing was difficult in the early days. Now with the advancements in IT, this is possible. IT plays a crucial role, both at the organisational level and at the departmental level. At the organisational level, IT assists in specifying objectives and strategies of the organisation. IT also aids in developing and supporting systems and procedures to achieve them. At the departmental level, IT ensures a smooth flow of information across departments, and guides organisations to adopt the most practical business practices. At this level, IT ensures faultless flow of information across different departments and develops and maintains an enterprise-wide database. This database eliminates the need of the isolated data units that was limited to one department earlier and now makes the organisation's data accessible across the departmental boundaries. This enterprise-wide data sharing has

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many benefits like automation of the procedures, availability of high quality information for better decision making, faster response times, and so on. Learning Objectives After studying this unit, you will be able to:  Explain the evolution of ERP.  Explain the concept of ERP.  Describe the need of ERP.  Assess the benefits of ERP.  Analyse the reasons for failure of ERP. Self Assessment Questions 1. _______________ has become a vital process for efficient and effective working of any organisation. 2. _________________ plays a crucial role, both at the organisational level and at the departmental level.

1.2 Evolution of ERP
When companies were small and a single person managed all the different managerial functions, the decisions were made keeping in mind the overall company objectives. But as companies grew, managing the entire operation became impossible for a single person. More and more people were brought in, and different business functions were given to different individuals. When the organisation became larger, each person hired people to assist him/her and the various departments as we see now, evolved. The size of the departments began to increase as more and more people were required to do the job. As the departments became large, they became closed and watertight. Each department had its own set of procedures and hierarchy. People, at most levels within a department, would just collect and pass information upward. Thus information was shared between departments only at the top level. This led to the fragmentation of information, information being collected at one place and not available for other departments of the organisation to easily access it. This information was not carefully and efficiently handled at the top level of the organisation which led to confusion and loss of information. Many a time’s faulty information was processed to take decisions on some key issues. Some of the developers designed
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software that provided solution for handling these fragments of information. And IT had started its work in organisations for effective management of all the information of the organisation. Figure 1.1 shows a pre-ERP scenario.

Data Base

Figure 1.1: Isolated Information Systems – A Pre-ERP Scenario

Although IT provided the perfect answer, in the haste, most developers ended up developing need-based, isolated, and piecemeal information systems that were non-compatible. In the pre-ERP scenario as depicted in the figure 1.1, the information or data regarding a particular department remained with in the department’s own data base, and no other department could access that information. Only the top level management of the company was able to access this information. Any other department requiring this information had to collect the information from the top management. This led to a fragmented system, each working in isolation without direct communication between each other. The developers concentrated more on making the individual department’s information organisation and maintenance more efficient instead of, integrating all the departments of a company, which was a major draw back. And it is no

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wonder that IT implementations automated only the existing applications and not the business functions. Most of this happened because IT was not integrated into the corporate strategy. We have to devise a system with a complete insight of the enterprise so that we can draw real benefits from a technology as powerful as IT. Such a system has to work around the core activities of the organisation, and should facilitate faultless flow of information across departmental barriers. Such systems can optimally plan and manage all the resources of the organisation, and hence, they can be called as Enterprise Resource Planning (ERP) systems. An Enterprise is a group of people with a common goal, which has certain resources at its disposal to achieve that goal. The group has some key functions to perform in order to achieve its goal. Resources included are money, manpower, materials, and other things that are required to run the enterprise. Planning is done to ensure that nothing goes wrong. Planning means, putting necessary functions in place and more importantly, putting them together. Therefore, Enterprise Resource Planning or ERP is a method of effective planning of all the resources in an organisation. We have many misconceptions about ERP. The first one is that ERP is a computer system. Yes, computers and IT are integral parts of an ERP system; but ERP is primarily an enterprise-wide system, which encompasses corporate mission, objectives, attitudes, beliefs, values, operating style, and people who make the organisation. The second misconception is that ERP is for manufacturing organisations alone. This assumption is basically due to the way ERP was historically developed from the methods of Material Requirement Planning (MRP) and Manufacturing Resource Planning (MRP-II), which are relevant to manufacturing organisations. In the manufacturing industry, MRP became the fundamental concept of production management and control in the mid 1970s. At this time the prevailing trend in manufacturing industry was Bill of Materials (BOM). BOM is a purchase order management system that utilises parts list management and parts development management techniques. And this concept unfolded from order inventory management of materials to plant. MRP-II was carved out of MRP, consisted Human Resource planning and distribution planning, in turn became MRP-II. This incorporated financial
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accounting, human resource management functions, distribution management functions, and management accounting functions. It came to globally cover all areas of enterprise core business, and eventually, was called ERP. But in reality, the concept of enterprise-wide planning of resources is not limited to any particular segment of industry. Self Assessment Questions 3. Some of the developers designed software that provided solution for handling these __________________ of information. 4. MRP became the fundamental concept of _________________ in the mid 1970s.

1.3 What is ERP ?
IT being the back bone, Enterprise Resource Planning (ERP) covers the techniques and concepts employed for the integrated management of businesses as a whole, from the viewpoint of the effective use of management resources, and to improve the efficiency of an enterprise. ERP packages are unified (covering all business functions) software packages that support the above ERP concepts. In the 90’s, ERP packages were targeted at the manufacturing industry, and consisted mainly of functions for planning and managing core businesses such as sales management, production management, accounting and financial affairs, and so on. However, in the last decade, adaptation not only to the manufacturing industry, but also to diverse types of industry has become possible. With the ever developing and innovating IT techniques, the expansion of implementation and use of ERP packages has been progressing on a global level. ERP software is intentionally designed to model and automate many of the basic processes of a company. It established an effective link between the various functions of a company from the top level to the bottom level of the hierarchy, with the goal of integrating information across the company, for example, a communication channel is established between the finance department and the shop floor for information sharing,. This software helped in eliminating complex and expensive links between computer systems that were never meant to talk to each other. It also established a faultless and continues flow of information within the company.
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Figure 1.2 shows how information is integrated within an organisation using an ERP system. This system is similar to the pre-ERP system but, in the ERP system all the different departments of an organisation are linked to a centralised system which stores all the information from various departments. Any department at any time can gain access to any required information from another department via ERP or from the ERP database itself. The manufacturing department can access information form quality management department via ERP system. This shows the flexibility of a system, where independent departments are bonded together as a unit and any two departments can establish communication at ease without depending on any other departments. Activity 1 Conduct a survey and gather information how ERP system can prove to be effective in an unorganised sectors and in small scale industries. Gather the reason why they prefer or don’t prefer an ERP system

Figure 1.2: Information Integration through ERP Systems Sikkim Manipal University Page No. 7

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ERP software is a replica of the major business processes of an organisation, such as customer order fulfilment and manufacturing. The success of an ERP system depends on its ease for information access. A constrained ERP system is not much better than the legacy system it replaces. In lots of cases, it is worse, as the old code at least was written specifically for the company and the task. ERP systems are a set of generic processes, they are capable of producing dramatic improvements, when used to connect parts of an organisation, and integrate its various processes seamlessly. For example, when a warehouse in Noida enters a customer order, for example, the data flows automatically to others in the company who need to see it. Data flows to the finance department at the company headquarters in Mumbai, and to the manufacturing plant in Chennai. The attractive Information Integration Techniques (IIT) of ERP was able to capture the attention of ERP vendor’s primary targets the CEOs and CFOs of various organisations, and the sales of ERP in the global market took of in early 1990’s. Self Assessment Questions 5. ________________ is a replica of the major business processes of an organization. 6. ERP systems are a set of generic ________________.

1.4 Reasons for the Growth of the ERP Market
There is no doubt that the market for Enterprise Resource Planning (ERP) systems is in great demand. Industry analysts are figuring growth rates of more than 30% for at least the next five years. Why are so many companies replacing their key business systems? There are various reasons for the same, such as:  To enable improved business performance, which includes:  Cycle time reduction.  Increased business agility.  Inventory reduction.  Order fulfilment improvement. To support business growth requirements, which includes:  New products/product lines, new customers.  Global demands including multiple languages and currencies.
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  

To provide flexible, integrated, real-time decision support. Improve responsiveness across the organisation.

To eliminate limitation in legacy systems, which includes:  Century dating issues.  Fragmentation of data and processing.  Inflexibility to change.  Insupportable technologies. To take advantage of the untapped mid-market (medium size organisations), which includes:  Increased functionality at a reasonable cost.  Client server/open systems technology.  Vertical market solutions.

These are some of the reasons for the unpredictable growth rate of the ERP markets and the ERP vendors. As more and more companies are joining the race, the ERP vendors are shifting their focus from big – Fortune 1000 – companies to different market segments (medium size companies, small companies, and so on.). The future will see fierce battle for market share, and mergers and acquisitions for strategic and competitive advantage. The ultimate winner in this race is the customer, who gets better products and better service at affordable prices. Activity 2 Conduct a study and collect the information on the growth of market in various sectors of ERP for the last two decades and various sectors available for ERP market in the coming days.

1.5 The Advantages of ERP
We need to know that setting up an ERP system has many advantages – both direct and indirect. The direct benefits include improved efficiency, information integration for better decision making, faster response time to customer queries, and so on. The indirect benefits comprises better corporate image, improved customer goodwill, customer satisfaction, and so on. The following are some of the direct benefits of an ERP system:

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   

Business integration Flexibility Better analysis and planning capabilities Use of latest technology

1.5.1 Business Integration The first and most important advantage lies in the promotion of integration. The reason why ERP packages are considered to be integrated is the automatic data updating (automatic data exchange among applications) that is possible among the related business components. Since conventional company information systems were aimed at the optimisation of independent business functions in business units, almost all were weak in terms of the communication and integration of information that transcended the different business functions. In many of the large organisations during product manufacturing the system construction timing and guide lines provide for manufacturing differs, this can also be seen even across its departments and many a times they are not well connected to each other. This turns out to be a biggest obstacle faced by most of the organisation when they plan to shift for new product line and also in classification of the business. With the help of ERP packages, when a transaction occurs the related data of the business functions is updated automatically in the system. For this reason, we are able to grasp business details in real time, and carry out various types of management decisions in a timely manner, based on that information. 1.5.2 Flexibility The second advantage of ERP packages is their flexibility. Different languages, currencies, accounting standards, and so on can be covered in one system, and functions that systematically manage multiple locations of a company can be packaged and implemented automatically. To cope with company globalisation and system unification, this flexibility is essential, and we can say that it has major advantages, not simply for development and maintenance, but also in terms of management. 1.5.3 Better Analysis and Planning Capabilities Yet another advantage is the boost to the planning functions. By enabling the comprehensive and unified management of related business, and its data, it becomes possible to fully utilise many types of decision support
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systems and simulation functions. Furthermore, since it becomes possible to carry out, flexibly and in real time, the filing and analysis of data from a variety of dimensions, we are able to give the decision-makers the information they want; thus enabling them to make better and informed decisions. 1.5.4 Use of Latest Technology The fourth advantage is the utilisation of the latest developments in IT. The ERP vendors were very quick to realise that, in order to grow, and to sustain that growth, they had to embrace the latest developments in the field of IT. Therefore, they quickly adapted their systems to take advantage of the latest technologies like open systems, client/server technology, Internet/Intranet, Computer-Aided Acquisition and Logistics Support (CALS), electronic-commerce, and so on. It is this quick adaptation to the latest changes in IT that makes the flexible adaptation to changes in future business environments possible. This flexibility makes the incorporation of the latest technology possible during system customisation, maintenance, and expansion phases. As stated above, ERP includes many of the functions that are necessary for future systems. However, undertaking reforms to company structures and business processes, so as to enable the full use of these major features, is the greatest task for companies that use them. It is necessary to take note that casually proceeding with the implementation of ERP, merely for reasons of system reconstruction or without a long term objectives, is likely to result in turning the above mentioned advantages into disadvantages. Self Assessment Questions 7. The first and most important advantage lies in the _____________. 8. The second advantage of ERP packages is their _______________.

1.6 The Failure of Many ERP Implementations
A correct choice, judicious implementation and efficient utilisation of the ERP packages, raises the productivity and profits of companies dramatically. But many times companies fail in this because of a wrong product, incompetent and haphazard implementation, and inefficient method or ineffective usage of the system with out properly defining the requirements for the need for the system.
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To work successfully, the ERP solutions need to address a lot of factors. There should be good people who know the business. The vendor should be good, and his package should be one of the best suited for the, company’s needs. The ERP consultants should be good. The system developers should plan well and execute perfectly the implementation. The end-user training should be done so that the user must be aware of the system, and the effect of their efforts on the overall success of the program. In case of any of the above mentioned factors are not addressed properly by the company’s top management, the possibility of system failure is evident during the implementation process of the ERP system. A change in the job descriptions and functions of many employees is imminent when ERP system is introduced in a company. Employees who were earlier doing the work of recording information are transformed into decision-makers. For example, in the past an order entry clerk's job was to enter the orders that came to him. With the implementation of a good ERP system, the order entry clerk becomes an action initiator. As soon as he enters the order into the system, the information is passed on to the sales, distribution, and finance modules. The distribution module checks whether the item is in stock, and if available, the item is dispatched and the information is sent to the finance module. If the items are not in stock, then the manufacturing module is given the information, so that the production can start. The customer is informed about the status of his order. If the items are shipped, the finance module prepares the invoice and sends it to the customer. All these actions take place automatically as soon as the order entry clerk enters the information regarding the order into the system. Thus the order entry clerk is transformed from a data entry operator to a decisionmaker whose actions can trigger a chain of actions. Many employees find this transformation difficult to accept. If the employees are not given proper training, well in advance, then the systems fails. Another factor is the fear of unemployment. When procedures become automated, the people who were doing those jobs become redundant. So it is quite natural to have resistance from the employees. But the same employees can be trained in the new system, and can work in more challenging and stimulating environments. For this also, the employees have to be told, in advance, as to what would be the result, and should be given ample time and training to make the transformation. Without support
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from the employees, even the best system is liable to fail. So it is very important that the management should take the necessary steps, well in advance, to ease the fears of, and provide necessary training to their employees. Activity 3 Contact an ERP vendor or a consultant and collect the details of the structure of planning before providing a package for a company Self Assessment Questions 9. The system developers should ____________ perfectly the implementation. 10. Employees who were earlier doing the work of recording information are transformed into____________________.

1.7 ERP Packages
With respect to the application packages, various products have been produced so far and are selling well. So, how do conventional application packages and ERP packages differ? The first difference is that ERP packages can, not only handle individual business function such as accounts and catalogue, but also the entire range of business functions necessary for the company's operations. The second difference is that ERP packages can be used from, simple and small applications of small businesses houses to the large organisations, with a highly flexible decentralised database, and a network linking a number of information system. The third difference is global adaptation, represented by ERP package’s are multilingual and multi-currency capacity. In the present day, when companies, irrespective of their size and market share, are manufacturing and selling in various areas of the world, the globalisation of management platforms is being hastened, along with the global adaptation of enterprise information systems.

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Once you have decided to implement the ERP system, you have to find a package that is best suited for your company. In ERP implementation, package selection is one of the most important phases, because the package that you select will decide the success or failure of the implementation process. Since implementation of these ERP systems requires huge investment of money and time, it is a very difficult process to switch over to another package after a package is purchased by an organisation. So choosing a right package is of the highest priority in the implementation process. The company might have to face disastrous consequences by choosing a wrong package, often resulting in the shut down of the company for an indefinite period of time. In the market there are many ERP packages available from many vendors. Before reaching to a conclusion, it is better to analyses a maximum five packages, since it is always better to do a thorough and detailed evaluation of a small number of packages, than to do a superficial analysis of dozens of packages. A pre-evaluation screening has to be conducted by the company to limit the number of packages that are to be evaluated by the committee. The pre-evaluation process should eliminate those packages that are not at all suitable for the company’s business processes. Looking at the product literature of the vendors’ one can select the few best packages. The company can get help from the external consultants and, can conduct a survey and find out the packages use by the companies similar to their own. Since, it will provide a better look around and find out how the different packages are performing in environments similar to yours. You can call the respective vendors for presentations/demos, once you select a few packages after the screening. Some of the key things that can be searched before choosing an ERP package are:  The package should come with multi-language and multi-currency support.  The package should be international and should have installations in countries where the company have offices. The vendor should also have a local presence in those countries.  The package should have at least ‘A’ number of installations out of which at least ‘B’ should be in your business sector.
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The cost of the package with all the necessary modules should be less than ‘C’ Rupees. The package should provide the company the facility to buy the core modules initially and then go in for the additional modules as and when desired. The vendor should provide support during the implementation and also post implementation. The vendor should give a commitment on training the company employees on the package. The package should have the flexibility of interfacing with other systems that the company is dealing with, for example: banks, suppliers, customers, and so on. The package must be customisable and the customisation process should be easily done and should be able achieve it in-house. The vendor’s policy and practices regarding updates, versions, and so on, should be should be verified and it should be acceptable to your company norms.

Since selection of the package is very crucial, the company’s committee should sit together and analyse these issues and assign points to these items and draw down the layout for the implementation process. Self Assessment Questions 11. In ERP implementation and _____________is one of the most important phases 12. The package should come with ____________________support. Activity 4 Contact a manufacturing industry and find out the criteria they adopt before purchasing an ERP package for their company.

1.8 Summary
Enterprise Resource Planning. (ERP) is one of the means to integrate the data and processes of an organisation into one single system. Usually ERP systems have many components including hardware and software. Most ERP systems make use of a unified database to store data for various

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functions found throughout the organisation in order to achieve integration between the various components. The term ERP originally referred to how a large organisation planned to use organisational wide resources. In the past, ERP systems were used in large scale industries. Though, the use of ERP has changed and is extremely comprehensive, today the term can refer to any type of company, no matter what industry it falls in. In reality, ERP systems are used in almost any type of organisation - large or small. In order for a software system to be considered as ERP, it must provide an organisation with functionality for two or more systems. Although some ERP packages exist that only cover two functions for an organisation (i.e. payroll & accounting), a majority of ERP systems cover several functions. Today's ERP systems cover a large range of functions, and integrate them into one unified database. For example, functions like Human Resources, Supply Chain Management, Customer Relations Management, Financials, Manufacturing functions, and Warehouse Management functions were all once stand alone software applications, usually housed with their own database and network, today, they can all fit under one umbrella - the ERP system.

1.9 Terminal Questions
1. What were the disadvantages of the pre-ERP information model — the isolated islands model? 2. What are the advantages of ERP systems? 3. Explain how ERP systems can achieve business integration? 4. Why are ERP systems said to be flexible? 5. Why do many ERP implementations fail? 6. What are the reasons for the growth of the ERP market? 7. Write a note on ERP packages.

1.10 Answers
Answers to Self Assessment Questions 1. Information handling and sharing 2. Information Technology 3. Fragments
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4. 5. 6. 7. 8. 9. 10. 11. 12.

Production management and control ERP software Processes Promotion of integration Flexibility Plan well and execute Decision-makers Package selection Multi-language and multi-currency

Answers to Terminal Questions 1. Refer to 1.3 2. Refer to 1.5 3. Refer to 1.5 4. Refer to 1.6 5. Refer to 1.5 6. Refer to 1.5 and 1.7 7. Refer to 1.7

1.11 Case Study
The Cashe company was running on legacy systems, and with the impending Y2K problems, it chose to replace those systems and shift to client/server environment. In 1996, the Cashe company began modernising hardware and software systems in the company. The original plan was to switch over to the new ERP system by April 1999. As per plan the company had started revamping its hardware and software infrastructure in 1997. In 1999, the company faltered during the final leg of the ERP implementation. The company had selected the services of three vendors SAP AG (SAP), Siebel Systems (Siebel) and Manugistics for the project, and some of the modules were implemented as per the schedule by the company in January 1999. The company usually receives huge orders for the coming Halloween and Christmas seasons during the months of May and June. The implementation which was planned to be ended by April 1999 was delayed and was extend to July 1999. In order to over come this and to get done with the implementation process the company management
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switched to Big Bang implementation. To meet the time line the company planned for simultaneous implementation of several modules. Due to lack of time, some of the modules implemented were not tested properly. Several problems related to order management and fulfilment resulted due to this. Even though the Cashe company company had the finished product stocked in its warehouses, it was not able to fulfil orders from many of its retailers and distributors. The failure in the implementation of ERP immediately resulted in an adverse affect. The company recorded annual revenues for 1999 reduced; there was a drop of 12% when compared to that in 1998. In the third quarter of 2000, the company announced that its revenues increased by 12% as compared to the revenues in the third quarter of 1999. During the same period, profits increased by 23%. Questions: 1. Study the circumstances that led to ERP implementation failure at the Cashe company. 2.Evaluate the role played by top management in ERP implementation. 3.Examine the factors that lead to success or failure of ERP projects.

1.12 Glossary
Term Cluster Collation Conceptions Imminent Legacy Scenario Bill of materials Description A small group of people or things that are closely packed together but not connected to each other The assembling of pieces of paper in the right order, particularly the sections of a book prior to binding The process of arriving at an abstract idea or belief or the moment at which such an idea starts to take shape or emerge Some thing that is about to happen in the near or distant future Associated with something that is outdated or discontinued An imagined sequence of possible events, or an imagined set of circumstances It is a list of the raw materials, sub-assemblies, intermediate assemblies, sub-components, components, and the quantities of each item needed to manufacture an end item.

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References 1. The Internet Encyclopedia by Bidgoli & Hossein. 2. Enterprise Resource Planning by Mary Sumner. 3. Maximising Your ERP system’ by Scott Hamilton. 4. Concepts in enterprise Resource Planning by Ellen F. Monk, Bret J. Wagner.

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Unit 2

Enterprise – An Overview

Structure: 2.1 Introduction Objectives 2.2 Integrated Management of Information 2.3 Business Modelling 2.4 Integrated Data Model 2.5 Summary 2.6 Terminal Questions 2.7 Answers 2.8 Case Study 2.9 Glossary

2.1 Introduction
By now you must be familiar with the concept of Enterprise Resource Planning (ERP) and the evolution of ERP systems. We have discussed the advantages and the reasons for failure of ERP systems during the implementation. The methods to over come this failure and the concept of ERP packages are also discussed in the previous unit. As you are familiar with the concept of ERP, let us now define an Enterprise. The Enterprise is the term often used in general business conditions to describe a corporate entity; you can call anything from a sidewalk coffee shop to an organisation as large as TCS or Wipro as an Enterprise. Figure 2.1 is an example of an enterprise.

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Figure 2.1: The Enterprise

A group of people working together for a common goal, with certain resources at its disposal to achieve that goal, is called an enterprise (Figure. 2.1). The enterprise acts as a single entity. This view of a company or organisation is drastically different from the traditional approach. In the traditional approach, the organisation is divided into different units based on the functions they perform as shown in Figure 2.2. Hence, and Enterprise consists of the manufacturing or production department, the production planning department, the purchasing department, the sales and distribution department, the finance department, the R&D department, and so on. Each of these departments is compartmentalised and has its own goals and objectives, which from their point of view are in line with the organisation's objectives.
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Figure 2.2: Organisation where there is no or little communication between departments

Each of these departments has their own methods of data collection and analysis, and functions in isolation. Various departments create or generate information that, in most cases, are available only to the top management (that too as summary reports) and not to the other departments. The result is that instead of taking the organisation towards the common goal, the various departments end up pulling it in different directions. This is because no department has a clear idea of what other departments’ status was, and obtaining this information was difficult. Also, sometimes the objectives of each department may be conflicting. For example, the sales and marketing people want more product variety to satisfy the varying needs of the customers. But the production department want to limit the product variety to cut down production costs. So unless all the departments know what the others are doing and for what purpose, these kinds of conflicts arise, thus disrupting the normal functioning of the organisation. But when you look from enterprise point view, the entire organisation is considered as a system and all the departments are its subsystems. The information about all the aspects of the organisation is stored centrally and is available to all departments as shown in Figure 2.3.

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Figure 2.3: An enterprise where all departments know what the others are doing.

As you can see, this transparency in information access ensures that all departments work in cooperation which each other and no longer work in isolation pursuing their own independent goals. Each department knows what the others are doing, why they are doing it, and what should be done to move the company towards achieving that goal. The ERP system helps in achieving this task by integrating the information systems, enabling smooth and seamless flow of information across departmental barriers, automating business process and functions, and thus, helping the organisation to work, and move forward as a single entity. Learning Objectives This unit familiarises you with the organisation structure function of an Enterprise. After studying this unit, you will be able to:  Assess the need of an Enterprise.  Explain the idea of integrated information management.
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 

Evaluate the business modelling approaches. Integrate the management information to the enterprise.

2.2 Integrated Management of Information
An information system is an open, and a purposive system that produces information using the 'input-process-output' cycle. You can list the three basic elements of information system as people, procedures, and data. People follow the procedures to manipulate data to produce information. The definition of information systems has undergone a slight change in today’s computerised world. Today, an information system is an organised combination of people, hardware, software, communication networks, and data resources that collect, collate, transform, and disseminate in an organisation. Management Information Systems (MIS), also called information-reporting systems, were the original type of management support systems, and they still are a major category of information systems. MIS produce information products that support many of the day-to-day decision making needs of the management. Reports, charts, graphs, displays, and responses produced by such systems provide information that managers have specified in advance. Such pre-defined information satisfies the needs of managers at the operational levels of the organisation who are faced with the structured type of decision-making. But the problem with these information systems is that they operate at a departmental level, and they only give information that has been pre-defined. So each department has its own database and information systems. These systems produce different reports of varying detail that were specified when the systems were built. This method of information gathering has two major disadvantages. First, people in one department do not have any information about what is happening in the other departments. May be at the top management level the summary reports are being circulated to other departments, but these summary reports often fail in capturing the real picture. The second drawback is that these systems give only the information that was designed to produce at the time they were built. Suppose a manager wants some information which is not in the reports, then these systems are of no help.
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Various departments have their own system serving for their needs like an accounting system for the finance department, a production planning system for the manufacturing department, an inventory management system for the stores department, and so on. Systems using this method lag behind to obtain an integrated approach for all the departments. Systems working based on these methods perform in isolation. In case, you want some information which has to be obtained from any of the other two systems, you have to get the necessary reports from both systems and then correlate and combine the data before using it. This method leads to misinterpreting of the information and some time incomplete and false information being circulated for decision making. When systems work in isolation, it becomes difficult for you to collect and analyse the data needed for your department's functioning, since, getting information about some aspect that is dependent on more than one department can be tedious. No business executive or decision-maker can take good decisions with the isolated data that received from each department in the form of various reports. Even if you verify the data produces the information that you require, you would have lost valuable time that could have been better spent in decision-making. In reality, an organisation cannot function as islands of different departments. Every department needs information inputs form other departments for its functioning like, the purchasing department requires production planning data, the finance department requires purchasing details for some of its process, and so on. The impact of integrating all the information islands, which were functioning in isolation, into a single system would be dramatic. For example, if the purchase department can see the production planning details, it can make the purchasing schedule accordingly. If the finance department is able to see the purchase details as soon as it is entered in the system, they can plan for the cash flow that is necessary for the purchases. In today’s competitive business environment information is one of the key resource, the key resource of every organisation. If the organisation does not have an efficient and effective mechanism that enables it to give the decision-makers the right information at the right time, then the chances of that organisation succeeding in the next millennium are very remote.

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Information can be categorised into three fundamental characteristics: accuracy, relevancy, and timeliness. The information has to be precise, it must be relevant for the decision-maker and it must be available to the decision-maker when required. Any organisation that has the mechanism to collect, collate, analyse, and present high quality information to its employees, thus enabling them to make better decisions, will always be one step ahead of the competition. Today, the time available for an organisation to react to the changing market trends is very short. To survive, the organisation must always be on its toes, gathering and analysing the data both internal and external. Any mechanism that automates this information gathering and analysis process enhances the chances of the organisation to beat the competition. So, what is needed is a system that treats the organisation as a single entity, and caters to the information needs of the whole organisation. If this is possible, and if the information that is generated is accurate, timely, and relevant, then these systems will go a long way in helping the organisation in realising its goals. Self Assessment Questions 1. The enterprise acts as a ____________________. 2. Each of these departments has their own methods of data ________________. 3. The ERP system helps to accomplish this task by integrating the __________________ systems. 4. Management Information Systems (MIS), also called _______________. 5. When systems work in isolation, it will be a difficult task for you to _________________ the data needed for your department's functioning. 6. The three fundamental characteristics of information are ____________. Activity 1 Visit a departmental store near your place where more than four people handle the business and study the techniques they use to manage the entire activity without much of paper work. And how, each one of them is very well aware of the places where each commodity is kept in the store and their rates.

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2.3 Business Modeling
Business modelling or creating a business model is one of the first activities in any ERP project. As mentioned earlier, the ERP systems should be a replica of the organisation’s business processes. A business model is not a mathematical model, but it is a representation of the business as one large system showing the interconnections and interdependencies of the various subsystems and business processes as shown in Figure 2.4.

Figure 2.4: Real World and the Business Model

Based on the organisation's goals, objectives, and strategic plans, a business model consisting of the business processes is developed. Different individuals in the organisation (the people) control these business processes to achieve common goals. Based on the business model the ERP system is developed with the aim of providing the required information and necessary assistance to the various individuals in an organisation. This helps them perform their business processes more effectively and efficiently. In business modelling, we model the business as an integrated system, taking the processes managing its facilities and materials as resources.

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Information is a very important resource and is very critical in managing all the other resources. Thus, the business model is a representation of the actual business, the various business functions of the organisation, the relation that exists between them, the manner in which they are interdependent, and so on, to achieve a common goal or objective. The business model is usually represented in the graphical form using flow charts and flow diagrams. The data model of the system is created from the business model. For example, in a small scale automation industry the order bagged by the marketing is passed on to planning department. From here the actual production starts and it has to be cautiously tracked by the planning department. It is the responsibility of the planning department to request the design department to release the drawings and the requirements for the production department. Once the released documents reach the production department, it has to ensure that it allocates man power and a time plan for the manufacturing of the product. Planning has a time schedule of its own for the manufacturing, which has to be planned in accordance to the production department, and has to be informed to the marketing department. Production has to check for the availability of the required items for production from stores and if in case there is any shortage it has to be informed both to the planning and purchase through a proper channel, so that the requirements can be brought in as early as possible. Once the product leaves from production to quality department and then to packing, the information about the status of work and the product description should be available to the planning department. Thus you can see how each department has to work coordinating to each other and the essence of communication between the departments. As important as process planning, market planning is very crucial phase of business modelling. Since, market planning also has an important role when it comes to decision making in large organisation on market strategy. So that it can enable the organisation to successful meet commercialisation requirements according to changing market trend. Its main concern is how decision taken on certain issues can change the company’s revenues and its profit margins. Hence, planning is a crucial element of business model for this to achieve an ERP system is suppose to be capable of handling
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information not only about the process of various departments but it needs to track the company’s market performance and the company’s product competency compared to its competitors in the market and allow the management to take decision quickly and effectively. Activity 2 Conduct a survey in any manufacturing industry and study the different departments and people both internal and external of an organisation who are involved in process from order acquirement to the deliver of the finished product to the customer.

2.4 Integrated Data Model
One of the most critical steps in the ERP implementation is the creation of an Integrated Data Model. As we have seen earlier, one of the advantages of having an ERP system is that all the employees from the different departments get access to the integrated data. The company uses this integrated data for its analysis and decision-making. With the implementation of ERP systems erases the concept of the departmental information systems and the departmental databases. There can no longer be isolated databases, which cater to the needs of a particular department. All the data has to be from the integrated database. This approach reduces data redundancy and provides updated information about the entire organisation to all employees. For the integrated database to be effective, the system should:  Clearly depict the organisation  Reflect the day-to-day transactions  Be updated continuously. At any given time, the database should give a snapshot of the organisation at that point in time. So if an order is entered, the sale is done, and the goods are dispatched, then the database should reflect those changes. The inventory should be reduced and the account receivables should be increased. All these things have to happen instantaneously and automatically. That is the challenge, and the advantage of the integrated database and the integrated data model. The integrated data model is derived from the business model as shown in Figure 2.5.
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Figure 2.5: Data Model and its Relationship with the Real World

When designing the data model for the ERP system, the most important thing that should be kept in mind is the information integration, and the process / procedure automation. The data model should reflect the entire organisation, and it should successfully depict and integrate the data structures of the entire organisation. For example, when a customer needs to check the performance of the company before he places an order, the marketing department has to be in a position to provide the necessary information. It should not depend on the finance department to provide the necessary information, but at the same time the ERP must also help the marketing department to establish an easy communication link between he finance and marketing for queries. The data flow between the functions of an organisation has to be smooth and faultless. Importance has to be given not only for communication but also to data management. The system has to be flexible in handling every, day to day
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activity data and has to be updated to the database. Maintenance and access to this data has to be planned well for being user friendly and employees can be easily trained. The system should come with a self check and alert mechanism to indicate the incomplete routine activity that was not updated. It should also have the capability to point out any incomplete data or information that has been left during a long process in the organisation. Many a times the flexibility of the system depends not only on the ability of the system to manage the data flow inside the organisation, but it is very important to make the system work in real time considering the nonorganisational factors also. Activity 3: Visit a small scale manufacturing industry and examine the various phases through which a product has to under go during its manufacturing duration. And how each of these phases is tracked and monitored and updated to various departments which need the status of the manufacturing process. Self Assessment Questions 7. ____________________ is one of the first activities in any ERP project 8. Based on the organisation's ______________________, a business model consisting of the business processes is developed. 9. The business model is a representation of the ____________ business. 10. The business model is usually represented in the graphical form using __________________________. 11. As important as process planning, _______________ is very crucial phase of business modeling. 12. The implementation of ERP systems erases the concept of the ___________________________. 13. At any given time, the ________________ should give a snapshot of the organisation at that point in time.

2.5 Summary
Integration is an extremely important part to Enterprises. Enterprise’s main goal is to integrate data and processes from all areas of an organisation and unify it for easy access and work flow. ERPs usually accomplish integration
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by creating one single database that employs multiple software modules providing different areas of an organisation with various business functions. Although the ideal configuration would be one Enterprise system for an entire organisation, many larger organisations usually create and systemise and then build upon the system and external interface for other stand alone systems which might be more powerful and perform better in fulfilling an organisations needs. Usually this type of configuration can be time consuming, and does require lots of labour hours. The process analysis and market analysis are two crucial phases of planning in an organisation, which has direct impact on the revenues of the company. ERPs usually are not used for decision making but it plays a vital role in providing huge amount of fragmented information to be collected and managed properly for the organisation to access. ERP system plays a very crucial role within and out side the organisation. So the implementation of the system is very important. To achieve this successful implementation one has to understand the functioning of the organisation not as whole but from the grass root level. Every department functioning has to be studied before any software development has to be carried out. Management plays significant role in helping the developers to create software that suits their company rather than some thing the developers prefer. Hence, you must understand the activities the organisation performs and the management has to address the requirements that the company requires for a successful ERP implementation. ERP system has to establish a communication link flexible enough to handle information flow inside the organisation and also, elements outside the organisation, for effective data analysis by the management.

2.6 Terminal Questions
1. Why are integrated information systems important for the organisation's success? 2. What is business modeling? 3. What is an integrated data model?

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2.7 Answers
Self Assessment Questions 1. Single entity 2. Collection and analysis, and functions in isolation 3. Information 4. Information-reporting systems 5. Collect and analyse 6. Accuracy, relevancy, and timeliness. 7. Business modelling 8. Goals, objectives, and strategic plans 9. Actual 10. Flow charts and flow diagrams 11. Market planning 12. Departmental information systems and the departmental databases 13. Database Terminal Questions 1. Refer to 2.2 2. Refer to 2.3 and Figure 2.4 3. Refer to 2.4

2.8 Case Study
Built in 1982, starting with steel castings as main products, Patel Alloy Steel Pvt. Ltd.(PASL) has developed different grades of SGI castings as per the market need and established itself as a leading manufacturer of SGI casting parts on local and global market through consistent high quality of work. The company was an early pioneer in development of heavy weight castings for Plastic Injection Molding Machine and Wind Turbine Generator Industry. From its integrated works-sites spread over 42 acres of land and a built-up area of over seven acres PASL has serviced both local needs and worldwide markets. PASL can supply castings in proof or final machined condition. They deliver casting in painted condition to Paint-shop. In this highly competitive industrial coatings market, success depends on IT systems
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that drive internal efficiencies. However, at Patel Alloys a MS DOS based accounting system was being used along with some applications which were in isolation. Over time, the company found that the existing legacy system was inadequate for growing information needs of the organisation and it was lacking proper management controls. The PASL management wanted a fully integrated solution that would enable employees throughout the organisation to communicate more effectively and enjoy access to timely, accurate, and comprehensive information. Also, they wanted a solution that was based on widely used technologies and thereby familiar to the people who would be working with it. After considering a number of options, PASL chose Microsoft Dynamics NAV as the solution that would best meet its needs. They chose to work together with Microsoft Certified Partner, Intech Systems Pvt. Ltd. Intech Systems is a specialised management and software consulting firm, which provides world class consulting and system implementation for business problems in the areas of Information Technology, Operations Management, Financial Management and Data Processing. A team of functional and technical experts from Intech Systems Pvt. Ltd. analysed the business requirements of PASL before recommending the new solution. Managing Director of PASL opted for a new IT solution based on Microsoft Dynamics NAV because it was the best fit for their operations. Using the new solution, PASL was able to manage and control an unlimited number of activities running within a project, streamline budgeting and resource management, and integrate the information with financial data. Microsoft Dynamics NAV was chosen for its performance in a number of key areas of functionality. This ERP solution offers the company a powerful and cost-effective solution. It adapts easily to an organisation, especially certain processes, such as accounts receivable. Also, the solution's ability to grow with the company's needs means it would not limit future development and growth.

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The directives were given by the managing director to implement Dynamics NAV ERP from 1st April 2005 without doing any parallel run. This was a unique case and with the help of both the teams from Patel Alloys and Intech Systems it was implemented in a record time of three months. However, in the first three months Accounts, Sales, Purchase, Inventory and Payroll modules were operational. Following this the production module was implemented in two months. Microsoft small business server was installed along with Dynamics NAV and Microsoft SQL Server version was added to improve the company's database services. 1. What were the conditions that the management had to address before they started searching for proper software? 2. What were the requirements that the management kept in mind before choosing software? 3. Explain the collaboration that you can find between the management of the company and the developers. 4. Explain the reasons behind the successful implementation of the software.

2.9 Glossary
Term Cater Description To provide what is wanted or needed in a particular situation or by a particular group of people in an organisation or a company. To divide something into separate areas, categories, or compartments for functioning with respect to the kind of work or task the group performs in an organisation Something that exists as or is perceived as a single separate unit or department which functions alone not frequently depending on other departments Something that is not or no longer needed or wanted by any department or organisation usage A set of questions related to a particular issue or a topic required by a department or by the management of an organisation.

Compartmentalises

Entity

redundancy Quires

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References 1. Emerging Trends and Challenges Management by Khosrow-Puor, Mehdi. in Information Technology

2. Concepts in Enterprise Resource Planning by Monk, Ellen and Wagner. 3. Ensuring ERP implementation success by King. W.

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Unit 3

ERP and Related Technologies

Structure: 3.1 Introduction Objectives 3.2 Business Process Re-engineering 3.3 Management Information systems 3.4 Decision Support Systems 3.5 Executive Information Systems Advantages of EIS Disadvantages of EIS 3.6 Data Warehousing 3.7 Data Mining 3.8 On-Line Analytical Processing 3.9 Supply Chain Management 3.10 Summary 3.11 Terminal Questions 3.12 Answers 3.13 Case Study 3.14 Glossary

3.1 Introduction
By now you must be familiar with the Concept of enterprise and importance of decision making during the implementation of an Enterprise Resource Planning (ERP) system. ERP is commonly defined as the technique and concept for the integrated management of businesses as a whole, and the effective use of management resources, to improve the efficiency of an enterprise are known as ERP. In an organisation, ERP systems serve an important function by integrating separate business functions like materials management, product planning, sales, distribution, finance and accounting; and others into a single application. However, ERP systems do have certain limitations as listed below:  To generate custom reports or queries, managers have to depend on a programmer. This inhibits them from obtaining information quickly, which is very important for maintaining a competitive advantage.
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More often, managers need to look past the current status to find trends and patterns that help them to make better decisions. But ERP systems provide current status only, such as open orders, limiting the resources for managers There are no applications in ERP systems that integrate the data with other enterprise or division systems. They also fail to provide external intelligence support.

Many technologies are developed which help to overcome these limitations. These technologies help in overcoming the limitations of a standalone ERP system, when used in conjunction with the ERP package, and thus, help the employees to make better decisions. Some of these technologies are:  Business Process Reengineering (BPR)  Management Information System (MIS)  Decision Support Systems (DSS)  Executive Information Systems (EIS)  Data Warehousing  Data Mining  On-line Analytical Processing (OLAP)  Supply Chain Management Out of the above technologies MIS, DSS, and EIS are forerunners of the ERP systems. Once the ERP system and the other technologies (like Data Warehousing, Data Mining, OLAP, and so on.) are integrated, the MIS or DSS become redundant, as the new systems take care of their functions, and are slowly phased out from the scene. To cope up with the increased competition in the current ERP market, the ERP vendors are searching for ways to penetrate into new market segments, and expand the existing ones. Tomorrow’s ERP systems will have most of these technologies integrated into them when compared to the existing ones. In this unit we will see how each of these technologies is related to ERP systems. This unit familiarises you with the old and current technologies of ERP systems, their drawbacks and advantages, and development on new technologies.
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Learning Objectives After studying this unit you will be able to:  Analyse and know the technologies that are related to ERP systems  Explain how technologies like BPR enables organisations to analyse their business functions better, thereby facilitating a more efficient ERP implementation  Analyse how predecessors of ERP like MIS, DSS and EIS will slowly phase out  Explain how new technologies and concepts like data warehousing, data mining, OLAP and supply chain management help increase the power, usefulness, efficiency, and effectiveness of ERP systems.

3.2 Business Process Reengineering (BPR)
BPR has been around for quite some time and a lot has been written about it in both, the practitioner trade press and the academic research journals. However, the controversy still remains about whether there is any accurate description of BPR, or BPR is just a trend. Some even say that it is an appealing label to tag on to whatever your company is doing is of latest and greatest work which is up to the current market trend. But if re-engineering is to continue in the long run, then it must do more than advertise its considerable successes to date. It must become more proactive and inclusive with regard to human, organisational, and motivational change issues. Dr Michael Hammer defines BPR 1 as ".the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical and contemporary measures of performance such as cost, quality, service, and speed." One of the main tools for making this change is the Information Technology (IT). Any BPR effort that fails to recognise the importance of IT, and goes through the pre-BPR analysis and planning phases without considering the various IT options available, is a wrong way in proceeding for implementation. The effect of this kind of proposed IT solutions on the employees and the organisation, is bound to crash during takeoff.

1

Article In Harvard Business Review

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We have seen that the ERP systems help in integrating the various business processes of the organisation with the help of modern developments in IT. With a good ERP package, the organisation will have the capability of achieving dramatic improvements in critical areas such as cost, quality, speed, and so on. Many BPR initiatives end up in the ERP implementation. Initially, the concept of BPR was started as a technique in private sector to help their organisations to re-think, how they do their work in order to improve customer service, cut operational cost, and to stay ahead of their competitors. Later some of the big companies adopted this to redesign their business processes, rather than re-adjusting current ways of doing work. In the concept of reengineering, Information Technology (IT) plays an important role. Some experts consider BPR as a major enabler for new forms of working and collaboration within their organisation, and across organisational borders. It has enabled in increasing organisational efficiency. With the experience and lessons learned from the early adopters, some BPR practitioners advocated a change from IT-centric and emphasis to a customer-centric approach. This enables the developer, to develop technology keeping in mind the customer and the organisation norms rather than the technology and the organisation requirements. These processes are characterised by process ownership, customer focus, value adding, and cross-functionality. Most of the time reengineering has not lived up to its expectation, the main reasons are:  Reengineering process is carried out with a view point that the organisation’s processes ineffectiveness is the limiting factor for its performance. However, most of the time this may or may not be true. Most of the developers adopt the principle that, the reengineering processes of performance improvement needs to be started with complete removal or revamping of the previous system, which is also not an effective method. Many experts do believe that, the process of reengineering does not provide an effective way to focus improvement efforts on the organisation’s constraint.
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Activity 1 Conduct a survey and list out the various support technology for ERP systems designed by various companies and their application in various sectors. Self Assessment Questions 1. More often managers need to look past the current status to find ___________________ which help them in better decision making. 2. BRP must become more proactive and inclusive with regard to __________________ issues. 3. Reengineering process is carried out with a view point that the ________________ processes

3.3 Management Information Systems (MIS)
In the past, most payroll systems were data processing systems that did little more than process time sheets, print payroll checks, and keep totals of annual wages and deductions. Most other departmental information systems did the same data processing and never monitored the actual process of the departments. The data processing systems evolved into management information systems, as managers began to demand more and better information about the working of the organisation,. For example, a human resource MIS system is capable of predicating the average number of worker sick days, the amount that must be given as bonus, the overtime allowances, and so on. MIS is a computer-based system that optimises the collection, collation, transfer, and presentation of information throughout an organisation. MIS accomplished this through an integrated structure of databases and information flow with in the organisation. Data Processing System(DPS) is a system which processes data which has been captured and encoded in a format recognisable by the data processing system or has been created and stored by another unit of an information processing system.

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The major differences between a Management Information System (MIS) and Data Processing System (DPS) are:   When compared to DPS, the integrated database of the MIS enables greater flexibility in meeting the information needs of the management. The MIS integrates the information flow between functional areas like accounting, marketing, manufacturing, and so on, whereas, data processing systems tend to support a single functional area. MIS caters to the information needs of all levels of management whereas data processing systems focus on departmental-level support. Management's information needs are supported on a timelier basis with the MIS (with its on-line query capability) than with a data processing system.

 

The main characteristics of the MIS are the ability to:    Support the data processing operation of transaction handling and record keeping. Support a variety of functional areas in an organisation using integrated database. Provide operational, tactical,, and strategic levels of the organisation, but does not provide ad-hoc query facility for most part of the structured information.

Any successful MIS must support a business five year plan or its equivalent. It must be flexible enough to provide reports based up on performance analysis in specific areas critical to that plan. The reports include feedback loops that allow for titivation of every aspect of the business, including recruitment and training regimens. MIS must not only point out how things are carried out, but why they are not able to perform as planned. These reports also include performance related to cost centres and projects that drive profit or loss. This must be done in such a way that it identifies individual accountability in virtual real-time. Professor Allen S. Lee states that2 "research in the information systems field examines more than the technological system, or just the social system, or

2

MIS Quarterly journal

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even the two side by side; in addition, it investigates the phenomena that emerge when the two interact." The MIS is so flexible that it can adapt very well to the changing needs of an organisation.

3.4 Decision Support System (DSS)
Before making a decision managers spend a lot of time and effort in gathering and analysing information. Decision Support Systems (DSSs) were created to assist managers in the task of data gathering and analysing. DSS is an interactive information system that relies on an integrated set of user-friendly software and hardware tools. With the help of these tools you can produce and present information targeted to support management in the decision-making process. In many occasions, depending on their previous experience knowledge, decision-makers can make quality decisions. However, decision-makers, especially at the top management levels, are often confronted with complex decisions. The analysis of such complex decisions involves many factors that may be difficult for a human being to handle. The need for complex information analysis and reduction of human interference in some crucial decision making process demanded for a decision making system, and led to the evolution of Decision Support Systems (DSSs). A DSS can help to close the information gap and allow managers to improve the quality of their decisions. This requires the DSS hardware and software to be embedded with the latest technological innovations, planning and forecasting models, fourth generation languages, and even artificial intelligence. In many cases, DSS facilitates the decision-making process, helping the decision-makers to choose between alternatives. Some decision support systems can automatically rank the alternatives, based on the decision-maker criteria. DSS also helps in removing the monotony and boredom of gathering and analysing data. Management Information Systems (MIS) are best at supporting decisions that involve structured problems such as, when to reorder the raw materials, how much to order, and so on. In contrast, DSS are designed to support decision-making processes involving semi-structured and unstructured problems. Here, the role of the DSS is to help managers in getting the
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information they want, in the way they want. For example, if a manager wants to reduce cycle time. He might look at various facts like, the availability of raw materials, skilled personnel, the average machine down time, and so on. So there is no way the system can anticipate what the manager wants. But DSS is capable of helping the managers in making such decisions. The main characteristics of a DSS, are:  It is designed to address semi-structured and unstructured problems.  It mainly supports decision-making at the top management level.  It is interactive, user-friendly, and the decision-maker can use it with little or no assistance from a computer professional.  It makes general-purpose models, simulation capabilities and other analytical tools available to the decision-maker. A DSS does not replace the MIS; instead supplements the MIS. There are distinct differences between them. MIS emphasises on planned reports on a variety of subjects; DSS focuses on decision-making. MIS is standard, scheduled, structured, and routine; DSS is quite unstructured, and is available on request. The organisational system constrains the MIS; DSS is immediate and user-friendly. There are several ways to classify DSS applications. However, not all DSS will fit neatly into one category, but a mix of two or more architecture in one will neatly fit into the category. Based on the kind of supports provided by DSS, it can be classified into three distinct, interrelated categories like the Personal Support, Group Support, and Organisational Support. DSS components may be classified as:  Inputs: It includes factors, numbers, and characteristics to analyse.  User Knowledge and Expertise: It covers the area where there is a requirement of a user for manual analysis of the inputs.  Outputs: It helps in transforming data from which DSS "decisions" are generated.  Decisions: These are the results produced by the DSS based on user criteria.

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DSS which perform selected and related decision-making functions and are based on artificial intelligence or intelligent agents’ technologies are called Intelligent Decision Support Systems (IDSS). DSS is extensively used in business and management like the executive dashboard, business performance software, and so on. It allows faster decision making, identification of negative trends, and better allocation of business resources. For example, the software might obtain information from the local operating system in a computer, from one or more applications that may be running. Information is also obtained from one or more remote sites on the Web and is presented as though it all came from the same source. Activity 2 Visit a manufacturing industry and analyse the training methods adopted by the management to get their employees work in the new technological environment and the strategies developed by the company to enhance the efficiency of their system with the new technology. Self Assessment Questions 4. MIS is a computer-based system that optimises the collection, collation, transfer, and _______________ of information throughout an organisation. 5. The MIS supports the data processing functions of ________________ and _______________. 6. DSS is designed to address ___________ and ______________ problems.

3.5 Executive Information Systems (EIS)
The line dividing DSS and EIS is very thin. EIS can be considered as a better and sophisticated DSS. Top-level executives and decision-makers have to face many problems and face enormous work related pressures. In spite of that, they have to make the right decisions, at the right time, to resolve the problems and take the company forward keeping the profit margins high. In today's competitive world, reaction times are shrinking, and time to make decisions is very less. EIS is a decision support system especially made for senior-level executives. The main concern of an EIS is how decisions can affect the entire organisation.
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An EIS takes the following into consideration:  The overall vision and mission of the company, and the company’s goals  Strategic planning and objectives  Organisational structure  Crisis management/Contingency planning  Strategic control and monitoring of overall operations The user interface is very important as an EIS needs to be efficient to get back the relevant data for decision makers. Several types of interfaces are available for the EIS structure, such as scheduled reports, questions/ answers, menu driven, command language, natural language, and input/ output. The most important aspect is that the interface must fit the decision maker’s decision-making style. If the executive is not comfortable with the final information style, the EIS will not be fully utilised. It is considered that an ideal interface for an EIS would be the one that’s:  Simple to use  Highly flexible  Provides consistent performance  Reflects the executive’s world  Contains help information Many a times executive decision-making also requires access to outside information from competitors, governmental regulations, trade groups, news gathering agencies, and so on. So most executive decision involves a high degree of uncertainty and a future course for the organisation. Successful EIS are easy to use, flexible and customisable, and use the latest technological innovations. 3.5.1 Advantages of EIS Some of the advantages of EIS are:  Easy for top management to use as extensive computer experience is not required in operations  Provides timely delivery of company summary information  Information that is provided is understood better  Filters data for management  Improves to tracking information  Offers efficiency to decision makers
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3.5.2 Disadvantages of EIS Some of the disadvantages of EIS are:  It is system dependent  It has limited functionality, with respect to design  Its information overload for some managers  Its benefits are hard to quantify  It has high implementation costs  Its system may become slow, large, and hard to manage  It needs good internal processes for data management  It may lead to less reliable and less secure data In future mainframe computer systems and the executive info systems will not be bonded together. This methodology will help executives escape from learning different computer operating systems and substantially decreases the implementation costs for companies. However, utilising existing software applications lies in this new kind of technology. Executives can also eliminate the need to learn a new or special language for the EIS package. Future executive information systems are concentrated only on providing a system that supports senior executives, but also contain the information needs for middle managers. Since, future EIS are equipped with the power of integrating potential new applications and technology into the systems, the future executive information systems will become diverse. For example, consider incorporating artificial intelligence (AI), integrating multimedia characteristics and ISDN technology into an EIS. This enhances the capability of the EIS system by making them timely, efficient and effective in supporting the decision making process.

3.6 Data Warehousing
A lot of problems are created when the operational data is kept in the databases of the ERP system. Over a period of time, the amount of data will increase and this will affect the performance of the ERP system. Therefore it is better to archive the operational data once its use is over. When I say 'the use is over', it does not mean that the archived data is useless, of course, it is one of the most valuable resources of the organisation. However, once the operational use of the data is over, it must be removed from the operational databases. For example, once the financial year is over, the
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daily transactional data can be archived. Figure 3.1 shows what happens if the data is not archived.

Figure 3.1: Operational Data vs. Archive Data

As you can see from the Figure 3.1, it is evident that even though the operational data volume is nearly the same each year, the data is not archived. The total amount of data that is stored in the operational database will go on increasing. Figure 3.2 shows the effect of keeping this huge amount of data in the operational database. It is clear from the above graph that, as the volume of the data in the database increases, the performance of the database and the related applications decreases. Since the data that has to be processed by the system is more and increases every year, resulting in the decrease in the performance of the ERP system.

Figure 3.2: Data Volume vs. Performance Sikkim Manipal University Page No. 48

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From the above discussions, it is evident that we must separate the operational data from the non-operational data. Here the term archive data is not used, because if the non-operational data is archived, there is little or no use for it. But this data is a very valuable resource, and is too precious to be kept in some archive. It is in this situation that a data warehouse comes in handy. Data warehousing has become an essential module in every ERP package. In order to track the performance of the company and to plan for the future, the current data and the data from the previous years are very essential for the managers. They come in handy for managing the non operational data and help in reducing the large and growing data base of an organisation. The basic principle of data warehousing system is that, the data stored for business analysis can be accessed most effectively by separating it from the data in operational systems. The potential performance degradation on the operational system can result during the analysis processes. To overcome this business analysis and the operational data are stored separately High performance and quick response time is very essential feature for operational systems. The reason for separating the operational data from the analysis data has no significant changes with the evolution of the data warehousing systems. Except that now they are considered more formally during the data warehouse building process. The advancement in technologies and changes in the nature of business have made many of the business analysis processes much more complex and sophisticated. The latest technologies in data warehousing systems support very sophisticated online analysis, including multi-dimensional analysis in addition to producing standard reports. Activity 3 Visit a departmental store and write down the steps how you can implement an ERP package. Also analyse how you can enhance the efficiency of the stores inventory management using Data Warehousing. Self Assessment Questions 7. EIS is a ___________ system especially made for senior-level executives.
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8. If the data is not archived the total amount of data that is stored in the __________________ will go on increasing. 9. _________________ has become an essential module in every ERP package.

3.7 Data Mining
In today’s information age that we live, many organisations widely recognise the importance of collecting data that reflects our business, or activities that achieve competitive advantage. In most organisations powerful systems are available for collecting data and managing it in large databases. However, the major bottleneck of converting this data into effective information is, the difficulty faced in extracting knowledge about the relevant issue from the data collected from the system’s data base. Modelling the investigated system and discovering relations that connect variables in a database are the subjects of data mining. Data mining is the process of identifying valid, new, potentially useful, and ultimately clear information from databases. This information is used to make crucial business decisions. Modern data mining systems, self learn from the previous history of the investigated system, formulating and testing hypotheses about the rules, which the system obeys. When a brief and valuable knowledge about the system of interest has been discovered, it can and must be incorporated into some decision support system. This helps the manager make wise and informed business decisions. The main reason for needing automated computer systems for intelligent data analysis is the enormous volume of existing and newly appearing data that require processing. The amount of data collected each day by various businesses, scientific, and governmental organisations around the world is daunting. Research organisations, academic institutions, and commercial organisations create and store huge amounts of data each day. It is very difficult for human analysts to cope with such overwhelming amounts of data. Two other problems that human analysts suffer while processing the data are:  The inadequacy of the human brain when searching for complex multifactorial dependencies in the data  The lack of objectiveness in analysing the data
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The major cause of concern with a human expert is that, most of the results he draws are always with the help of the previous experience of investigating other systems. However, this may or may not help sometimes under certain new conditions, but it is almost impossible to get rid of this reality. One additional benefit that you can find using automated data mining systems is that, this process has a much lower cost than hiring an army of highly trained and paid professional statisticians. However, data mining will not completely eliminate the human participation in solving the task but it significantly simplifies the job. This system allows an analyst, who is not a professional in statistics and programming, to manage the process of extracting knowledge from data stored in the data base. Data mining commonly involves four classes of tasks:  Classification: Arranges the data into predefined groups. For example, consider an email program that attempts to classify an email as legitimate or spam. Some of the common algorithms are decision tree learning, nearest neighbor, naive Bayesian classification, and neural networks. Clustering: Is a process of classification of data but the groups are not predefined, so the algorithm will try to group similar items together. For example, when we search for data from a particular year, all the data containing the key words of the entered search statement will be listed. But it will not be grouped; instead all the relevant data will be made available. Regression: This task tries to find the function which models the data with the least error. Association rule learning: This task performs the search for relationships between variables. For example, consider a supermarket that gathers data on their customer purchasing habits. With the help of association rule learning task, the supermarket can determine which products are frequently bought together and use this information for marketing purposes. This is sometimes referred to as market basket analysis.

 

The verification of the patterns produced by the data mining algorithms that occur from wide data set is the last leg of knowledge discovery from data. In
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most case the patterns that data mining algorithms find may not be true and valid. It is usual for the data mining algorithms to find patterns in the training set which are not present in the general data set, this is called over fitting. This can be overcome if the evaluation uses a set of test data, which the data mining algorithm was not trained on. The patterns obtained are applied to this test set and the resulting output is compared to the desired output. For example, a data mining algorithm trying to separate spam from valid emails would be trained on a training set of sample emails. Once trained, the patterns obtained would be applied to the test set of emails which it had not been trained on. The correctness of these patterns can then be measured from how many emails they correctly classify.

3.8 On-Line Analytical Processing (OLAP)
According to Business Intelligence Ltd3, OLAP can be defined in five words – Fast Analysis of Shared Multidimensional Information. FAST means that the system has the ability to deliver most of its responses to users within about five seconds, with the simplest analysis taking no more than one second and very few taking more than 20 seconds. ANALYSIS means that the ability of the system to cope with any business logic and statistical analysis that is relevant for the application and the user, and keep it easy enough for the target user. SHARED means that the system is well equipped to meet all the security requirements for confidentiality (possibly down to cell level). If multiple write access is needed; it provides concurrent update locking at an appropriate level. MULTIDIMENSIONAL means, that the system must provide a multidimensional conceptual view of the data, including full support for hierarchies and multiple hierarchies. INFORMATION is refined data that is accurate, timely, and relevant to the user. Simply put, OLAP describes a class of technologies that are designed for live ad-hoc data access and analysis. While transaction processing (OLTP) generally relies solely on relational databases, OLAP has become synonymous with multidimensional views of business data. Multidimensional
3

http://www.OLAPReport.com

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database technology supports these multidimensional views, and provides the technical basis for calculations and analysis required by Business Intelligence applications. For a very wide range of applications OLAP technology is preferred as a right choice for a company. The most common applications are budgeting and planning; sales and marketing analysis; financial reporting and consolidation. In past few years OLAP is extensively being used for applications such as product profitability and pricing analysis; activity based costing; manpower planning; and quality analysis. Any management system that requires a flexible, top down view of an organisation use OLAP.

3.9 Supply Chain Management
A supply chain can be defined as a network of facilities and distribution options that performs the function of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Both in service and manufacturing organisations supply chains system exist. However, the complexity of the chain may vary greatly from industry to industry and firm to firm. Traditionally, the departments like the marketing, distribution, planning, manufacturing, and purchasing of an organisation operated independently along the supply chain. This kind of traditional organisation’s each departments had their own objectives, which often conflict with other department’s objectives. For example, Marketing's objective of high customer service and maximum sales revenue conflicts with manufacturing and distribution goals. Many manufacturing operations are designed to maximise throughput and lower costs, but very little concern was given for the impact of this on inventory levels and distribution capabilities. With the very little information and based on the historical buying patterns purchasing contracts were often negotiated. This resulted in chaos and there was not a single, integrated plan for the organisation there were plans as many as services the company offered. This clearly demanded a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved.
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If the SCM has to be successful their must be a change from managing individual functions to integrating activities into key supply chain processes. For example, the purchasing department places orders as requirements become known. In case of marketing department, it has to respond to customer demand, communicate with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain’s partners can only be fully leveraged through process integration. The integration process of Supply chain business process involves collaborative work between buyers and suppliers, joint product development, common systems, and shared information. But one has to understand that continues information flow is required to operate an integrated supply chain. Top management of many companies have reached the conclusion that optimising the product flows cannot be accomplished without implementing a process approach to the business. An organisation’s supply chain or logistics network is affected because of supply chain sustainability. This is a major business issue and is frequently quantified by comparison with SECH ratings like social, ethical, cultural and health records. Today consumers have become aware of the environmental impact of their purchases and company’s SECH ratings. Along with this nongovernmental organisations ([NGO]s), are setting the agendas for focusing on transitions to organically-grown foods, anti-sweatshop labor codes, and locally-produced goods that will support independent and small business groups. Because supply chains frequently account for over 75% of a company’s carbon footprint many organisations are exploring how they can reduce this and thus improve their SECH rating. Companies can improve their overall competencies with the help of supply chain specialisation, in the same way that outsourced manufacturing and distribution has done. It allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency. The leading reason why supply chain specialisation is gaining popularity is just because of the company’s ability to quickly obtain and deploy this domain-specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house.
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Activity 4 Conduct a survey in a manufacturing industry, to know how much time and the training was required for the company to bring their employees to work with the new technology being implemented in their existing ERP package. Self Assessment Questions 10. Data mining is the process of identifying Valid, new, potentially useful, and ultimately clear ______________ from databases. 11. INFORMATION is refined data that is _________, timely, and relevant to the user 12. __________________ is a strategy through which such integration can be achieved.

3.10 Summary
Before ERP systems, each department in an organisation would most likely have their own computer system, data, and database. Unfortunately, many of these systems would not be able to communicate with one another or need to store or rewrite data to make it possible for cross computer system communication. For instance, the financials of a company were on a separate computer system than the HR system, making it more intensive and complicated to process certain functions. Once an ERP system is in place, usually all aspects of an organisation can work in harmony, instead of every single system needing to be compatible with each other. For large organisations, increased productivity, and less types of software are a result. Implementation of an ERP System Implementing an ERP system is not an easy task to achieve, in fact it takes lots of planning, consulting and in most cases 3 months to 1 year. Moreover ERP systems are extraordinary wide in scope and for many larger organisations can be extremely complex. Implementing an ERP system will ultimately require significant changes on staff and work practices. While it may seem reasonable for an in house IT staff to head the project, it is widely advised that ERP implementation consultants be used, as consultants are

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usually more cost effective and are specifically trained in implementing these types of systems. One of the most important traits that an organisation should have when implementing an ERP system is ownership of the project. Due to the various changes that takes place in an organisation and its effect on almost every individual in the organisation, it is important to make sure that everyone is on board and help making the project and using the new ERP system a success. Usually organisations use ERP vendors or consulting companies to implement their customised ERP system. There are three types of professional services that are provided when implementing an ERP system, they are Consulting, Customisation, and Support. Consulting Services – usually consulting services are responsible for the initial stages of ERP implementation, they help an organisation go live with their new system, with product training, workflow, improve ERPs use in the specific organisation, and so on. Customisation Services – Customisation services work by extending the use of the new ERP system or changing its use by creating customised interfaces and/or underlying application code. While ERP systems are made for many core routines, there are still some needs that need to be built or customised for an organisation. Support Services- Support services include both support and maintenance of ERP systems. For instance, trouble shooting and assistance with ERP issues.

3.11 Terminal Questions
1. 2. 3. 4. 5. What is EIS? What is data warehousing? What is data mining? What do you mean by OLAP? Explain the concept of supply chain management?

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3.12 Answers
Self Assessment Questions 1. Trends and patterns 2. Human, organisational, and motivational change 3. Organisation’s 4. Presentation 5. Transaction handling and record keeping. 6. Semi-structured and unstructured 7. Decision support 8. Operational database 9. Data warehousing 10. Information 11. Accurate 12. Supply chain management Terminal Questions 1. Refer 3.5 2. Refer 3.6 3. Refer 3.7 4. Refer 3.8 5. Refer 3.9

3.13 Case Study
Gold Rush Corporation a company which manufacture’s gold watches and sells them to watch stores and jewellery shops across the country. The methodology adopted by the management of the company to predict future demand for the high quality gold watches and different styles depended heavily on its sales trends report that sales department collected through various sources like the distributors, vendors, news paper articles and so on. Their were occasion in the past, where the production managers received the sales information report from the sales departments which would be a week old, sometimes the report of the vendors and distributors order for most popular watch styles would reach the managers a month later.

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Most of the production estimates for the next production plan was taken based on these reports. Even though the production managers were grateful for the information they received from the sales department. The delay had a sever effect on the efficiency of the production planning. However, the production managers could avoid costly production overruns and also shortages in product, if information was readily available for them during their production planning meetings. For over coming this and improving the efficiency in the system, Gold Rush Corporation decided to implement an Executive Information System (EIS). This system possessed information regarding real time sales and orders of Gold Rush’s products. The system was designed so that it was available to all senior level managers of the company, including the production managers. With the help of this new system production managers were able to estimate more accurately the inventory levels they must realise in order to meet the market demand. Since the Executive Information System provides managers with valuable and accurate real time information that help production managers to cut down on holding costs, if they move to real time inventory model with the help of EIS. As you can analyse in this case study how efficiency of an organisation can be enhanced with this king of open distribution of information method with the help of executive information system designed for a company’s specific needs. Every company should realises that bottom line should improve for achieving better efficiency levels. Many of the large organisations find it difficult when it comes in handling widespread distribution of information. However, with implementation of and Executive Information System can help in over coming some of the problems that these large organisation face when it come to information management. Questions: 1. Discuss the reasons why the managers of Gold Rush Company where not able to plan efficiently the production output for the coming production period. 2. Explain how Executive Information System (EIS) helped in resolving the problems faced by the managers. 3. Do you think the companies can carry out the production planning efficiently with the help of EIS? Discuss.

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3.14 Glossary
Term Archive Description A collection of documents such as letters, official papers, photographs, or recorded material, kept for their historical interest To provide what is wanted or needed in a particular situation or by a particular group of people The act of joining or combining two or more things or departments A lack of warmth and spontaneity in somebody's manner or in the atmosphere on a particular occasion An event that might occur in the future, especially a problem, emergency, or expense that might arise unexpectedly and therefore must be prepared for Somebody or some organisation that goes ahead of others in the competition that they face in the market. To stop something from continuing or developing further in an organisation by the forces inside or out side an organisation

Caters Conjunction Constraint Contingency

Forerunners Inhibits

References 1. Data Mining: Concepts, Models, Methods, and Algorithms by Kantardzic, Mehmed (2003). 2. WareHouse Information Prototype at Stanford (WHIPS) by Yang & Jun. 3. Supply Chain Management: More Than a New Name for Logistics by Cooper. M.C., Lambert. D.M. & Pagh. J.

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Unit 4

ERP Tools / Software and Selection Methodology

Structure: 4.1 Introduction Objectives 4.2 ERP Tools and Software ERP Tools 4.3 ERP Selection Methods and Criteria ERP Software Selection Criteria Improper ERP system selection Proper ERP system selection methodology 4.4 ERP Selection Process Features and functionalities of ERP solution 4.5 ERP Vendor Selection Vendor Selection 4.6 ERP Implementation 4.7 Summary 4.8 Terminal Questions 4.9 Answers 4.10 Case study 4.11 Glossary

4.1 Introduction
By now you must be familiar with the concept of ERP related techniques and the need for ERP in an organisation. This unit familiarises you with ERP tools / software and the selection methodology followed for selecting an ERP tool. Enterprise Resource Planning (ERP) software is a common phrase in business. Many small and big companies have already implemented ERP software. Yet many other companies are on a fast-track to implement ERP software in order to effectively meet business challenges. In the past, companies used paper-based processes or separate software packages to manage multiple functions of their business, such as Accounting, HR, Quality, Customer Service, Order Entry, and so on. ERP, on the other hand, integrates all functions of a company into a single software package.
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There are dozens of ERP software providers in the market. They range from globally reputed vendors to small, industry-specific vendors. Some of the well-known providers include SAP, Oracle, Microsoft, NetSuite and Epicor. There are several business reasons for the shift from fragmented systems to an integrated ERP. Some of them include:  Easier and faster to train employees on a single ERP software package than on multiple systems.  Provides business executives with more transparency of their business operations since all business information is stored at one location.  Enables managers perform business functions and processes in a standard way. It is important to realise that there is no “perfect ERP tool / software” for any organisation. Each company has its own business-specific needs. To identify the right ERP tool / software, it is of prime importance to understand the associated applications. Much of the software that is used with ERP is multi-module. It can assist companies integrate various processes. The most important areas for ERP applications are Finance, Human Resources, and Manufacturing. When a vendor sells Finance related ERP module to a company, the module is capable of combining a number of different tasks. For example, some modules may deal with charts related to accounts and balances, while it can also be used to maintain expenses that are connected to the organisation. One of the most impressive features of ERP tools is that they can be used to monitor the depreciation and appreciation of company assets. This tool can also be useful for the maintenance of receivables and payables. Learning Objectives: After studying this unit, you will be able to:  Analyse the methodology and criteria used in ERP selection.  Explain the ERP selection process.  Analyse the ERP tools available in the market.  Identify different ERP vendors.  Explain the ERP vendor selection process.

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4.2 ERP Tools and Software
Before the evolution of ERP model, each department in an enterprise had its own isolated software application that did not interface with any other system. Such isolated framework could not synchronise the interdepartment processes and hence hampered the overall productivity, speed, and performance of the organisation. This situation led to issues such as incompatible market standards, lack of synchronisation, incomplete understanding of the complete enterprise functioning, unproductive decisions and so on. For example, the finance department could not coordinate with the procurement team to plan out purchases as per the availability of money. Hence, deploying a comprehensive ERP system across an organisation leads to performance increase, workflow synchronisation, standardised information exchange within departments, complete overview of the enterprise functioning, global decision optimisation, speed enhancement and so on. ERP system is built on a centralised database utilising a common computing platform. It consolidates all business operations into a uniform enterprise wide system environment. An ERP system can either reside on a centralised 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 and expensive computer systems in areas which will not use their full capacity. ERP systems integrate all the departments and functions across a company onto a single computer system that can serve all the departments needs. There are two types of ERP software packages. Open Source ERP software and Commercial ERP software. Some of the differences between the two software are as follows. Table 4.1 shows the differences between commercial and open source ERP.

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Table 4.1: Differences between Commercial and Open Source ERPs

Commercial ERP       Expensive Always backed by well known brands Assured training and after sales support Suitable only for bigger corporations Non flexible Usage modalities are rarely liberal and cause troubles when they are modified Deployment is costly and inconvenient Companies might have to change their business process to adapt to this ERP Enhancements in the product is intimated to its customers Consumes a lot of time during implementation Lots of training is required for the employees. It calls for lots of investments in terms of time and money Less secure

Open Source ERP      Free of cost Usually not backed by well known brands Training and after sales support is not guaranteed Suitable for small companies and bigger corporations Can be modified as licenses are available along with the source code Companies can do the necessary modifications in code rather than changing their business policies Does not interfere with the regular schedule of the company during implementation Enhancements in the product is not known Implementation time is very less Procedures for training employees are very easy does not require much training as source code is more than a training manual More secure and indicate whenever something goes wrong

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The differences between commercial and open source ERP applications show the edge open source ERP players enjoy. However, the fact remains that open source ERPs are not received well in the market due to fear of failure.
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ERP software has been traditionally used by large corporations to integrate and automate diverse departments across the enterprise. For a long time, smaller companies purchased individual accounting and payroll packages and then migrated to expensive ERP solutions as they grew. They did not have many options as ERP solutions were costlier and required business magnitude and use by many employees to justify the investment. But now with many open source ERP software available, it is now possible for small companies to go in for ERPs at an earlier stage. There are several open source software in the market including Compiere, ERP5, and Fisterra. Compiere is suitable for small and medium sized ERP enterprises, especially in the business and service sector. It is designed to follow changes as business evolves. The hallmark of this software is that the customer companies, and even their production personnel, can modify the information structure at any given point of time. This software also provides multiple views of business information based on the detail of the actual transactions. Microsoft Dynamics AX from Microsoft Business Division is one of Microsoft’s flagship ERP systems. It is a commercial business solutions software. Its primary strengths are ease of use, customisation, internationalisation, and cutting edge technology. Microsoft Dynamics NAV is an ERP computer program from Microsoft Corporation. It is intended to assist with Finance, Manufacturing, Customer Relationship Management (CRM), Supply Chains, Analytics, and Electronic Commerce in Small and Medium-sized Enterprises. mySAP ERP is yet another commercial ERP software. It is produced by SAP AG and was formerly known as SAP R/3. This is a client/server-based application that uses a 3-tier model. The first layer is the presentation or client layer, which interfaces with the user. The second layer is the application layer which houses all the business-specific logic. The third layer is the database layer which records and stores all the information about the system, including transactional and configuration data. The success of any ERP package depends on its ease of customisation and implementation process.

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4.2.1 ERP Tools There are several ERP software manufacturers. Prominent manufacturers of ERP software are SAP, Oracle Corporation, PeopleSoft, JD Edwards, Lawson, etc. SAP has the major share in the ERP market and next comes the Oracle Corporation. Oracle has acquired JD Edwards, People Soft, and more recently Siebel and competes with SAP in the ERP market. Table 4.2 lists the popular ERP Tools and their respective vendors.
Table 4.2: ERP Tools and respective vendors Tool Name SAP R/3 Oracle e-Business Suite JD Edwards EnterpriseOne & JD Edwards World PeopleSoft MicroSoft Dynamics Lawson Financials Sage MAS 500 NetERP Visual Enterprise Agresso Business World Epicor Enterprise IFS Applications MFG/PRO Ramco e.Applications Company Name SAP Oracle Corporation Oracle Corporation Oracle Corporation MicroSoft Corporation Lawson Software Sage Group NetSuite Infor Global Solutions Unit 4 Agresso Epicor Industrial and Financial Systems QAD Ramco Systems

Self Assessment Questions 1. Name the two types of ERP software packages. 2. What are the reasons for companies to shift from fragmented systems to ERP system? 3. Name few leading ERP software manufactures. Activity 1 List out the ERP tools and their respective vendors available in the market

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4.3 ERP Selection Methods and Criteria
ERP is a very expensive investment and has a long and complicated implementation process. As such, it is important to make a proper selection of the ERP. ERP selection process involves identifying criteria and their relative weights, and evaluating the alternatives. An ERP system is the information backbone of an organisation and extends to all areas of the business. Thus, long-term business strategy of the organisation forms the basis of the ERP selection criteria. As mentioned earlier, ERP systems are costly to implement. When choosing an ERP system, it is important to take time to select the right ERP system or set of modules for your business. In order to do this in an efficient manner, it is important to have a plan of action. The selection of the appropriate solution is a problem because only a part of it can be handled by a definite or accepted procedure such as standard investment calculations. On the other hand, the decision maker needs to judge and evaluate all relevant business impact aspects. There is no agreed-upon and formal procedure for this important task 1. The modules that an ERP offers are the most important selection reasons; and can vary according to the needs of the organisation. When you consider an ERP system, it is important to weigh all available options carefully. This is because of the time, money, and training that can be consumed in implementing such a system. There are three criteria that are generally used when evaluating an ERP solution:  Financial Considerations : When an ERP solution is considered, it must make money to be acceptable. As such, there are several measurements that the finance department may make in order to determine whether or not an ERP solution is feasible. o Net Present Value (NPV) is generally the most accepted method of valuing an ERP. It takes into account the time value of money and cash flows generated. The cash flow and discount rate selection process is the most important part of an NPV calculation. Determining an average cost of capital for your firm and the

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Laudon and Laudon, 1998; Hecht, 1997

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predicted cash flows help you get an accurate result from the NPV calculation. o Budgetary constraint is the most used method when considering IT projects. The Internal Rate of Return (IRR) and payback period methods are also very popular for many firms dealing with IT implementations. Management Considerations : On the management side, there are more variables to consider than simply money. For example, managers may differentiate between implicit and explicit business needs, competitive pressures, legal needs, and environmental concerns. This can make the management side of valuation very difficult to quantify. Generally, companies take a few factors and try to create a scoring system that can be objectively applied across the options. Sometimes probability of achieving the intended benefits is included in this part of the calculations else it is included in the financial part of the process. However, the probability of achieving the benefits instead of simply succeeding in implementation takes on a different look. This sort of probability may be more directly tied with a softer science such as management. Development Considerations: Development is usually the least important decision factor in these processes. One of the most important factors is the probability that a project finishes on time. This simply does not happen very often, so it is important to determine what sort of adverse effects this could have on business operations.

4.3.1 ERP Software Selection Criteria When reviewing potential software suppliers, you tend to focus only on the potential product’s functionality and cost. Although these elements are important, this methodology neglects other areas of importance. A supplier’s ability to deliver product services goes well beyond price and feature options. The key selection criteria include making few questions. Such questions help you simplify making an ERP software purchase decision. Some of the questions include:  For Product Functionality ○ Does this package meet the overall requirements listing? ○ Is the menu structure easy to follow and understand?
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○ ○ ○ ○ 

Are the help files easily assessable and easy for users to understand? Can you customise help to meet the needs of the organisation? Is the product too complex? Are there standard reports available, and are they useful?

For Product Cost ○ Are the license costs justified given the functionality offering? ○ Is the required database affordable? ○ Are annual maintenance charges reasonable and in line with the industry average? ○ Are payments for annual maintenance charges in line with industry norms? ○ What is the true implementation services-to-software ratio for implementations with comparably-sized companies? ○ How quickly can payback be received? For Corporate Vision ○ What major organisational changes has the supplier made in recent years? ○ What major product changes have occurred in recent years? ○ What major product changes does the company foresee or have planned in the coming years? ○ What level of involvement does the executive staff have in the company’s daily operations? Is the executive staff knowledgeable of industry trends and developing technology? For Service and Support ○ Was the team comfortable with the sales process and representative? ○ Were the team’s questions answered in an open and honest forum? ○ Can the supplier provide a complete turn-key solution? ○ What type of training is available? ○ What is the average technical support person’s experience level and tenure with the company? ○ How quickly are the non-critical software bugs fixed? ○ Is 24/7 support available? ○ Does the supplier offer business process re-engineering as part of the implementation process?
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Does the supplier have experience in similar industries?

For Technology and System Architecture ○ Is the technology robust enough to handle current and future transactions load? Is it scalable? ○ Is the system’s speed acceptable for daily usage? ○ Is source code provided for customisations or modifications without hefty charges? ○ Do customisations hamper upgrading to future software releases? ○ Is the software Open Database Connectivity (ODBC) compliant? ○ Does the software support eCommerce, Radio Frequency (RF) and bar coding, and Electronic Data Interchange (EDI) transactions? ○ Does the software support multi-company, multi-division, and multicurrency environments? Are there any restrictions to this type of environment? For Supplier Longevity ○ How many years has the company been actively engaged in this software industry? ○ When was the product’s first release? What is the current release version being quoted? ○ Has the company been consistently profitable? ○ Has there been recent turnover in the management staff? ○ Has the supplier increased or reduced overall headcount over the last year? ○ Are customer references available? Can you visit a customer reference site prior to contract signing?

4.3.2 Improper ERP system selection Not often companies adopt a fully objective system selection methodology when choosing an ERP System. Some of the common mistakes that companies resort to are:  Incomplete set of requirements - Wallace & Kremzar states that "it requires people to do their job differently" 2 when a new ERP is implemented in an enterprise. Therefore, it is very important to understand the requirements of each user for current processes and for future processes.
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Thomas F. Wallace and Michael H. Kremzar, ERP: Making it Happen.

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Reliance on vendor demos – Vendor demonstrations tend to focus on very simple processes. A typical demonstration shows an ideal order to cash process where a customer orders a quantity of product that is in stock. In most businesses, customers have varying and complicated commercial arrangements. In reality, products are not always in stock. Over-emphasis on system cost – According to Finlay and Servant “The differential in purchase price between packages is unlikely to be the dominant factor"3. While the cost of an ERP system is very important for a company, the companies do not focus on the other important decision criteria such as functionality, future proofing, underlying infrastructure [network and database], and e-commerce capability among others. Selection bias – It is not unusual that the ERP system purchase decision is made by one individual or by one department within the company. In such situations, an ERP system that may be excellent at one function but weak at other may be imposed on the entire enterprise with serious business repercussions. Failure to use objective professional services – One of the main reasons for failure in system selection is the lack of knowledge within the company. Taking the services of experienced consultants can prove beneficial. They provide excellent information on all the packages available in the market, the latest functionality, most importantly, can assist the you in deciding whether a specific requirement would provide added value to your business.

4.3.3 Proper ERP system selection methodology It is important to apply key principles to the process to address common mistakes that lead to an improper ERP system selection, they include:  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 are selected, the format of demonstrations, and the process for selecting the vendor.
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Paul N. Finlay and Terence Servant, Financial Packaging Systems, 1987.

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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. It is incumbent on the company to identify sufficient demonstrations that allow a proper decision to be made and also ensures 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."4 There are two key points to note when the selection criteria used in evaluating potential vendors. First, the criteria and the scoring system must be agreed prior to viewing any potential systems. Secondly, 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 stakeholders within the enterprise must decide on the system. "It requires top management leadership and participation… it involves virtually every department within the company"5. Representatives should: ○ Be involved in the project initiation phase ○ Assist in the gathering of requirements ○ Attend the Vendor Demonstrations ○ Have a significant participation in the short-listing and final selection of a vendor.

Self Assessment Questions 4. An ERP system is the ________________ of an organisation and extends to all areas of the business. 5. List the selection criteria for ERP software. 6. What are the criteria that a company fails to focus on while selecting an ERP system, other than the cost? 7. The _________ that an ERP offers, are the most important selection reasons.

4 5

Oyku Alanbay, 'ERP Selection using Expert Choice Software', ISAHP 2005, Honolulu, Hawaii Thomas F. Wallace and Michael H. Kremzar, ERP: Making it Happen

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4.4 ERP Selection Process
The ERP selection process is an important step for the future growth of any manufacturing or distribution organisation. ERP selection process has helped numerous manufacturers and distributors to find the software provider and solution that best meets their organisation’s unique business software requirements. The actual process of evaluating and selecting an ERP System is never the same for any two companies. However some common steps and exercises that a company and its evaluation team should take to evaluate the company’s requirements are: 1. Selecting and empowering a cross-functional Evaluation Team that includes the best and the brightest individuals from each functional area of the company. They need to understand the importance of information sharing and integration, and champion positive change. The individual representing a functional unit can fairly and accurately represent and communicate the needs of his functional unit regarding the need of a new enterprise system. 2. The members of the team need to learn the business reasons and conditions that exist within the company. Additionally, each member of the team needs to educate other members about the functional area of the company he/she represents. 3. The company’s resources need to be identified and assessed. In addition to those areas that may be unique to business, the following also need to be assessed: ○ Personnel – determining how the company presently uses its personnel; define the organisation’s strengths and key areas that need improvement. ○ Technology – understanding the business’s current information management infrastructure. ○ Workflow – analysing the critical processes and workflow issues within the company. Consideration to be given to not only how these processes actually work today, but also how they should work as the company grows. ○ Performance Measurements – defining a business model for success needs along with the metrics that are used to measure business performance.
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4. The elements required to meet the company’s goals, and in turn the company’s success, have to be defined. These requirements are then used as the guideline for selecting an ERP solutions provider. The steps involved in this process include: ○ Identifying the limitations with the current business approach ○ Identifying the organisation’s core competencies – factors that give the organisation a competitive edge over competitors. ○ Identifying the requirements for a solutions partner regarding implementation, features, functionality, service, tools, ongoing customer care and support. 5. Identifying the most important system functionality when selecting the right enterprise solution for the organisation. 6. Some of the additional questions that need to be pondered over when evaluating potential ERP solutions are: ○ Is the vendor’s product scaleable to accommodate rapid or unexpected growth? ○ Are the solutions that are under consideration configurable to meet existing specific needs and business processes as well as new ones that may arise in future? ○ Is the solution flexible enough to operate on a variety of IT platforms? ○ Are the product functions and features available now? If not, when will they be available and how important is it to have that function? Following and executing these steps of the ERP selection process provides the organisation the necessary information to make a well-informed, quantitative ERP software selection. 4.4.1 Features and functionalities of ERP solution The ERP evaluation team must also check on the following features and functionalities of the ERP system before selecting an ERP solution:  Customisation – Since different organisations need different software based on specific needs, customisations should not cause difficulties in updating to future releases.  Implementation – Different ERPs have different implementation requirements. Thus, it is important to choose an ERP that serves the organisation best and easy to implement.
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Maintenance – The software should support multi-company, multidivision, and multi-currency environments. Real-Time Changes – The modules should work in real time with online and batch-processing capabilities. So that no errors would occur because of the system being not up-to-date and information available to a department would not be different from the information available to other departments. Flexibility – As the business requirements of the organisation are dynamic, the ERP system should be flexible to modifications. User-Friendliness – Most of the time, the end-users of an ERP system are not computer experts. Hence, the product should not be too complex. Cost – Cost is an important issue since the implementing organisation may be a small or medium sized enterprise that may not be financially comfortable as a large, multi-national organisation. Systems Requirements – It is important to choose an ERP that is independent of hardware, operating system, and database systems. After-Sales Support and Training – As ERPs are fairly complex applications for learning by oneself, the vendor should provide the training as well as the after-sales support. Back-up System – The back-up unit of the system should be more than reliable. Besides, the back-up unit should also offer a solution for restoring the system within the shortest possible time. Reporting and Analysis Features – Besides standard reports, management team should be able to implement their own reporting and analysis tools and dump them into the system for after use. Vendor Credentials – Vendor’s market share, reputation, number of consultants, number of installations performed, support infrastructure, and demonstration of previous implementations are some of the critical factors showing the commitment of the vendor. Integration with other Software/Applications – The modules should integrate and provide seamless data flow among the other modules. Internet Integration – The software should support e-business, e-commerce, and EDI transactions either as built-in module or as an add-on module.
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You have now identified the unique needs of the organisation and the critical functional requirements necessary in a new enterprise solution. The next step is to define the process to be followed in evaluating and finally selecting the right ERP software package for the company. By defining the path to follow, you can avoid extended and potentially costly delays in the evaluation process. These steps should include: 1. Reviewing potential ERP software products that suite your organisation 2. Eliminating packages that do not meet the specific needs and requirements 3. Creating a manageable list of vendors for final review – typically three to five 4. Scheduling detailed product demonstrations 5. Checking your vendor’s references 6. Visiting a “like” customer site of the final short-listed vendors Activity 2 Consider that you own a small company with around 50 employees. Develop an ERP selection process to select an ERP solution for your company.

4.5 ERP Vendor Selection
The vendor selection process starts with understanding of Critical Success Factors (CSFs). CSFs are things that you must do well in order to be successful. You can use CSFs as a way to determine whether a requirement is really critical. 4.5.1 Vendor Selection Typically ERP vendors can be categorised into three groups:  Generic/Horizontal  Vertical  Custom Each group of vendors has its own advantages; some of these are specified in the table 4.3:

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Table 4.3: Vendor categories Type Generic/Horizontal Vertical Advantage Typically have more customers and more resellers that imply more access to support. Additional functionality for the specific industry and more knowledge of best practices for that specific industry. Start with a base product and build exactly what you want.

Custom

There is typically more risk associated with Vertical and Custom vendors. However, the benefits could outweigh the potential risks. To obtain lists of potential vendors, you can:  Contact consultants  Use internet searches  Contact industry associations  Look at trade journals for articles and advertisements  Contact colleagues  Attend trade shows Once you obtain the list of potential vendors that serve your requirement, perform the following process to select one from the list of potential vendors:  Find a good reseller – The reseller or Value Added Reseller (VAR)/ implementer can make a big difference. Often, companies selecting new systems spend a lot of time analysing the product and the vendor, but not enough time analysing the capabilities of the VAR. Issue a Request for Proposal (RFP) – An RFP is a good tool to communicate your needs uniformly to vendors and to create a short list of vendors. Attend demonstrations –- You should attend no more than 4 demonstrations, and limit the time to 2-3 hours. Ask each attendee to identify major strengths and weaknesses, rate how well they score for each topic on the agenda, as well as indicate its relative importance. Call references –- Make sure that you are talking to a company in the same or similar industry. Have a checklist of questions to ask so that you don’t forget anything.

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Know the Total Cost of Ownership (TCO) – You need to understand all the costs including license fees, implementation, support, hardware, networks, and communications before making a decision. There should be no surprises later. Carry out a Boardroom Pilot – You need to work with the system to understand it better. Use the boardroom pilot as a way for the vendor to understand your requirements and for you to better understand the system purchasing the software.

4.6 ERP Implementation
Implementing ERP solution is typically too complex for "in-house" skill, so it is advised to hire consultants who are professionally trained to implement these systems. Companies often seek the help of an ERP vendor or thirdparty consulting companies to implement. These firms typically provide three areas of professional services: consulting, customisation, and support. The time taken to implement an ERP system depends on the:  Size of the business  Number of modules in the ERP  Extent of customisation  Scope of change  Willingness of the customer to take ownership for the project Typically, 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. Unfortunately, data migration is the last activity before the production phase of an ERP implementation. Therefore, it receives minimal attention due to time constraints. The following are steps of a data migration strategy that can facilitate 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

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ERP implementation is considerably more difficult in organisations structured into nearly independent business units, each responsible for their own profit and loss. As each unit has different processes, business rules, data semantics, authorisation hierarchies, and decision centres it becomes all the more difficult. A disadvantage usually attributed to ERP is that business process redesign to fit the standardised ERP modules can lead to a loss of competitive advantage. ERP vendors usually design 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. Hence, firms that want to implement ERP systems are consequently forced to adapt their organisations to standardised processes and not adapting the ERP package to the existing processes. Neglecting to map current business processes before starting ERP implementation is a main reason for failure of ERP projects. It is, therefore, crucial that organisations perform a thorough business process analysis before selecting an ERP vendor and setting off on the implementation track. Self Assessment Questions 8. Name the vendor categories. 9. What are areas of services offered by ERP vendor or of third-party consulting companies? 10. ERP vendors design their systems based upon _________________ 11. What are the steps followed to select a vendor for a list of potential vendors? 12. Why should the cross-functional team evaluating the ERP solution includes the best and the brightest individuals from each functional area of the company?

4.7 Summary
In today’s increasingly competitive business environment, many companies are driven to seek various ways to increase their effectiveness and ability to have a competitive advantage. This situation drives many companies to invest in a new ERP system as a step toward this goal. Irrespective of whether the company is a multi-national, multi-million dollar organisation or a small company, the goal of system selection is to source a
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system that can provide functionality for all its business processes. The system should also get complete user acceptance; management approval and, most importantly, provide significant return on investment for the shareholders. It is not uncommon for companies to choose an ERP system that is not the best fit for the business and this normally leads to a more expensive implementation. Thus, it is understandable that "ERP Costs can run as high as two or three percent of revenues" 6 . A proper ERP System Selection Methodology delivers, within time and budget, an ERP system that is best fit for the business processes and the user in an enterprise. The implementation of an ERP system takes a significantly longer time and level of resource than the selection process. However, the extent of the implementation is profoundly influenced by the level of resource and objectivity within the selection. Companies that use a proper System Selection Methodology reap the benefit not only during the implementation phase but also during the life of the ERP System.

4.8 Terminal Questions
1. Difference between Open Source and Commercial ERP. 2. Explain the three criteria that are generally used when evaluating an ERP solution. 3. Briefly explain the key principles to a proper ERP system selection process. 4. Briefly explain the features and functionalities that you look for before selecting an ERP solution for your company. 5. Explain ERP implementation.

4.9 Answers
Answers to Self Assessment Questions 1. Open Source ERP software and Commercial ERP software 2. The reasons for companies to the shift from fragmented systems to ERP are:  It is easier and faster to train employees on a single ERP software package than on multiple systems
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C. Escalle, M. Cotteleer, and R. Austin, Enterprise Resource Planning (ERP), Report No 9-699-020, Harvard Business School, Cambridge, MA, USA, 1999

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It provides business executives with more transparency of their business operations since all business information is stored in a single place  It enables managers perform business functions and processes in a standard way. 3. SAP, Oracle Corporation, PeopleSoft, JD Edwards and Lawson 4. Information backbone 5. The selection criteria for ERP software are:  Product Functionality  Product Cost  Corporate Vision  Service and Support  Technology and System Architecture  Supplier Longevity 6. The company fails to focus on decision criteria such as functionality; future proofing; underlying infrastructure [network & database]; and e-commerce capability among others. 7. Modules 8. ERP vendors can be categorised into three groups: Generic/Horizontal, Vertical and Custom. 9. The ERP vendor or of third-party consulting companies services in consulting, customisation and support. 10. Standard business processes 11. The steps followed to select a vendor for a list of potential vendors are:  Find a good reseller  Issue a Request for Proposal (RFP)  Attend demonstrations  Call references  Know the Total Cost of Ownership (TCO)  Carry out a Boardroom Pilot 12. This will help individuals to fairly and accurately represent and communicate the needs of the functional unit regarding a new enterprise system. They also need to understand the importance of information sharing and integration, as well as embrace and champion positive change.

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Answers to Terminal Questions 1. Refer section 4.2 2. Refer section 4.3 3. Refer section 4.3.3 4. Refer section 4.4.1 5. Refer section 4.6

4.10 Case study
Escorts Limited's Agri Machinery Group (EL-AMG), manufactures agricultural machinery, and has four manufacturing plants and an R&D center in Faridabad. It manufactures three lines of tractors, imports and sells various other farm equipment, and consequently accounts for around two-third of Escort's revenues. Using an ERP thus plays a significant role in the business operations of this manufacturing company. EL-AMG had already deployed ERP systems from Avalon, but was plagued with a number of challenges. The company was unable to draw a future roadmap and upgrade its technology. The company could not leverage the benefits of the Internet, e-commerce and other Web initiatives since the Avalon ERP is not Web-enabled. And to make matters worse, the ERP vendor, Avalon had shut shop in India. EL-AMG also had to deal with the problems of software bugs, which could not be resolved due to lack of proper documentation. The company feels that the bugs appeared due to over-customisation of the product. The central systems department, which took charge of applications maintenance, spent most of its time tackling these bugs. The system was not very user-friendly. The users were not able to run queries on their own. The responsibility of running the large amounts of queries and reports was delegated to the central systems department. This created a huge backlog of work. This prompted EL-AMG to look for an alternative enterprise applications solution for its business. As a solution, the company deployed a range of tools from the Oracle 11i suite like Oracle Financials, Oracle Discrete Manufacturing, Oracle Purchasing, Oracle Order Management, Oracle Workflow and Alerts, and Financial Analyzer (OFA) keeping in mind the organisation's functional and technical requirements.
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A lot of time was spent in planning and deciding upon the right software. And the entire proceedings were conducted in an elaborate and phased manner to ensure efficiency. The company laid down three ground rules for vendors willing to participate. They were:    The vendor had to conduct a three-month Business Process Reengineering (BPR) exercise at EI-AMG. The ERP vendor would be the technology implementation partner and handle the sole responsibility of the project. The ERP systems had to integrate seamlessly with the company's legacy software systems.

An important highlight in the selection process was the involvement of end users. A team of around 70 members was created during evaluation. Almost 80 percent of the members belonged to functional areas. The rest were from the IT department. This was a key learning from the earlier ERP implementation, which was largely IT-driven. Each member of the team gave ratings to the vendor. The evaluation was finally done on the following criteria:        Functionality The ability to integrate third party software Type of feedback from existing user base (through visits to other company's ERP sites) Presence in India Localisation of modules Cost Time taken to implement.

A significant benefit of the new Oracle-based systems was the resolution of the problems with present in the earlier Avalon ERP. Due to the bugs, the company could not use its database (Oracle) for generating any meaningful MIS. So, the MIS for the top management was generated through Excel sheets instead of being generated directly through the system. With Oracle 11i, the MIS is generated through the system and standard reports are created.

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With the help of the new tools, the company was able to perform better workflow processes, easier generation of MIS reports, bug-free performance of systems, and timely closing of accounting cycles. Questions 1. What do you think were the drawbacks of Avalon ERP? 2. Explain the selection process adapted by EL-AMG to select the new ERP vendor/product

4.11 Glossary
Term Application layer Description In the Open Systems Interconnection (OSI) communications model, the application layer provides services for an application program. This layer also ensures there is effective communication with another application program in a network. It is where the user accesses the application. The client library is designed to be used by any applications. It is an application programming interface which unifies the communication between a computer application and databases. It is a smaller, less expensive version of mySAP Business Suite that offers customers full NetWeaver capabilities. It uses the client/server computing architecture. Here the database and application functions are separated. This is a typical feature in large production ERP deployments. It is an application program that is organised into three parts such as the workstation, the business logic and the database programming.

Client layer Database layer

MySAP ERP 3-tier model

References 1. http://www.exforsys.com/tutorials/erp/erp-application-tools.html 2. Issues in Global Business and Management Research: Proceedings of the 2008. By Mehran Nejati, Azadeh Shafaei, Mostafa Nejati 3. Enterprise Resource Planning by Alexis Leon 4. http://www.implement-erp.com/erp-vendor-selection.html

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Unit 5
Structure: 5.1 Introduction Objective 5.2 Finance 5.3 Sales and Distribution 5.4 Manufacturing and Production Planning Material and Capacity Planning Shop Floor Control Quality Management JIT/Repetitive Manufacturing Cost Management Engineering Data Management Engineering Change Control Configuration Management Serialisation / Lot Control Tooling 5.5 Human Resources 5.6 Plant Maintenance Preventive Maintenance Control Equipment Tracking Component Tracking Plant Maintenance Calibration Tracking Plant Maintenance Warranty Claims Tracking 5.7 Quality Management CAQ and CIQ Quality Management Module–Functions 5.8 Materials Management Pre-purchasing Activities Purchasing Vendor Evaluation Inventory Management Invoice Verification and Material Inspection 5.9 Summary 5.10 Terminal Questions 5.11 Answers
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5.12 5.13

Case Study Glossary

5.1 Introduction
This unit gives a brief description about the ERP Modules. All ERP packages contain many modules. The features and number of the modules vary with the ERP package. In this chapter, we will see some of the most common modules available in almost all packages.  Finance: It provides solution in handling the financial activities of an organisation. It helps to maintain all the financial records starting form the product manufactured cost to the employee’s financial details.  Manufacturing and Production Planning: It provides solution to production and the planning functions of an organisation to efficiently maintain share and utilise the data generated during the processes and assist the management.  Sales and Distribution: It provides solution in handling the most vital reports sales and distribution function produces and maintained very systematically and efficiently  Plant Maintenance: It provides solution for an organisation helping it to establish an effective communication link with in the various functions of the organisation. It acts as a network helps to maintain the information flow across the organisation’s functions.  Quality Management: It provides solution to maintain the required quality demanded by the customer, ISO, and the company standards. It helps the organisation to handle the test reports in a very efficient manner and helps to assist the management to identify the potential pit fall in quality.  Materials Management: It provides solution it handling the inventory of an organisation. It helps to track and maintain records of every item that comes in and goes out of the organisation. It also maintains a detailed record of the quantity, quality and dates of every item in the inventory and items borrowed and utilised by the other function of the organisation. This is by no means a comprehensive list. Some packages will have the subset of this, and some will have more modules and/or features. For detailed information, you will have to consult the product literature of the specific ERP system.
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There are many packages that are developed depending on the requirement of an organisation requirement. These packages help not only in maintaining the data but also effectively handle the data as per the requirement of the various needs that arise in the organisation. Since these packages are fool proof, and provide high security for data it is able to penetrate not only the large scale industries but also most of the small scale industries. Learning Objectives: After studying this chapter one will be able to learn  Evaluate different and popular modules of an ERP package like finance, manufacturing, plant maintenance, materials management and so on.  Describe subsystems or sub-modules of these models.  Describe how these modules function together.

5.2 Finance
The entire concept of Information Technology (IT) is based on the principle that provides the right information, at the right time, to the right people. Since, it plays a crucial role in an organisation’s decision making. Financial data provides much of this key information, but simply having the financial data is not enough. You need a set of processes and views of your data that provides up to date information, in exactly the form you need it to make that critical difference. This will help in formulating a crucial decision. From each area of your organisation accounting software needs access for information; for example, the software should be able to access information from R&D and market research through manufacturing, distribution and sales. Your financial solution must provide the top management with information that can be leveraged for strategic decisions, in order to achieve competitive advantage. You need to know that in today’s market environment, your financial decisions are based on today's data, not numbers from records closed a month ago, or even a week ago. And this today's data must represent every segment of your organisation's activities, whether your enterprise stretches across a room or around the globe. This is essential, to plan for the future growth of your enterprise, which is possible only if you know exactly where it is today. The ERP solutions financial application components work hand-inSikkim Manipal University Page No. 86

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hand to improve the result, no matter what financial goals are drawn in your organisation. This is true because, across all business areas and all geographic areas the financial functionality is tightly integrated. This rigid integration includes all the other different modules, from materials management, to human resources to logistics. The ERP system automatically links related areas, eliminating the need to repeat procedures. You enter your data only once. Within the ERP system, all areas work in concert, creating a new level of efficiency in handling your financial data. In many countries across the globe the finance modules of most ERP systems provide financial functionality and analysis support to thousands of businesses. These ERP systems include not only the components of financial application, but also Human Resources, Logistics, and Business Workflow. It also links this to the Internet and hundreds of business processes covered in these systems.

5.3 Sales and Distribution
In today's global business environment, new competition pushes organisation to achieve higher levels of service. At the same time, evolving technology compresses product life cycles and forces companies to adopt new technologies or risk losing market share. In this continuously changing environment, keeping a competitive edge means being able to anticipate and respond quickly to changing business conditions. Companies need an integrated and flexible ERP system. It should support all aspects of their business with high-tech functionality, to keep pace with these rapid changes. This new solution must upgrade effortlessly and interface easily with other applications. It must also possess the ability to incorporate existing systems, while extending its reach to the Internet and e-commerce. Companies are increasingly being forced to streamline business processes looking at today's business environment. Due to the characteristics like the growing competition, shrinking cycle times, and the accelerating pace of technological innovation in today’s market. Today, it is no longer enough to simply have the best product. So the organisations are focusing on core competencies and closer partnerships over the whole supply chain. For improving both profit margins and customer service, and to retain a competitive edge, the companies need to increase efficiency of its sales and
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distribution function. The sales and distribution modules of many ERP vendors, offer a comprehensive set of best of its kind components for both order and logistics management. Many of these systems are tightly integrated with the Distribution Requirements Planning (DRP) engine of the for ‘Just-in-Time' (JIT) deliveries. This integration enables to improve the efficiency of supply chain of single-site or multi-site organisations. It also upgrades the relationships in a company's internal supply chains. By developing a precise logistic planning and, using defined warehouse requirements, the system can generate replenishment orders for just-in-time deliveries. Depending on how your system is configured, the functions may be completely automated or may also require some manual processing. The data that results from these basic functions, for example, shipping dates, confirmed quantities, prices, and discounts is stored in the system where it can be displayed. However, in some cases it is changed manually during subsequent processing. For delivery and billing the sales and distribution module can very actively interact with the Material Management and Financial Accounting modules. Self Assessment Questions 1. The entire concept of ____________________is based on the premise that provides the right information, to the right people, at the right time. 2. In today’s market environment, your financial decisions are based on _____________ data 3. These orgnisation’s are focusing on core competencies and closer partnerships over the whole ____________. 4. Depending on how particular system is configured, these functions may be completely____________. Activity 1 Conduct a survey and collect the information on how companies utilise the ERP finance software for an effective maintenance and monitoring of their financial data.

5.4 Manufacturing and Production Planning
A good manufacturing system should provide multi-mode manufacturing applications that include full integration of resource management. These
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manufacturing applications must allow an easier exchange of information throughout the entire global enterprise, or at a single site within a company. Regardless of how big or small an enterprise is, these applications should provide a wealth of feature/function, broad scope of coverage, operational stability, and a platform-independent architecture. These capabilities empower an enterprise to achieve productivity gains, adopt forward-thinking technologies, and implement process re-engineering. As a company's internal processes become more sophisticated or as market forces change, these solutions must be capable of meeting the challenge. The manufacturing system must be integrated with the other modules of the package. A robust system of manufacturing planning business process and execution must satisfy a variety of business practices and production methods. These business practices and production methods place stringent demands on the manufacturer. Regardless of how manufacturers view their internal operations, to the customer, it boils down to quick response to customer demand in two fundamental ways. Manufacturers either make products to stock, prior to receipt of a customer order, or they make and ship the products upon receipt of a customer order. Manufacturers must accomplish this task quickly, efficiently, and cost effectively to remain profitable and competitive. These two fundamental ways of responding to customer demand are as shown in Figure 5.1.

Figure 5.1: Manufacturing Process Sikkim Manipal University Page No. 89

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Today, companies must be able to deliver customer-specific products with the lead-time of standard, off-the-shelf products. To help manage product and market shifts, the Manufacturing module provides the freedom to change manufacturing and planning methods, as and when they need a change. The Manufacturing modules of most ERP vendors, do not limit businesses to a single manufacturing method, such as make-to-stock or make-to-order (Figure 5.2). Instead, many manufacturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method or combination of methods for each product, at each stage throughout its life cycle. Control and execution can be performed at strategic, tactical, and operational levels within the business. These require effective planning to support contract commitments throughout the supply chain. They also gain control over intermediate range planning horizons and time fences, and execution over the short range of frozen scheduling, required by the shop floor. Whether a single-site implementation, several sites within one country, or hundreds covering the globe. The manufacturing system should provide the foundation for creating concurrent business processes across the supply chain and achieving Return on Assets (ROA) improvement.

Figure 5.2: Make-to-order and Make-to-stock Sikkim Manipal University Page No. 90

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Manufacturers must respond quickly and effectively to customer demands while agility is desirable. Since, agility without an effective enterprise manufacturing system results in speed without purpose. The very heart of an enterprise manufacturing system centres on its integrated planning, business process and execution capabilities. Traditional Closed Loop MRP concepts have long heralded the importance of effective planning, business process analysis, and timely execution. Strategically, effective-planning results in improved inventory turns, increased productivity, and improved return-on-assets. Tactically, effective business processes provide improved customer satisfaction, reduced time to market, and improved market share. Effective execution provides short cycle time, quality assurance, continuous improvement, and quick response to process variability. All three elements contribute to management's decision to install an enterprise-wide manufacturing management system. Some of the major subsystems of this module are:  Material and Capacity Planning  Shop Floor Control  Quality Management  JIT/Repetitive Manufacturing  Cost Management  Engineering Data Management  Engineering Change Control  Configuration Management  Serialisation / Lot Control  Tooling 5.4.1 Material and Capacity Planning Today's customer-focused business environment makes it more critical than ever for manufacturers to have an effective production plan for managing material and capacity. Customers want accurate shipment dates. Sometime to the hour-even when there are schedule and product changes. The Planning systems of ERP packages are designed to provide the responsiveness your company needs to meet those customer requirements. With these systems, the management can simulate alternative plans; gaining the information they need to determine which parts and assemblies to make, which to buy, and when to manufacture or purchase.
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For analysis, planners can create an unlimited number of simulations. The simulation process is shown in Figure 5.3. The company can customise planning processes because; input is described by system parameters that are easily changed. To accelerate communication across the supply chain and reduce effort, planned orders can be confirmed and converted automatically or manually into production and purchase orders. In addition, graphical reporting makes potential material and capacity problems easy to identify.

Figure 5.3: The Simulation Process

Meeting your business goals requires effective execution control and detailed production planning. The ERP packages give your company full control with flexible scheduling, and sophisticated shop floor functionality. They also offer extensive freedom for defining production processes in the most appropriate way. Depending on the requirements of the company's product and processes, production can be scheduled using work orders or repetitive build schedules. With the repetitive planning feature, companies can implement Just-in-Time techniques to streamline material issue and production reporting. Using the shop floor control facility, the company has
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the visibility, necessary for managing lead-times and for carefully controlling the amount of work in process, and the timely release of production orders. 5.4.2 Shop Floor Control With increasing emphasis being placed upon reducing manufacturing time, and reduce product’s time-to-market. The manufacturers have turned greater attention in evaluating their shop floor activities. Process reengineering efforts and the elimination of waste are greatly dependent upon powerful, user-friendly and flexible shop floor planning, and control over this system. Management needs accurate information, timely and the ability to manage the shop floor by exception. Cost information must be flexible as well. Factories are being realigned to reduce material travel time through a facility, adding burden upon the supporting systems due to realignment of places. Managers must often experiment with trial and error approach, the never-ending search for process improvement. Shop floor control systems must be flexible and adaptable to changing needs. A shop order can be reprinted at any time with user selection of whether to reallocate material. This reprinting gives a shop foreman flexibility to print a duplicate copy when an order is split between operators. This feature also gives the shop scheduler, the ability to reprint the shop packet and to reflect new material allocations that correct previous shortages. Every shop order can be maintained throughout its life. All systems provide a full function shop order maintenance capability. This allows the user to evaluate and adjust operation steps and components. Orders can be rescheduled either backward or forward. For example, an operation's start date can be overridden to reflect changed events and then, the order can be forward scheduled to reflect the impact upon future operations. 5.4.3 Quality Management With product quality under the microscope in all industries today, every company strives for superior quality in its products and services. All manufacturing modules track quality control activities across the enterprise, from intermediate producers to finished goods. These systems allow a wide variety of characteristics and parameters to be specified in test and inspection operations. They also maintain an extensive history of data, to improve product quality and identify recurring problems.

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Material Inspection subsystem offers a wide range of capabilities for process supervision and control. These capabilities are fully integrated with the other modules like purchasing, inventory management, and shop floor control functions, to ensure that the right quality control procedures are followed. It also includes various other functions like on-line maintenance of product specification by production method and customer, event driven sample requests, sample log-in, entry of test results, quality performance analysis, and equipment calibration support. Product quality metrics are collected and archived in a manner that offers full support for statistical process control techniques. Material Disposition is another feature available in many systems. It offers advanced disposition functions and material review that ensure the right quality control decisions are made. It must also provide an audit trail of decisions for compliance purposes. It include features like automated material review and approval, automated material disposition, sub-lot control, optional automatic second disposition, optional automatic repeat testing, grading, re-designation, and implementation of user-defined policies and procedures for authorisation and control. 5.4.4 JIT/Repetitive Manufacturing The past decade has seen a surge of interest in the adaptation of Just-inTime (JIT) manufacturing techniques. Many companies have embraced the concepts of waste elimination, product factory layout, manufacturing cells, and Kanban signalling. But, many implementations have struggled due to lack of software tools to effectively support the transition. Many systems, not only provide high volume repetitive manufacturing functionality, but also provide for the transition to rate-based production. This allows the use of repetitive scheduling, even for products that are not based on rate. This allows a production facility to, shift products from discrete manufacture into a JIT/ Repetitive focus. For example, when the demand pattern for an item begins to stabilise and shows a repeatable/predictable pattern, then a production schedule can be initiated even though the item may not be designated as rate-based. Over time, as the item's demand pattern grows, the item can be switched to full rate-based production scheduling. This capability for transition enables production facilities to adopt process reengineering, setup reduction programs, single minute exchange of die programs, employee empowerment work teams, and so on. JIT/Repetitive
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comes with strong analytic capabilities. A JIT work list compares the production plan to the capacity plan for rate-based items. This tool quickly identifies discrepancies based upon actual performance, so that production rates and/or daily output goals can be adjusted proactively and monitored on a timely basis. Reports covering employee efficiency and detailed cost by item are also provided together with lot tracing status for lot controlled items. 5.4.5 Cost Management With market competition increasing the pressure on margins, a business needs accurate and detailed manufacturing cost reporting for effective business management. ERP packages provide extensive cost information at several levels that helps businesses identify cost drivers and reduce product costs. They support multiple inventory valuation methods, so that you can choose the costing method that best reflects your company's business. You can choose standard, LIFO (Last in First Out), FIFO (First in First Out), moving average unit, or lot costing method and these costing methods can be assigned by item. To reduce administrative overhead, prevent input errors, and provide faster and more accurate information for planning, these systems provide detailed records of time and materials data on the shop floor. For example, many systems have features that let your company compare, estimates and production costs for different work centres, machines, employees, and order quantities while monitoring overtime, indirect hours, subcontracted jobs, and other costs. Moreover, to provide even more accurate production and inventory planning, these systems can track material usage for each job. And, if the activity is associated with a project, project information is automatically updated. Many vendors also support Activity Based Costing (ABC) with activity, visibility by cost object as well as costs for user-defined groupings, such as departments. There will be provisions that allow employees to report non production activities such as maintenance, holidays, and illnesses. Manufacturing system provides extensive information about production costs at several levels that gives you the visibility that you need to identify cost drivers and reduce product costs. Self Assessment Questions 5. __________ and _____________ can be performed at strategic, tactical, .and operational levels within the business. 6. _____________ reporting makes potential material and capacity problems easy to identify.
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7. _____________ techniques streamline material issue and production reporting. 8. JIT work list compares the production plan to the capacity plan for ________________ items. 5.4.6 Engineering Data Management The first step to shorter product development cycles is increased efficiency in design and development activities. Engineering Data Management is designed to help your organisation to trim data transfer time, reduce errors, and increase design productivity. The Engineering Data Management achieves this by providing an automated link, between engineering and production information. Most packages allow a smooth integration, with popular Computer Aided Design (CAD) packages, to simplify the exchange of information about drawings, items, Bill of Materials and routings. 5.4.7 Engineering Change Control By using Engineering Change Control, businesses can gain effective control over engineering change orders. Your company can define the authorisation steps for approving and implementing an Engineering Change Order. When these steps are completed, the system automatically implements the change in the production database. 5.4.8 Configuration Management The Configuration Management dramatically reduces order cycle time. This is achieved by eliminating the lengthy engineering review, typically associated with determining feasibility and the costs associated with the configured end item. This reduction is achieved by, creating a flexible userdefined knowledge base that is accessed by a powerful analytic engine. The knowledge base contains the sales and engineering expertise of the organisation. Product attributes and variables, such as height, width, or cubic pounds of pressure, are entered in the knowledge base in the form of an option matrix. The knowledge in the option matrix structure can also be augmented by user-defined calculations, such as Height x Width = Area and by Boolean rules. Boolean rules allow definition of complex product relationships. For example, 'If refrigeration and insulation are chosen under trailer options and the total area is greater than 120 feet, then double axle must be chosen under axle options'. The analytic engine interprets the knowledge base, in conjunction with user selections, to ensure that the
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customer-specified product can be built and sold. As a result, the order entry process is a dynamic conversation between the order taker and the customer, who culminates with a fully priced product on the sales order. And also the related manufacturing detail necessary to move the order directly into production. The process starts with an attribute master containing configuration related questions and answers. Attributes are the building blocks of a configuration structure. The configuration structure categorises and sequences attributes to create a flow of questions and possible answers, during the entry of sales orders for configured products. 5.4.9 Serialisation/Lot Control Many systems will provide the facility for the designation of raw material lots and the serialisation of component parts made from those lots. This serialisation is applicable to commercial aviation, defence industry suppliers, and capital equipment manufacturers, who provide service over the life of their products on an individual unit by unit basis. Examples include heavy machinery, off road equipment, and highway tractor/trailers. Manufacturers, who use lot control often, must allocate production prior to its completion. The lot control system provides for the pre-allocation of lot numbers. This feature is available throughout the product offering and includes MRP, shop floor control, order processing, and JIT. Many systems allow production orders to be pre-assigned with lot numbers for the parent item. When the shop order is released, the lot master record will be created and allocations to higher level parents will be permitted. The manual pre-allocation of pre assigned lots is possible, for both customer orders and shop orders with visibility to planned and actual production, as well as existing inventory. 5.4.10 Tooling For many manufacturers, ensuring that proper tooling is available is just a critical to production schedules, as the availability of material. The ERP system extends capacity and inventory management to include these valuable resources. These systems help to ensure that tools and materials are together at scheduled operations, by storing tools in inventory, planning, and allocating the required tools as part of the production order. They always provide visibility of tool use. Calculate the remaining useful life of a tool and automatically route tools for maintenance, based on usage.
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Self Assessment Questions 9. The first step to shorter product development cycles is increased efficiency in _____________ and ____________ activities. 10. ______________ allow definition of complex product relationships. 11. The lot control system provides for the ____________ of lot numbers. Activity 2: Visit a manufacturing plant of an automobile industry and study how ERP is assisting the manufacturing process at every step of the process, and assess the need of individual sub system for the entire manufacturing process.

5.5 Human Resources
Human Resources (HR) management is an essential factor of any successful business. The competitive atmosphere in the next millennium, with its economic and technological challenges, will affect the HR department in the same way as all the other areas of your enterprise. Therefore HR managers must continuously review and optimise their business processes. The HR modules of most ERP systems have a set of rich features, and will integrate seamlessly with the other modules and are thus, invaluable aids in improving productivity. They provide company wide solutions for HR departments and make it possible for other departments to access specific employee data. A HR management system has to be adaptable to company-specific requirements, and must constantly grow with increasing HR requirements. It must cover the entire functional requirement in business practice. It should be flexible enough to allow you to optimise your business processes by tailoring the ERP solution to suit your organisation's needs. Today, many businesses cross boundaries. The system should meet the organisation's international needs with, country-specific versions of the HR components. Apart from languages, currencies and legal requirements, accounting systems often vary according to needs from one country to another. This flexible structure enables quick and easy customisation of the system to suit your requirements. This feature’s adaptability and flexibility to individual needs has made it a very important and has great demand across organisation of the world.
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5.6 Plant Maintenance
The achievement of outstanding performance demands delivery of quality products expeditiously and economically. Organisations simply cannot achieve excellence with unreliable equipment. The approach towards maintenance management has changed as a result of quick response manufacturing. Just-in-Time (JIT) reduction of work in process inventory and the elimination of wasteful manufacturing practices. Before breakdown in machine and idle time for repair was once an accepted practice. Times have changed. Today, when there is a break down in a machine, it can shut down the production line and the customer's entire plant. The Preventive Maintenance (PM) module provides an integrated solution for supporting the operational needs of an enterprise-wide system. The Plant Maintenance module includes an entire family of product; covering all aspects of plant/equipment maintenance. It becomes vital to the achievement of process improvement. The major subsystems of a Plant Maintenance module are:  Preventive Maintenance Control  Equipment Tracking  Component Tracking  Plant Maintenance Calibration Tracking  Plant Maintenance Warranty Claims Tracking 5.6.1 Preventive Maintenance Control Preventive Maintenance Control (PMC) provides planning, scheduling, and control of facilities and equipment. Equipment lubrication, component replacement and safety inspection can be planned, scheduled, and monitored. Maintenance tasks can be tracked for each piece of equipment or machine, by two user-defined modes, as well as calendar day frequency. These modes include tracking by hours of operation, units of production produced, gallons of fuel consumed, or the number of days in operation since the last service interval. Preventive Maintenance Control enables organisations to lower repair costs by avoiding downtime, machine breakage, and process variability. Companies achieve higher machine utilisation and improved machine reliability and tolerance control, along with higher production yields.

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5.6.2 Equipment Tracking Equipments are an asset that needs to be protected and monitored. In many situations, costs of equipment maintenance constitute the single largest controllable expenditure of an organisation. All facets of plant location history and utilisation history are described and tracked. This history includes acquisition of disposition information and associations between different pieces of equipment to pinpoint operational dependencies. Running totals for operation units to date (miles, hours, days, units of production, and so on.) are also provided. Each piece of equipment is defined by, a serial number and model. User-defined data sheets are developed, which allow for the grouping of user data into formats that can be linked to equipment records. All of this information can be used to create equipment stipulation, which provide detailed information for technical specialists working in equipment operations, maintenance, and transportation control. 5.6.3 Component Tracking Components are subsets of larger equipment and deserve the same amount of cost controlling scrutiny. Component Tracking helps equipment managers to; identify components with chronic repair problems. They can determine if either repair or replacement must be covered by warranty. Planning component replacements, rather than waiting for component failures to occur, reduces unscheduled equipment downtime. Component tracking includes repair/exchange history and component service life. 5.6.4 Plant Maintenance Calibration Tracking Plant Maintenance Calibration Tracking (PMCT) allows organisations to leverage their investment in the Plant Maintenance module by, providing for the tracking of equipment calibration in support of ISO 9000 requirements. 5.6.5 Plant Maintenance Warranty Claims Tracking Plant Maintenance Warranty Claims Tracking (PMWCT) is an administrative system designed to, provide control of all items covered by manufacturer and vendor warranties. It helps plant management to recover all of the warranty; reimbursements to which they are entitled but have not been able to recover in the past. Features include the ability to establish the length and type of warranty. For example, elapsed day, months, operating units,, or mileage stipulation. A complete history review is performed for each item

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covered by the warranty and complete information regarding the warranty service provider is generated.

5.7 Quality Management
The ISO 9000 series of standards defines the elements of a quality management system and the functions of quality management. The functions in the Quality Management (QM) module support the essential elements of such a system. The other integrated modules in the QM system complement this functionality. The ISO standards require that QM systems must be an essential part in all processes within an organisation. According to the quality looping method, it is not only during the production or manufacturing (implementation phase) but also during production planning and product development (planning phase) quality control must be carried out. Quality must be monitored starting from procurement of materials to sale and distribution of the finished product, and it must be monitored in the entire usage phases of an organisation. In the areas of production, quality assurance is no longer viewed in terms of inspections that are the elimination of defects alone. Instead, the production process itself becomes the focus of attention. 5.7.1 CAQ and CIQ Just as the requirements for quality management systems have changed a result of the ISO 9000 standards, the term Computer-Aided Quality Management (CAQ) must also be redefined. Computer-Integrated Quality Management (CIQ) is a more appropriate term because; an isolated CAQ system cannot carry out the comprehensive tasks of a quality management system. Takings this into consideration, ERP system integrates the quality management functions into the affected applications themselves. For example, instead of making separate CAQ system holding responsibility of various functions likes procurement of materials, warehouse management, production, and sales/distribution, they all can be integrated into a single CAQ system As a result of this, the processes described in the quality manual can be implemented and automated in the electronic data processing (EDP) system. The representation of the elements of a quality management system within the ERP system is not only the responsibility of the Quality Management
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module. Instead, the ERP system must be considered as a whole, in which all integrated modules contribute their part. Within the framework of the system, for example, the Human Resources module handles personnelrelated matters, the Controlling module handles the management of qualityrelated costs, and the Plant Maintenance module handles the monitoring of test equipment. As a part of the Logistics application, the Quality Management (QM) module handles the traditional tasks of quality planning, quality inspection, and quality control. For example, it supports quality management in procurement, product verification, quality documentation, and in the processing of problems. The Quality Management (QM) module's internal functions do not directly interact with the data or processes of other modules. 5.7.2 Quality Management Module – Functions  The Quality Management module fulfils the following functions:  Quality Planning: Its main objective is to provide a insight on the effectiveness of the process planning at every stage of the process It involves the various process responsibilities like Management of basic data for quality planning, Material specifications, Inspection planning and so on. For example, as an order is placed from the marketing department to the planning, it decides the way and the time schedule for the process to start and obtain the final product. To execute the schedule planned the planning department has to make sure that it will not interfere with the other production activity in progress. It should make sure all the required items necessary for production is available and other very essential things that might hurt the production has to be addressed. For this to happen, information is very essential. This is were Quality planning steps in and help planning to execute its decision it to result  Quality Inspection: Its main objective is to continuously monitor the process and record every activity for verification. The verification can be daily basis, weekly, monthly or yearly basis depending up on the process requirement and management decision. It involves various activities like It can be achieved using trigger inspections, Inspection processing with inspection plan selection and sample calculation, Print shop papers for sampling and inspection, Record results and defects,
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Make the usage decision and trigger follow-up actions. For example, during the production of a television it will be necessary to check each and every circuit board and the test results has to be maintained, not only before it is assembled in side but also after it is assembled in side the setup. Every test result along with failure result has to be recorded for future inspection of the default items. Quality Control: Its main objective is to look for the desired quality in the finished product. The product has to meet the certain defined quality requirements. This has to be checked before the product is despatched out to the customer. This can be achieved using Quality Control use using various tools and procedure like dynamic sample determination on the basis of the quality level history, Application of statistical process control techniques using quality control charts, Quality scores for inspection lots, Quality notifications for processing internal or external problems and initiating corrective action to correct the problems, Inspection lot processing and problem processing, Quality Management Information System for inspections and inspection results and quality notifications. For example, once a product reaches the quality control department, a series of tests have to be conducted to ensure that the product is meeting the required or demanded quality standards. Every test that is carried out has to be recorded, and even report on failure has to be kept for analysing the cause of the failure and address the issue. This is possible only if the information is tracked and monitored carefully. To achieve this Quality Control proves very effective.

Self Assessment Questions 12. A Human Resource management system has to be adaptable to ____________________ requirements 13. Just-in-Time helps in reduction of work in process inventory and the elimination of wasteful ___________________ practices. 14. Preventive Maintenance Control enables organisations to lower repair costs by avoiding _____________. 15. _______________ are an asset that needs to be monitored and protected. 16. The __________ standards require that Quality Management systems penetrate all processes within an organisation

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17. The Quality Management (QM) module's ________________ functions do not directly interact with the data or processes of other modules. Activity 3 Visit an electronics appliances manufacturing company using an ERP system for tracking its components chain. Discuss the need for a flexible ERP system and how are they able to benefit form the current system in tracking each and every component required for production.

5.8 Materials Management
The Materials Management module optimises all purchasing processes with workflow-driven processing functions. It also enables automated supplier evaluation, lowers procurement and warehousing costs with accurate inventory and warehouse management, and integrates invoice verification. The main modules of the Materials Management module are:  Pre-purchasing Activities  Purchasing  Vendor Evaluation  Inventory Management  Invoice Verification and Material Inspection 5.8.1 Pre-purchasing Activities This system supports the entire cycle of bid invitation, award of contra, and acceptance of services. The pre-purchasing activities comprises of maintaining a service master database, in which the descriptions of all services that are to be procured can be stored. The system also keeps a separate set of service stipulation. This can be formed for every concrete procurement project or proposed procurement in the purchasing document. Sets of service stipulation may include both, items with services and items with materials. When creating such stipulation, the user does not have to list individual services manually. Instead, the data is simply copied from the master data. In this technique the data only has to be entered once. The manual entry effort is reduced to a minimum. There are two ways of entering service stipulation planned and unplanned. Planned service stipulations means that service whose precise nature and intended scope is already known, at the beginning of a procurement project. At the time services are requested, they are either entered with the aid of a
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service master record, or set out in service stipulation as short or long texts. Prices and quantities are stipulated in both cases. A procurement project may constitute or include a number of individual services, which you initially cannot or do not wish to specify in detail (for example, the construction of an office building). Such initial undefined services stipulations are termed 'unplanned service stipulation' and thus, have no descriptions. They are entered in the form of money value limits. Service stipulation may be specified in terms of an upper limit. This allows you to exercise a degree of cost control in such situations. You can set a value limit at the uppermost level, for example, Rs 5 crores for the construction of the office building. In addition, you can set limits for individual contracts within the project, for example, Rs 100,000 for masonry works and Rs 150,000 rupees for electrical installations and so on. The system checks adherence to both these sub-limits and the overall limit. When the services have been performed, they are recorded in entry sheets and then accepted.

Figure 5.4: The pre-purchasing activities module

The accepted service entry sheet constitutes the basis for subsequent invoice verification in the case of services. The pre-purchasing activities are shown in Figure 5.4 above.
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5.8.2 Purchasing Purchasing is a very important component of the Materials Management module. The Materials Management module is fully integrated with other modules in the system. It supports all phases of materials management like planning, control, purchasing/receiving goods inventory management, and invoice verification is also performed. Good communication between all players in the procurement process is necessary, for purchasing to function smoothly. Purchasing also communicates with other modules in the system, to ensure a constant flow of information. For example, it works along with the following modules:  Cost Accounting System Orders (CASO) for materials and services consumed directly. As CASO can be assigned to a cost centre directly, it illustrates the interface to the cost accounting system.  Financial Accounting Purchasing and Accounting (FAPA) both maintain information on vendors. In vendor master record, information on each vendor is stored that contains both accounting and purchasing information. The vendor master record represents the vendor account in financial accounting. Through Purchase Order account assignment, Purchasing can also specify which General Ledger accounts are to be changed in the financial accounting system.  Sales and Distribution (SD) with in the framework of material requirements planning (MRP). However, customer requirements from Sales can be passed on to Purchasing. Besides, when creating a requisition, you can assign it to a sales order.  Purchasing system executes tasks like procurement of materials and services, determination of possible sources of supply for a requirement identified by the materials planning and control system or arising directly within a user department, monitoring of deliveries and payments to vendors, and so on. 5.8.3 Vendor Evaluation The Vendor Evaluation System supports the optimisation of the processes of procurement in the case of both materials and services. In the case of procurement of materials, Sources of supply can be selected with the help of this system. It also facilitates the continuous monitoring of existing supply relationships. It provides accurate information on prices, and terms of payment and delivery. Evaluation of vendors can improve your enterprise's
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competitiveness. You can quickly determine and resolve any problems regarding procurement that may arise on the basis of detailed information and in collaboration with the relevant vendors. In the case of procurement of services, you can check the consistency of the vendors from which you procure services on a plant by plant basis. You can find out whether the vendors deliver the services within the specified timeframes and appraise the quality of the work carried out. Most of the vendor evaluation systems offer you a point-based evaluation system, based on certain selection criteria. Most systems have their own predefined set of criteria, but will allow the user-defined criteria also. Using these criteria, the performance of the vendors is measured and points are given. You can determine and compare the performance of the vendors by reference to their overall scores. The main criteria that are usually used are price, quality, delivery, service and support, replacement of returns, leadtimes, and so on. The Vendor Evaluation System assures that evaluation of vendors is objective, since all vendors are assessed according to uniform criteria and the scores are computed automatically. 5.8.4 Inventory Management Inventory Management (IM) system allows you to manage your stocks on a quantity and value basis, plan, enter and check any goods movements and carry out physical inventory. In IM system, the physical stocks show all transactions resulting in a change in stock and thus, in updated inventory levels. The user can easily get an overview of the current stocks of any given material. For each material, it is not only the warehouse stocks are shown, but also the stocks ordered, not yet delivered, reserved for production or for a customer, and the stocks in quality inspection can be monitored. If a further subdivision in the form of lots is required for a material, one batch per lot is possible. These batches are then managed individually in the stock. Special stocks from the customer or from the vendor (for example, consignment stocks) are managed separately from the company's own stock. Both the value and quality are updated automatically when entering a goods movement. Movement of goods include both 'external' movements, that is, goods receipts from external procurement, goods issues for sales orders. And 'internal' movements, that is, goods receipts from production,
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withdrawals of material for internal purposes, stock transfers and transfer postings. For movement of each goods, a document is created which is used by the system to update quantities and values and serves as a proof of goods movements. Receipt/issue slips of goods are printed, to facilitate physical movements and the monitoring of the individual stocks in the warehouse. The modification in the physical stocks and the book inventories can be carried out automatically. Most Inventory Management (IM) systems support inventory methods like Periodic inventory, Continuous inventory, Inventory sampling, and Cycle counting. In a Periodic inventory, all the company’s stocks are physically counted on the balance sheet key date. In this case, every material must be counted. During counting, the entire warehouse is usually blocked for material movements. With the continuous inventory procedure, during the entire fiscal year, the system continuously counts the stock. In this case, it is important to ensure that every material is physically counted, at least once during the year. In inventory sampling, stocks of the company are randomly selected and counted manually on the balance sheet key date. If the variances between the result of the count and the book inventory balance are small enough, it is presumed that the book inventory balances for the other stocks are correct. Cycle counting is a branch of physical inventory where, inventory is counted at regular intervals within a fiscal year. These cycles depend on the cycle counting indicator set for the materials. For example, cycle counting allows fast-moving items to be counted more frequently than slow moving items. 5.8.5 Invoice Verification and Material Inspection The Invoice Verification (IV) component is part of the Materials Management (MM) system. It establishes link between the MM component and the Financial Accounting, Controlling, and Asset Accounting components. IV in MM serves the following purposes:  It completes the process of materials procurement, which starts with the purchase requisition, continues with purchasing and goods receipt and ends with the invoice receipt  It allows invoices that do not generated during materials procurement to be processed. For example, services, expenses, course costs, and so on.
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It permits credit memos to be processed, either as invoice cancellations or discounts.

Each invoice contains various items of information. You must enter this information into the system, to post an invoice. If it refers to a transaction that exists, then certain items of information will already be available in the system. The system presents this information as default data so that, you only need to compare it and, if necessary, correct any possible variances. Consider an invoice refers to a purchase order, for example, you only need to enter the number of the purchase order. The system selects the correct transaction and proposes data from the purchase order, including the vendor, material, quantity ordered, terms of delivery, and terms of payment. You can, of course, rewrite this default data if there are variances. You can display the history of the purchase order, for example, which quantities have been delivered and how much has already been invoiced. If there are variances between the goods receipt or purchase order and the invoice, the system will issue a warning on the screen. If the variances are within the preset acceptance limits, the system will allow the invoice to be posted but will automatically block it for payment. The invoice must then be released in a separate step. If the variances are not within the acceptance limit, the system will not allow the invoice to be posted. When you enter an invoice, the system also finds the relevant account. Automatic postings for price variances, cash discount clearing and sales tax are also generated and the posting records displayed. If a balance is generated, the user is required to make corrections, as an invoice can only be posted if the balance equals zero. Once the invoice is posted, some data, such as the average price of the material ordered and the purchase order history is updated in the system. The invoice posting completes Invoice Verification. The data required for the invoice to be paid is now contained in the system. The department of accounts can retrieve the data and make the appropriate payments with the aid of the Financial Accounting component. Self Assessment Questions 18. The _____________ activities comprises of maintaining a service master database 19. Communication between all players in the ________________ process is necessary for purchasing to function smoothly.
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20. Most of the vendor evaluation systems offer you a _________ evaluation system. 21. When you enter an invoice, the system also finds the ______________. Activity 4 Check out the planning, procedure and technique used in a company for purchasing activities. Also study the requirement of an ERP system in making these activities more efficient and fool proof.

5.9 Summary
ERP software is made up of many software modules. Each ERP software module mimics, a major functional area of an organisation. General ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organisations often selectively implement the ERP modules that are both economically and technically feasible. ERP Production Planning Module From Manufacturing Requirements Planning (MRP) II into ERP evolution process, vendors have developed more robust software for production planning. And consulting firms have collected and stored vast knowledge on implementing production planning module. It also optimises the utilisation of manufacturing capacity, parts, components and material resources using historical production data, and sales forecasting. ERP Purchasing Module Purchase module contours procurement of required raw materials. It automates the processes of negotiating price, awarding purchase order to the supplier, identifying potential suppliers, and billing processes. It is closely integrated with the inventory control and production planning modules. It is often integrated with Supply Chain Management (SCM) software. ERP Inventory Control Module Inventory module helps processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control comprises of identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory
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balances, and reporting inventory status. Integration of inventory control module with finance, sales, and purchase modules allows ERP systems to generate vigilant executive level reports. ERP Sales Module Revenues from sales are live blood for commercial organisations. Sales module comprises of functions like order placement, order scheduling, shipping, and invoicing. Sales module is closely integrated with organisations' ecommerce websites. Many vendors of ERP offer online storefront as part of the sales module. ERP Market in Module Marketing module of ERP supports lead generation, direct mailing campaign and more. The market needs has to be understood and addressed very quickly and effectively. If a company fails to understand this and react it has to loose the profit that it could have made. Market in module must ensure that it will assist the management in addressing the trends the market show case and update the management for quick decision making. ERP Financial Module Both for-profit organisations and non-profit organisations benefit from the implementation of ERP financial module. The core of many ERP software systems is the financial module. It can collect financial data from various departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements. ERP HR Module Human Resources (HR) is another widely implemented ERP module. HR module streamlines human resources and human capitals management. HR modules regularly maintain, a complete employee database including contact information, salary details, attendance, performance evaluation, and promotion of all employees. Advanced Human Resources module is integrated with knowledge management systems to optimally utilise the expertise of all employees.

5.10 Terminal Questions
1. Explain the major functions of the Manufacturing and Production Planning module. 2. Write a note on the need for MRP II in MRP module.
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3. How does the plant maintenance module help in achieving competitiveness? 4. Write a note of Quality Management. 5. What are the major functions of the materials management module? 6. How much essential is the vendor evaluation process in meeting the quality requirements of the organisation?

5.11 Answers
Self Assessment Questions 1. Information Technology (IT) 2. Today's 3. Supply chain 4. Automated. 5. Control, execution 6. Graphical 7. Just-in-Time 8. Rate-based 9. Design, development 10. Boolean rules 11. Pre-allocation 12. Company-specific 13. Manufacturing 14. Downtime 15. Equipments 16. ISO 17. Internal 18. Pre-purchasing 19. Procurement 20. Point-based 21. Relevant account Terminal Questions 1. Refer to 5.4 2. Refer to 5.4 3. Refer to 5.6 4. Refer to 5.7 5. Refer to 5.8 6. Refer to 5.8
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5.12 Case Study
In 2002 a major chemical company of India had completed a year of supply chain reengineering and decided upon a number of best practices that must be implemented. During the process of reengineering, the company decided to create a shared service function at their headquarters, which rationalised the purchasing and accounts functions of seven separate businesses already located at the site. The company estimated to produce a cost saving of 10%, or Rs 20 million, of their purchasing budget each year with the creation of the shared services function. The problem that they faced was overwhelming. With the same company, seven companies had overlapping vendors, items, numerous contracts with different pricing structures, and a variety of payment terms. The company organised a team to develop and implement a plan to develop the shared services function. At the same site, all the seven business functions were located, but were distinctly separate. Their own technology strategies were implemented for each business functions starting form; systems, hardware, and vendors. If the shared services function was to use the new ERP system of the company, there had to be a data cleansing and conversion process devised for each of the seven business functions. The software developing team reviewed the data from the businesses, it was decided that a separate teams would be required to complete the following:  Rationalise vendors across businesses.  Update or delete existing data.  Negotiate new contracts and pricing with existing vendors. The team found that, there was a major overlap of items that were purchased across businesses and that the company was not using the purchasing power, it had to gain the best prices from vendors. As further enquiries were made into common items that were purchased across the company, it was found that greater savings could be achieved by limiting the number of vendors for specific groups of items, such as lab supplies and computer equipment. The seven businesses contracted nine lab supply companies, offering a larger volume of items to be purchased by only one or two lab supply vendors, the savings could be as much as 60%.
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Once this level of saving reached the ears of top management, more focus was put on rationalising vendors. In a number of cases, single sourcing was found to be appropriate when, one vendor offered even more significant levels of saving. The shared services function, operated on their ERP system fifteen months after the start of the task force. The combined seven businesses had minimised their total number of vendors from 34,000 to around 900. The number of items they purchased was reduced to 15,000 from 110,000. A team was allotted to monitor and approve new items and new vendors as they were required. Although the company estimated they would save 10% in the first and subsequent years, the estimate was raised to 23% for the first year and 15% for subsequent years based on the results of the task force. The company came to conclusions that after making such large savings, they would continue implementing best practices in the purchasing function. They had a plan for adopting procurement cards and introducing evaluated receipt settlement, where they would pay vendors based on goods received, to gain vendor discounts for prompt payment. Questions: 1. Explain how the company prepared it self for the implementation of the new system. 2. How was the software development team assisted by the company management? 3. Explain why the implementation process was a success.

5.13 Glossary
Term Premise Leverage Description A proposition that forms the basis of an argument or from which a conclusion is drawn in an organisation. Power over other people, especially something that gives an advantage but is not referred to openly in an organisation. To obtain something, especially by effort or to acquire some thing that is required for an objective. Generally used in industries for obtaining spares or components for manufacturing. Watchful and alert, especially to guard against danger, Page No. 114

Procurement

Vigilant

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difficulties, or errors that occur during the process in an organisation or an industry. Stipulation A detailed description, especially one providing information needed to make, build, or produce something

Reference 1. Production Planning by Mixed Integer Programming by Wolsey and Laurence. 2. Concepts in Enterprise Resource Planning by Monk, E. and Wagner, B. 3. World-class Warehousing and Material Handling by Frazelle, E.

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Unit 6

ERP – A Manufacturing Perspective

Structure 6.1 Introduction Objectives 6.2 Enterprise Resource Planning (ERP) 6.3 Computer Aid Design/Computer Aid Manufacturing (CAD/CAM) 6.4 Materials Requirement Planning (MRP) Master Production Schedule (MPS) Bill of Material (BOM) Inventory Records Closed Loop MRP Manufacturing Resource Planning (MRP-II) 6.5 Distribution Requirements Planning (DRP) 6.6 Just-in-Time(JIT) & KANBAN Kanban Benefits of JIT Potential Pitfalls of JIT 6.7 Product Data Management (PDM) Data Management Process Management Process Management Process Management Benefits of PDM 6.8 Manufacturing Operations Make-to-Order (MTO) and Make-to-Stock (MTS) Assemble-to-Order (ATO) Engineer-to-Order (ETO) Configure-to-Order (CTO) 6.9 Summary 6.10 Terminal Questions 6.11 Answers 6.12 Case Study 6.13 Glossary

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6.1 Introduction
By now you must be familiar with the ERP Modules. This unit familiarises you with the various methods and techniques used in the industry. This unit gives an overview of ERP in manufacturing perspective. The manufacturing segment accounts for nearly 25% of the total Information Technology (IT) spending in the country, which makes it the largest segment. The process and discrete manufacturing segments spent a total of Rs 2,605 crore on IT in the year 1997-98. Discrete manufacturing accounted for nearly 11.3% of the total segment spending and the rest came in from process manufacturing. The process manufacturing sector traditionally spends more on Information Technology (IT). This is because the larger population of companies is engaged in this activity as well as their scale of operations is also increasing. In general, the business and IT priorities of both process and discrete manufacturing are the same. It consists of controlling inventory, production costs, marketing costs, and improving supplier and delivery channel relationships on the business front. It also helps in improving IT infrastructure, automating internal and external processes, and better decision-making. At the same time, there are differences in the emphasis given to the various aspects of IT usage. In this analysis, we take the segments together when discussing the areas where they exhibit similarity. However, when areas show dissimilarities between each other we discuss them separately. IT investments by large manufacturing organisations were on the decline in 1998. Since, many industries like automobiles, steel, cement, and others were facing a downturn in their business. Overall, many of the smaller manufacturing organisations, which have been traditionally poor in IT usage, turned towards IT. Traditional large buyers like TISCO, Ashok Leyland, and, Bajaj Auto to name a few did not have any major IT project underway. Public sector steel companies slowed down the IT investments. However, their counterparts in the private sector spent on ERP and plant automation. In the industry of Pharmaceuticals, the WTO agreement on patents has forced companies to get patents on their formulations. A very data-intensive area the clinical trials, are fast emerging as an application in the pharmaceutical industry.
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Some of major investment areas for manufacturing companies are:  Infrastructure like systems, network components, messaging systems, and so on.  Software design and application development.  Software packages like word processors, spreadsheets, databases, and so on.  Enterprise Resource Planning (ERP) packages.  Packaged application implementation services.  Consulting services.  External connectivity – connecting to dealers and suppliers (supply chain).  Data warehousing.  E-commerce. Learning Objectives: After studying this unit you will be able to:  Analyse and know the various techniques and technologies that are used in the manufacturing industry.  Explain how ERP and other concepts like MRP, MRP-II, CAD/CAM, PDM, can improve the competitiveness of a company.  Assess the different types of manufacturing operations like MTS, MTO, ETO, ATO, and CTO, and so on.

6.2 Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) is the slogan in the manufacturing industry and more and more companies are turning to ERP solutions. With almost all the international players present in the country, the stage is set for the launch of the Indian manufacturing sector into the age of integrated applications. ERP is a high impact area because it leads to a bottom-up change in the organisation. That is, it is by no means an incremental technology. But many companies do not even realise the full implications of using an ERP. They are nevertheless enchanted by the concept of integrated applications. But a mad rush into ERP, without the required business process discipline, will lead to more flops than hits.

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The move to ERP is a high-investment proposition. It comprises of investments in hardware, connectivity, and implementation services, apart from a lot of invisible costs involved in process change, change management, and training. There are more than 130 ERP implementations underway in the country presently. SAP is one of the largest ERP vendors. In the country it has around 75 customers, out of which 52 are in the manufacturing segment, with dominance by the discrete manufacturing companies. Most of these are first-generation ERP, which address the area of integration of financials with logistics. These companies are at the first leg of integrating financials with logistics using a packaged application. The next phase taken up is either sales and distribution or production, depending upon the priority of the company. Demand-driven industries like automotive sector, consumer goods, processed foods and the like would take up sales and distribution. There are presently around 40 companies, which are in the process of implementing solutions in this area. Possibly, an equal number of companies are looking actively at production as the next application to be integrated. But, recent studies show that companies are willing to take up both the phases together right in the beginning. This is due to the fact that there is a lower perceived risk in implementation. Since, code-less implementation is becoming the order of the day, leading to better implementation maturity. Another reason is that there are enough process models available now in the country itself. Taken together, the total time taken for rollout is shortened. The process industry concentrates on integrating business applications with the plant floor. The major areas under consideration are finance, materials, and sales and distribution. Since production in the case of process industry is plant-oriented, it falls within the realm of distributed digital control systems. The most vital area after this is the maintenance function. Selection of the right ERP package is based solely on the business needs and the fit that the product offers. For example, L&T, which uses two ERP solutions from SAP and Baan for two of its divisions. The Unit Equipment Division of L&T uses ERP solution from Baan with the finance, manufacturing, distribution, shop floor scheduling, and budgeting modules. This helps the company gain competitiveness in global deals.
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ERP, currently, is restricted to being a transaction-oriented operations system in the country. As of now, there are few examples of strategic information systems built around an ERP solution in the country. There are quite a few areas that need ERP refinement are being actively looked at by some of the progressive companies. Called as extended ERP, it seeks to encompass the suppliers and delivery channel partners into the organisation's enterprise information system. Constraint-based planning tools for supply-chain planning and demand-chain planning are being actively looked at by companies that operate in specific markets.

6.3 Computer Aid Design/Computer Aid Manufacturing
Computer Aid Design/Computer Aid Manufacturing (CAD / CAM) are the other major focus area for the manufacturing sector. Traditionally, the automotive and aerospace industries are the largest consumers of CAD/CAM. With the automotive sector in the depression, vendors were not able to meet their expectations from this industry. On the other hand, the farm auto sector did better in comparison. Mahindra & Mahindra (Tractor Division) has grown considerably in the last three years and their manufacturing capacity has doubled. This is accompanied with significant improvement in design capacity. Increasing design capacity is also a competitive edge for a company. For example, Tata Johnson Controls, which makes seating systems, started off by designing seats solely for Ford. With increased design capacity using advanced CAD/CAM, they went on to supply seating systems to many other auto majors. The major focus area in CAD/CAM is on design analysis, development, and manufacturing. Styling and ergonomics are the refinement areas to achieve design excellence. There were only marginal investments in modelling. There is also a trend developing for reverse engineering, especially in the engineering and appliances industry. Manufacturing, companies in the BPL Group have taken up reverse engineering. Product data management (PDM) is another leading edge of the CAD/CAM philosophy. TELCO and Mahindra Ford have integrated many of their suppliers. For the supplier, it means enhanced competence and improved
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competitiveness. Many of these suppliers, with their improved design capacity and integration with OEMs, have also started exporting. Brakes India is supplying brakes to many of the European auto manufacturers. Another reason, which forces a company to make design an imperative, is the improved alignment that many manufacturing organisations have acquired. This is because of business process reengineering. An important thing is the integration of tier 1 and tier 2 suppliers with OEMs, for standard product information. Many companies in heavy engineering sector have signed up multi year contracts with global majors like SDRC and PTC. BHEL has a CAD/CAM contract across all units with SDRC for a term of five-year. Similarly Lakshmi Machine, L&T and Siemens works are investing in CAD/CAM to beef up their research capability. Self Assessment Questions 1. The _______________ sector traditionally spends more on Information Technology (IT). 2. Increasing _______________ capacity is also a competitive edge for a company. 3. The process industry focus is on integrating _____________ applications with the plant floor. 4. The move to __________ is a high-investment proposition. Activity 1 Visit a manufacturing industry and analyse the reason why the organisation should move towards restructuring their business in an ERP environment.

6.4 Materials Requirement Planning (MRP)
Initially, manufacturing industries viewed Materials Requirement Planning MRP as a better method for ordering components than the independent demand inventory models they had been using during the 1950s and 1960s. However, it has evolved into a comprehensive priority planning system. MRP provides a method that helps keep order due dates valid, even after the orders have been released to the shop floor or outside vendor. MRP systems can detect when is the order due date, the date the order is
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scheduled to arrive, is out of alignment with its need date, and the date the order is actually required. During the 80s, techniques for helping to plan capacity requirements were tied up with MRP. Tools were developed to assist the planning of aggregate production levels and the development of anticipated production schedules. Systems to aid in executing the plans were incorporated in shop floor control for the ‘in-house factory’ and vendor scheduling for the ‘outside factories’. The expanded MRP system became known as closed loop MRP. Since, it provided feedback from the execution function to the planning functions, so manufacturers could change plans when necessary. Expanded-closed-loop MRP was practiced to provide the ability to translate the operating plan expressed in manufacturing terms of units (kilograms) into financial terms (rupees). They even have the potential to simulate the effects of various plans in terms of both units and rupees. The new system, which was called Manufacturing Resource Planning (MRP-II), was a comprehensive approach for the effective planning of all the resources of a manufacturing organisation. Materials and production planning is critical to the success of a manufacturing company. A company can have the best and the newest manufacturing facilities, product design, the latest equipment. Along with all the latest production technologies like CAD/CAM, robotics, automated guided vehicles (AGVs), and so on but the company was not the ability to compete. MRP has proved to be an effective production and inventory planning system in a wide variety of environments. For a successful MRP system three types of information are very essential and they are:  Master Production Schedule (MPS)  Bill of Material (BOM)  Inventory Records (IR) 6.4.1 Master Production Schedule (MPS) The MPS is a detailed production schedule for end items or finished goods that provides the major input to the materials requirement planning process. Associated with each finished product is a BOM It describes the dependent demand relationships that exist among the various components, raw
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materials, parts, subassemblies, and so on. The entire set of BOMs for the company's finished products is called the BOM file. Inventory records provide inventory status data for each product or component such as stockon-hand, stock-on-order, and so on. It also contains planning factors like lead-time, safety stock, re-order level, and so on. MRP logic uses the MPS, the BOM file and the inventory records to determine the following for all components:  Planned order quantities  Planned order release dates (to shop floor/suppliers)  Planned order due dates The MRP system calculates the due dates and release dates taking into consideration the lead-times required to produce or procure the components. It also recognises the order in which they are assembled into the finished product. If the MRP process is carried out in conjunction with capacity planning, the production facility must have the capacity to complete the orders on time. 6.4.2 Bill of Material (BOM) A BOM defines the relationship of components to end items. The BOM identifies all components used in the production of an end item, the quantity required, and the order in which the components are assembled. For example, consider an office chair. The chair is composed of a seat cushion, back cushion, adjuster mechanism, base unit, wheels, and fasteners. To manufacture the chair the wheels, base unit, and adjuster mechanism are assembled into a chair frame, to which the base cushion and back cushion are attached. All the fasteners are identical and there are 11 of them for this chair. Figure 6.1 shows a BOM for an office chair. To simplify the discussion, this BOM does not show all purchased raw materials (paint, steel tubing and so on). This form of the BOM is frequently called a product structure diagram. All items appearing below the final product in a BOM are referred to as components, whether they are raw materials or component parts or subassemblies. In the above figure, all items with the exception of the 'Office chair‟ are components. The term- parent component describes a component at one level in the BOM that is composed of components from
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the next lower level in the BOM. The lower level components are called child components.

Figure 6.1: Bill of material for the office chair

The key to MRP is time-phasing of requirements for components are based upon the structure of the BOM. If the time required either manufacturing or purchasing components (lead-time) is known, we can determine when orders must be released to the shop floor or outside suppliers. This is to ensure that the required components will be available when needed. 6.4.3 Inventory Records It is a process for keeping track of objects or materials. In general, the term may also refer to just the software components. Modern Inventory Control (IC) systems depend upon barcodes, and potentially Radio Frequency Identification (RFID) tags. These systems provide automatic identification of inventory objects. For example, in an academic study performed at WalMart, RFID reduced Out of Stocks by 30 percent for products selling between 0.1 and 15 units a day. Inventory objects could include any kind of physical asset: fixed assets, circulating tools, library books, merchandise,
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consumables, or capital equipment. The system uses a RFID or barcode scanner reader to automatically identify the inventory object. Then it collects additional information from the operators via fixed terminals (workstations), or mobile computers to record an inventory transaction. An IC system may be used to automate a sales order fulfillment process. Such a system contains a list of order to be filled, and then prompts workers to pick the necessary items. Also it provides them with packaging and shipping information. 6.4.4 Closed Loop MRP For an MRP system to be effective, the production system must be able to complete component orders on time. Closed loop MRP uses feedback and capacity planning to improve the ability of the production system to complete work as planned. Capacity planning tools allow the operations manager to adjust the MPS and/or planned order release dates, or obtain additional capacity. So that shop orders can be completed by their due dates. MRP planners use a number of planning factors (capacity planning factors, lead-time estimates, safety stocks, safety lead-time, and so on.) and tools (capacity planning, frozen time horizons, firm planned orders, and so on.) to improve the quality of the materials schedules generated by the MRP system. To determine how well the planning factors and tools are working. MRP planners need feedback from the purchasing department and the shop floor. With effective feedback, the MRP planner can revise the planning factors and techniques, so that better materials schedules can be developed in the future. Feedback is also important when the shop floor or suppliers cannot meet order due dates. Timely feedback to MRP planners allows them to develop alternatives, or at least minimise the effect of the problem. For example, batch of a component production may not be completed on time. However, enough components may be available in safety stock and on-hand inventory. This allows the production of a smaller quantity of the parent item to satisfy the MPS, until production of the component is completed.

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6.4.5 Manufacturing Resource Planning (MRP-II) Originally MRP was developed as a computer system that was limited to materials planning. As MRP systems developed and computer technology, it became clear that MRP systems maintain extensive information that can be used for other company functions. For example, MRP systems maintain accurate inventory information. Combining this information with cost data, allows accounting personnel to have accurate inventory information, in meaningful financial terms. Rather than having separate production and accounting systems, a company can expand MRP to meet the requirements of both the systems. MRP-II is an expansion of closed loop MRP for managing an entire manufacturing company. MRP-II systems provide information that is useful to all functional areas and encourage cross-functional interaction. It also supports sales and marketing by providing an order-promising capability. Order promising is a method of tying customers' orders to finished goods in the MPS. This allows sales personnel to have accurate information on product availability and gives them the ability to give customers accurate delivery dates. MRP-II supports financial planning by converting materials schedules into capital requirements. A company can use MRP-II to simulate the effects of different master production schedules on material usage, labour, and capital requirements. MRP-II provides the purchasing department with more than just purchase requisitions. The long-range planned order release schedules can be used to provide the purchasing department with information for developing long-range buying plans. It is now common for suppliers to directly access MRP-II system of a customer to receive up-to-date information on the customer's planned material needs. Information in the MRP-II system is used to provide accounting with information on material receipts to determine accounts payable. Shop floor control information is used to track workers' hours for payroll purposes. Manufacturing is the vital function in a manufacturing company. The information required to successfully planning and schedule production is valuable to the other (supporting) functions in the company. MRP-II systems enhance a company's efficiency by providing a central source of management information.

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Self Assessment Questions 5. _____________ and ___________ planning is critical to the success of a manufacturing company. 6. The key to MRP is time-phasing of requirements for components are, based upon the structure of the ______________. 7. ___________ is an expansion of closed loop MRP for managing an entire manufacturing company. 8. _______________ is also important when suppliers or the shop floor cannot meet order due dates Activity 2 Visit an industry and study how the organisation has benefited with the ERP system in handling the material starting form procurement of material to distributing the material with in the company based on the needs of the various departments.

6.5 Distribution Requirements Planning (DRP)
Distribution Requirements Planning (DRP) extends the technique of MRP into the physical distribution system. It provides a mechanism for integrating the physical distribution system with the production planning and scheduling system. DRP assists companies that maintain distribution inventories in distribution centers, field-warehouses, and so forth. This is achieved by improving the linkage between marketplace requirements and manufacturing activities. A DRP system helps management to anticipate future requirements in the field. At the same time helps to closely match the supply of products to the demand for them and effectively deploy inventories to satisfy customer requirements. They also rapidly adjust to changes in the marketplace. A DRP system creates significant logistics saving through improved planning of transportation capacity needs, vehicle loading, vehicle dispatching and warehouse receipt planning. DRP plays a central coordinator role in the physical distribution system similar to MRPs role in coordinating materials in the manufacturing system. DRP provides the necessary data for matching customer demand with the supply of products at various stages in the physical distribution system and with products being produced by manufacturing. The DRP record is similarly
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to MRP record. For example, for a distribution centre, forecasts requirements for a product replace gross requirements and are used in conjunction with information concerning inventory on-hand at the distribution centre inventory in transit to the distribution centre (analogous to scheduled receipts in MRP), transportation lead-time, safety stock requirements, and standard shipping quantities to determine time-phased planned shipments to the distribution centre (analogous to time-phased planned orders in MRP). In addition to estimating the time-phased planned shipment quantities, DRP provides a company with access to all the detailed local information for managing physical distribution and for coordinating with manufacturing. Since, demand from the customer is independent, each distribution centre, for example, needs detailed forecasts of the item in demand. Careful attention to actual customer demand patterns may allow forecasts, generated by a standard forecasting method. This will be tailored to local conditions, resulting in improved accuracy and inventory savings. As actual field demands vary around the forecasts, adjustments to plans are made by DRP. DRP makes continuous adjustments, sending inventories from the central warehouse or manufacturing facility to those distribution centres where they are most needed. In case when the total inventory is insufficient to satisfy requirements, DRP provides the basis for accurately stating when delivery can be expected for deciding allocations, such as favouring the best customers or providing inventory to last the same amount of time at each distribution centre. Therefore, DRP is a critical link between the marketplace, demand forecasting and master production scheduling.

6.6 Just-in-Time (JIT) and Kanban
Just-in-Time (JIT) means to produce goods and services when needed, not too early and not too late. It is time dependent and often has quality and efficiency targets. JIT is a production philosophy and not a technology. This is due the fact that it monitors the whole of the production system, and goes far into inventory control. The JIT system has been called many names, from zero defects and synchronous production to stockless production at Hewlett Packard. The JIT system also uses the pull method of scheduling material flow (Kanban). A JIT system aims to make goods available just in time and these can be parts, products or subassemblies.

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JIT helps organisation to achieve some of the following benefits:  Increased flexibility  Parts reduction  Increased quality  Simplicity of system The enhanced flexibility allows a company the ability to react to changing events, i.e. change in customer orders, or design modifications. Increased productivity means that the shortest time and minimum of resources are needed to make a product. The overall objective of JIT is to produce parts in lot sizes of one, but this is not economically feasible due to the set-up cost being higher as compared to the carrying cost. At the heart of JIT, is a set of tools and techniques. To achieve the aims of JIT a disciplined approach is needed which incorporates three principles applied to the organisation:  Elimination of Waste  Total Quality Management (TQM)  Total Employee Involvement  Elimination of Waste: Waste elimination is basically removal of any activity that is not value-added, but first it has to be identified. These activities don't increase product value and are costly to the company. Examples of non-value-adding activities include traditional production methods, i.e. inspection of parts, holding stock, inventories, time, and so on. Waste is eliminated from these activities by removal of defects and by not over producing hence, make-to-order.  Total Quality Management: TQM eliminates waste by eliminating defects. In a JIT environment, the aim is to prevent defects from occurring, and this is achieved by detecting problems at their source. The whole organisation is involved in the process, right from the stages of manufacturing, product development and purchasing. Manufacturing uses statistical process control (SPC) and in-process testing (to allow detection at source), while product development ensures that new products can be manufactured to specification. Purchasing makes sure that; the parts that are bought are of the required quality.  Total Employee Involvement: Total employee involvement has management providing the leadership which results in employees
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wanting to be involved in the processes. Opportunity provided through education and training, and work teams. 6.6.1 Kanban Most companies in manufacturing sector view the making of a product as continuous from design, manufacture, and distribution to sales and customer service. For many companies, the soul of this process is the Kanban, a Japanese term for Visual record', which directly or indirectly drives much of the manufacturing organisation. It was originally developed at Toyota in 1950s as a way of managing material flow on the assembly line. Over the past three decades the Kanban process, which is a highly efficient and effective factory production system, has developed into an optimum manufacturing environment leading to global competitiveness. The Kanban process of production is sometimes incorrectly described as simple just-in-time management technique, a concept that attempts to maintain minimum inventory. The Kanban process involves more than fine tuning of production and supplier scheduling systems. Supplying the components only when needed in production it minimises the inventories, and monitors the work progress. It also allows industrial reengineering such as a 'module and cellular production' system and group production techniques. This is where team members are responsible for specific work element and employees are encouraged to effectively participate continuously in proving the Kanban processes for continuous improvement. The Japanese refer to Kanban as a simple parts-movement system it depends on cards and boxes/containers to take parts from one work station to another on a production line. Kanban stands for Kan-card, Ban-signal. The fundamental of the Kanban concept is that a supplier or the warehouse must or deliver components to the production line as and when they are needed, so that there is no storage in the production area. Within this system, workstation located along production lines only produce/deliver desired components when they receive a card and an empty container, indicating that more parts is needed in production. Each work station will only produce enough components to fill the container and then stop in case of line interruptions. In addition, it limits the amount of inventory in the process by acting as an authorisation to produce more inventories. Since Kanban is a chain process system in which orders flow from one process to
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another, the production or delivery of components is pulled to the production line. In contrast to the conventional forecast oriented method where parts are pushed to the line. The advantages of Kanban over the traditional push system are:  A simple and understandable process  Provides quick and precise information  Low costs associated with the transfer of information  Provides quick response to changes  Limit of over-capacity in processes  Avoids overproduction  Minimises waste  Maintains control  Delegates responsibility to line workers 6.6.2 Benefits of JIT JIT is continuously monitoring to reduce inventory levels of work in process (WIP), raw-materials and finished goods. Therefore, space is required is less with lower inventories so there is less chance of the product becoming damaged, spoiled or obsolete. Material handling of lots can be automated, and operations can be placed closer together, enhancing communication and teamwork. The following are some of the benefits of a properly implemented JIT system:  Increased flexibility: This can be done through small batch sizes, which achieves faster throughput. Flexibility is a prerequisite, if small batch sizes are to be kept. A flexible workforce means that the operators must be multi-skilled which is done through training. Increases the freedom of worker to move from low demand to high demand areas.  Parts reduction: JIT constantly seeks to reduce inventory levels of raw materials, work in process and finished goods. Lower inventory means less space and less chance of the product being obsolete, damaged or spoiled. Work in process inventories are reduced as a firm implements the 'pull system'. Raw material reduction is the important part of the JIT system and requires a sound relationship with the supplier. Inventories can be reduced if products are produced, purchased, delivered in small lots. To avoid unnecessary production delays, materials must arrive just

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before they are needed. It must be the correct material and must satisfy the quality specifications. Increased quality: When operating a JIT system, disruption has a minimum impact. Therefore, quality problems need to be eliminated. Benchmark: Quality Function Deployment and service design can be used for device operations. Service employees need to learn the value of providing defect free services. Simplicity of system: Product mix or volume changes as planned by Master Production Schedule (MPS), can be accomplished by adjusting the number of cards in the system. Production orders are prioritised by the cards on a post. Production orders for parts that are running low are moved in front of parts that have more supply.

6.6.3 Potential Pitfalls of JIT Many companies fail to realise what JIT is and what it can mean to their business. Since, they fail to implement it properly. Most importantly, they need to aware of the tasks, resources, time scale and costs. For this, the systems need the full backing of the top management. The JIT system will also fail if an adequate education programme is not provided. If careful planning process and control improvements are not strictly followed, they will result JIT not being realised. The planning stage will require dedication and t: and may also require the assistance of an external consultant(s). All above must be integrated with moves towards purchasing JIT, or again, JIT will not be achieved. The JIT system must not be viewed as a one scheme but as an ongoing continuous process. Self Assessment Questions 9. DRP plays a has a central ______________ role in the physical distribution system 10. ____________ eliminates waste by eliminating defects. 11. The Kanban process of production is sometimes incorrectly described as simple ________________ technique 12. JIT continuously seeks to reduce _____________ levels of raw materials, work in process and finished goods. 13. When operating a JIT system, ___________ has a minimum impact.

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Activity 3 Find out the process in the assembly chain of an automobile manufacturing industry and asses the kind of planning they could do using an ERP system to handle the inflow of material and components for manufacturing.

6.7 Product Data Management (PDM)
One of the major manufacturing challenges is to maximise the time-tomarket benefits of concurrent engineering. At the same time, maintaining of data, control on the flow of data. The system must also distribute the data automatically to the people who need it, when they need it. The way PDM systems cope with this challenge is that the master data is held only once in a secure 'vault', where its integrity can be assured and all changes to it monitored, controlled and recorded. Duplicate reference copies of the master data, can be distributed freely. It is used in various departments for analysis, design, and approval. The new data is then released back into the vault. When a 'change' is made to the data, a modified copy of the data, signed and dated, is stored in the vault alongside the old data which remains in its original form as a permanent record. This is the principle behind more advanced PDM systems. To analyse it more fully, let us look separately at how these systems control raw product data (Data Management and Process Management). 6.7.1 Data Management Manufacturing companies are usually good at recording systematically the component and assembly drawings. But often do not keep complete records of attributes such as 'size', 'weight', 'where used', and so on. As a result, engineer; often have problems accessing the information they need. This leaves a gap in their ability to manage their product data effectively. Data management systems must be able to manage attribute and documentary product data, and also relationships between them, through a relational database system. With so much data being generated, a technique to organise this information easily and quickly needs to be established. Classification must be a basic capability of a PDM system. Information regarding similar types of components must be capable of being grouped
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together in named classes. More detailed classification is possible by using 'attributes' to explain the essential characteristics of each component in a given class.  Classification of Components Components will be entered in the database under different types of classes, which suit individual business needs. Classes themselves can be grouped together under suitable broad headings. This allows all the company's working stock of components to be organised in an easily traceable, hierarchical network structure. Each part can be given its own set of attributes. Additionally, some systems have the capability of registering that certain components are available with specific 'optional' attributes. This can be invaluable in controlling Bills of Materials (BOMs) for made-to-order variations of the standard items or customised items.  Classification of Documents Documents relating to assemblies and components can be similarly classified; for example, classes might be 'drawings', '3D models', Technical publications', 'Spreadsheet files', and so on. Each document can have its set of attributes, like part, number, author, dates entered and so on. And, at the same time relationships between documents and the components themselves can be maintained. So, for example, a dossier for a specific 'bearing assembly' could be extracted, containing 2D drawings, solid models, and FEA files. PDM systems differ greatly in their classification capability. Some have none. Others encourage the ability to define a classification only at the time when the database is implemented. More recent PDM systems have been provided with a capability that can be defined and modified at will, as the demands of the organisation change.  Product Structure Product structure is the third way from which product data can be accessed. For any selected product, the relationship between its component assemblies and between the parts that make up these assemblies must be maintained. This would mean that one could open a complete Bill of Materials, including documents and parts, either for the entire product or for the selected assemblies. One distinct advantage is the ability to compare not just the physical relationships between parts in an assembly, but also other kinds of structures; for instance, manufacturing, financial, maintenance
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or document relationships. So, it is possible for specialist members of the team to see the product structured from their point of view.  Querying the Data As you can imagine, one needs to be able to 'get at' the components and assembly data by a variety of routes. One could move up and down a classification tree; pick one's way through a product structure; simply call-up the data one wants by searching for it by name or part number, or search for groups of data by specifying an attribute or combination of attributes. For example, you could ask to see all stainless steel rivets with anodised shanks less than 10 mm long. 6.7.2 Process Management So far we have dealt only with organising data so that it is easy to access and, refer to and for cross-reference; basically passive procedures. Process Management (PM), on the other hand, is about controlling the way people create and modify data – active procedures. This may sound like a new name for 'project management'. It is not. PM concerns itself only with the delegation of tasks; process management addresses the impact of tasks on data. Process management systems normally have three broad functions:  Work Management: They manage what happens to the data when someone works on it.  Workflow Management: They manage the flow of data between people.  Work History Management: They keep track of all the events and movements that happen in functions 1 and 2 during the history of a project. PDM systems vary widely in how they perform these functions. The following is a broad overview: 6.7.2.1 Work Management Engineers create and change data for a living. The act of designing something is exactly that. A solid model, for example, may go through hundreds of design changes during the course of development, each involving far-reaching modifications to the underlying engineering data. Frequently the engineer will wish simply to explore a particular approach, later abandoning it in favour of a previous version. A PDM system offers a solution by acting as the working environment for engineers. It meticulously captures all new and changed data as it is
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generated. It maintains a record of which version it is, recalling it on demand and effectively keeping track of every move of the engineer. Naturally, when an engineer is asked to carry out a design modification, he or she will normally require more than just the original design and the Engineering Change Order (ECO). Many, forms, files, and documents may need to be referred to and other members of the design team may be involved, too. In a traditional design environment, a project folder or dossier would be compiled which the team could refer to as and when it is needed. Today‟s PDM systems cope with this requirement with varying degrees of success. One approach is using „user packets‟ instead of paper-based processes. The packet allows the engineer to manage and modify several different master documents simultaneously as well as provide various supporting documents for reference. This approach also supports the concurrent engineering principle. For example, even though only one user can be working on a 'master' design, colleagues working on the same project can be instantly notified that there is an updated master design, and reference copies of it will be made available to them in their own packets. A given packet can be worked on only by the user to whom it is logged out, but its contents can be looked at and copied by everybody with the necessary access permissions. 6.7.2.2 Workflow Management Packets have the advantage of making it easy for team members to share meaningful groups of documents, but they are useful for another reason also. They make it possible to move work around from department to department, or from individual to individual in logically organised bundles. Engineers may need to design thousands of parts during the development of a product. For each part that is designed, files need to be created, modified, viewed, checked, and approved by many different people, some times several times over. Each part will call for different development techniques and different types of data – solid models for some, circuit diagrams, and FEA (Functional Economic Analysis) data for others. Work on any of these master files will have a potential impact on other related files. So there needs to be continuous cross checking, modification, rechecking and re-submission. With all these changes overlapping, it is all too easy for an engineer in one discipline to be investing considerable time
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and effort in pursuing a design, which has already been invalidated by the work someone else has done in another part of the project. Bringing order to this highly complex workflow is what product data management systems do best. In particular, they keep track of the thousands of individual decisions that determine who does what next. Most PDM systems permit the project leader to control the progress of the project via 'states' using pre-determined 'triggers'. It also provides a routing list which may vary according to what type of organisation or development project is involved. The way systems differ is in how much flexibility they allow within the framework discipline. The most rigid systems are based on procedures. Every individual or group of individuals is made to represent a state in a procedure – 'Initiated', 'Submitted', 'Checked', 'Approved', and 'Released'; a file or record can't move from one individual or group to the next without changing states. Some systems make it possible to give an identity of its own to the task, separate from the people working on it. For example, consider an engineer working on a design wants to confer with colleagues as to the best way to approach the design. As long as the master model and all the associated reference files are contained in and controlled by a packet, it is simple to pass the entire job across to any number of other people without triggering a change of state. The formal workflow procedure is not compromised by this informal rerouting because the authority to change the file's state doesn't move around with the packet. It remains with the designated individual. Communication within the development team is enhanced too. When packets of data and files are passed around, they can be accompanied by instructions, notes and comments. Some systems have 'redlining' capability; others even have provision for informally annotating files with the electronic equivalent of 'post-it' notes. In other words, a Process Management (PM) system could be seen as a way of: 'loosening up' the working environment, instead of constraining it. The challenge is how far you can allow informal teamwork and crossfertilisation to carry on, and still keep overall management control of project costs and deadlines. Most systems allow the current status of the entire task, with all supporting data, to be tracked and viewed by authorised individuals at al times.
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A packet symbolises one task in a product development project, which may consist of many thousands. Each packet has its own route to follow through the system but the relationship between packets also needs to be controlled. You need to be able to define the interdependence of tasks so as to match the way your individual project is structured to coordinate this complex workflow effectively. Not all systems are easy to customise in this way. The ones that can be customised have the ability to create a hierarchical relationship between files. For example, one could instruct the system to prevent an engineer from signing off an assembly for release until all its parts have been individually released. 6.7.2.3 Work History Management As we have seen, Product Data Management (PDM) systems must not just keep comprehensive database records of the current state of the project. They must also record the states the project has been through. This means that they are a potentially useful source of audit trial data. The ability to perform regular process audits is a fundamental requirement for conformance to international quality management standards such as ISO9000, EN29000 and BS5750. But project history management is also important to allow you to 'back-track' to specific points in a project's development – to a point from where a problem arose, as one can start a new line of development from it. What specific development milestones the system records are important. Some systems record only the changes in ownership of documents. Therefore only the ownership of the document can be traced at a specific point in time, but not the modification made to it. Others have the capacity to record changes, but may do so as a series of 'snapshots' taken only when a file changes 'state'. This can leave large gaps in workflow history as a user may have been making modifications to a design for several weeks, without any change to its state. Some systems provide an historic record in the form of a 'moving picture', by allowing you to record changes to any systemdefined level you choose, for example, every time a modified file is saved. This level of historical tracking, provides comprehensive auditing, also permits the active monitoring of individual performance which is invaluable during time-critical projects.

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Self Assessment Questions 14. Manufacturing companies are usually good at recording systematically the ______________ and ______________. 15. Most systems allow the current status of the entire task, with all supporting data, to be tracked and viewed by _____________individuals at all times. 16. The way systems differ is in how much flexibility they permit allow within the________________ discipline. 17. The challenge is how far you can allow _____________and crossfertilisation to carry on 6.7.3 Benefits of PDM The following section covers some of the benefits of the PDM system:  Reduced Time-to-Market This is the major benefit of a PDM system. Three factors limits the speed with which you can bring a product to market. One is the time it takes to perform tasks, such as engineering design and tooling. Another is the waste of time between tasks, as when a released design sits in a production engineer's in-tray waiting its turn to be dealt with. And the third is time lost in rework. A PDM system can do much to overcome all these time limitations.  It can speed up the tasks by making data instantly available, as it is needed.  It supports concurrent task management.  It allows authorised team members access to all relevant data, all the time, with the assurance that it is always the latest version.  Improved Design Productivity Product Data Management systems, when driving the appropriate tools, car significantly increase the productivity of your engineers. With a PDM system providing them with the correct tools to access this data efficiently, the design process itself can be dramatically shortened. Another important factor is that designers must spend more time actually designing. Historically, a design engineer would spend as much as 25-30% of his time simply handling information; looking for it, retrieving it, waiting for: copies of drawings, archiving new data. PDM removes this dead time almost entirely. The designer no longer requires knowing where to look for release designs or other data.
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A third major time saver is the elimination of the 'reinvented wheel' syndrome. The amount of time designers spend solving problems that have probably been solved before, is notorious. It is often considered quicker to d it again than to track down design elements that could be re-used. With PDM system, the identification, re-use and modification of existing similar designs must become routine.  Improved Design and Manufacturing Accuracy An important advantage of PDM systems is that everyone involved in a project is operating on the same set of data, which is always up-to-date. When working on a master file you will know it is the only one. If you are viewing reference copy, you know it is a replica of the latest master. Therefore, overlapping or inconsistent designs are eliminated even though, people operate on it concurrently. Naturally this leads to far fewer instances of design problems that only emerge at manufacturing or QA, fewer Engineering Change Orders (ECOs), more right-the-first-time designs and, once again, a faster path to the marketplace.  Better use of Creative Team Skills Designers are often cautious in their approach to problem solving for no reason other than the high time penalties for exploring alternative solutions. The risks of spending excessive time on a radically new design approach, which may not work, would be unacceptable. PDM opens up the creative process in three important ways. First, it keeps track of all the test results and documents relating to a given product change, minimising design rework and potential design mistakes. Second, it reduces the risk of failure by sharing the risk with others and by making the data available to the right people fast. Third, it encourages team problem solving by allowing individuals to bounce ideas off each other using the packet-transfer facility, knowing that all of them are looking at the same problem.  Comfortable to Use PDM systems differ widely in their levels of user-friendliness. But, most set out to operate within the existing organisational structure of a product engineering operation, without major disruption. In fact, the system must make familiar tasks much more user-oriented than before. When users wish to view information on a PDM system, the application is loaded automatically, and then the document is loaded. In a conventional working
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environment, the users would either have to be much more skilled at accessing the information, or be prepared to accept it in a much less flexible form. The concept of single central vault ensures that, while data is immediately accessible to those who need it, all master documents and records of historical change remain absolutely accurate and secure.  Better Control of Projects The product development projects are almost invariably late is not because they are badly planned in the first place, but because they routinely go out of control. This is because of the immense volume of data the project generates, rapidly snowballs beyond the scope of traditional project management techniques. As the competitive time pressure increases, so does the scope for inconsistency, and likelihood of rework. PDM systems also enable you to retain control of the project by ensuring that the data, on which it is based, is firmly controlled. Product structure, change management, configuration control and traceability are key benefits. Automatic data release and electronic sign-off procedures can enhance the control As a result, it is impossible for; scheduled task to be ignored, buried or forgotten.  Better Management of Engineering Change A PDM system allows you to create and maintain multiple revisions and versions of any design in the database. This means that iterations on design can be created without the worry that previous versions will be lost or accidentally erased. Every version and revision has to be 'signed' and 'dated', removing any ambiguity about current designs and providing a complete audit trail of changes. A Major Step toward Total Quality Management is acquired by introducing a coherent set of audited processes to the product development cycle. A PDM system goes a long way towards establishing an environment for ISO9000 compliance and Total Quality Management (TQM). The fundamental principal of TQM, the 'empowerment of the individual to identify and solve problems‟, are inherent in the PDM structure. The form controls, checks, change management processes and defined responsibility also ensure that the PDM system you select, contributes to the organisation conformance with international quality standards.
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6.8 Manufacturing Operations
The manufacturing operations can be classified based on the amount of processing the product requires, after the company receives an order from customer. They are broadly classified as:  Make-to-Order (MTO) and Make-to-Stock (MTS)  Assemble-to-Order (ATO)  Engineer-to-Order (ETO)  Configure-to-Order (CTO) 6.8.1 Make-to-Order (MTO) and Make-to-Stock (MTS) At one end of the processing spectrum is the make-to-order (MTO) company. This company does not begin processing the material for the component or product until it has received an order from the customer. In some cases, the company may not even procure the material and components until after it receives the order. This type of manufacturing operations is followed when the company competes on the basis of product customisation and serves its customer base by providing unique and highly specialised items. The MTO company‟s production planning is based also on firm customer orders. At the other end of the spectrum is the Make-to-Stock (MTS) company, which manufactures products and places them in inventory before it receives customers' orders. Either the customer purchases the products directly from the inventory at a retail outlet, or the company ships the product 'off-the-shelf from the finished goods inventory at the factory or at a distribution centre. MTS companies depend heavily on market analysis and demand forecasting in planning the production of their products with respect to the product mix and volume. Figure 6.2 shows the relation between the output variety (degree of customisation) and the type of manufacturing operation. As it is evident from the graph, that the output variety is highest when the company is operating in the make-to-order mode, since the companies can serve each and every individual customer in the way he/she wants. But the cycle time will be more and the cost of the product will also be more. But in the case of a MTS company, the products are already made and kept in the inventory for the customer to pick up. Here, the customer won't get any individual attention or customisation; he can buy what is available with the company. The MTS
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company will be making products in lots and the cost of the products will be less as the economies of scale will be at work and there will not be any waiting period for the customer after placing the order. 6.8.2 Assemble-to-Order (ATO) Assemble-to-Order (ATO) company is another variation of the manufacturing operations. The ATO company manufactures standardised, option modules according to the forecasts it has made and then assembles a specific combination, or package of modules, after receiving the customer's order. The classic example is the automobile manufacturer. After receiving orders from a host of dealers, the manufacturer specifies the exact production schedule for the automobiles. The schedule is based on the options order by the customers, like automatic transmission or manual transmission, air-conditioning, standard or digital control panel, leather, cloth or vinyl seating, and so on. Many components for assembling the automobiles would have be ordered or started into production before receiving the customer's order based upon demand forecasts. Thus, the major processing that remains when the orders come in is assembly. This approach shortens the time between placement of the order and delivery of the product – cycle time. 6.8.3 Engineer-to-Order (ETO) Yet another variant in the manufacturing operations is the Engineer-to-Order (ETO) company. The ETO Company is the ultimate in product variety, product customisation and flexibility. In this mode of operation, as per customer order the company manufactures any thing, but at a higher price. The expensive clothing of the 'bold and beautiful' is an example of this kind of production. Products are made for each customer and even the minute details, for example, the feel of the cloth and the texture, the colour of the threads, the size of the collar and so on will differ from one customer to another, depending upon the customer's preferences. So the manufacturer cannot keep anything in inventory, he will have to order only once the customer has given his/her specifications. Obviously, the cost of production will be highest in this mode of production. 6.8.4 Configure-to-Order (CTO) MTO manufacturers traditionally had to choose between ATO and ETO. ATO suppliers face the need to extend product lines, add features, and
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increase flexibility to meet customer demands. ETO manufacturers feel a pressure to standardise at least some of their product lines to reduce costs and remain competitive. Today, the environment of CTO has emerged in response to customers' demands for individualised products with shortened lead-times, improved quality and competitive prices. Virtually any manufacturer that uses options, features, or variable dimensions is a candidate for entering the CTO environment. The key component of a configuration is the blueprint of valid combinations of features and options. Figure 6.2 shows the relation between the output variety (degree of customisation) and the type of manufacturing operation. As you can see from the graph, the output variety is highest when the company is operation in the make-to-order mode as the companies can serve each and every individual customer in the way he/she wants. However, since the cycle time will be more the cost of the product also will increase. In the case of an MTS company, the products are already made and kept in the inventory for the customer to pick up. Here the customer will not get any individual attention or customisation. He can buy what is available with the company. This model, make use of traditional bill of material model with parent and component relationships. Rules and calculations then ensure that the final configuration can be built by defining the way to build it and also establish a selling price. The flexibility of establishing this CTO model is clearly an important aspect of selecting the best configuration software for your business. Few functional areas are free from the impact of transitioning to a new way of entering sales orders. They automatically generate new part numbers, bills and routings; for building and shipping products; and record the financial results of doing business.

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Figure 6.2: Relation between output variety and the type of manufacturing process

Input from sales and marketing, manufacturing, product data management, and finance is required to develop a CTO model that supports the integrated environment. It is important to understand how the configuration generates the "appropriate" bill of material and routing because they are at the core of the planning process. Typically, a CTO model represents a translation of product engineering rules that define relationships among product options, materials and manufacturing processes. Multiple models CTO differentiate different sets of valid relationships and required processes. The CTO model provides valid options within a model, and applies rules or calculations based on selections. For example, a CTO model of a Personal Computer (PC) would have a set of component options such as case styles, CPUs (66 or 100 MHz), hard drives (520MB or 1.2GB), and monitors (VGA or SVGA). Structured under the options would be the real item part numbers.
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This is very use full for identification and verification process during manufacturing and quality control. Key considerations for production and material planners are the modularity of the real bills of material that will be combined in the configured end item, and the level at which sales analysis records will be stored. Many times, the structure (if bills and routings exist at all) needs to be re-examined in light of how it will support the CTO model. The ability of the configuration to automatically create new part numbers, generate bills and routings, and assign prices has greatly reduced the process of product introduction. However, unless the manufacturing bills have been reviewed and contoured to a CTO model, the result is often inaccurate/inadequate information, faster! With the architecture of the CTO, and the ability to capture sales analysis information at the option level, planners have a tool to improve their planning models. The ability to capture sales analysis records on the options provides the ability to accrue data for use in forecasting software. For example, within the option accessories, each occurrence of a mouse, modem NIC, sound card and CD-ROM selection is captured as a sales analysis record. This information is available for summarisation at a month or year end. The data, can be reviewed and massaged, then input to the forecasting algorithms. Automatically information is monitored and maintained at the detail level, instead of forecasting it at the accessory level with the use of percentage Bills of Material (BOM),. The configuration software also provides features to quickly develop accurate part, bill, and routing information. In addition to maintaining sales analysis information at the configured item level, detail information by option is also available. This provides a powerful database for the dissection of market data. It also becomes the foundation for improving forecasting and planning capabilities. Self Assessment Questions 18. Historically, a design engineer would spend as much as 25-30% of his; time simply_____________________. 19. The __________no longer needs to know where to look for release designs or other data, since it is all there on demand.
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20. The single _____________concept ensures that, while data is immediately accessible to those who need it 21. The ________________company‟s production planning is based also on firm customer orders. 22. MTO manufacturers traditionally have had to choose between ____________and _______________. Activity 4 Visit a manufacturing industry process on internet and study the need for various manufacturing operations and their significance in making the production more efficient and flexible. Make a list of the reasons why they should switch over to an ERP.

6.9 Summary
The manufacturing sector always faces troubles in allocating raw materials and deciding the outputs. The ERPs forefathers namely material resource planning and manufacturing resource planning have solved these problems. They were designed with tools that helped to provide the calculations in an accurate manner. This has helped a lot through retail ERP. However these applications were not able to tackle similar problems in other departments like finance and human resources. ERP however helped in overcoming that trouble also by using software programs that calculated more than billion permutations and combinations in a millisecond. Turnkey‟s ERP manufacturing is like providing total solutions to the sector as the first word in the phrase will indicate. German ERP solutions are very famous. The CAD/CAM systems assist engineers in designing, examining, and upgrading drawings required for manufacturing. Being a part of Product Data Management it enables high degree of precision in both during design phase and the actual manufacturing phase. It also enhances the capacity of the company by reducing the time consumed in converting the drawings into actual working models. Materials and production planning is critical to the success of a manufacturing company. Material Resource Planning (MRP) provides a method that helps keep order due dates valid, even after the orders have been released to the shop floor or outside vendor. It provides a complete
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and comprehensive view about all the activities like the master pproduction schedule (MPS), Bill of Material (BOM), Inventory Records (IR). This system provides a complete view about the flow of materials, with in the company. It also monitors all the materials that come in and moves out of the company. Distribution Requirement Planning (DRP) provides a mechanism for integrating the physical distribution system with the production planning and scheduling system. DRP records are is similar to MRP records. DRP plays a central coordinator role in the physical distribution system similar to MRPs role in coordinating materials in the manufacturing system. DRP system also creates significant logistics saving through improved planning of transportation capacity needs, vehicle loading, vehicle dispatching and warehouse receipt planning. DRP acts as a critical link between the marketplace, demand forecasting and master production scheduling. Just-in-Time (JIT) means to produce goods and services when needed, not too early and not too late. JIT system aims to make goods available just in time and these can be parts, products or subassemblies. It ensures to eliminate the things that are not required for production from the site. It also takes care of the quality of the product. At the same time it makes sure that all the employees are involved in the work yielding the complete benefit from the companies‟ work force. Kanban concept makes sure that unnecessary items that are not meant for production will not be a part of production line. This process can be described as simple JIT. Kanban is a chain process system in which orders flow from one process to another, the production or delivery of components is pulled to the production line. This pulling of components takes place only when requirement arises. Hence preventing the excess usage or wasting the materials. Product Data Management (PDM) has to maintain the data. Check the flow of data between the various departments of the organisation. It must ensure that the data is made available to the people who need the data in time. Process management systems normally have three broad functions work management, workflow management and work history management. This method enabled proper classification of data according to the function, time and the requirements. This system has given high flexibility in handling and maintaining the huge data an organisation generates every day.

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6.10 Terminal Questions
1. 2. 3. 4. 5. What are MTS and MTO? Explain Just-in-Time (JIT) & KANBAN. Mention the benefits of JIT. What is ATO and how is it different from ETO? What is CAD/CAM and what are its advantages? What is PDM and how does it improve the competitiveness of a company? 6. Explain the concept of MRP II

6.11 Answers
Self Assessment Questions 1. Process manufacturing 2. Design 3. Business 4. Enterprise Resource Planning 5. Materials, production 6. Bill of Material 7. MRP-II 8. Feedback 9. Coordinating 10. Total Quality Management 11. Just-in-Time management 12. Inventory 13. Disruption 14. Component, assembly drawings 15. Authorised 16. Framework 17. Informal teamwork 18. Handling information 19. Designer 20. Central vault 21. Make to Order 22. Assemble to Order, Engineer-to-Order Terminal Questions 1. Refer section 6.7 2. Refer section 6.6
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3. 4. 5. 6.

Refer section 6.8 Refer section 6.3 Refer section 6.7 Refer section 6.4

6.12 Case Study
Analyse some of the major problems faced by XYZ company while making an order for components for fabrication of dumper body are listed below,  High manufacturing lead time.  Inventory levels not balanced leading to excess and short inventory.  Several manual registers and recording methodology.  Several non value adding processes affecting costs and creating waste.  Manual compilation of reports and MIS affecting accuracy and completeness. To over come these problems the XYZ company planned to implement a ERP based MRP system in their organization, and the following are the out come of the implementation of the ERP system in the organisation.  Automated MRP based on sale orders and delivery schedules given by customers  Bill of material defined for all products.  Better planning lead to better availability of material and also better purchase price for raw materials.  Process and data integration lead to better inter-process control resulting in purchase optimisation, inventory optimisation. Wasteful exercises like manual registers writing, manual verification of certain details are eliminated by pushing the business rules into the software.  Automatic generation of documents like Purchase Order, Invoice etc. leading to time saving and accuracy.  Generation of MIS reports using real time data enabling the management take the right decision at the right time for running the business more profitably. Questions 1. Analyse the problems faced by the company that forced it to get an ERP implementation. 2. Explain what how the company benefited form the new system. 3. Give your own perspective of how ERP helped in achieving the above mentioned results

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6.13 Glossary
Term Deploy Description Putting something to use in an organisation like a new machinery or a tool or even a software implementation like the ERP system To captivate somebody or something or to cast a spell on somebody or something like an ERP system captivating the imagination of many organisation. Accounting a record of a business's current assets, including property owned, merchandise on hand, and the value of work in progress and work completed but not sold A defined area of interest or study, scope of something in an area or domain of an industry Or nothing other than or to the exclusion of all else or others in an organisation and particularly for a group of people or managers

Enchanted

Inventories

Realm Solely

References 1. ”Manufacturing & Service Operations Management” by WJ Hopp, ML Spearman. 2. "The Kanban Evolution" by Drickhamer, David. 3. “A Relational Model of Data for Large Shared Data Banks" by Codd, E.F.

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Unit 7

ERP – Purchase and Sales Perspective

Structure: 7.1 Introduction Objectives 7.2 Overview of Purchase Department 7.3 Purchase module Features of Purchase Module Benefits of ERP Purchase Module 7.4 Functioning of ERP Purchase System Purchasing process 7.5 Sales and Distribution 7.6 Sub Modules of Sales and Distribution Master Data Management Order Management Warehouse Management Shipping & Transportation Billing & Sales Support Foreign Trade 7.7 Summary 7.8 Terminal Questions 7.9 Answers 7.10 Case Study 7.11 Glossary

7.1 Introduction
By now you must be familiar with the concept of ERP and a few modules of ERP. This unit familiarises you with ERP – Purchase and Sales Perspective. Purchase Purchase involves procurement of all sorts of items or products required by the company. Purchase refers to a business or an organisation attempting to acquire goods or services to accomplish the goals of the enterprise. The purchase department of an organisation provides items required by all the departments, keeps track of the quantity of the different items, and deals with the suppliers in an endeavour to procure new stock. In a manufacturing company, purchase also plays a very important role.
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A well planned procurement process ensures that materials with correct quality specifications are available at right prices and at the right time. Though there are several organisations attempting to set standards in the purchasing process, processes can vary greatly between organisations. With ever increasing competitive and cost pressures, ERP based comprehensive purchasing tools are necessary for any organisation to enhance profit margins and to accelerate business processes. Sales Sales, an essential function for an organisation, reflects a company's position in the market. Sales include all the activities for domestic and export sales of an organisation. In order to satisfy the requirements of today's fast moving markets, sales must be flexible and must react quickly. With better regularisation of sales activities, companies can meet sales targets in the most profitable way. Some of these targets are:  Productivity  Product quality  Prices  Meeting deadlines  Customer services In today‟s growing competitive business environment, increased efficiency in sales and distribution is a key factor that ensures companies retain a business competitive edge as well as improve profit margins and customer service. The sales and distribution module of ERP offers a comprehensive set of best-of-breed components for both order and logistics management. Learning Objectives: After studying this unit, you will be able to:  Explain the functioning of purchase department in an organisation  Elucidate the features and benefits of ERP – Purchase module  Analyse the importance of Sales and Distribution module  Describe the functioning of various sub module of Sales and Distribution module

7.2 Overview of Purchase Department
Purchasing is the largest expenditure for manufacturers and represents 5070% of total manufacturing costs. The purchase department of the
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organization is responsible for purchasing materials required for manufacturing products in the right quantities, of the right quality, and at the right time. In any company, the process of purchase begins with the material requirement. The requirement is as per demand by a department. These requirements are routed through the stores. The purchase department raises the purchase order to initiate the purchase process. Purchase orders are created when there is shortage of materials for production of products. The vendor supplies goods based on the purchase order. All purchase orders are treated as pending purchase orders till the time the material is received from the vendors. On receiving of goods, a receipt note is raised and stock accounts are updated. After the receipt note is created, purchase invoice is created based on which the finance department makes the payment. The stock ledger and the stock registers reflect the updated stock details. The balance sheet, Profit/Loss (P/L) statement, and general ledger reflect the updated general ledger account details. Materials can be obtained from different vendors. Companies purchasing material from different vendors and in varying quantities require a good ERP purchase module. An ERP purchase module streamlines the functioning of procurement and purchase of raw materials, placing orders to suppliers and billing. A good ERP Purchasing module allows tracking of each Purchase Order (PO). The PO is tracked right from the stage when the purchase order and receipt of materials relating these orders are created to purchase invoices and unfulfilled requirements if any. Self Assessment Questions 1. Purchase refers to a business or organisation attempting to acquire __________or _________ to accomplish the goals of the enterprise. 2. Sales, an essential function for an organisation reflects a ____________ in the market. 3. How does the purchase department initiate the purchase process?

7.3 Purchase module
The effects of globalisation, intense business competition, and adverse economic conditions have emphasised the need for efficient purchase
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management. Previously, emphasis was on getting generous amounts of materials and intermediate goods to warehouses in a timely manner, with only shipping and storage costs to worry about. Now, materials must meet ever increasing quality specifications, must be procured in-time, and must be delivered even faster. ERP Purchase module automates the processes of identifying potential suppliers, negotiating price, placing purchase order to the supplier and billing. It streamlines procurement of required raw materials. It records all the details pertaining to a vendor and these details form the master data for vendors who supply goods to the company. It provides complete purchasing control to generate and track purchase orders from Purchase Order (PO) issue to receipts. It provides controls for the complete procurement process, from vendor quoting through receiving, inspection, costing accrual and vendor payment. Emphasis on purchase process is to ensure that materials with correct quality specifications are available at right prices at right time for the smooth functioning of the organisation. Purchase module is firmly integrated with the inventory control and production planning modules. Hence, an ERP purchase module should deliver all the sophisticated features required by contemporary markets. It must cover the entire range of purchasing activities including conventional purchasing methods, automated order organisation, monitoring of order processing, control of materials received, and account verification. Since this module is used to manage vendors (often referred as suppliers), it is also referred to as Supply Chain Management (SCM) module. Various factors such as stiff competition, changing technology, and short product life cycles demand that a company does not order material in excess. The SCM module is designed to meet all these challenges. Suppliers and the company can work in tandem using the SCM module. The suppliers can optimise their resources while the company can optimise its resources and also allow the suppliers to do the same. A supply chain consists of the raw material which is supplied to the manufacturer, who in turn supplies these goods to the wholesalers who distribute these goods to the retailers. The SCM module is designed to handle the entire chain of suppliers. The ability to effectively manage purchasing is a sustainable advantage for both large
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and small organisations. This module provides tools that any organisation can use to reduce costs, increase profitability, and improve competitiveness. 7.3.1 Features of Purchase Module The Purchase module helps to improve your purchasing function. This module controls the inventory purchasing side of your business. You can track purchase orders, supplier prices, and quantities on order. With the usage of Purchase module you can increase your inventory efficiency and eliminate costly shortages. Features of the purchase module include:  Streamlining purchase and process cycles  Capturing materials requirement  Creating quotations from various suppliers  Providing a detailed Supplier/Subcontractor/Service Provider database  Recording Payment terms in PO  Allowing order cancellation and order closing  Enabling multiple delivery schedules, Quotation validity and multiple indents for multiple items in a single PO  Enabling quality inspection of goods  Containing complete import functionality with handling of custom details - Purchase Bill for import, excise consideration in imports  Providing Order tracking reports for complete control on procurement cycle  Providing Management Information System (MIS) for vendor evaluation based on quality, price and delivery time Efficient purchase management processes provide buyers with advanced tools for analysing supplier patterns in terms of price and delivery terms. This also enables them to adopt adequate measures once unfavourable circumstances are encountered. It assists in taking informed decisions and maintaining control throughout the procurement cycle. This module can handle all purchasing and subcontracting activities such as inviting quotations, supplier evaluation, placing purchase order, order scheduling, and billing. 7.3.2 Benefits of ERP Purchase Module The ERP Purchase module provides a complete purchasing control to generate and track purchase orders from PO issue to receipts. It provides
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control for the complete procurement process, from vendor quoting through receiving, inspection, costing accrual and vendor payment. Vendor quotes are collected against items with multiple vendor price comparisons. The purchase module system recommends vendor for each purchase order. Requisitions can be generated automatically from M.R.P. or can be entered by users. Once approved, requisitions can be automatically converted to Pos. The ERP Purchase module is beneficial in many ways to your organization. Some of the major benefits include:  Streamlining purchase processes: It takes control of your purchase process, improves accuracy, and increases employee productivity by automating routine purchasing tasks. It implements a workflow approval process for existing purchase orders over designated purchasing limits.  Reducing operational costs: It reduces repetitive data entry and helps eliminate costly mistakes by moving your requisition process online.  Accessing mission-critical information: It provides instant answers to questions and maintains complete purchasing audit control with detailed information and tracking and management capabilities. It tracks and analyses purchase activity with a comprehensive selection of reports.  Establishing long-term contracts with vendors: It uses blanket purchase orders to record and track extended purchases, giving you greater negotiating power with your vendors and simplifying contract purchase processes.  Monitoring landed costs more effectively: It maintains tight tracking control over costs associated with inventory items and modify costs on a purchase order as items are received. Other benefits include:  Easy management of Purchase and Sales order details  Efficient management of customers, vendors, and company Pos database  Preparation of accurate sales, purchase and item transaction reports  Tracking purchase and sale order number and payment details in the easiest way  Elimination of manual purchasing process and stock outs  Reduced material and inventory costs  Automated reordering of stock inventory
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 

Assessment of vendor performance for meeting delivery dates and quality Minimised cost per transaction of issuing a PO and receiving the products

Self Assessment Questions 4. The Purchase module is also referred to as _____________________. 5. ERP Purchase module ________________ procurement of required raw materials 6. What does the purchase process emphasises on?

7.4 Functioning of ERP Purchase System
ERP Purchase module handles all of the Purchase Requisitions, Purchase Orders, Receiving and Vouchering of Invoices for raw materials, MRP purchases, Maintenance and other MRO purchases, and one-time purchases. These and other terms related to purchase module are briefly explained below.  Purchase Requisitions: You can create purchase requisitions in a variety of ways. This is efficient and saves time as you can create purchase requisition:  Directly from a maintenance requirement  Easily by copying an existing requisition, using the “same as/except” capability  Automatically from MRP for suggested raw material purchases  Easily by entering multiple items or lines on a single requisition After you have created the Purchase Requisition, it is submitted for approval, with approval limits by amount. Your Approver can either approve and forward to Purchasing, or reject and return to the requestor.  Purchase Orders: You can initiate a purchase order in multiple ways. You can:  Enter necessary information to create a new PO from a manual requisition.  Copy a prior PO and change it as needed  Convert an approved purchase requisition to a purchase order, with the ability to split the requisition to multiple suppliers or combine multiple requisitions into one purchase order for the same supplier.
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Make a release against a blanket purchase order.

You can enter multiple items on one purchase order and each item can have multiple deliveries with separate quantity for each delivery.  Receiving: You can combine the functions of recording the receipt of material and then verifying quantity into one transaction, or splitting them into multiple steps if they are performed by different users or at a different time.  Supplier Returns: You can return a receipt to the supplier either during the receiving process or after the receipt has been made. The Supplier return can only be done prior to vouchering of the invoice for the related purchase order or receipt.  Vouchering Invoices: You can create vouchers with a three-way matching of invoices between the purchase order with the price, receipt quantity, and invoice (with price and quantity) from the supplier.  Supplier file: The Purchase module contains a supplier file for accounting and purchasing. The Supplier file includes information such as payment terms, purchasing information, addresses and tolerance for receiving and invoicing. 7.4.1 Purchasing process The standard purchasing flow in any organisation is as follows:  Determination of requirements: Materials requirements are identified either in the user departments or via materials planning and control. This is done either manually or automatically using the materials planning and control system.  Source determinations: The purchasing components identify potential sources of supply based on past orders and existing longer-term purchase agreements. This initiates the process of creating Requests For Quotation (RFQs), which are sent to vendors electronically.  Vendor selection and comparison or quotations: The Purchase module system is capable of simulating pricing scenarios. It allows one to compare a number of different quotations. Rejection letter is sent automatically.  Purchase order processing: The Purchase module system adopts information from the requisition and the quotation in creating a purchase order. These POs are automatically generated or manually created.
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Purchase order follow-up: The system checks the reminder period one has specified. It also provides one with an up-to-date status of all purchase requisitions, quotations and POs. Goods receiving and inventory management: Goods receiving personnel confirm the receipt of goods simply by entering the PO number. By specifying permissible tolerances, buyers limit over and under-deliveries of ordered goods. Invoice verification: The system supports the checking and matching of invoices. This facilitates the process and auditing and clearing invoices for payment.

Self Assessment Questions 7. The Purchase module contains a __________ for accounting and purchasing. 8. How is a purchase order created? 9. What are the different ways of creating purchase requisition? Activity 1: Contact a nearby departmental store and find out the purchase process followed at the departmental store.

7.5 Sales and Distribution
In today's global business environment, one thing that companies can be sure of is rapid change. This change opens new opportunities and throws new challenges. In this ever-changing environment, keeping a competitive business edge means being able to anticipate and respond quickly to changing business conditions. To keep pace with these rapid changes, companies need an integrated and flexible enterprise system that supports all aspects of their business. With today's business environment characterised by growing competition, companies are being forced to streamline business processes. It is no longer enough to simply have the best product. Companies are focusing on core competencies and closer partnerships over the whole supply chain. The following are the typical sales related business transactions in any organisation:  Sales queries such as inquiries and quotations  Sales orders
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   

Outline agreements such as contracts and scheduling agreements Delivery/Shipment Issue invoice/bill After sales support

Sales order processing involves the following:  Inquiry handling  Quotation preparation and processing  Price and tax calculation  Create invoice/bill  Create printed or electronically transmitted documents  Sales transactions monitoring  Delivery scheduling  Contract management Depending on your system configuration, these functions may be completely automated or may also require some manual processing. Figure 7.1 shows sales and distribution module which actively interacts with the Material Management and Financial Accounting modules for delivery and billing.

Figure 7.1: The sales and distribution module Sikkim Manipal University Page No. 161

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7.6 Sub Modules of Sales and Distribution
Typically, Sales and Distribution module contains the following subsystems:  Master Data Management  Order Management  Warehouse Management  Shipping & Transportation  Billing & Sales Support  Foreign Trade 7.6.1 Master Data Management Each company has its own products and customers. It also has the suppliers to supply required raw materials. The task of the Master Data management module is to keep information about all these entities, so that this information is available to the decision-makers and also for the automatic generation of reports, contracts and invoices. 7.6.2 Order Management This module usually includes Sales Order Management and Purchase Order Management. This module supports the entire sales and purchase processes from start to finish. Order Management combines the provision of efficient management solutions with the likelihood of anticipating and responding quickly to changes in global business conditions. Sales Order Management Sales order management is a company's most important point of contact with its customers. The sales order applications help companies manage sales operations quickly and efficiently. They also provide comprehensive solutions for the management of quotes, orders, contracts, prices and customer discounts. The sales order management system streamlines order entry procedures to manage products and requirements of both an individual business and its customers. The system also supports the following features:    Intelligent pricing and discount strategies: capabilities to support „what-if scenarios‟ Provides simulation

Product availability: Identifies where and when that product is available Contract and relation management system: Evaluates whether or not customer contract agreement are being met. It also incorporates
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multilevel customer credit reviews and substantial order blocking functionality.  Sales performance evaluation: Retrieves both current and past information that concern orders, cancellations, budgets and revenue rebate. Commission control: Facilitates calculation of employee and supplier commissions to take note of achieved targets and reward suitably. Electronic Data Interchange (EDI): Streamlines communication throughout a company's supply-chain, from customer to supplier.

 

Purchase Order Management Purchase order management is increasingly essential in today's ever changing competitive business environment. It enables a company to make the correct purchase decisions about quality and price. Purchase order management includes online requisitioning, centralised contract management, Just In Time (JIT) schedules and vendor management. Purchase order management enables purchase quotation to be sent to multiple suppliers. The purchase contract information is made available to the people in the purchasing department. Figure 7.2 shows the purchase flow. Purchase requisition is a function used in the purchase process. Purchase requisitions allow companies to enter requirements for various types of items. Requisitioning can be linked to workflow authorisation purposes and to approve suppliers. Schedules can be used instead of orders, to provide detailed purchase and delivery information.

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Figure 7.2: Purchase flow

These schedules are generated in contracts in JIT environments in which customer service, in-time delivery, and cost reduction are important. The schedules can be sent through the supply chain by means of EDI communication. In addition, schedules are fully linked with other modules of the system. Sophisticated vendor management tools allow companies to check the reliability and performance of vendors. The vendor rating system can handle both objective and subjective criteria. Objective criteria are tracked and traced automatically by the system and subjective criteria are determined by the user. Together, these criteria enable companies to make the right purchase decisions with regard to quality, price, and delivery. Purchase Order Analysis enables historical as well as statistical data to be used to assist in the analysis of purchase activities. 7.6.3 Warehouse Management This module provides real-time information about inventory levels across the enterprise and tools to manage the daily operational needs of warehouses. Coordination of an organisation's warehouse network is one of today's most important business needs and requires an understanding of the relationship
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between the different organisation units such as warehouses, production facilities, sales offices, and purchase offices. Various components of a good Warehouse Management application is designed to meet a wide range of warehousing needs, such as the mapping of internal goods flow within warehouses and the monitoring of warehouse inventory transactions. Components of a good Warehouse Management application include:  Inventory Planning: This comprises of all planned inventory movements, which enable the accurate forecasting of trends and the consequent adjustment of reordering points, safety stock, lead-times for orders, and service levels.  Inventory Handling: This allows monitoring of all warehouse order scenarios such as the receipt and issue and transfer of inventory. To ensure fast communication with suppliers and customer, advanced shipping notifications can be received or sent by means of EDI which enables shipments to be received and allocated ahead of time.  Inventory Reporting: This function permits full visibility of inventory at single or multiple sites and provides a company with the tools to give customers accurate delivery dates.  Inventory Analysis: This function enables the analysis of information that result from warehousing activities and the use of feedback in process optimisation. In addition, inventory analysis supports inventory forecasting and inventory valuation. 7.6.4 Shipping & Transportation Shipping The shipping module supports the following functions:  Monitoring dates of orders due for delivery  Creating and processing deliveries  Planning and monitoring work lists for shipping activities  Monitoring material availability and processing outstanding orders  Picking & Packing deliveries  Supporting transportation planning  Supporting foreign trade requirements  Printing and sending shipping output  Updating data related to goods
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Figure 7.3 shows shipping process. The 'Delivery note' is the central shipping document. When is a delivery created (at the shipping point), shipping activities such as picking and delivery scheduling are initiated and monitored, and the data generated during shipping processing is recorded. A delivery note can refer to a sales order or to a transportation order for stock transfer. Depending on the requirements, you can manually create deliveries and automatically using work lists. You can make agreements with your customers for complete or partial deliveries and for order combinations.

Figure 7.3: Shipping process

Transportation Transportation is an essential element of the logistics chain. It effects both inward and outward movement of goods. Effective transportation planning is required to ensure that shipments are dispatched without delay and that they arrive on schedule. Costs of transportation play a considerable role in determining the price of a product. It is important that these transportation costs are kept to a minimum in order to keep the price of a product competitive. The aim of the transportation element is to provide basic functions for transportation such as transportation planning and processing, freight calculation, freight
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settlement, customer freight calculation, and customer freight invoicing as well as functions for service agent selection. Activity 2 Contact a manufacturing industry and find out how they manage their purchase and sales orders. 7.6.5 Billing & Sales Support Billing A Sales and Distribution business transaction is completed once it has been billed. The ERP systems support billing functions such as issuing of invoices on the basis of goods and services, issuing of credit and debit memos, cancelling billing transactions, giving rebates, transferring billing data to Financial Accounting, and Purchasing and so on. The billing system is integrated with the other modules like Financial Accounting, so that the documents are automatically generated. Sales Support The Sales Support component helps the sales and marketing department to support existing customers and, at the same time, to develop new business. The Sales Support component functions both as a source of information for all other areas of Sales and Distribution and as an initiating force for acquiring business. Self Assessment Questions 10. Name the sales related business transactions? 11. ______________ module supports the entire sales and purchase processes from start to finish. 12. The billing system is integrated with the other modules like _________________. 13. _____________ is an essential element of the logistics chain. 7.6.6 Foreign Trade In domestic, and increasingly, in international trade, you are required by the authorities to adhere strictly to the laws and regulations of the land. The growing tendency towards the formation of trade areas is a challenge to a company operating on a worldwide basis.

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As markets become increasingly more global and business structures more complex, the need for accuracy in handling the foreign trade needs of a business is gaining rapidly in importance. The entire logistics chain, from the import of raw materials, finished and unfinished goods, to the sale of goods, and the transfer of data to materials management and financial accounts, is significantly influenced by foreign trade activities. These tasks in foreign trade processing can be carried out using the foreign trade system. Foreign trade system helps you meet the rapidly changing foreign trade requirements of your business. This module helps in:  Managing import and export processes and then integrating them efficiently into the supply chain  Identifying licensing requirements for importing and exporting goods based on current regulations  Simplifying reporting with automatic procedures for creating, printing and submitting declarations  Determining which products qualify for preference handling  Updating data in all relevant foreign trade documents at any time prior to the final goods issue.

7.7 Summary
ERP Purchase module streamlines procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, placing purchase order to the supplier, and billing processes. This module manages vendors (often referred as suppliers) and hence this module is also referred to as Supply Chain Management (SCM) module. The Purchase module helps to improve your purchasing function. ERP Purchase module handles all of the Purchase Requisitions, Purchase Orders, Receiving and Vouchering of Invoices for raw materials, MRP purchases, Maintenance and other MRO purchases and one-time purchases Increased efficiency in sales and distribution is a key factor to ensure that companies retain a competitive edge and improve both profit margins and customer service. Sales order management is a company's most important point of contact with its customers. To keep pace with rapid changes, companies need an integrated and flexible enterprise system that supports
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all aspects of their business. The sales order applications help companies manage sales operations quickly and efficiently.

7.8 Terminal Questions
1. 2. 3. 4. 5. 6. 7. 8. Explain the benefits of ERP – Purchase module. Briefly explain the features of ERP – Purchase module. Briefly explain the functioning of ERP Purchase system. Explain the functioning of Order Management module. Name the sub modules of Sales and Distribution module. Briefly explain the need for Sales and Distribution module. Briefly explain the working of Warehouse Management. Briefly explain the working of the purchase department.

7.9 Answers
Self Assessment Questions 1. Goods, services 2. Company's position 3. The purchase department raises the purchase order to initiate the purchase process. 4. Supply Chain Management 5. Streamlines 6. The purchase process emphasises to ensure that materials with correct quality specifications are available at right prices at right time. 7. Supplier file 8. The Purchasing system adopts information from the requisition and the quotation to create a purchase order. 9. Different ways of creating purchase requisition are:  Directly from a maintenance requirement  Easily by copying an existing requisition, using the “same as/except” capability  Automatically from MRP for suggested raw material purchases  Easily by entering multiple items or lines on a single requisition 10. The sales related business transactions are:  Sales queries, such as inquiries and quotations  Sales orders  Outline agreements, such as contracts and scheduling agreements
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 Delivery/Shipment  Issue invoice/bill  After sales support 11. Order management 12. Financial Accounting 13. Transportation Terminal Questions 1. Refer section 7.3.2 2. Refer section 7.3.1 3. Refer section 7.4 4. Refer section 7.6.2 5. Refer section 7.6 6. Refer section 7.6 7. Refer section 7.6.3 8. Refer section 7.2

7.10 Case Study
A business products distributor was manually processing over 300,000 customer orders each year. Heavy order flow prior to shipping cut-off timeframes and a highly variable daily volume created staffing challenges and inconsistent order turnaround times. Despite an effort to process customer orders via EDI, the company continued to receive over 20,000 orders per month via fax and email requiring manual data entry. Customer Service Associates in three different centres manually entered the orders into the order management system with the added pressure of meeting a shipping deadline. As any manual single-pass data entry process there were many errors, especially during peak processing cycles. Due to a complex product catalogue, variety of order types received from customers, and the large customer base, finding and training data entry specialists was a challenge. Fluctuating daily order volumes made maintaining appropriate staffing levels very difficult. During peak demand periods order processing lags would greatly decrease customer satisfaction levels.

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To solve all these problems the company implemented an outsourced automatic data entry solution with sophisticated “free-form” data extraction for their fax and email orders. The solution was able to recognise and capture data from any customer order format with 99.5% accuracy. Order input no longer requires the participation of the company‟s order entry staff, which has reduced labour costs. The solution also receives fax and email orders on behalf of the company directly from customers and converts the hardcopy order to an EDI electronic purchase order for the order management systems. The solution includes a customised web-based portal to support exception processing and a secure web tool for archiving and storing images of all of the original order documents. The solution is completely accessible on demand from any of the company‟s workstations. The solution was fully operational within 90 days and required zero capital investments in hardware, software or labour on the part of the company. Questions: 1. What are the challenges that the company faced before the installation of the Data Entry solution? 2. What are the benefits of the Automatic Data Entry solution?

7.11 Glossary
Term Freight Description Transporting goods commercially. It is a shipment used for regular transactions of any resources. The goods are transported by a large vehicle. The freight rate is usually not very expensive. Management of the supplies and transport required for an operation. It manages the flow of goods, information and other resources between the point of origin and consumption. It involves the integration of information, transportation, inventory, warehousing and material handling. An official form on which a request in made. A formal request is made for providing official services. It is an internal document that an organisation sends to the purchasing department containing details of materials required and the stock available

Logistics

Requisitions

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Streamlining

Contour economically or efficiently. It is reforming the any tasks to make it simpler or easier to ensure that the extent of complexity is reduced. A document that serves as an evidence of some expenditure. It is a receipt that ifs usually used as an evidence of a declaration that a service had been provided and expenditure has been made.

Voucher

References 1. http://www.simplesoftindia.com/projects_erp_purchasemodule.htm 2. Master data management by David Loshin 3. Warehouse management by Michael Hompel, Thorsten Schmidt 4. ERP systems and organisational change by Grabot, Anne Mayere, Isabelle Bazet

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Unit 8

ERP Inventory Control

Structure: 8.1 Introduction Objectives 8.2 ERP Inventory Management Features of ERP Inventory Management Benefits and Limitations of ERP Inventory Management Installing ERP Inventory Systems 8.3 Web ERP Benefits of Web ERP 8.4 Sub Modules of ERP Inventory Management 8.5 Inventory ERP Software Module 8.6 Summary 8.7 Terminal Questions 8.8 Answers 8.9 Case Study 8.10 Glossary

8.1 Introduction
By now you must be familiar with ERP modules like purchasing and sales. This unit familiarises you with how inventory is processed in a warehouse. In large organisations, information is often extended across various departments, resulting in declined performance due to lack of integration. Also considerable cost is involved in maintaining these systems. For example, Boeing depends on many suppliers to supply the components required to build an airplane. The manufacturing process involves fixing the right parts in the right order at right time. This process was managed using 400 separate systems, which were integrated but were not synchronised properly. This resulted in various miscommunications such as parts that were ordered were not delivered on time, forcing Boeing to run into a huge business loss. Later Boeing replaced these primitive systems with integrated Enterprise Resource Planning (ERP) systems. With the need to centralise multiple sources of information, systems that deploy ERP management has emerged as the preferred solution in business organisations.
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Inventory is the largest asset of any organisation. It is a stock of items stored to meet any demands in the future. The reasons for which inventories have to be maintained or kept in stock are:  Time: Whenever an order is placed by a customer, it takes minimum amount of time for the supplier to supply the committed stock. In order to facilitate the process of production in the time lag between order and supply, inventory should always be available as stock.  Uncertainty: Buffer (temporary stock) is maintained to facilitate uncertain and unexpected crises in demand, supply and transportation of inventory. Customers usually expect high quality service from organisations. Hence, inventory must be adequate to meet customers expectations. Therefore, inventory management becomes a necessary part of a successful business. Inventories typically consist of goods, resources, and finished products. This method helps transporting inventory at appropriate time. Inventory management is not limited to delivery of raw materials; it is also the management of these materials as they go through the various stages. However, Inventory control is not the in all the organisations. Organisations need to react quickly to the consumers demand and make cost effective planning in order to remain viable. Efficient inventory management helps the organisation to meet customers’ demands and at the same time it increases the net income. It enables a business to have instant and specific access to the inventory at any time to meet consumer demand. ERP inventory management takes control of a business’s inventory such as purchasing, delivery, and advertising. It mainly helps in eliminating most of the business problems such as inventory shortages, customer service and financial management. Learning Objectives: After studying this unit, you will be able to:  Explain inventory management and its features.  List out the benefits and drawbacks of inventory management.  Describe how ERP inventory systems can be installed.  Explain Web ERP.  List out the benefits of Web ERP.

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Explain the types of inventory management. Describe inventory ERP software module.

8.2 ERP Inventory Management
ERP is a computer system that maintains information database which can be accessed through out the organisation. i.e. the system is centralised. Systems that deploy ERP inventory management allows information sharing across various departments of the organisation and also across geographical locations. It allows employees to view information in reliable and consistent fashion. The systems that deploy ERP procedures maintain only one software system and are dependent on networks. Consider for illustration how the order execution process is managed by SAP. Figure 8.1 shows the execution of a process.
3 1 4

Customer Information

Customer Inquiry

Materials and Capacity Availability

2

Quote

5

6

7

Sales Order

Delivery

Billing document

Figure 8.1: Order Execution Process

From the figure 8.1 you can make out that, whenever a customer makes an enquiry about the inventory (1). A quote is prepared by SAP along with the finance information and date of delivery (2). The quote takes into report what it already knows about the consumer (3). A check is performed to determine the amount of stock or inventory that is available for maintenance (4), and thus resulting in an instant and automatic update of information in
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the database. Once the quote is prepared by the supplier, it is presented to the customer. If the customer accepts the quote, SAP issues a sales order (5) by quoting their prices for each item. The order is then processed as per the requirements by sending the necessary information to various departments of the organisation and delivery is automatically scheduled (6). The cost issues of customer billing are also automatically processed (7). Thus the SAP tool manages the entire ERP cycle. ERP Inventory module is a simple yet dominant inventory tracking module that facilitates the process of tracking and controlling the inventory and also provides the flexibility of customisation. Earlier, paper based systems were used to process information from various departments of an organisation and it consumed time. ERP inventory management system reduces time lag and makes the entire process efficient, by maintaining the appropriate level of stock in the warehouse. It helps in maintaining the suitable level of stock in the warehouse. The activities of inventory control involve:  Identifying inventory requirements  Setting targets  Providing techniques and options  Monitoring item usages  Integrating inventory balances  Reporting Inventory Changes in inventory are automatically updated. This enables inventory management employees to see if an item is currently in stock. Since the database is centralised, the ERP inventory system allows flexibility in customisation and configuration with various applications from different departments of an organisation. However, the systems that deploy ERP management are dependent on networks. 8.2.1 Features of ERP Inventory Management ERP inventory management has many features .Some of them include:  Quality control based on QC Parameters  Analysis which help in maintaining best possible stock level  Extensive verification of stock

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Online status of item quantity in terms of on-hand, on –hand available, reserved, ordered, to order, rejected, defective and rework-able quantities High degree of flexibility for managing complex storage needs and automatic update of warehouse

ERP management uses bar codes to maintain inventory items. A bar code is a small image that has bars (lines) and spaces fixed on the store items and used as an identification mark of a particular product. This makes tracking stock much easier. Once the items are bar-coded, they get scanned and their product information is entered into the ERP inventory management system. Introducing bar code labels on stock helps companies save money as it keeps the list of stock updated. Employees can easily see when certain quantities are low and need to re-stock. Customers also benefits from this as customers can see what products are currently in stock. The main purpose and benefit that the organisation can derive from ERP management system is that the ERP system is company-wide and has a single software system, where as organisations that do not employ ERP management will have dissimilar and diverse software applications that may not be compatible with one another. 8.2.2 Benefits and Limitations of ERP Inventory Management ERP inventory management system has many benefits. Some of them include:  Tracking of orders from the point the order is received to its release.  Facilitating appropriate communication between different areas.  Reducing the threat of loss of information.  Providing a ‘top down’ summary of the mechanism of a company.  Setting up an outline of security to protect against theft from external or within a company.  Replacing old and primitive paper based systems that improves efficiency. Limitations of ERP Inventory Management ERP inventory management helps an organisation in many ways. However, it also has some limitations. They are:
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    

Limited customisation Expensive Not friendly with every type of business like small organisations. Harder to fix responsibility as it is a company-wide system that connects all areas When all departments in a company are not willing to share information, maintenance of sensitive data can disturb the work flow

8.2.3 Installing ERP Inventory System ERP Inventory systems are expensive, and are complex to install. Usually a third party contractor is hired to install the software and hardware, and these vendors who provide installation also suggest consultation and customise the system to the business needs. However, installation is a tedious task and consumes time depending on the size of the organisation and the requirements of the company. Typically, installing ERP Inventory system takes more than a few months, and larger organisations can take up to a year to install ERP Inventory system. There are many consulting vendors or firms available in the market to install ERP Inventory system; besides installing the system, they also train the employees to use the installed system. An ideal installed inventory system should always be able to have answers to the most anticipated questions such as:  What and how much stock is available in the warehouse?  What is sold and to which organisation?  What are the financial issues related to price and margin?  What orders that are placed, but remains undelivered? Installation of ERP Inventory systems is complex and not a simple job. However, deploying web based Inventory management ERP is simple and consumes less time for installation. Failure of ERP Inventory installation Many times, when installation of ERP software fails, ERP software vendors are held responsible. However installation failure can occur due to the following factors:  Operating strategy did not suit organisation design and operation.  The implementation and completion took longer than anticipated.
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  

Pre-implementation actions were not well planned. People were not well ready to learn and operate the new ERP system. Cost related issues leads to difficulties in implementing and using ERP Inventory systems.

8.3 Web ERP
Web ERP has become a necessity for businessmen to be aware of their stock and inventory from anywhere, at anytime. Web ERP is an absolute web-based ERP system that requires only a web browser and PDF reader. It has now become an open source application and is offered as a free download. Web ERP systems are gaining popularity than ever. It allows businessmen to update their systems in large organisations without the need of installing updates at any remote locations, almost immediately. It provides real time information about finance, inventory, employee management, etc by providing advanced levels of service to consumers and suppliers 8.3.1 Benefits of Web ERP       Web ERP Inventory system has many benefits. Some of them include: It processes data on the server side. Therefore, no installation is required on the client machines. It provides Multilanguage support; users can view the interface in their preferred language. It provides Multi-theme support; users can view the interface in their preferred graphical theme. It runs on any web server and suitable for both high speed and low speed internet connections. It can be installed on any device that has internet access.

Web ERP is developed using PHP as a web development language. These scripts are developed with stability and ease so that the application becomes readable with a minimum knowledge of scripting in PHP and the structure of ERP. The logic is made as clear and simple as possible in order to remove any generalisation from the code, and to make it readable for all kinds of
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employees. It can also be configured easily on any operating system and the processing constraints required are also economical. Web ERP has many features that make it suitable for maintaining organisations of different sizes. It provides an easy structure of processing by supporting features such as multiple inventory locations and multiple currencies. .Web ERP maintains all records that provide information like, amount of inventory stock available, amount of inventory ordered, amount of inventory sold, and amount of inventory that is defective. Activity 1 Visit a small organisation that deploys Web ERP. Find out how transactions are processed online. Self Assessment Questions 1. How are changes in inventory updated? 2. What is a bar code? 3. ERP Inventory management provides a ‘top down’ summary of the mechanism of a company, State True or False. 4. Moving inventory from a warehouse is called _________________. 5. What is minimum inventory requirement?

8.4 Sub Modules of ERP Inventory Management
ERP Inventory management module takes care of transactional workflow in an organisation in sequential order. ERP Inventory module is subdivided into different modules such as:  Inventory requisition: The function of inventory requisition is to take the inventory constraints from various departments of an organisation. This is achieved when various departments fill the inventory requisition form. On filling the form, the head of the department fills up the quantity/quality of the inventory required, considering the minimum inventory required, maximum inventory required, and the current inventory available. Inventory order assessment: Once the form is filled, inputs are taken from the form and processed. The inventory wanted by the various departments is compared with the minimum inventory required. Once

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the comparison is done, the final requirement for various departments is fixed and a list of suppliers for the inventory is then formulated.  Inventory placing: Once the supplier is chosen, an order is placed by filling the order form. The order form has the following information: ○ Order date ○ Quality wanted ○ Transportation mode ○ Mode of payment ○ Supplier ID ○ Department ID ○ Price per item On filling up this information, an order is placed to the supplier.  Supplier Performa: In this sub module, the supplier provides quotation for further transactions, by filling up the proposal form in which the supplier needs to fill-up the following information such as: ○ Quantity and quality of goods they can provide ○ Time required to supply the order ○ Price they charge for each item ○ Modes of payment.

With this information provided by the supplier, further transactions can be carried on.  Order received: In this sub module, a comparison between order placed and order received is recorded i.e. a comparison is done between Date of placing order with Date of receiving order, and Quality with Quantity of order placed. Once the comparison is done, the amount to be paid to the supplier and the mode of payment is decided. Quality checks: It is necessary to check if the deliverables have met the expected outcome. Therefore, quality check becomes an important phase where Research and Development(R &D) department performs a check and the department head acknowledges it by filling up a quality assessment form. Inventory bills and challans: In order to ensure safe payment, bills and challans are chosen to represent the amount paid, payment mode along with the ID of supplier and Receipt ID.

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Minimum inventory assessment: Minimum inventory assessment aims at assessing minimum inventory inputs or requirements from various departments of an organisation. The assessment is done by preparing a Performa which is circulated to various departments and they are expected to fill up their minimum inventory requirements. This assessment is done, considering various factors such as costumers order received, inventory in hand and scrap. Minimum inventory requirement: Minimum inventory requirement is the amount of inventory less than which employees cannot work i.e. it is that minimum amount of inventory required to perform any task. Maximum inventory assessment: In this sub module an assessment is done for maximum amount of requirements. This information is gathered from various departments to guarantee that no wastage happens. The assessment is done by considering factors such as customers order received, inventory in hand, etc. Maximum inventory requirement: It is the amount of inventory which is sufficient to perform any task. Activity 2 Visit an organisation that deploys ERP system for managing inventory and find out how are the ERP suppliers chosen, how an order is placed ,how is the quality of the inventory maintained, and what are their modes of payment?

8.5 ERP Inventory Software Module
Managing inventory is essential for an organisation to regulate the planned production and avoid problems such as running short of inventory or stock. The primary objective of managing inventories is to maintain a balance between the need for product required and product available. ERP Inventory software module maintains reports of warehouse supplies and keeps track of the transactions that happen to/from the warehouse. It maintains the warehouse taking into account various constraints such as:  Material request management: An request for materials is made from various departments  Material Issue: Materials are issued as asked for  Material Receipt: A receipt is issued from the seller
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Inter warehouse/Location transfers: The materials are moved from the warehouse or within the warehouse Stock Valuation: Stock is verified mechanically

Self Assessment Questions 6. _________________ Module assures safe payment mode. 7. Moving of inventory within the warehouse is called _________________. 8. ERP Inventory systems are economical. State True or False. 9. _________________ requests for materials from various units of the organisation. 10. The systems that deploy ERP systems support cross functional suite for transactions. State True or False.

8.6 Summary
Inventory or stock is an important asset of a successful business. Therefore, managing inventory becomes a crucial part for carrying out error free transactions. ERP Inventory management allows various methods and modules to maintain the required amount of stock in a warehouse. One of the major benefits of it is that changes are automatically updated in the inventory. Thus, by deploying ERP Inventory systems in organisations, companies are able to integrate information from various units, there by increasing the order issues and providing faster sales and hence proving better customer service by making the systems standardised and centralised. Thus systems that deploy ERP Inventory management provide a cross functional suite that supports various kinds of transactions, increasing quality and efficiency of supply with decreased costs.

8.7 Terminal Questions
1. 2. 3. 4. 5. List out the different activities of inventory control. How does ERP inventory module maintain inventory items? List out some merits/demerits of inventory management control What is web ERP? What are its benefits? List out the different modules under ERP Inventory management.

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8.8 Answers
Self Assessment Questions 1. Automatically/mechanically 2. Image to identify a product number 3. True 4. Location transfers 5. Minimum amount of stock required to work 6. Inventory Bills and Challans 7. Inter-warehouse transfer 8. False 9. Material request management 10. True Terminal Questions 1. Refer section 8.2 2. Refer section 8.2 3. Refer section 8.2 4. Refer section 8.3 5. Refer section 8.4

8.9 Case study
ERP Inventory management implementation Organisation: Cruise Coffee and Tea Before, Cruise Coffee and Tea implemented ERP, they encompassed strict customisation and older systems. This led to various problems such as, increasing lack of ability to keep up with the demands or orders placed on them and lack of visibility across the supply chain without any central inventory management in place. This finally pushed the business to send out a Request for Proposal (RFP) to ERP system vendors. One objective of choosing ERP system mainly was to avoid customisation or to keep the level of customisation as minimum as possible. This is the key to any ERP implementation because more customisation means a longer timeline, more testing, more costs and more probability that the project will fail.

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But ERP systems managed inventory in a top down approach and in one transactional workflow. Placing orders and handling every move of inventory in the warehouse was just automated and consistent. Originally, financials were made first, then order fulfilment and then manufacturing these separate releases resulted in a lot of extra customisation. Then, when ERP was implemented, one system handled order tracking, financial systems were also made centralised as well. Earlier, financial information had to be gathered from various departments and systems and processed manually. But from the time Cruise Coffee and tea threw light on ERP system implementation, they now handle orders from its 195 retail stores, 8,300 grocery stores and other partners helping with the business expansion. Questions: 1. What role did ERP management play in the organisation? 2. What were the reasons for the organisation to avoid excessive customisation?

8.10 Glossary
Term Inventory Description Stock/supply in the business. It is a list for goods and materials that are held available in stock by an organisation. They are the raw materials, work in process goods and finished goods that are essential for the business of the organisation. Stock room, room where stock is deposited. It is a commercial building for storing the goods. They are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs etc. Deploying inventory management online. It is a complete web based ERP system that requires only a web browser and a PDF reader to use. It is developed as an open source application and is also available as a free download to use. A bar code is the small image of lines (bars) and spaces that is affixed to retail store items, to identify a particular product number. It is an optical machine readable representation of information. It shows certain data on certain products.

Warehouse

Web ERP

Bar code

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References 1. ERP: Tools, techniques, and applications for integrating the supply chain by Carol A. Ptak, Eli Schragenheim 2. http://www.nickmutt.com/web-based-erp.htm 3. Enterprise resource planning (ERP): The dynamics of operations management by Avraham Shtub

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Unit 9

ERP – A CRM Perspective

Structure: 9.1 Introduction Objectives 9.2 Customer Relationship Management (CRM) Components of CRM System Features of CRM 9.3 Types of CRM Sub Modules in CRM Variations in CRM 9.4 Implementation of CRM Choosing a CRM system Implementation Issues CRM Adoption Issues 9.5 Benefits of CRM Business Benefits of CRM 9.6 Challenges of CRM 9.7 Summary 9.8 Terminal Questions 9.9 Answers 9.10 Case Study 9.11 Glossary

9.1 Introduction
By now you must be familiar with the concept of ERP and a few modules of ERP such as purchase, sales, quality management and so on. This unit familiarises you with ERP - CRM module. Organisations continuously strive for increased sales performance, superior customer service and enhanced customer relationship management. In order to accomplish these objectives, organisations need solutions that provide rapid access to centralised customer and prospect information. Also, to ensure competitive advantage, an analysis of customer oriented processes and data as well as strategies for improving them are required.

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Efficient communication with customers and partners is vital for any organisation. In today‟s fast moving and competitive business environment, it is important to provide customers with timely support when problems arise. Customer problems may be ones that can be resolved with a known or researched solution, though some problems involving design of the product or software need to be dealt in a different way. Many companies today use Defect Tracking Systems to track and manage these issues. These systems can also help manage feature and enhancement requests, help plan and document product releases. Usually, the Customer Support system and the Defect Tracking System are separate software entities. When a problem arises, the support agent provides technical support and then documents the problem. Then, the engineering department enters this data into the Defect Tracking System. The Engineering department may not have access to all the information collected by the customer support department, and may have to retrace to steps already taken by the Support Agent. As these two functions are handled by two separate systems, processing the problems is delayed. Maintaining two different systems has many costs and issues. This may also not be in the interest of the customer. Hence, integrating these two systems into a single comprehensive system enhances the ability to detect and resolve problems. This keeps the customers happy, and costs less to use and operate. This can be achieved by implementing a Customer Relationship Management (CRM) that can perform both the functions. The following sections provide a detailed view of CRM and its implementation. Learning Objectives: After studying this unit, you will be able to:  Explain the concept of CRM.  Describe the types and sub modules of CRM.  List out the benefits and challenges of CRM.  Elucidate the implementation of CRM.

9.2 Customer Relationship Management (CRM)
CRM software supports front office operations and the customer service, sales, and marketing functions. CRM software is available as stand-alone
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software package also. In recent years, it has become a primary component of ERP software solutions. CRM was earlier just a label for a category of software tools but today it generally denotes a company-wide business strategy. It embraces all customer-facing departments and extends even beyond. It is a business system that consists of business strategies, business processes, and enterprise information systems. CRM software system automates customerrelated business tasks. This software includes many features such as activities, history, related contacts, addresses of your customers, and their relations with your competitors. ERP CRM module helps you know your customer better. It attempts to enhance the relationship with customers. CRM is a broadly recognised, widely-implemented strategy for managing a company‟s interactions with customers and sales prospects. It involves using technology to organise, automate, and synchronise business processes. The business processes include sales related activities, marketing, customer service, and technical support. Goals of CRM system is to learn more about customers' needs and behaviours in order to develop stronger relationships with them, and to facilitate acquiring, enhancing and retaining customers. You can use the CRM system to:  Develop, maintain or improve customer relationships  Capture customer interactions information and provide your customersupport teams a single integrated information of your customer  Become customer-driven and therefore be successful  Increase revenues and profits while lowering the costs of marketing, selling, and servicing your customers CRM in its broadest sense simply means managing all customer interactions. In practice, this requires using information about your customers and prospects. It helps you interact more effectively with your customers in all stages of your relationship with them. These stages are known as customer life cycle. The customer life cycle has three stages: 1. Acquiring customers 2. Increasing the value of the customer 3. Retaining good customers
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One of the primary functions of CRM software is to collect information about customers. As such, a company must consider the desire for customer privacy and data security as well as the legislative and cultural norms. Some customers prefer assurances that their data will not be shared with third parties without their prior consent and that safeguards are in place to prevent illegal access by third parties. 9.2.1 Components of CRM System The CRM system basically consists of four components, they are:  CRM Software: The core of a CRM system is module-based CRM software application. Each software module automates business activities pertaining to one functional area of the CRM. Common modules in CRM software system include customer contact management, direct marketing, sales automation, call centre applications and helpdesk module. Business Processes: Business processes within an organisation are grouped into three levels – strategic planning, management control and operational control. While ERP has been promoted as solution for supporting or streamlining business processes at all levels, CRM systems are clearly designed to enhance management control and operational control in the chain of customer relationship. Users: The primary users of CRM systems are workers that perform management control and operational control. In an extended enterprise environment, the CRM users may include customers and business partners. Hardware and Operating Systems: UNIX is the most common operating system for running CRM software. Larger CRM systems are usually UNIX based. Windows NT and Linux are other popular operating systems to run CRM software.

9.2.2 Features of CRM CRM is all about managing your customers, partners, vendors and other stakeholders efficiently. The CRM module provides a platform for enhanced customer service and customer satisfaction. All features from order acceptance, execution, delivery, and invoice issue to after-sales service can be routed through the CRM module. There are certain features that you
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should look for when you select an ERP CRM module for your organisation. The CRM should be:  A centralised communication platform  Either a standalone or integrated module  User-friendly  Platform-independent  Remotely accessible  Capable of seamlessly integrating with other ERP modules  Integrated with the service and sales management To further enhance the service delivery proposition, the CRM module can be integrated with mobile devices (smart phones and Personal Digital Assistants (PDAs)), enabling field personnel to access, administer and enter data directly into the system. CRM is not merely a technology; it is in fact the move towards serving your customers better and more efficiently. The top management should utilise CRM's complete potential to maximise the benefits for their organisation. Self Assessment Question 1. CRM software system automates _______________ business tasks. 2. Name the components of a CRM system. 3. The CRM module provides a platform for enhanced ______________ and _____________________. Activity 1 A Customer Product Call Centre wants to add a short customer survey at the end of each customer call. Create a questionnaire for the customer based on the business processes.

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9.3 Types of CRM
Figure 9.1 shows the different types of CRMs. There are three main types of CRMs. They are Operational CRM, Collaborative CRM and Analytical CRM.

Figure 9.1: Types of CRM

Operational CRM: This CRM deals with providing complete front office support to sales, marketing and similar services. Each customer interaction is recorded and added to customer's history. This can be easily retrieved from database for future reference. The benefit of maintaining this customer interaction history is that the customers can easily communicate with the service personnel without having to repeat any of the earlier communication or information. This CRM is mainly useful in automating customer-centric processes and providing appropriate support to sales and marketing services. Hence, this CRM software is used popularly in call centres or Business Process Outsourcing (BPO) companies for supporting the call centre staff. Collaborative CRM: This CRM directly communicates with customers without the involvement of any sales or service representatives. This direct communication can be carried out through a variety of channels such as email, phone, SMS etc. Collaborative CRM includes: ○ Providing efficient communication with customers across a variety of communications channels ○ Providing online services to reduce customer service costs
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Providing access to customer information while interacting with customers

This Collaborative CRM reduces the company costs and improves the services provided.  Analytical CRM: This CRM analyses data (gathered as part of Operational CRM, or from other sources) in an attempt to identify means to enhance a company's relationship with its customers. The results of this analysis can be used to design targeted marketing campaigns, for example: ○ Acquisition: Cross-selling, up-selling ○ Retention: Retaining existing customers ○ Information: Providing timely and regular information to customers Other examples of the applications of analyses include: ○ Contact optimisation ○ Evaluating and improving customer satisfaction ○ Optimising sales coverage ○ Fraud detection ○ Financial forecasts ○ Price optimisation ○ Product development ○ Program evaluation ○ Risk assessment and management ○ Strategic marketing ○ Operational marketing Data collection and analysis is a continuous and iterative process. Ideally, business decisions are refined over time, based on feedback from earlier analyses and decisions. Most analytical CRM projects use a data warehouse to manage data. Analytical CRM is used in management decisions, predicting future trends, analysing customer behaviour, planning and executing marketing campaigns and so on. 9.3.1 Sub Modules in CRM We already know that CRM is the process of managing relationships with customers by capturing, analyzing, and storing customer information. The
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functionality of a CRM system can be studied under three sub modules. They are Marketing, Service and Sales. All these modules are Operational, Collaborative and Analytical. Marketing module The functionalities of marketing module of CRM comprises short term execution of marketing related activities and long term planning within a company. It also helps in activities like campaign management, lead management, and planning. Marketing module enables your company to run marketing campaigns using different communication channels. This targets potential buyers using a product or a group of products as a message. It generates sales related opportunities which then can be converted into sales. Service Module The service module of CRM focuses on managing planned and unplanned customer service. This module helps in activities such as Service Order Management, Service Contract Management, Planned Services management, Warranty Management, Installed Base (Equipment) Management, Service-Level Agreement Management, Resource Planning and Scheduling and Knowledge Management Sales Module The sales module of CRM focuses on managing and executing the presales process of the company by making it more organised. The sales teams in most companies are responsible for capturing opportunities and customer interaction. The CRM helps the sales team in processing this data and following-up it in the future. The CRM also helps in organising all relevant data received and captured for a deal, into one place. Some of the captured data can include expected budget, total spending, prospective customers, key players, products interested in, important dates and expected closing dates of a deal. Each of these modules can be stand alone applications depending on organisational need. It is important that the right software is selected and implemented correctly. Then only any CRM can be effective.

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9.3.2 Variations in CRM CRM module can be customised for specific business process. The following modules are a few variations in Operational CRM: Sales Force Automation (SFA) As the name implies, SFA system provides an array of capabilities to streamline all phases of the sales process, minimising the time spent on manual data entry and administration. This enables companies to successfully follow more customers in a shorter span of time. The heart of SFA is a contact management system for tracking and recording every stage in the sales process for each prospective customer. SFA automates a company's critical sales and sales force management tasks, such as forecasting, sales administration, tracking customer preferences, performance management, lead management, account management, contact management, and quote management. Enterprise Marketing Automation (EMA) The EMA systems for marketing help the enterprise identify and target its best customers and generate qualified leads for the sales team. A key marketing capability is managing and measuring multi channel campaigns including email, search, social media and direct mail. EMA also encompasses capabilities for managing customer loyalty, lists, collateral, and internal marketing resources. EMA provides information about the business environment, including information on competitors, industry trends, and macro environmental variables. EMA applications are used to improve marketing efficiency. Customer Service and Support (CSS) CSS automates certain service requests, complaints, product returns and enquiries. Organisations have recognised that customer service is an important differentiator. They are, therefore, increasingly turning to technology platforms to improve upon their customer relationship. A 2009 study revealed that only 39% of corporate executives believe their employees have the right tools and authority to solve customer problems.1

1

InsideCRM (2007) Get It Together with Collaborative CRM

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In fact, today‟s surplus customer service channels have prompted many companies to deploy integrated support applications that deliver knowledgeenabled solutions across all customer service channels. Self Assessment Questions 4. Name the three types of CRMs 5. _____________ CRM is used in management decisions 6. What is the need for maintaining a customer interaction history? 7. _________________ CRM reduces the company costs and improves the services provided. 8. _________________ system provides an array of capabilities to streamline all phases of the sales process.

9.4 Implementing CRM
Many enterprises have derived great benefits from CRM. Some of them include dramatic increases in revenue, higher rates of customer satisfaction and significant savings in operating costs. However, choosing and implementing a system is a major task. The process of building CRM system can be divided into two phases: CRM selection and CRM implementation. 9.4.1 Choosing a CRM System Although CRM is powerful software, many companies find that choosing the right CRM is a difficult task. Many companies realise that providing a high level of service to their partners and customers is an important factor of being successful in the market. Many small business owners have realised the importance of CRM for a long time, even if they were not familiar with the actual term and the extend of difference it can make to their businesses. Most small business owners realise that customers are the lifeline of their business, and hence they work hard to provide customers with the best service possible service. CRM is more important to large companies compared to smaller businesses. This is because large companies being so large that it is difficult for them to maintain a strong relationship with their customers. In many cases, both the employees and customers of large company often complain that the company "treats them like numbers." Smaller companies do not have this
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problem because their customers often interact with them on an individual basis. To choose a right and powerful CRM solution, a company must know what to look for. Following is a list of points to be considered:   Understand the company’s strategies and goals: This assists in picking a CRM solution that will help in becoming successful. Consider web based CRM: Internet has become a global tool and being used by more and more people everyday, companies that do not use it to their advantage are left behind. Check for product cost: Companies must purchase a CRM solution that is within their price range. It is not advisable to spend too much than what is actually required. Check for scalability: The CRM solution should be capable of adapting to changes and compliant to emerging technologies. Implementation time: The best CRM solutions are those which can be deployed within a short period of time. The sooner the system is implemented, the faster the company can improve both its quality and profits. Check for usability: The CRM solution should be user-friendly. Employees must be able to learn its usage within a short period of time.

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For all sizes of enterprises, a complete and detailed plan is required to obtain the funding, resources, and company-wide support. This can make the initiative successful. Benefits must be defined, risks assessed, and cost quantified in three general areas:  Processes: Though CRM has many technological components, business processes is always its core. CRM is a more customer-centric way of doing business. This way of business is enabled by technology that consolidates and intelligently distributes pertinent information about customers, sales, marketing effectiveness, responsiveness, and market trends. Therefore, before choosing a technology platform, you need to analyse its business workflows and processes. Moreover, planners need to determine the types of customer information that are most relevant, and how best to employ them.

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People: For an initiative to be effective, you must convince your staff that change is good and that the new technology and workflows will benefit them as well as customers. Collaboration, teamwork, and twoway communication should be encouraged across hierarchical boundaries, especially with respect to process improvement. Technology: In evaluating technology, key factors include: ○ Alignment with your company‟s business process strategy and goals ○ The ability to deliver the right data to the right employees ○ Ease of usage

A chosen group of executives who understand the business processes to be automated as well as associated software issues must select the platform for CRM software. Selecting appropriate application can take a long time depending upon the size of the company and the volume of data. 9.4.2 Implementation Issues The CRM technology should be implemented only in the context of careful strategic and operational planning. Implementations invariably fall short when one or more of the following aspects are ignored:  Planning: Initiatives can easily fail when efforts are made only to choose and deploy software, without an accompanying rationale, context, and support for the workforce. In other instances, enterprises simply automate flawed customer-facing processes rather than redesign them according to the best practices. Working toward a solution: Organisations should overcome lack of communication and common goals among departments. Experts advise organisations to recognise the immense value of integrating their customer-facing operations. In this view, internally-focused, departmentcentric views should be discarded. This favours the reorienting processes toward information-sharing across marketing, sales, and service. For example, sales representatives need to know about current service issues and relevant marketing promotions before attempting to cross-sell to a specific customer. Marketing managers should be able to leverage customer information from sales and service to better target campaigns and offers. Integration: For many companies, CRM is a form of initiative that addresses a glaring need like improving a particular customer-facing
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process (via simple contact management or sales planning) or automating a favoured sales or customer support channel. Such “point solutions” offer little or no integration or no alignment with a company‟s overall strategy. This can result in customer dissatisfaction. Hence a seamless integration of these point solutions along with alignment to the company‟s business strategy is necessary for successful CRM implementation. 9.4.3 CRM Adoption Issues Historically, reports revealed that more money was spent on CRM software that was not used. A contemporaneous AMR Research study found that out of 80 large customers surveyed, 47% had difficulty with end-user adoption, leading to abandoned projects or unused software modules. In many big organisations that have installed the ERP – CRM system, the biggest challenge is getting their staff to use the CRM systems they had installed. The staff either did not use more than half the functionality of the existing system or used functionalities that were easy to use. Data synchronisation was one of the major issues that the staff faced. Hence, specialists recommend the following for boosting adoptions rates and coaxing users to blend these tools into their daily workflow:  Choose a system that is easy to use: All CRM solutions are not created equal. Some vendors offer more user-friendly applications than others. However, while choosing a system, simplicity must be an important decision factor as much as functionality. Choose the right capabilities: Employees need to know that time invested in learning and using the CRM yields work advantage and improves personal work efficiencies. Else, they tend to find workarounds or ignore the system. Provide training: Changing the way people work is not a simple task. Even with today‟s more usable CRM systems, many staffers still need assistance with learning and adoption. Provide consistent support. Prompt, expert, easily-accessible and round the clock technical support goes a long way in encouraging the staffers to use new system willingly and confidently.

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9.5 Benefits of CRM
An excellent CRM is the heart of every business success. With CRM, you can easily understand customer requirements, meet those needs effectively, predict market trends and enhance your business bottom line. A properly implemented CRM system can bring significant benefits to your organisations. System means, the complete consortium of 3 P's, People (employees, culture), Procedures (way of doing business), and Programs (supporting applications and not just an application running on a computer). The advantages that a CRM can bring are:  Shared or distributed data: Customer relationships are happening at many levels and not just through customer service or a web presence. They start to understand the need for sharing all available data throughout the organisation. A CRM system is an enabler for making decisions and follow-up at levels. Better customer service: All data concerning interactions with customers is centralised. The customer service department can greatly benefit from this because they have all the information they need. And through the use of push-technology, customer service representatives can lead the customer towards the information they need. The customer experience is greatly enhanced. Increased customer satisfaction: The customer feels that he is more "part of the team" instead of just a subject for sales and marketing. Customer service is better and the needs of the customer are anticipated and addressed. Many companies believe that more satisfied customers means a good predictor for repeat business. Better customer retention: If a CRM system can help to fascinate customers, it increases customer loyalty. Customers keep coming back to buy again and again. Hence, higher customer retention is assured More business: If you are delivering the ultimate customer experience, this seeds the word-of-mouth buzz, which brings in more new business. More profit: More business at lower cost equals more profit.

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Customer relationship management tools have also been of great help to companies in attaining their business objectives.
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The CRM systems help in collecting data that help in enhanced customer satisfaction. The types of data CRM systems can collect are:  Responses to campaigns  Shipping and fulfilment dates  Sales and purchase data  Account information  Web registration data  Service and support records  Demographic data  Web sales data 9.5.1 Business Benefits of CRM Implementing a CRM solution might involve considerable time and expense. However, there are many potential benefits. A major benefit can be the development of better relations with your existing customers. This can result in:  Increased sales through better timing by anticipating needs based on historic trends  Identifying needs more effectively by understanding specific customer requirements  Cross-selling of other products by highlighting and suggesting alternatives or enhancements  Identifying profitable customer companies This in turn can lead to better marketing of your products or services by focusing on:  Effective targeted marketing communications aimed specifically at customer needs  A more personal approach and the development of new or improved products and services in order to win more business in the future Ultimately this could lead to:  Enhanced customer satisfaction and retention, ensuring that your good reputation in the marketplace continues to grow  Increased value from your existing customers and reduced costs associated with supporting and servicing them. This increases your overall efficiency and reduces total cost of sales
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Improved profitability by focusing on the most profitable customers and Dealing with the unprofitable in more cost effective ways

Once your business starts to look after its existing customers effectively, efforts can be concentrated on finding new customers and expanding your market. The more you know about your customers, the easier it is to identify new prospects and expand your customer base. Customer needs change over time, and technology can make it easier to find out more about customers and ensure that everyone in an organisation can exploit this information. Activity 2 A Television marketing company intends to implement a CRM to have better customer relationship. How do you go about the implementation process with respect to the marketing company? Also, list the benefits of the new proposed CRM. Self Assessment Questions 9. ________________ is the core of a CRM 10. What are the aspects that result in failure of CRM system?

9.6 Challenges of CRM
Customer-centricity is the key to success in any business today. Building lasting customer relationship is a strategic advantage. Many companies around the world have leveraged CRM strategies to gain competitive advantage. As more and more companies rush to implement CRM, precautions must be taken to do it right. It is approximated that 50-70% CRM implementations fail. Hence, it is essential to identify the key challenges, and address them to build a strategy that can make your CRM successful. The key challenges that companies face are:  Understanding CRM: CRM is not a software. It is a business strategy and is implemented using a software solution. The solution typically encompasses all customer facing departments like sales, marketing, customer service etc, of a company. Hence, CRM is a term collectively used to refer to a combination of business strategy and associated software.

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 

Getting clarity on objectives: What are the set of objectives the company wishes to achieve with CRM? Ensure that these objectives are listed. No core CRM team: Unlike other software implementations, IT team alone should not be expected to roll out a CRM system; it is very critical for companies to form a core CRM team which in addition to IT must draw participation from Top Management, Senior Executives of Sales, Marketing and Customer Service departments and finally the end-users. The costing: It is not unusual for CRM implementations to overrun costs and timelines. When assessing the costing, always calculate the Total Cost of Ownership (TCO). There are two ways of getting CRM, the license model or the ASP (hosted) model. In the licensing model, licenses typically represent 9 - 18% of the TCO. The actual TCO needs to include the cost of hardware, software, engineering, operations, and AMC‟s etc. On the other hand, in the ASP model, a subscription fee represents the true TCO. Since ASP models offer a fully managed and a continuously evolving system, it also saves implementation time, upgrade costs and ownership hassles. Product evaluation metrics: In most companies, investment in IT is need-based. While short-listing CRM products, it is essential to analyse overall capabilities of the product. As the company matures in its CRM initiative, the expectation from its CRM system multiplies. Getting user adoption: User Adoption is the key for success of any CRM. It is important to design effective training programs. This provides enough skills and understanding to employees to be able to effectively use the system. Ensure that the user interface is kept simple. Consultants often underestimate or miss the motivation user friendly interface can create. Managing the application: Once the CRM has been rolled-out, it is important to re-align the working culture of teams around it. Define process: Clearly defined processes and their implementation and control are critical to the success of any CRM rollout. It is advisable to create a central depositary, accessible to all, which stores all the process definitions. Some key processes that need to be defined are Change Management process, Feature re-evaluation process, Success evaluation process, Business flows etc.
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9.7 Summary
In today‟s world, ERP – CRM can bring numerous business advantages to an organisation. Though the model is not entirely without risks, with a wellplanned strategy and implementation framework companies can implement CRM successfully. This results in better productivity and customer satisfaction. CRM helps businesses use technology and human resources to gain insight into the behaviour of customers and the value of those customers. CRM begins with knowing your customer. The CRM module provides the perfect platform for enhanced customer service and customer satisfaction. All features, from order acceptance, execution, delivery, and invoice issue to after-sales service can be routed through the CRM module. To further enhance the service delivery proposition, the CRM module can be integrated with mobile devices (smart phones and PDAs), enabling field personnel to access, administer and enter data directly into the system while on the move. One of the primary functions of CRM software is to collect information about customers. As such, a company must consider the desire for customer privacy and data security as well as the legislative and cultural norms. Some customers prefer assurances that their data will not be shared with third parties without their prior consent and that safeguards are in place to prevent illegal access by third parties. The boundary of a CRM system is the boundary of extended enterprise that implements the CRM system.

9.8 Terminal Questions
1. 2. 3. 4. 5. What are the goals of CRM? What are the benefits of CRM systems? What are the CRM implementation issues? Explain the three types of CRM Briefly explain the functionalities of CRM sub modules

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9.9 Answers
Self Assessment Questions 1. Customer-related 2. The components of a CRM system are: CRM Software, Business Processes, Users and Hardware and Operating Systems 3. Customer service, customer satisfaction. 4. The three types of CRMs are: Operational CRM, Collaborative CRM and Analytical CRM 5. Analytical 6. The customers can easily contact with the service personnel without having to repeat any of the earlier communication or information. 7. Collaborative 8. Sales Force Automation 9. Business processes 10. The aspects that result in failure of CRM system are: Poor planning, Not working toward a solution and Poor integration Terminal Questions 1. Refer section 9.2 2. Refer section 9.5 3. Refer section 9.4.2 4. Refer section 9.3 5. Refer section 9.3.1

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9.10 Case Study
In the early 1990‟s Midwest Community Hospital (MCH) recognised that managed „care plans‟ dictated where patients went for their first hospitalisation. However, it was the quality of caring during their patient experience that determined whether or not individuals and families would choose MCH for their next healthcare need or move elsewhere to have their „care plan‟ managed. So, a “Guest Relations” program was launched to increase patient satisfaction and loyalty. It involves all patient contact areas, from the security personnel who patrolled the parking ramp, to the nurses and aides, to the facilities management team, to the kitchen and cafeteria staff. It forgot finance. Accounting staff, accustomed to dealing with impersonal policies and governmentregulated payment guidelines, took a clinical and impersonal approach to billing and collections. MCH found that all the goodwill created during the patient stay could be, and often was, undone when a patient or family member had an encounter with the finance group. MCH learned the hard way that managing the customer relationships extends beyond traditional caregivers and that CRM must involve all areas. Question 1. What do you think that the MCH management missed out that led to customer dissatisfaction? Glossary
Term Acquisition Description The act of contracting, assuming or acquiring possession of something. It is the acquiring control of an organisation, called a target by stock purchase or exchange. The act of implementing the control of equipment with advanced technology; usually involving electronic hardware To work together. It is a recursive process where two or more organisations work together in an intersection of common goals. It is an joint effort of multiple individuals or work groups to accomplish a task Occurring in the same period of time. It refers to the tasks that occur simultaneously

Automation

Collaborative

Contemporaneous

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Demographic

A statistic characterising human populations. They describe the characteristics of a population such as age, gender, marital status, family size, education, geographic location, and occupation.

References 1. Inside CRM (2007) Get It Together with Collaborative CRM. 2. Customer relationship management by Kristin Anderson, Carol Kerr. 3. CRM in real time: Empowering customer relationships by Barton J. Goldenberg. 4. Management of a sales force by Spiro.

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Unit 10

ERP HR Perspective and Finance Perspective

Structure: 10.1 Introduction Objectives 10.2 Human Resource management Module Activities of Human Resource management system Benefits of Human Resource management system Features of Human Resource management system 10.3 Role of ERP in Human Resources Advantages of deploying ERP systems in Human Resources 10.4 Workflow of ERP Human Resource management 10.5 ERP financial module Features of ERP Financial module Benefits of ERP financial module 10.6 Summary 10.7 Terminal Questions 10.8 Answers 10.9 Case study 10.10 Glossary

10.1 Introduction
By now you must be familiar with the concept of ERP systems and a few modules of ERP. This unit familiarises you with Human Resources and Finance modules. Human Resource is an essential part of every successful organisation. It is responsible for managing human assets. It deals with how employees are managed in an organisation. Traditionally, it derived from economics, where it was called ‘labour’. Human resources are mainly concerned with recruitment, training, payroll, attendance and any other personal issues of employees in an organisation. The managing of human asset in an organisation is termed as ‘Human Resource Management’. The financial module in ERP provides financial functionality and analyses reports for different departments and cost centres. Both profit and non-profit organisations benefit from the implementation of ERP Financial module.

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This module gathers financial data from various functional departments, and generates valuable financial reports. Learning Objectives After studying this unit you will be able to:  Explain the concept of Human Resources  Describe the activities of Human Resource Management systems  List out the benefits and features of Human Resources Management module  Elucidate the role of ERP in Human Resource Management systems  Explain the role and workflow of ERP in the Financial module of an organisation.  List out the benefits and features of Financial module

10.2 Human Resource Management Module
Human Resource (HR) technology bridges the gap between Human Resource1 Management (HRM) and information technology. The activities of human resources are generally specific to company’s norms and policies and vary from one organisation to the other. The function of HR can vary from keeping track of employees’ skills, achievements and salary. To reduce the burden of manually managing activities of the organisation, electronic automated process has become necessary. The HRM systems mainly have two objectives. They are:  To make the workflow cost effective and less time consuming.  To provide self service benefits to the employees of an organisation. To provide flexibility to the employees to change their policies taken, update their contact information anytime, etc. 10.2.1 Activities of HRM System The various activities that HRM systems encompass are:  Payroll: This system provides automatic and instant updates of employee information such as employee attendance, and employee arrival and departure time. It also triggers activities of various deductions and tax to be paid by the employee. It bridges the gap between

1

Nadler L Ed., 1984, The Handbook of Human resources Development, John Wiley and Sons, New York.

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employee related activities and the organisation’s financial management system.   Work time: This system performs cost analysis and maintains an efficiency metrics up to date. Administration: Every organisation provides certain schemes and policies for the benefits of the employees. The HRM system keeps track of the employee’s usage of the benefit programs such as insurance plans, compensation benefits, and retirement policies. HR management information system: This system maintains records such as address data, training and development and other correlated activities such as recruitment, placement and maintains employees personnel records. Recruitment: Recruiting employees that best suits an organisation’s criteria is very necessary. Online recruiting has become one of the major ways to employ the right and potential candidates for the positions listed in an organisation. This can be achieved by online job portals, consultancies or recruiting sites. Training: This system is also called as learning management systems. This system keeps track of employee skills and training to be provided. It also decides the type of training course required, and other learning materials such books and CD’s required for the training. The HRM system also keeps track of calendar of training classes, performance and appraisal metric of employees. Performance Record: This system maintains performance updates of employees Employee self service: This system helps employees to interact with the HR regarding any queries and wants in an organisation related to benefits, policies and concerns. Organisational development: This system helps in analysing various modules of an organisation which helps in retaining the deserving candidates. Shared talent: This system ensures that every employee in the organisation has access to necessary information and ensures cooperation to make shared decisions regarding an aspect. This creates a positive work environment.
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10.2.2 Benefits of HRM System The HRM system has many benefits2. This system has many portals that help the HR department to work faster and efficiently. Some of them include:     HR employee portal: This portal maintains information such as attendance, leave records and other employee related activities. Employee self service portal: This portal helps employees to avail or claim for travel expenses and other benefits of an organisation. Security portal: This portal maintains security of an organisation by keeping track of the visitors visiting the organisation. Candidate portal: This portal maintains information of candidates applying for jobs advertised by the HR department.

10.2.3 Features of HRM system The various features of HRM systems are as listed below:        It defines enterprise planning for work and job roles with respect to specific language. It defines staff selection and decides various phases of the project according the policies of the company. It facilitates recruitment process by making it easier to conduct interview with the candidates and send mass mails to all the suitable candidates. It deploys effective search engine to easily find and sort out the profiles that is filtered with respect to the company’s criteria. It facilitates instant and automatic updates of more than one employee at a single instance. It provides training management which facilitates to outline the assets developed by the employee once the training is finished. It maintains a report which includes summaries of information such as loans taken, appraisal with respect to performance, deductions, and other legal issues.

2

McLean, G. N., Osman-Gani, A. M.,& Cho, E. (Eds.). Human resource development as national policy. Advances in Developing Human Resources, August (2004). 6 (3). Monk, Ellen and Wagner, Brett."Concepts in Enterprise Resource Planning" 3rd.ed.Course Technology Cengage Learning.Boston, Massachusetts.2009

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Activity 1 Visit a small organisation and find out the activities performed by the Human Resources Department. Analyse the process of recruiting the candidates to the organisation.

10.3 Role of ERP in Human Resources
Human Resource maintains huge volumes of information of employees and becomes complicated and difficult for management. Therefore, Enterprise Resource Planning (ERP) that maintains a centralised database is a powerful tool that can be deployed to maintain an efficient processing. ERP 3 maintains a database which includes employee details such as contact information, salary details, attendance, promotion details, and performance details of all employees. Deploying ERP in Human Resources department reduces processing time and cost issues. ERP system also helps in decision making and controlling reports. Communication within the departments of an organisation is very necessary. ERP systems also maintain policies and standards, suggestion box, opinion surveys, business calendar, recruitment letters, news, forum and other related features of the organisation. 10.3.1 Advantages of Deploying ERP in Human Resources The various advantages that the Human Resources derive from deploying ERP system are listed below:  Automates the processes which requires minimum customisation  Allows the user to access computing support for different departments of an organisation  Provides security of information as database is made centralised  Facilitates users to authorise accommodating processes between various departments of an organisation and external agents  Allows instant updates of information in the database  Provides access to every employee to browse information such as personnel development, and personal costs.

3

Khosrow-Puor, Mehdi. (2006). Emerging Trends and Challenges in Information Technology Management. Idea Group, Inc. p. 865.

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Self Assessment Questions 1. Human Resources department is responsible for recruiting employees for an organisation. (True / False) 2. _________________ bridges a gap between employee related activities with the organisations financial management systems. 3. _________________ module helps the employees to interact with the HR regarding any queries. 4. ERP systems also maintain policy information of an organisation. (True / False) 5. How is security of information maintained by deploying ERP Human Resources?

10.4 Workflow of ERP HRM
ERP system maintains a centralised database giving lesser importance to customisation. Figure 10.1 shows workflow of HRM that deploys ERP systems can be understood by analysing the various sub modules under HR module that ERP offers.

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Human Resource Planning

Recruitment

Employees

Training

Employees Self Service

Appraisal

Travel

Over Plan

Leave

Shift Plan

Discipline

Attendance Claims

MRP Resignation

FRM

Payroll

Figure 10.1: HRM Workflow

Personnel Management: Personnel management module encompasses various software components. This module deals with responsibilities of human resources quickly, precisely and proficiently. These components are also used as stand-alone systems being a part of the ERP solution which is company wide. Personnel Administration: Earlier data was very specific to the concerned departments of an organisation. However, information is now no longer specific to departments, but it is widely shared by various units across an organisation. This reduces the possibility of duplicate entries, and protects the information from errors and improves data accuracy.

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Employee Master Data: This module maintains a database which is centralised for processing employee information. It encompasses various tools for transactions. It also facilitates storing of required information of employees. It also provides graphical information such as standard as well as custom defined charts and employee data of the organisation. Recruitment Management: This module facilitate in recruiting the right candidates with skills required, to meet the organisation requirements. Recruiting process should also ensure that the process is cost effective and less time consuming. This process is achieved by making the entire process of recruitment automatic and instantaneous. The various functions of HR manager are: posting the vacancies in various job portals, newspapers and other job sites, filtering the profiles of candidates who best suit the criteria of the organisation, screening and shortlisting the candidates based on their performance, selecting and hiring. The same process holds good both for internal as well as external job postings, where advertisements are posted in newspapers, magazines, colleges or recruitment firms.

Travel Management: This module facilitates the process of maintaining the operating cost readily .It supports multiple currencies and formats. Travel management keeps track of the process from start to finish. It keeps track of the process right from the point when the request was made to the point when it is posted to the accounting sections. The information regarding travel plans are required to be registered by the person travelling, or by the concerned department of an organisation. When an employee raises a request, the system automatically generates a workflow that reduces the burden of the administrator. The travel management module instantly calculates the necessary tax and transactions for a particular trip. The receipt that is issued by the administrator can be filled up in any currency format. The costs incurred during the travel trip can be reimbursed through payroll accounting or any data medium exchange.

Benefits Administration: The module allows adding any new programs at any time using a hierarchical structure. It facilitates flexibility to manage various types of benefits and plans for employees of an
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organisation. Based on the demographics of an employee various benefits groups can be established. Benefits administration module allows the employee to enter information at any time with the concept of real time processing. The module also manages various savings plans of employees. The module provides the flexibility to employees to access their individual employee benefits directly. This helps in reducing the burden of the Human Resource staff by eliminating queries that Human Resource staff has to address. The module provides standard reports that deploys from quick querying and reporting features that facilitates in monitoring the process. This module helps in responding to requests fast and precisely.  Salary Administration: The module keeps track of the employees’ date of join, and calculates the pay based on the company’s norms and policies. It keeps track of the employees’ performance and decides the appraisal of the employee. It keeps track of the account security of the employee, and performs a salary review process. Organisational Management: This module describes the design structure and hierarchy of an organisation and employee schedules along with their job roles. This module familiarises employees of any changes in the structure of the organisation such as new additions, updates or any changes in employee positions. Payroll Accounting: This module describes any legal issues of the organisation, attendance management required for calculating the pay. The module maintains a master file that encompasses information of all the employees of the organisation. It supports various versions of payroll accounting, multiple languages and multiple currency formats. Time Management: This module keeps track of the working hours of employees of an organisation. Time management module is responsible for fixing shifts to employees, keeping track of number of leaves available and number of leaves availed. This module manages schedules of responsibilities efficiently by automating the process. The module also keeps track of employees’ overtime and other time related data. Time management module calculates and validates working hours and wages of the employee by keeping a store of rules
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and regulations of the organisation automatically. The result of the process is depicted on a time sheet.  Shift Planning: This module facilitates planning and fixing shifts for employees. The module takes the decision by keeping various constraints under consideration such as leave taken or employee requests for time off. The major benefits that shift planning provide is that it allows assigning an employee to other unit of an organisation on a temporary basis when require. Personnel Development: This module allows recruiting suitable candidates for the vacant positions. The module encompasses various advanced tools to automate the process of recruiting the right candidates instantly. The qualifications and the profiles of the candidates are compared which makes recruiting the right candidates easier. Personnel development module bridges the gap between goals of the organisation and the goals of the employee. The module facilitates performance of the employees, potential of the employees and quality of recruitment with respect to the organisations standards and policies.  Training and Event Management: This module keeps track of planning, managing and analysing seminars, various courses, and other events related to training. The module maintains a database comprising of complete information of procedures and schedules. Training and event management module also decides appraisals for training instructors, and trainees. The module maintains a record of prices, locations and other budget and billing information. The module automatically and instantly decides various constraint requirements such as training courses. Activity 2 Visit an organisation that deploys ERP system for managing Human Resources activities. Compare the process of workflow of processing activities with and without ERP systems. Illustrate how ERP systems automate the process.

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10.5 ERP Financial Module
The Financial module is the core of ERP software systems of an organisation. Figure 10.2 shows ERP financial module which maintains financial information from various units of an organisation to prepare financial records such as balance sheets, creditors balance etc. This module is suitable for all sizes of organisation both small and big companies.

Consumption

Finance

Suppliers

Manufacturers

Distributors

Logistics

Consumption

Figure 10.2: ERP Finance Module

Deploying ERP systems for finance module eliminates the need to repeat procedures. Data can be entered only once. Within the ERP systems, all areas work in concert, creating a new level of efficiency in handling financial data. ERP Financial module keeps track of finance accounts and their utilisation. It decides the budget and the total expenditure required .Based on this information, the management of the organisation takes the final decision on
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budgeting .This stored information helps the organisation to keep track of the financial position of the company any time. The primary function of ERP Financial module is creating accounts. Departments like marketing or purchase is responsible for creating accounts. This module presents the financial figures to all other units of an organisation. This module generates credentials like receivable and payable constraints. The ERP Financial module bridges gap between sales and the procurement modules. Procurement is defined as sourcing and purchasing of goods and services for business use. ERP Financial module reduces the threat of loss of confidential information as only authorised employees are given access to financial information. This module provides an overview of the financial solutions in most of the ERP packages. It provides financial functionality and analysis support to various businesses in various countries across the globe. The finance modules of most ERP systems have the following sub modules:  Financial Accounting: This module facilitates provides integration of financial information that is vital for any decision making. It provides ability to centrally track financial accounting data within a framework of various organisations, multiple languages, and multiple currencies. General Ledger 4: This is defined as the company’s accounting records. It contains all financial accounts and statements related to a business. The module supports functions and features that are essential for an accounting system. It facilitates document parking, posting and reporting of activities in the stipulated time. Document parking is defined as a term that is used to enter and store (park) documents that are incomplete without performing excessive entry checks. The incomplete documents can be checked and completed later at any time. The major benefit of document parking is that information in the documents can be evaluated online.

4

Meigs and Meigs. Financial Accounting, Fourth Edition. McGraw-Hill, 1983. pp.19-20.

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A typical general ledger is shown in Figure 10.3. General Ledger module allows processing of information in detail at user defined level. Planning, allocation, distribution and reporting of information can be generated by creating combinations of entered data.

Figure 10.3: Typical General Ledger

General Ledger also allows employees to create own database tables and define non-standard fields, that suits accounting and reporting requirements. Typical ERP systems also facilities feature such as grouping information selectively.  Accounts Receivable and Payable: This module uses standard business rules for data entry, reporting, processing payments and bank transactions. Receivable and payable transactions are performed automatically, when related processes take place in other modules.

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The functions of accounts receivable and payable functions include internet integration, document management, flexible reporting using customer and vendor information systems.  Asset Accounting: This module maintains fixed assets of the organisation. Asset accounting acts as a sub-ledger to the general ledger. It provides information about any asset related transactions in detail. Asset accounting also manages plant maintenance for maintaining equipments. Plant maintenance is defined as the process which takes care of inspections, to ensure a safe working environment. It encompasses various safety measures such as protection against fire and radiation protection. Legal Consolidation: This consolidation is related to the financial accounting system. Legal consolidation module allows creating multiple views. The legal entities of the organisation can be created with these views. It allows transferring of information from individual statements into the report that has to be consolidated. This reduces the burden of the administrative staff facilitating reduced data entry errors. Controlling: This module encompasses various features and functions for maintaining cost effective accounting. It facilitates creating custom reports to meet the standards of the organisation. It also maintains reports and performs analysis for frequently anticipated queries. Overhead Cost Controlling: Overhead cost is defined as the expenses related to the business costs that must be paid even if no services are offered or no products sold. It is that cost of maintaining property of the organisation that has to be maintained. Overhead cost controlling module ensures optimisation in unexpected expenses. The module mainly focuses on monitoring and managing of overheads as defined. Cost Centre Accounting: This module, analyses where overheads occur within the organisation. The system offers various methods for allocating posted amounts and quantities. Overhead Orders: This module collects and analyses costs, based on individual internal measures. This system monitors and automatically checks budget assigned to individual measure. Activity Based Costing: This module instantly determines the use of the processes by customers, products and other cost based objects. It
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ensures that the goals of the organisation is vital than the goals of individual units of an organisation. Activity based costing reduces the burden required to maintain the organisations units as a separate system.  Product Cost Controlling: This module keeps track of the expenses that arise from manufacturing a product or by providing a service. The module also determines the lowest price limit for which the product can be profitable. Cost Object Controlling: This module facilitates monitoring orders that has to be manufactured. It maintains automatic and instant update of information on the actual cost of the objects that has to be serviced. It is responsible for analysing the variances between actual manufacturing costs and the planned costs. Profitability Analysis: This module maintains a database to take decisions such as determining the prices of the product, selecting customers and choosing various channels of distribution. Investment Management: This module maintains information such as funds available, costs planned and actual costs. The system also keeps employees updated on information related to the costs. Constant monitoring of the system reduces the error of budget overruns. The module encompasses tools that support to plan and maintain expenses from the earlier stage. Treasury: This module keeps track of the liquidity and manages risk effectively. Liquidity is defined as the ability of an asset that can be sold without causing a noticeable change in the price and with minimum loss of value of the product. The process of exchanging lower liquid asset with higher liquid asset is called liquidation. Thus, Treasury module maintains liquidation processes effectively. Cash Management: This module maintains and manages transactions related to finance for a given stipulated time. The module identifies and maintains records for future developments. The transactions of the organisation are grouped into cash holdings, cash inflows and cash outflows. Cash flow management ensures effective liquidity so as to meet the obligations of payment when they are due. The module monitors and manages payments both inflow and outflow. Cash
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management provides necessary information to ensure that effective decisions are taken by the cash management for analysis of liquidity.  Market Risk Management: This system monitors and manages integrated and risk control stations. Information about current cash flows, future cash flows and the financial aspects processed are to be acceded and monitored on a regular basis. The financial transactions that the treasury management manages are evaluated along with the cash flows that are generated by the cash management system. The system measures and calculates rate of interest and risks related to the financial deals. Funds Management: This module monitors and maintains expenses, activities, resources and revenues of an organisation. The hierarchical structure of the funds provided, forms a base for top-down budgeting. Funds management also provides a feature to keep a check on the budget available and the budget utilised. The module keeps employees updated with the funds and budget information at any time. Enterprise Controlling: This module comprises of those functions that optimise shareholder value, while meeting internal objectives for growth and investment. These modules usually include executive Information System, Business Planning and Budgeting, Consolidation and Profit Centre Accounting. Executive Information: The Executive Information module maintains information that is vital to maintain the organisation workflow. The system collates information from ERP components as well non ERP data sources both inside and outside the organisation. The system encompasses drill down reporting to evaluate the required data. Drill down reporting is defined as a process that facilitates evaluating the data gathered in the application. Drill down reporting provides features and functions for navigating through the data. It also supports features such as sorting and ranking.  Business Planning and Budgeting: This module supports central investment planning, budget release and tracking. This module automatically transfers data about investment requirements from transaction applications, and provides extensive analysis functions for budget monitoring.
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Profit Centre Accounting: The profit of the internal centres of the organisation is analysed by this module. An organisations design and structure are represented as a profit centre hierarchy. Profit centre accounting module takes automatic care of financial accounting, materials management and asset management. Profit centre related postings can be analysed through the system's standard reports and facility, to create custom reports for special analyses. The system also allows providing profitable information to all the concerned units of an organisation. There is also a provision to provide profitability information to appropriate management and controlling departments.

10.5.1 Features of ERP Financial Module The various features of ERP Financial module are as listed below:  Automates and manages end-to-end general accounting: It monitors and manages procedures such as accounts that have to be paid, accounts that have to be received and other purchases. Supports worldwide financial processes: It facilitates Multilanguage support. It supports multiple currencies and multi national processing and transactions. It adheres to the laws of the specific country. Support planning and forecasting: It supports planning to ensure safe financial activities for the future. It plans expenses and income for the future. It also helps in forecasting the available market condition and the market condition in the future. Tracks cash flow management: It manages the cash flow of an organisation. It keeps track of how the income is spent and is distributed across various units in the company. Provides advanced reporting and analysis: Balance sheets and other financial reports of an organisation are maintained to provide efficient and reliable transactions.

10.5.2 Benefits of ERP Financial Module ERP Financial model has many features, some of them are:  It allows more than one user to work on different activities simultaneously

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     

It supports multiple currencies and also allows conversions to multiple currencies It supports both verification balance and entry balance reports It allows connecting to different databases through one single page It provides an option of filtering the details of the employees based on the date of entry It maintains online information related to accounts of several years It keeps track of when changes were made in the database and by whom

Self Assessment Questions 6. What is ERP financial module? 7. _________________ creates multiple views of legal entities of an organisation. 8. Balance sheets and financial reports of an organisation are maintained by _________________ . 9. Cash management systems keep track of liquidity of an organisation. (True / False) 10. What is a General Ledger?

10.6 Summary
Man power is the biggest asset of any organisation. However, managing of human assets becomes a crucial part to ensure positive workflow in an organisation. Every organisation tends to attract, motivate and retain the most suited and qualified employees in the company. Human resource is the department which acts like a thread that links the employees to the organisation. The human resources thus encompass effective recruitment and training strictly adhering to organisations policies. However, manual processing of all the transactions and workflow is tedious and increases the burden and frustration of the Human Resources team. Therefore, deploying ERP systems serves a great deal by making the process automatic and instantaneous. ERP Financial management software packages are powerful and provide feature-rich solutions that provide a broad range of functionality. With
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financial management software, organisations have the tools they need to improve operations on a global scale, while facilitating full regulatory compliance.

10.7 Terminal Questions
1. 2. 3. 4. 5. 6. 7. Explain the need of Human Resources in an organisation. What are the activities of Human Resources management systems? List out the benefits of Human Resource management systems. Analyse the work flow of Human Resource management systems. Illustrate the role of ERP systems in Human Resources. Explain the functions of various subsystems of ERP financial module. List out the benefits of ERP financial module.

10.9 Answers
Self Assessment Questions 1. True 2. Payroll activities 3. Employee self service 4. True 5. By maintaining an automatic centralised database 6. The system that maintains the financial information from various units of an organisation. 7. Legal Consolidation 8. Advanced reporting and analysis 9. False 10. Organisations accounting records. Terminal Questions 1. Refer section 10.1 2. Refer section 10.2 3. Refer section 10.2 4. Refer section 10.4 5. Refer section 10.3 6. Refer section 10.5 7. Refer section 10.5

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10.10 Case Study
The Human resources unit of Cruise Software Services Pvt Ltd maintained a manual system to collect applications from eligible candidates. They maintained a ledger for every employee separately to keep track of their records. The process was time consuming and vulnerable to high probability for data dispensaries. Thus, Cruise Software Services Pvt Ltd deployed ERP systems. The major objective of deploying ERP systems was to facilitate automatic and instant processing of payroll, attendance, leave and recruiting processes. The ERP systems facilitated various functions such as leave management, performance appraisal, attendance tracking system, recruitment management and other admin related functions for the employees automatically without much customisation or manual intervention. This reduced the manual burden of the Human Resource unit. This resulted in effective and increased workflow of Cruise Software Services Pvt Limited, thereby, meeting the all the targets of the organisation in a stipulated time. Questions: 1. What is the role of Human Resources in an organisation? 2. What role did ERP systems play in increasing the productivity of the organisation?

10.7 Glossary
Term Demographics Description Personnel information of an employee such as age, gender, marital status, education, and geographic location. Company’s accounting records. It is used to maintain all financial accounts and statements related to a business. Ability of an asset that can be sold without causing a noticeable change in the price and with the minimum loss of value of the product. Process that facilitates evaluating the data gathered in the application. Drill down reporting provides features for navigating through the data.

General Ledger Document parking

Drill down reporting

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References 1. en.wikipedia.org/wiki/Human_resource_management_system 2. www.scribd.com/doc/23722870/Human-Resources-Management 3. en.allexperts.com › Human Resources – 4. www.istegy.com/PDF%20Files/IST_Human_Resources.pdf 5. www.sysoptima.com/erp/erp_modules.php 6. The NEW SAP Blue Book – Michael Doane

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Unit 11

ERP Implementation Lifecycle

Structure: 11.1 Introduction Objectives 11.2 Steps in ERP Implementation Pre-evaluation Screening Package Evaluation Project Planning Phase Gap Analysis Reengineering Configuration Implementation Team Training Testing Going Live End-user Training Post-implementation 11.3 Summary 11.4 Terminal Questions 11.5 Answers 11.6 Case Study 11.7 Glossary

11.1 Introduction
By now you must be familiar with the concepts of HR Perspective & Finance Perspective. This unit familiarises you with the implementation lifecycle of ERP. Businesses have a wide range of applications and processes throughout their functional units. ERP software system is usually complex, and imposes significant changes on employee work practices. Implementing ERP software is too complex for "in-house" skill. So it is necessary and highly advised to hire outside consultants, who are professionally trained to implement these systems. This is typically the most cost effective way. The types of services that may be employed during implementation are Consulting, Customisation, and Support.

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The time required to implement an ERP system depends on the size of the business, the number of modules, and the extent of customisation. One more important factor governing the time is the scope of the change and the compliance of the customer to take ownership for the project. ERP systems are in the form of modules, so there is no need to carry out the implementation at once. It can be divided into various phases or stages. The normal project is about 14 months and requires around 150 consultants. A small project, for example, an enterprise of less than 100 staff, can be planned and delivered within three to nine months. However, implementation process in a large, multi-site or multi-country can take years. Most of the time the length of the implementations is closely bonded to the amount of customisation the organisation demands. The organisation has to choose a package from a wide range of ERP packages available in the market, depending on their strategies. The ERP package which the organisations select should:  Meet the organisation standards.  Provide industry functionality the organisation demands.  Support constantly changing business environment.  Easily integrate with other information systems that already exist in the organisations.  Provide vendor implementation support both during and after the implementation.  Assist the organisation with implementation support system such as training materials, user procedures, help text, process models and so on.  Provide good support after implementation in case of trouble shooting. A lot of ERP implementations fail, because the companies opt for ERP solutions thinking that ERP implementation is a technological and not management issue. This statement is completely a wrong perception, since the management must actively and completely get itself involved in every process of the implementation of the ERP system. At the same time the management must monitor and supervise the implementation closely and personally.

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Managers have the responsibility to make fast and effective decisions. They have the responsibility of resolving the conflicts and bring everyone to the same thinking to promote company-wide acceptance of the project. It is also crucial for them to build co-operation among the diverse groups in the organisation for achieving effective implementation. This unit gives an idea about the ERP Implementation methodology and process. Like any other project, the ERP implementation project also has to go through different phases. There are no clear separating lines between these phases and in many cases, one phase will start before the previous one is completed. But the logical order is followed. Also, all the phases that we are discussing in this session may not be applicable in all cases. For example, in some cases, the organisation might have already identified a particular package; then the pre-selection screening and package evaluation phases are not done. Learning Objectives After studying this unit, you will be able to:  Describe the implementation lifecycle for an ERP package.  Assess the various approaches for implementation of ERP.  Select the right methodology for ERP implementation.

11.2 Steps in ERP Implementation
PeopleSoft country head Mr Thiru Vengadam says1 “Phased implementation is the right way as the risks are controllable. It is a good management practice to build a roadmap for the overall project, but break them into logical phases. Take one logical phase at a time, give it the right focus and ensure the success of that phase before taking up on the next. It is also critical to have a high level of design of the overall system is done upfront, such that even when the project is driven in phases, there is a frame of reference ensuring an integrated system at the end of the overall project,”. The different phases of the ERP implementation are given below:  Pre-evaluation Screening  Package Evaluation  Project Planning Phase
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       

Gap Analysis Reengineering Configuration Implementation Team Training Testing Going Live End-user Training Post-implementation

As shown in Figure 11.1, these phases seem very linear and distinct from each other. But in reality, throughout an actual implementation process, the phases are in fact quite flexible. In many cases, companies go through many implementations in different modules, business units, or manufacturing locations. So at any given time, more than one of the phases may be operational. Some companies choose for the one and only 'Big Bang' i.e. implement in one stretch and change the entire system, while other companies favour sequential rollouts i.e. implement in phased approach module after module. This is because each company has different needs of its own. But whether it is the 'Big Bang' method or sequential rollout, the lifecycle phases are the same.

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Figure 11.1: ERP Implementation Life Cycle–Different Phases

A phased approach focuses on a key or critical area, stabilisation of the system usage and quicker visible benefits in an organisation. Of course, the investment outflow for implementation is also phased. The Big Bang implementation approach on the other hand demands for realignment of processes. It also requires greater commitment from the developers and the management in terms of resources and time. However, the benefit will be a full solution encompassing all processes, which is anyway the benefit of a fully integrated ERP system affecting all areas and processes. Activity 1: Consider that you are a manager in a manufacturing industry going for an ERP implementation. Prepare a check list that you need to take care before the actual implementation process starts.

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Self Assessment Questions 1. Implementing ERP software is too complex for ________________ skill. 2. The ERP package which the organisations select must fit __________________standards. 3. The ______________ implementation approach demands for realignment of processes. 4. ________________ implementation is the right way as the risks are controllable. 11.2.1 Pre-Evaluation Screening Once the company has decided to go in for the ERP system; the search for the perfect package starts. But there are hundreds of ERP vendors of all shapes and sizes, all claiming to have the solution that is ideal. Analysing all the packages before reaching a decision is not a viable solution. It is also a very time consuming process. So it is a better practise to limit the number of packages that are evaluated to less than five. It is always better to do a thorough and detailed evaluation of a small number of packages, than doing a superficial analysis of dozens of packages. Hence, the company must do a pre-evaluation screening to limit the number of packages that are to be evaluated by the committee. Not all packages can deliver 100% what the company requires or demands. Each one of them has its own strengths and weaknesses. The pre-evaluation process must eliminate those packages that are not at all suitable for the company's business processes. One can zero in on the few best packages, by looking at the product literature of the vendors, getting help from external consultants. The most important action to be performed is to find out what package is used by companies which are similar to your organisation. It is always better to find out how the different packages are performing in environments similar to yours. You can conduct a study on the history of the ERP packages and try to find out how each package evolved. It soon becomes evident that every package of ERP grew out of the experience or opportunity a group of people saw. This group of people who where working in a specific business, created systems that could deal with certain business segments. Generally it is accepted world wide that most ERP packages are stronger in certain
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areas than in others, and each one is intensely trying hard to add functionality in areas where they have been lacking. For example, PeopleSoft is strong in HR and less in manufacturing. Baan, on the other hand, is historically stronger in manufacturing than in finance and so on. As the companies grew over time the ERP packages evolved. The experience gained from previous implementation, the feedback by the users, the need to enter into new markets and the pressure from competitors has forced most ERP vendors to redefine their strategies. They are also trying hard on expanding the scope of the activities and functionality of their products. To achieve this, design concepts of the software is expanded. Along with this new functions are introduced, and good ideas were copied from others to meet the new challenges in today‟s market environment. But still, each package has a history (or origin) that determines in which type of business it is best suited for. While making the analysis it would be a good idea to investigate the origins of the different packages. Now, most packages cater to almost all business and service sectors. It would be incorrect to say that a system that was developed initially for manufacturing is now not capable of catering to the needs of another business sector, for example, software development. The system would have been thoroughly revamped and redesigned to cater to the needs of the diverse business sectors that it is catering to. But it must be kept in mind that many ERP packages are still very good in some areas, even though they are capable of catering to the needs of other sectors. After the screening process you select a few packages and then you can start the detailed evaluation process. 11.2.2 Package Evaluation The evaluation/selection process is one of the most important phases of the ERP implementation. Since, the package that you select will decide the success or failure of the project. ERP systems involve huge investments, once a package is purchased, it is not an easy task to switch to another one. So it is a 'do it right the first time' proposition. There is little room or no room for error. The most important factor that must be kept in mind when analysing the different packages is that none of them are perfect. The idea that there is no
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package that is available in the market that is perfect. This has to be realised by everyone in the decision-making team. The selection process objective is not to identify a package that covers each and every requirement (a perfect fit). The objective of the evaluation process is to find a package that is flexible enough to meet the company's needs, or in other words, software that could be customised to obtain a 'good fit'. Once the packages to be examined are identified, the company needs to develop a selection criterion. This criterion has to permit the evaluation of all the available packages on the same scale. To choose the best system, the company must identify the system that meets the business needs, that matches the business profile and that which identifies with the business practices of the company. It is impossible to get a system that will perform, exactly similar to the business the company does. However, the aim must be to get the system that has the least number of differences. According to S Shankarnarayana2, Senior Consultant with Baan Infosystems India Pvt Ltd, some important points to be kept in mind while evaluating ERP software are,  Functional fit with the company's business processes.  Amount of integration between the various components of the ERP system.  Flexibility and scalability.  Complexity.  User friendliness.  Quick implementation.  Ability to support multi-site planning and control.  Technology–database independence, security, and client/server capabilities.  Availability of regular upgrades.  Amount of customisation required.  Local support infrastructure.  Availability of reference sites.  Total costs, including cost of license, training, implementation, main tenancy, customisation and hardware requirements.
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It is always better to form a selection or evaluation committee that will do the evaluation process. This committee must comprise of people from the various departments (the functional experts), the top management (preferably the CIO or COO) and consultants (package experts). The selection committee must be entrusted with the task of choosing a package for the company. Since all business functions are represented, and the management is involved, the package that is selected will have companywide acceptance. The package experts or the consultants can act as mediators, or play the role of explaining the pros and cons of each package. Activity 2: As a manager analyse the need for the active participation of the vendors or consultants for choosing the right package for your company and list down the most crucial points that you could discuss with them for a successful implementation. Self Assessment Questions 5. Analysing all the packages before reaching a decision is not a _____________ solution. 6. The ___________ process must eliminate those packages that are not at all suitable for the company's business processes. 7. While making the analysis it would be a good idea to investigate the ___________ of the different packages. 8. The _____________ that you select will decide the success or failure of the project. 9. Once the packages to be examined are identified, the company needs to develop a ____________ criterion. 11.2.3 Project Planning Phase This is the phase that designs the process of ERP implementation. In this phase the particulars of how to go about the implementation process are decided. The time schedules, deadlines, and so on for the project are formulated. The project plan is developed. Roles are identified and responsibilities are assigned. The organisational resources that will be used for the implementation effort are decided. At the same time the people who are supposed to head the implementation are also identified. The implementation team members are selected and task allocation is done.
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This phase will decide when to begin the project, how to do it and when the project is supposed to be completed. This is the phase which will plan the „what to do' in case of contingencies. It includes how to monitor the progress of the implementation, what control measures must be installed and what corrective actions must be taken when things get out of control. The project planning is usually done by a committee constituted by the team leaders of each implementation group. The committee will be headed by the ERP incharge (For example, the CIO or COO). The committee will meet periodically (during the entire implementation lifecycle) to review the progress and chart the future course of actions. 11.2.4 Gap Analysis This is the most crucial phase for the success of the ERP implementation. This is the process through which organisations create a complete model of where they are now, and in which direction they want to head in the future. The trick is to design a model which both anticipates and covers any functional gaps. It has been estimated that even the best ERP package, custom tailored to a company's needs, meets only 80% of the company's functional requirements. The remaining 20% of these requirements present a problematic issue for the company's BPR (business process re-engineering). One of the most affordable, albeit painful, solutions entails altering the business to fit the ERP package. Of course, a company can simply agree to live without a particular function (the cheap but annoying solution). Other solutions include:  Pinning your hopes on an upgrade (low cost but risky).  Identifying a third-party product that might fill the gap (hopefully it also partners with the ERP packages, keeping interfacing to a minimum).  Designing a custom program.  Altering the ERP source code, (the most expensive alternative; usually reserved for mission-critical installations). 11.2.5 Reengineering It is in this phase that the human factors are taken into account. In ERP implementation settings, reengineering has two different connotations. The first connotation is the controversial one, involving the use of ERP to aid in downsizing efforts. There have been occasions where high-level
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executives have invoked the reengineering slogan, and purchased an ERP package with the aim of reducing significant numbers of employees. Every implementation is going to involve some change in job responsibilities. As processes become more automated and efficient, it is best to treat ERP as an investment as well as a cost-cutting measure. Rather than considering it as a downsizing tool for an organisation. 'Downsizing' is a business practice that may have its place, but it must not be cloaked within the glossier slogan of 'reengineering', or justified by the purchase of an ERP package. ERP must stimulate business change, but must not endanger the jobs of thousands of employees. The second use of the word reengineering in the ERP field [or business process reengineering (BPR) as it is usually called], refers to an ERP implementation model. Initially it was designed and used with much success by the 'Big Six' consulting firms. The BPR approach to an ERP implementation implies that they are really two separate processes. However, they closely linked implementations carried out on an ERP site, for example, a technical implementation and a business process implementation. The BPR approach emphasises the human element of necessary change within organisations. This approach is generally more time consuming, and has received its share of criticism for creating bloated budgets and extended projects. But adherents of the BPR approach to ERP would argue that there is no way that you can ignore the human element in an implementation that involves significant changes in responsibilities. As the ERP market shifts to a mid-market focus, and as all implementations are becoming more costsensitive, the BPR approach has come under some real scrutiny. Self Assessment Questions 10. The organisational resources that will be used for the implementation effort are decided during ____________________ phase. 11. The project planning is usually done by a committee constituted by the ________________ of each implementation group. 12. _______________ is arguable the most crucial phase for the success of the ERP implementation. 13. ERP must stimulate ____________ change.
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11.2.6 Configuration This is the main functional area of the ERP implementation. There is a bit of mystique around the configuration process. For good reason, the unwritten rule of ERP implementation is synchronising existing company practices with the ERP package. Instead of, changing the source code and customising it to suit the company‟s demand. In order to do so, you have to analyse and map the business processes. This has to be done in such a way that the arrived solutions must match up with the overall goals of the company. But, companies can't just shut down their operations while the mapping processes takes place. Hence the prototype, for example a simulation of the actual business processes of the company must be used. The prototype allows for thorough testing of the "to be" model in a controlled environment. As the consultants of ERP configure and test the prototype, they attempt to solve any logistical problems inherent in the BPR before the actual go-live implementation. Configuring a company's system reveals not only the strengths of a company's business process and most importantly its weaknesses. It is vital to the health of the company and to the success of the ERP implementation that those configuring the system are able to explain what will not fit into the package. They must also explain where the gaps in functionality occur and possible solution. For example, a company might have an accounting practice that cannot be configured into the system or some shipping process that won't conform to the package. The company obviously needs to know which processes have to change in the process of implementation. Finding out what will work and what won't, requires knowledge of the business process itself, and an ability to work with people throughout the company. So, people with such skills must be assigned to these tasks. As a rule, in most large implementations, the functional configurations are split between the different areas within the company, so some will attend to HR; some will be involved in financials and so forth. ERP vendors are constantly striving to lower configuration costs. Strategies currently being pursued include automation and pre-configuration. Baan for instance, has developed Orgware, an automated configuration tool, while

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SAP has pre-configured industry-specific templates that can be tweaked for each individual company (Accelerated SAP Solutions). The current ERP industry push towards developing the mid-range market in turn creates an added incentive to reduce costs. This encourages the much sought-after mid-range companies to feel they can afford to implement a top-of the line ERP package. By creating a custom pre-configured ERP module for a particular industry, for example, a shoe software-manufacturing prototype created for a shoe manufacturer, the need for hands-on custom configuration is reduced, thereby keeping the costs down. It is hoped that a kind of "question and answer" format can be used to find out the kinds of business process information. It can be addressed through the hands-on configuration process. In theory, these pre-configured tools must save time and money, but every business is unique and at least some configuration is unique to each project. 11.2.7 Implementation Team Training Around the same time that the configuration is taking place, the implementation team is being trained, not so much how to use the system, but how to implement it. This is the phase where the company trains its workforce to implement and later, run the system. The ERP vendors and the hired consultants will leave after the implementation is over. But for the company to be self-contained in running the ERP system, it must have a good in-house team that can handle the various situations. Thus, it is very vital that the company recognises the importance of this phase. The company has to selects those employees who have the right attitude – people who are willing to change, learn new things, and are not afraid of technology – and good functional knowledge. Self Assessment Questions 14. Companies can't just shut down their operations while the _______________ processes takes place. 15. The _____________ obviously needs to know which processes have to change in the process of implementation. 16. The current ERP industry push towards developing the mid-range market in turn creates an added incentive to__________________.

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11.2.8 Testing This is the phase where you try to break the system. You have reached a point where you are testing real case scenarios. Once the system is configured, you must come up with extreme-case scenarios for example, system overloads, multiple users logging on at the same time with the same query, users entering invalid data, hackers trying to access restricted areas and so on. The test cases must be designed specifically to detect the weak links in the system and these bugs must be fixed before going live. 11.2.9 Going Live On the technical side, the work is almost complete. The process of data conversion is done, databases are up and running. The prototype‟s functional side is fully configured and tested, and ready to go operational. The system is officially proclaimed operational. Even though the team for implementation must have been testing it and running it successfully for some time. But once the system goes 'live', the old system is removed, and the new system is used for doing business. 11.2.10 End-User Training This is the phase where the actual users of the system will be given training on how to use the system. This phase starts much before the system goes live. The employees who are going to use the new system are identified. Their current skills are noted and based on the current skill levels, they are divided into groups. Then each group is given training on the new system. This training is very important as the success of the ERP system is in the hands of the end-users. So these training sessions must give the participants an overall view of the system and how individual actions would affect the entire system. In addition to these general topics, each employee is trained on the job or task that he/she is supposed to perform once the system goes live. It is human nature to resist change. Also many people are afraid of computers and other new technologies. So there will be resistance to change. Another factor is that not all people will be successful in making the changeover. The company management must address these concerns and take necessary actions to avoid failure. The end-user training is much more important and much more difficult (since most end-users are not thrilled at having to change) than the implementation team training. Companies are
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beginning to take this phase seriously, as there is statistical evidence now. This evidence shows that most implementations fail because of a lack of end-user training. 11.2.11 Post-Implementation (Maintenance Mode) One important factor that must be realised is that the post-implementation phase is very critical. Once the implementation is over, the vendors and the hired consultants will go. To reap the full benefits of the ERP system, it is very important that the system must get enterprise-wide acceptance. There must be enough employees who are trained to handle the problems that might crop-up. There must be people, within the company, who have the technical prowess to make the necessary enhancements to the system as and when required. The system must be upgraded as and when new versions or new technologies are introduced. Here the organisation must think in terms of the incremental benefits of the new enhancements. Since with any up gradation or enhancements, there will be a lot of other aspects like user training that have to be considered. So instead of going in for up gradation when vendor announces a new version, the organisation must first analyse the costs and benefits of he new version. After finishing the entire phases of the ERP implementation the organisation will need a different set of roles and skills than those with less integrated kinds of systems. It must be made sure that every individual who uses these systems needs to be trained on how they work, how they relate to the business process and how a transaction ripples through the entire company whenever they press a key. The training will never end. It is an ongoing process. New people will always be coming in, and new functionality will always be entering the organisation. We need to know that, the conditions and measures that have to be adopted during the implementation process are unique. The same cannot be applied by the management of the company after the implementation. Different set of guidelines and measures have to be adopted for successful functioning of the system after the implementation. Projects on the ERP system implementation get a lot of resources and attention. However, an organisation can only get the maximum value of these inputs if it successfully adopts and effectively uses the system.

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Activity 3 Consider you own a departmental store with the ERP system monitoring various activities of the store. Develop a training procedure for your new employee so that he can familiarise with the system and work with out having much difficulty. Self Assessment Questions 17. The test cases must be designed specifically to detect the __________ in the system and these _________ must be fixed before going live. 18. The ___________training is much more important and much more difficult than the implementation team training. 19. The organisation must think in terms of the incremental benefits of the new_________________. 20. Projects on the ERP system implementation get a lot of _____________and______________.

11.3 Summary
The process of ERP implementation is referred as “ERP Implementation Life Cycle”. The following are the steps involved in completing the lifecycle: Shortlist on the Basis of Observation Selecting an ERP package for the company can be compared with the process of "Selecting the right Person for the Right Job". This process will involve choosing few applications suitable for the company from the whole many. Assessing the Chosen Packages A team of Experts with specialised knowledge in their respective field will be asked to make the study on the basis of various parameters. Each expert will test and certify if the package is appropriate for the range of application in their field. They also confirm the level of coordination that the software will help to achieve in working with other departments. They will verify if the synergy of the various departments in simple terms due to the advent of ERP will lead to an increased output. A choice is to be made from ERP implementation models.

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Preparing for the Venture This stage is meant to define the implementation of ERP in all measures. It will lay down the stipulations and criterion‟s to be met. A team will take care of this, who will report to the person of the top hierarchy in the organisation. Gap Analysis This stage helps the company to find the gaps that has to be bridged, so that the company‟s practice becomes akin to ERP environment. This procedure has been reported as an expensive but it is inevitable. The company will decide to restructure the business or make any other alterations as suggested by gap analysis in order to make ERP user friendly. Click here for a detailed study on gap analysis. A choice is to be made from ERP implementation models. Business Process Reengineering Modification in employee rolls, business process and technical details find place in this phase of restructuring most popularly referred as business process engineering. Designing the System This step requires very careful planning and deliberate action. This step assists the company to decide and conclude the areas where restructuring have to be carried on. A choice is to be made from ERP implementation models. In-House Guidance This is regarded as a vital step in ERP implementation. The employees in the company are trained to tackle crisis and make minor corrections as well because the company can neither be at liberty nor afford the bounty to avail the services of an ERP vendor at all times. Checking This stage observes and tests the authenticity of the use. The system is subjected to the extreme tests possible so that it ensures proper usage and justifies the costs incurred. This is seen as a test for ERP implementation. The Real Test At this stage the replacement takes place through the new mechanism of operation and administration takes over the older one.

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Preparing the Employees to use ERP The employees in the organisation will be taught to make use of the system in the day to day and regular basis. This makes sure that it becomes a part of the system in the organisation. Post Implementation The process of implementation will be significant only when there is regular follow up and proper instruction flow thereafter and through the lifetime of ERP. This consists of all the efforts and steps taken to update and attain better benefits once the system is implemented. Hence an organisation has to perform ERP implementation safely and correctly.

11.4 Terminal Questions
1. Explain the significance of Pre evaluation screening and package evaluation. 2. What is the purpose of gap analysis and how are the gaps fixed? 3. Why is end-user training said to be critical for the success of the ERP implementation? 4. Describe how you would go about the different phases of the ERP implementation lifecycle, if it were being done in your company.

11.5 Answers
Self Assessment Question 1. In-house 2. Organisation 3. Big Bang 4. Phased 5. Viable 6. Pre-evaluation 7. Origins 8. Package 9. Selection 10. Project planning 11. Team leaders 12. Gap analysis 13. Business 14. Mapping
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15. 16. 17. 18. 19. 20.

Company Reduce costs Weak links, bugs End-user Enhancements Resources, attention

Terminal Questions 1. Refer section 11.2.1 & 11.2.2 2. Refer section 11.2.3 3. Refer section 11.2.6 4. Refer section 11.2.11

11.6 Case Study
An Indian company is a well know specialty chemicals enterprise and the core of the chemical industry was focusing on premium businesses. The company employs an expert workforce with a mass of different skills worldwide. The company‟s operations have a long history, rich with a tradition of research and discovery. In the recent years with the changing market environment and competition, the company had to face tough challenges. For upgrading their system they wanted to take the support of Information Technology. The business challenge the company was facing for this new system implementation are,  To ensure that the new system enabled all the new business processes  To carry out validation required for ensuring proper functioning of all the business processes  To define the adequate set of business test cases which ensure coverage and completeness of testing  To create awareness in the users who were not used to work with new system‟s tools and hence a lot of training was required to take care of the same.

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They wanted the migration of the existing ERP system to a new ERP system from Microsoft called Microsoft Axapta. There was a need to check the viability of the implementation against existing business processes. The ERP was a client server based system based on Morphx technology. The large challenge was in terms of defining the adequate set of business test cases which ensure coverage and completeness of testing. The end users were not used to work with new system software tools and hence a lot of training was required to take care of the same. A test case generator was created to prepare test cases permutation and combinations from various parameters that influence the business process. A testing process was defined to document the viable permutations and combinations. So that Business Users can execute the test cases for the final run. OpenSource freeware tool Bugzilla was installed for defect tracking and a comprehensive training was conducted for management and business users. The implementation was tested for various business processes during appropriate phase of the release. This was done in comparison with an established process for Regression Testing and Retesting wherever applicable. Periodic metrics were circulated to the key stakeholders and the project steering committee to enable project management decisions. The final decision was enabled via informed decision making of the management and the developer. This was derived from metrics published at the end of the overall activity. The ERP has been working stably for functionality for the last two years. The implementation is being extended to more offices outside India after implementation of localisation parameters were a grand success. Some of the business benefits that the company could reap were  Key defects in major business processes identified before the system was made live.  Enabled a team of business users with proper testing processes and tools.

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 

Key insight provided to upper management by publishing meaningful metrics on periodic basis. Influenced final decision for the enterprise wide software implementation.

Questions: 1. What were the factors that lead the company to switch for an ERP system implementation? 2. Explain in brief how the entire implementation process was carried and tested. 3. What makes you think that the implementation was a success, explain.

11.7 Glossary
Term Bloated Description Exclusively large in size. Usually when some huge investment is being made by the organisation or allocating huge sum of money for some activity. To provide what is wanted or needed in a particular situation or by a particular group of people in a group or organisation. An event that might occur in the future, especially a problem, emergency, or expense that might arise unexpectedly and therefore must be prepared for during the implementation. Some thing that is carried out or that exist within a company or an organisation. The working together of two or more people, organisations, or things, especially when the result is greater than the sum of their individual effects or capabilities. To make a slight adjustment or change to something, especially in order to improve it or fix it, especially during or after the implementation process. The top six leading companies (SAP, BAAN, Oracle, PeopleSoft, JD Edwards, and SSA Inc.) in the consulting industry of ERP market.

Catering

Contingencies

In-house Synergy

Tweaked

Big Six

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References 1. “Management of ERP solutions” by Samo Bobek & Simona Sternad. 2. “Information Systems Management” by King. W. 3. “Concepts in Enterprise Resource Planning” by Monk, Ellen, & Wagner Brett. 4. “The Internet Encyclopedia” by Bidgoli & Hossein.

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Unit 12

Benefits of ERP

Structure: 12.1 Introduction Objectives 12.2 Benefits of ERP System Reduction of lead-time On-time shipment Reduction in cycle time Better customer satisfaction Improved supplier performance Increased flexibility Reduction in quality costs Improved resource utility Improved information accuracy and decision-making capability 12.3 Summary 12.4 Terminal Questions 12.5 Answers 12.6 Case Study 12.7 Glossary

12.1 Introduction
By now you must be familiar with the concept of an enterprise and its wide variety of its application. Now let us study the benefits you can get by going for a suitable ERP implementation required by your company. An ERP system helps your company to streamline your business processes. In order to have a successful implementation of your ERP system, you need to make sure you have your information in line to help make the process swift. It doesn’t matter what product your company manufactures, ERP provides your company with the right system and performance that you need. ERP can help your company decrease the operating cost and it is a benefit when running company analytics. It improves the coordination of your company’s process into one streamlined process where everything can be accessed through one enterprise wide information network. It helps to reduce additionally operating costs. This is achieved by controlling inventory
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costs, lowering production costs, and marketing costs. ERP system also helps to reduce the requirement of help desk support. ERP systems can also benefit the company by facilitating day-to-day management activities. It encourages the establishment of backbone data warehouses and allows employees to access the information in real time. This helps with research, decision making, and managerial control. It tracks actual cost of the daily activities and can perform activity based costing functions. ERP systems with real time capabilities and the ability to see what is going on with your company as it happens. ERP systems are handy when you deal with high volume of information. With an ERP system, your company will never have shortages in inventory or wasted time spent transferring files. You can test out an ERP system before buying it and see how it will work with your business. Installing an ERP system has many advantages, both direct and indirect. The direct advantages include improved efficiency, information integration better decision-making, faster response time to customer queries, and so on. Indirect benefits include better corporate image, improved customer goody customer satisfaction, and so on. In this chapter we will see some of benefits of the ERP systems. Learning Objectives: After studying this unit you will be able to:  Compare the direct and indirect benefits of ERP implementation.  Know how integration of information and automation of business processes makes improvements possible.

12.2 Benefits of ERP System
Benefits determination of an ERP system is essential for planning a successful ERP System purchase and its implementation. If you consider purchasing an ERP system, you will probably have to justify the purchase. Here are some of the ERP Benefits that can be expected. The major areas of benefit in a company are consolidation of multiple systems into one and the improved visibility across the company. Some of the benefits that you can find in an organisation with ERP implementation are:

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        

Reduction of lead-time On-time shipment Reduction in cycle time Better customer satisfaction Improved supplier performance Increased flexibility Reduction in quality costs Improved resource utility Improved accuracy of information and decision-making capability

12.2.1 Reduction of Lead-Time The time elapsed between placing an order and receiving it is known as lead-time. It plays a significant role in purchasing and inventory cost. Most purchasing departments use the managers to anticipate material demands well ahead of actual need. All inventory systems must have safety mechanisms like safety stock, reorder level, and so on, built into them. This will help the organisation to avoid a situation where the material is out of stock. The consequences of the non-availability of an item that is required for production can result in a lot of problems. Some of these problems are missing the delivery schedules, losing the customer goodwill due to delayed delivery or even losing the customer to the competition. One can avoid this situation by requesting for the materials well in advance rather than when they are actually needed (early requests). You can also over come this by keeping a large buffer stock, or else by maintaining a very high re-order level. But this entire means that larger inventories must be kept, which blocks the money. Also, the practical consequence of allowing longer times for delivery seems to be that the present lead-times just grow to take up whatever stock is allowed. Perhaps this is due to the 'squeaky wheel principle' that is, buyers who expect the shortest lead-times complain the loudest when deliveries are late. Hence receive the most attention from suppliers. So the company must find out the minimum lead-time. Company must attempt to correct supplier's delivery delays instead of automatically increasing existing lead-times.

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In order to reduce the lead-times, the organisation must have an efficient inventory management system. This system must be integrated to the purchasing, production planning and production departments. In this era of just-in-time manufacturing, the knowledge of the exact lead-times for each and every item is of paramount importance for uninterrupted production. For example consider a company dealing with hundreds and thousands of raw materials, and components. Monitoring and keeping track of the lead-times for each and every individual item manually, is practically an impossible task. The ERP systems help in automating this task and thus, make the inventory management more efficient and effective. Also, since the ERP system is integrated with the materials management module. This module is integrated with other modules like purchasing, sales, marketing, manufacturing, and production planning. With the help of this kind of integration the demand for a particular item can be known as early as an order is received. For example, consider that an order is received for supplying, say, 100 cars with air conditioners. As soon as the order details are entered into the system, a lot of actions are triggered. The system will check whether the items are available in the finished goods inventory. Then it will generate a BOM for the order and will check whether all the items are available in the inventory. Since all the records are kept in the system's database and since every thing is up-to-date, finding out the parts that are to be ordered takes no time (a task which could have taken days in the case of a manual or nonintegrated system). The items that are to be manufactured are identified, and the production planning system prepares a production plan. Then the material management module will prepare purchase orders for each and every item taking into account the lead-times. It also decides when these items are required for production. If the purchasing process has to go through various processes like the invitation of quotations, vendor selection, and so on which is performed by the ERP system. Since most suppliers are also connected to the organisation's system soon as a purchase order or requisition is issued, the supplier's system updated with that information. The supplier knows what items are too supplied and when. Since the activities like preparation of contracts, issue of purchase orders and payments happen through the system electronically, the time
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saved is phenomenal. ERP systems, by virtue of their integrated nature and by the use of latest technologies like, Electronic Funds Trans (EFT), Electronic Data Interchange (EDI), reduce the lead-times and make possible for the organisations to have the items at the time they are needed (Just-inTime inventory systems). Activity 1 In a departmental store how do you think you can bring in an ERP system to improve the functioning of the store and also list out the major areas that can be effectively managed in the store with the ERP system. Self Assessment Questions 1. The time elapsed between placing an order and receiving is known as_______________. 2. Company must attempt to correct ________________ delays instead of automatically increasing the existing lead-times. 3. __________________ module is integrated with other modules like purchasing, sales, marketing, manufacturing, and production planning. 4. The system will check whether the items are available in the ____________ goods inventory. 12.2.2 On-Time Shipment Today, companies must be able to deliver customer-specific products (Time-to-Order) with the lead-time of standard, off-the-shelf products. The companies must be able to change the mode of production from make-tostock make-to-order. In spite of this change they must retain the cost and time advantages of off-the-shelf products. Today, the ERP systems provide the freedom to change manufacturer and planning methods as needs change. This is achieved without modifying or reconfiguring the workplace or plant layouts. With ERP systems, businesses are not limited to a single manufacturing method, such as make-to-stock or make-to-order. Instead many manufacturing, and planning methods can be combined with the same operation. At the same time providing unlimited flexibility to choose the best combination of methods. This is done for each product at each stage throughout its cycle. In addition, this control and visibility comes without having to sacrifice the functionality needed to efficiently manage different types of production. Since, these systems support the entire range of

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production strategy only one system is needed to manage all manufacturing activities. Engine-to-Order products are planned using these systems, while the forecasting-distribution-planning features handle make-to-stock items. Products that assembled to order can be planned using the extensive production planned capabilities of these ERP packages. Various production scenarios can be simulated using the simulation features and the best one can then be selected. Also, since the different functions involved in the timely delivery of finished goods to the customer-purchasing, materials management, production, production planning, plant maintenance, sales and distribution are integrated and the system automates the procedures. The chances of errors are minimal and the production efficiency will be high. All the information is available to the management at the desired level of detail and in time. The system has exceptional handling features (which will issue warnings if things are going out of control), the management can keep track of things and can take corrective actions at the appropriate time. Another step to shorter product development cycles is increased efficiency in design and development activities. ERP systems are designed to help your company trim data transfer time, reduce errors and increase design productivity. This is achieved by providing an automated link between engineering and production information. Most of these systems allow smooth integration with popular Computer Aided Design (CAD) packages. This simplifies the exchange of information about drawings, items, BOMs, and routings with in the company. Using the Engineering Change Control (ECC) system, businesses can gain effective control over engineering change orders. The company can define the authorisation steps for approving and implementing an Engineering Change Order (ECO). When these steps are completed, the ERP system automatically implements the change in the production database. Integrating the various business functions and automating the procedures and tasks, the ERP systems ensure on-time delivery of goods to the customers. 12.2.3 Reduction in Cycle Time The time between receiving of the order and delivery of the product is known as Cycle time. At one end of the manufacturing spectrum is the make-to-order operation, where the cycle time and cost of production are
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high. This is because in a make-to-order situation the manufacturer starts making the product or designing the product only after receiving the order. He will procure the materials and components required for production only after getting the order. On the other end of the manufacturing operations is the make-to-stock approach. Here the products are manufactured and kept in the finished goods inventory before the order is placed. In both cases the cycle time can be reduced by the ERP systems, but the reduction will be more in the case of make-to-order systems. In the case of make-to-stock, the items are already manufactured and kept in warehouses or with distributors for the sales. Here, the cycle time is reduced not in the shop floor, but during the order fulfilment. In the earlier days, even for the made-to-stock items, the cycle time used to be high. This was because the process was manual and if computerised, not integrated. Suppose a customer places an order. The order entry clerk has to check whether the order is available in the warehouse nearest to the customer. If it is not available there, he will check whether it is available in any other warehouse or with any of the distributors. Then he will have to process the order, inform the concerned warehouse or distributor to ship the item. Simultaneously he informs the finance department to raise the invoice, and so on. All this used to take a lot of time – few days or sometimes even weeks. But with an ERP system, as soon as the order is entered into the system, the system checks the availability of the items. If it is not available with the nearest manufacturer, then the warehouse that is closest to the customer and which has the item in stock is identified. The warehouse is informed about the order, and the shipment details are sent to the distribution module. Here it will perform the necessary tasks like packaging and picking so that the delivery is not affected. The finance module is also alerted about the order so that they can raise the invoice. All these actions are triggered by the click of a button by the order entry clerk. Since all the data, updated to the minute, is available in the centralised database and since all the procedures are automated. We have to keep in mind that almost all of these activities are done without human intervention. This efficiency of the ERP systems helps in reducing the cycle time. In the case of make-to-order items, the ERP systems save time by integrating with Computer Aided Design/ Computer Aided Manufacturing (CAD/CAM) systems. Time and cost reductions are possible when CADSikkim Manipal University Page No. 257

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engineered designs are converted automatically into software programs for computerised production machines using CAD/CAM systems. The computerised conversion eliminates the costly and time consuming steps. This avoids a person convert design drawings into a computer program for computer-controlled production equipment, such as robots or machine tool. These systems reduce cycle times by 30-50%. Combined with this it helps in achieving automation in material procurement, and production planning. Efficiency achieved through the plant maintenance and production systems the ERP packages helps in reducing the cycle times. Self Assessment Questions 5. The companies must be able to change the mode of production from make-to-stock to _______________. 6. Engine-to-Order products are planned using these systems, while the forecasting distribution-planning features handle_____________ items. 7. The order entry clerk has to check whether the order is available in the _________________ nearest to the customer. 8. The ________________ conversion eliminates the costly and time consuming steps. 12.2.4 Better Customer Satisfaction Customer satisfaction means meeting requirements for a product or service. or exceeding customers'

Evaluation of the degree of satisfaction is usually made on at least three measures:  Does the product or service provide the features that are most important to the customer.  Does the company respond to the customers' demands in a timely manner, a criterion that is especially important for custom products and services.  Is the product or service free of defects and performs as expected. ERP systems have proved that they can produce goods at the flexibility of make-to-order approach without loosing the cost and time benefits of madeto-order operations. This means that the customer will get individual attention and the features that he/she wants. There is no need for the customer to spend more money and wait for long periods. With the
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introduction of the web-enabled ERP systems, the customers can place the order, track the status of the order and make the payment sitting from home. The customer could get technical support by either accessing the company's technical support knowledge base (help desk) or by calling the technical support. All the details of the production and the customer are available to the person at the technical support department. With this data the company will be able to support the customers even better. All this is possible because of the use of the latest developments in information technology by the ERP systems. However, this will go a long way in improving the customer satisfaction. 12.2.5 Improved Supplier Performance The quality of the raw materials or components and the capability of the vendor to deliver them on time, are of critical importance for the success of any organisation. So, an organisation needs to choose its suppliers or vendor: very carefully. You have to monitor vendor activities closely, so that problems can b corrected before it can disrupt the functioning of the company. To realise these benefits, corporations depend heavily on supplier management, and control systems. They help to plan, manage, and control the complex processes associated with global supplier partnerships. The ERP systems provide vendor management and procurement support tools designed to coordinate all aspects of the procurement process. They support the organisation in its efforts to effectively negotiate, monitor, and control procurement costs and schedules. They also assure superior product quality. The supplier management and control processes are comprised of features that help the organisation. They manage the supplier relations, monitor the vendor activities and manage the supplier quality. There is a growing trend for organisations to establish partnership agreements with their suppliers. Through such business relationships, mutually beneficial results have been achieved in the areas of quality, delivery, and cost. To realise these benefits, companies rely heavily on procurement support systems to help manage and control processes associated with supplier partnership agreements. Request for quotations, contract negotiation and control, purchase order release, and delivery are process steps considered when formalising such partnerships. Complexities arise in the areas like services being procured, quantity and price breaks,
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terms of the agreement, and methods employed for tracking and controlling the process. The procurement support system provides immediate feedback, flexibility, and comprehensiveness in managing supplier partnerships. This will provide a clear, competitive advantage to the enterprise. The ERP systems have features that will enable the companies to realise the benefits associated with established partnership agreements. Supplier quotations and contracts can be created to support the procurement of all products and services required by the enterprise. Examples of this include both inventory and non-inventory products, office supplies, and services, as well as products requiring direct shipment to customers. Each agreement must stand on its own merit, multiple quantity and price breaks, this must be supported by the system. Along with terms specifying when the quotation or contract becomes effective, and when it expires are also supported by the system. To address the methods companies employ when tracking and controlling these agreements, these systems provide a number of alternatives. First, after contracts are established, purchase orders and requisitions are tracked as they are released against a corresponding contract. The ERP system searches for the best-fit supplier contract and automatically assigns it to the corresponding purchase order or requisition. If changes are necessary, the user can override the contract selection made by the system. Since it is imperative to know the status of a supplier quotation or contract, the system provides immediate feedback to the organisation. Detailed history provides for the deployment of in-depth procurement analysis tools. The supplier management professional can easily compare total quotation or contract commitments to actual purchasing activities. Organisation needs the flexibility and comprehensiveness of the system's supplier quotation, and contract management capabilities. So that organisations can efficiently manage their supply-side trading partners. As a result, the organisation gains significant cost and delivery procurement benefits for their business. Most suppliers have their systems connected to the company's system. Therefore the information regarding an order is transmitted to the supplier's systems almost instantaneously. This saves a lot of time and gives the supplier more time in fulfilling the orders.
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Businesses generally classify their suppliers into certified, approved, and probationary categories for quality management and auditing purposes. Additionally, supplier certification programs must be capable of distinguishing between suppliers and original manufacturers. The objective of supplier auditing, and classification programs is to ensure maximum conformance of purchased materials, and services to specification. Maintaining minimised lead-times and costs. The Quality Management System in the ERP systems provides all the tools needed to implement Total Quality Management programs. Especially to implement it within an organisation's procurement function. Using the system, organisations can establish and manage highly effective supplier certification programs. This ensures maximum conformance of purchased material to specification, while maintaining lead-times and costs. In quality control program original manufacturer leaves the buyers free to seek the best possible price and delivery terms. The buyers have the freedom to choose from a variety of qualified distributors or brokers. Self Assessment Questions 9. There is no need for the _________________ to spend more money and wait for long periods. 10. To realise these benefits, corporations depend heavily on ______________ and __________________. 11. The ERP system searches for the best-fit supplier contract and automatically assigns it to the corresponding _______________ order. 12. The Quality Management System in the ERP systems provides all the tools needed to implement __________________________ programs. 12.2.6 Increased Flexibility Since competition is growing, companies must learn to respond more rapidly to customers' wishes as well as changes in the market. They will need to design new products or redesign old products quickly and efficiently. Only then will companies have the chance to capitalise on opportunities while they are available. The window of opportunity is often quite small. The manufacturing process must be flexible enough to accommodate new product designs with minimal disruption or time loss. Flexibility is a key issue in devising strategic plans in companies. Sometimes, flexibility means quickly changing something that is being done,
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or completely changing to adjust to new product designs. At other times, flexibility is the ability to produce in small quantities. In order to produce a product mixes that may better approximate actual demands and reduce work-in-progress inventories. Regardless of the definition of flexibility, traditional fixed automation manufacturing facilities, while efficient, are often inflexible. Similarly, extremely flexible operations are often inefficient. An argument can be made for the relative merits of both efficiency and flexibility. Actually, both are desirable for making effective decision by the management. Product flexibility is the ability of the operation to efficiently produce highly customised and unique products. Manufacturers tried to introduce some amount of flexibility by using the assemble-to-order approach. This provided some amount of flexibility without increasing the production cost, but could not be applied to all situations. Along the wide range of Make-to-Order (MTO) manufacturing, there is a growing convergence. Especially between strictly assemble-to-order (limited options and features), and completely engineer-to-order (just about anything goes, at a cost) environments. This evolving environment is often referred to as configure-to-order. Most ERP systems have now also added this technique to their systems. Using a rules-based product configuration system, Configure-to-Order (CTO) manufacturers are able to simplify the order entry process. They also retain Engineer-to-Order (ETO) flexibility. This is achieved even without maintaining bills of materials for every possible combination of product options. How this is done and how this improves flexibility is explained in the chapter "ERP – A Manufacturing Perspective." ERP system not only increases the flexibility of the manufacturing operations, but also the flexibility of the organisation as a whole. A flexible organisation is one that can adapt to the changes in the environment rapidly. With the technological revolution, the rules of the marketplace are changing at a rapid pace. New competitors are emerging each day. New and complex problems have to be tackled every day. New market segments have to be penetrated not to succeed, but to stay in business. New marketing strategies have to be devised and implemented at very short notices. Companies have to constantly find new ways to keep the customer satisfied. For doing all these, the company has to be flexible. The old methods of functioning will no longer work. ERP systems help the companies to remain
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flexible by making the company information available across the departmental barriers. It also automates most of the process, and procedures and thus enabling the company to react quickly to the changing market conditions. 12.2.7 Reduced Quality Costs Quality is defined in many different ways excellence, conformance to specifications, fitness for use, value for the price, and so on. But, manufacturing and design engineers are typically responsible for some of the technological issues in the quality assurance for products. At the same time operations managers often conduct the analysis of quality-related costs which is an important task. Strategic opportunities, or threats, frequently motivate the launch of aggressive quality management initiatives. Analysing the cost of quality can provide the financial justification for implementing them. Typically, the quality costs are in the range of 20% of the cost of goods sold. Carefully planning quality improvement activities not only improves quality, but lowers quality-related costs. The American Society for Quality Control (ASQC) has developed a typology of quality related costs that are based on the work of several quality masters. Operations managers have found the classification system useful. Specially, for collecting data that are consistent and for identifying the opportunities for controlling quality costs that will have the greatest effect on efficiency. The typology has four categories:  Internal failure costs, for example, costs of scrap, rework, re-inspection, and low production yields for non-conforming items that are detected before they leave the company.  External failure costs, for example, warranty claims, repairs, and service costs that result when the failure is detected in the market place.  Appraisal costs, for example, cost of inspecting upon arrival, during manufacture, in laboratory tests, and by outside inspectors.  Prevention costs, for example, design and development of new quality equipment, evaluation costs of a new product or service, training of quality personnel. An extremely important truism is that the further along in the process an item is, the more a defect costs. For example, in the design phase of a new product or service, the cost of correcting a defect may be minimal. If that
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defect goes undetected and the company releases the product or service to the public, it will incur a much greater cost to resolve the problems that result. Elimination of defects in standard product designs and manufacturing methods before production is just as important as eliminating defects during production. In fact, to achieve quality levels, manufacturers must focus on identifying and correcting defects. Especially in product designs and production methods, not simply inspect incoming material or finished goods. The Quality Management Systems in ERP packages support the benchmarking and use of optimal product design, process engineering, and quality assurance data. But this data is collected from all functional departments within the manufacturing enterprise. Hence, facilitates organisations in areas like definition of repeatable processes, root cause analysis, and the continuous improvement of manufacturing methods. This documentation supports the job functions of the quality assurance and production managers in validating the manufacturer's conformance. The validation is in accordance to ISO9000, Good Manufacturing Practices (GMP) worldwide, and a variety of country specific standards of quality assurance. Specification Control Systems in ERP packages offer a state-of-the-art approach for documenting specifications. They also enable an organisation to standardise and simplify its quality assurance and control functions. Sample types, sample rules, and testing levels are completely user-defined for maximum flexibility and ease of use. Maintenance of standard specifications, detailed sampling instructions and testing procedures are performed on-line. Cyclic, subsequent, and repeat testing options are available to support the material acceptance function. However, with provision for the breakdown of test procedures into multiple dispositions, improves inventory turnover and reduce inspection lead-times. The ERP system's central database eliminates unnecessary specifications. It ensures that a single change to standard procedures takes effect immediately throughout the organisation. The ERP systems also provide tools for implementing Total Quality Management programs within an organisation. Original manufacturers may be defined independently from vendors, so that businesses can strictly obey to quality assurance and control functions. This is achieved without preventing their buyers from seeking the best possible
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price and delivery terms. Each item supplied by an original manufacturer may be linked to a standard product specification. Actual test results and material disposition histories are retained under item, lot, original manufacturer, and specification column. This is for in-depth quality performance review and analysis. Material Inspection Systems offer a wide range of capabilities for process supervision and control. These capabilities are fully integrated with other modules like purchasing, inventory management, and shop floor control functions. Since it ensures that the right quality control procedures are followed. Thus, ERP systems play a vital role in ensuring that the company has an efficient and effective quality assurance and management system. Self Assessment Questions 13. ____________ is a key issue in devising strategic plans in companies. 14. Manufacturers tried to introduce some amount of flexibility by using the ____________________ approach. 15. Carefully planning _____________ improvement activities not only improves quality, but lowers quality-related costs. 16. Cyclic, subsequent, and repeat testing options are available to support the _______________________ function. 12.2.8 Improved Resource Utilisation Manufacturing processes are becoming more sophisticated. The philosophies of elimination of waste and constraint management are achieving broad acceptance. Hence, manufacturers are placing increased emphasis upon planning and controlling capacity in the inventory and the workforce. The creation of an accurate, achievable product schedule requires the availability of both material and capacity. It is useless, and indeed wasteful, to have financial resources tied up in material, if the capacity is insufficient or improperly planned. Waste not only raises costs, it also affects customer service levels and customer good will. The capacity planning features of most ERP systems offer, both rough-cut and detailed capacity planning. The system loads each resource with production requirements from Master Production Scheduling, Material Requirements Planning, and Shop Floor Control (detailed capacity planning). All planned and released production is evaluated and loaded against capacity definitions for each resource. All capacity requirements are hooked
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back to the orders comprising the load. Capacity definitions are provided from work centre and machine records. Work centres can be facility-specific or enterprise-wide. Any work centre can be designated as a critical work centre for evaluation by rough-cut capacity planning. This capability provides an easy and efficient way to designate bottleneck operations that act as system constraints. As the constraints change over time, the user can re-designate the work centres as critical or non-critical. High volume repetitive environments are further supported with both 'from and to material movement location designations. These locations are used for pull system back flushing/replenishment and can be designated by individual machines within the work centre. These systems provide further refinement of available capacity by providing definition for specific machines or pieces of equipment. Each work centre also has user-defined input/output control tolerance factors to control the level of action message sensitivity. For example, a factor for average efficiency, separate speed factors for labour and machine, designation of shift/hours schedule, and maximum desired load percentage'(with 100% as the default). Capacity minimums can also be designated for processes involving vessel size constraints and fixed cycle constraints (heat treating, pickling, plating, sand blasting and paint dipping, and so on.). The ERP systems also have simulation capabilities. This helps the capacity and resource planners to simulate the various capacity and resource utilisation scenarios. After which they can choose the best option depending up on their requirement. The efficient functioning of the different modules in the ERP system like manufacturing, materials management, plant maintenance, sales and distribution ensures that the inventory is kept to a minimum level. The machine down time is maintained low. Along with that the goods are produced only as per the demand. It also has to ensure that the finished goods are delivered to the customer in the most efficient way. Thus, the ERP systems help the organisation in drastically improving the capacity and resource utilisation. 12.2.9 Improved Information Accuracy and Decision-Making Capability One has to manage the future to survive, thrive and beat the competition in today's brutally competitive world. Managing the future means managing the information. In order to manage the information, deliver high quality information to the decision-makers at the right time. ERP has to automate
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the process of information collection, collation, and refinement. Organisations have to make Information Technology (IT) an ally. So that organisations can harness its full potential and use it in the best way possible. We have seen that in today's competitive business environment, the key resource of every organisation is information. Consider an organisation does not have an efficient and effective mechanism that enables it to give the decision-makers the right information at the right time. Then the chances of that organisation succeeding in the next millennium are very remote. The three basic characteristics of information are accuracy, relevancy and timeliness. The information has to be accurate and must be relevant for the decision-maker and it must be available to the decision maker when he needs it. The organisation must have the mechanism to collect, collate, analyse, and present high quality information to its employees. This will enable them to make better decisions and they will always be one step ahead of the competition. Today, the time available for an organisation to react to the changing market trends is very short. To survive, the organisation must always be on its toes, gathering and analysing the data internal and external. Any system that will automate this information gathering and analysis process will enhance the chances of the organisation to beat the competition. One of the major short coming of the legacy systems was that it did not have an integrated approach. For example, there would be an accounting system for the finance department, a production planning system for the manufacturing department, an inventory management system for the stores department, and so on. All these systems would perform in isolation. So if a person wanted some information which had to be derived from any of these two systems. Then he has to get the necessary reports from both systems, and then correlate and combine the data. But in reality, an organisation cannot function as islands of different departments. The data from production planning department is required for the purchasing department. The purchasing department’s details are required for the finance department and so on. So if all the information islands, which were functioning in isolation, were integrated into a single system, then the impact of that would be dramatic. For example, if the
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purchase department can see the production planning details, it can make the purchasing schedule. The finance department can check the details of the purchase as soon as it is entered in the system. It can also plan for the cash flow that will be required for the purchases. Since the systems work in isolation, collecting and analysing the data needed for the functioning departments. It also gets information about some characteristic that is dependent on more than one department, which is difficult manually. But no business executive or decision-maker can take good decisions with the isolated data that he will get from the various reports produced by each department. Even if you collate the data and produces the information that you require, you would have lost valuable time that would have been better spent in decision-making for that process. So we need a system that treats the organisation as a single entity, and caters to the information needs of the whole organisation. With the help of this system we can generate the information that is accurate, timely, and relevant. These systems will play vital role in helping the organisation to realise its goals. This is the strong point of ERP systems that is integration and automation. This is the reason why implementation of ERP systems will help in improving the accuracy of information and thus help in better decision-making. Activity 2 Visit a small manufacturing industry with a new ERP system in place. Enquire the management and the employees and list out the various benefits that they were able to find with the new system. Self Assessment Questions 17. The creation of an accurate, achievable product schedule requires the availability of ___________ and ____________. 18. Each ______________ also has user-defined input/output control tolerance factors to control the level of action message sensitivity. 19. The ERP systems also have ___________ capabilities. 20. The ____________ available for an organisation to react to the changing market trends is very short.

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12.3 Summary
ERP system software attempts to integrate business processes across various departments onto a single enterprise-wide information system. The major benefits of ERP are improved coordination across various functional departments of an organisation, and increased efficiencies of doing business. The immediate benefit that we can expect from implementing ERP systems is reduced operating costs, such as lower inventory control cost, lower production costs, lower marketing costs, and lower help desk support costs. Reduction of lead time plays a significant role in purchasing and inventory cost. Most purchasing departments use the managers to anticipate material demands well ahead of actual need. In order to reduce the lead-times, the organisation must have an efficient inventory management system. Monitoring and keeping track of the lead-times for each and every individual item manually, is practically an impossible task. The ERP systems help in automating this task and thus, make the inventory management more efficient and effective. The companies must be able to change the mode of production from maketo-stock make-to-order. Today, the ERP systems provide the freedom to change manufacturer and planning methods as needs change. Products that assembled to order can be planned using the extensive production planned capabilities of these ERP packages. The company can define the authorisation steps for approving and implementing an Engineering Change Order (ECO). ERP systems are designed to help your company trim data transfer time, reduce errors and increase design productivity. The time between receiving of the order and delivery of the product is known as Cycle time. Cycle time can be reduced by the ERP systems, but the reduction will be more in the case of make-to-order systems. In the case of make-to-order items, the ERP systems save time by integrating with Computer Aided Design/ Computer Aided Manufacturing (CAD/CAM) systems. Efficiency achieved through the plant maintenance and production systems the ERP packages helps in reducing the cycle times. ERP systems have proved that they can produce goods at the flexibility of make-to-order approach without loosing the cost and time benefits of made-

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to-order operations. This means that the customer will get individual attention and the features that he/she wants The ERP systems provide vendor management and procurement support tools designed to coordinate all aspects of the procurement process. Organisation needs the flexibility and comprehensiveness of the system's supplier quotation, and contract management capabilities which is provided by the ERP system. The Quality Management System in the ERP systems provides all the tools needed to implement Total Quality Management programs. Typically, the quality costs are in the range of 20% of the cost of goods sold. Carefully planning quality improvement activities not only improves quality, but lowers quality-related costs. Specification Control Systems in ERP packages offer a state-of-the-art approach for documenting specifications which help to track and monitor the components and material. Thus, ERP systems play a vital role in ensuring that the company has an efficient and effective quality assurance and management system. The capacity planning features of most ERP systems offer, both rough-cut and detailed capacity planning. Capacity definitions are provided from work centre and machine records. Work centres can be facility-specific or enterprise-wide. Each work centre also has user-defined input/output control tolerance factors to control the level of action message sensitivity. The efficient functioning of the different modules in the ERP system like manufacturing, materials management, plant maintenance, sales and distribution ensures that the inventory is kept to a minimum level. The three basic characteristics of information are accuracy, relevancy and timeliness. The information has to be accurate and must be relevant for the decision-maker and it must be available to the decision maker when he needs it. An organisation cannot function as islands of different departments. ERP systems will help in improving the accuracy of information and thus help in better decision-making. The other benefits from implementing ERP systems are facilitation of day-today management. The implementation of ERP systems looks after the establishment of backbone for data warehouses. ERP systems offer better and easy access to data so that management can have up-to-the-minute access to information for decision making and managerial control. ERP
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software helps monitor and track actual costs of activities and perform activity based costing. Strategic Planning is defined as 1 "a deliberate set of steps that assess needs and resources; define a target audience and a set of goals and objectives; plan and design coordinated strategies with evidence of success; logically connect these strategies to needs, assets, and desired outcomes; and measure and evaluate the process and outcomes." Part of ERP software systems is designed to assist resource planning portion of strategic planning. But, resource planning has been the weakest area in ERP practice due to the complexity of strategic planning and lack of adequate integration with Decision Support Systems (DSS).

12.4 Terminal Questions
1. What are the benefits of an ERP implementation? 2. How does an ERP system reduce cycle time? 3. Write a note on the benefits of improved supplier performance using ERP. 4. How does an ERP system facilitate better decision-making?

12.5 Answers
Self Assessment Questions 1. Lead-time 2. Supplier's delivery 3. Material Management 4. Finished 5. Make-to-order 6. Make-to-stock 7. Warehouse 8. Computerised 9. Customer 10. Supplier management, control systems 11. Purchase 12. Total Quality Management 13. Flexibility
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14. 15. 16. 17. 18. 19. 20.

Assemble-to-order Quality Material acceptance Material, capacity Work centre Simulation Time

Terminal Questions 1. Refer section 12.2 2. Refer section 12.2.3 3. Refer section 12.2.5 4. Refer section 12.2.9

12.6 Case Study
Wrigley manufacturers of a wide variety of products, including chewing gum have a huge global market. However, when they realised the size their computer system increased they discovered a chance to improve the way they ran their business. At the same time they planned to go for implementing BPCS software from SSA. Wrigley's Finance Director, Andrew Ogle, was appointed as Project Manager. He was able to sort out some of the problems they were facing: He found out that different parts of the company often worked to different forecasts received from various sources. For example, the sales department would ask for more than they needed from the factory to provide a cushion for errors. In turn the production and the planning departments think that the sales team would never sell that much. So they manufactured less than the sales department demand. To overcome this problem he realised the need to make everyone work together. It was decided to get help from outside from an expert. Hence, MRP Ltd was called in for assistance. MRP Ltd had more than 40 years experience in various fields of manufacturing industry. Hence, they were able to help the Wrigley's team to examine their operations and target areas for improvement.

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The process started with external education for the project team. The Business Excellence implementation was then spread internally to all levels with varying levels of intensity and scope. With the help of this the workforce gained the self-confidence to take part in the decision making processes. For the first time, employees realised not only where their company was heading, but also their place within it. The attitude that always made them say 'It's not MY problem' simply evaporated. The Managing Director of Wrigley was delighted by the change this made to his role. The Introduction of Sales and Operation planning slowly eliminated the problems that were recurring. Many other senior managers in the company were able find more time to make more use of their creative skills and take advantage of market opportunities. Only two years into the process the changes were dramatic. With greater accuracy of forecasts meant that Wrigley was able to cut down raw material safety stock levels. This in turn enabled them to enhance the quality control of goods from suppliers. This resulted in cost cuts while the level of customer satisfaction rose. The Business Excellence principles are driven by philosophy of continuous improvement. The pace of the improvement in process continues to drive the company to higher levels of achievement. Recent improvements consist of continuing to drive up the customer service. For example, the system helped in improving their ability to forecast, the extensive use of bar codes to improve inventory record accuracy, and so on. The management believes everyone is proud of their excellent results. Although it has been hard work, the process has been simple. Together MRP Ltd and the Wrigley team took an important look at where they were Company I. They were able to identify its strengths and weakness and built on them to create Company II, exactly where they want to be. Questions: 1. What was the major concern that bothered the top management of the company? 2. Do you think the company’s management was vigilant enough to identify the problem and brought corrective measures? Justify. 3. What all benefits do you think the company achieved with the new system?

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12.7 Glossary
Term Conformance Description The act of conforming or of bringing about accord or compliance in the organisation between the system and the employees who use the system. The bringing together of businesses or business activities into a single unit for effective management of the various activities of the organisation. A coming together from different directions, especially a uniting or merging of groups or tendencies that were originally opposed or very different in an organisation. Quoting price of prevailing stock, bond, or commodity according to the market prices by the company or a vendor of the product. The study or systematic classification of types of quality control related issues of an organisation or a company. To confirm or to establish the truthfulness or soundness of something related to quality of the product or the commodity, with the clients, customers or vendors.

Consolidation

Convergence

Quotation

Typology Validating

References 1. Emerging Trends and Challenges in Management by Khosrow-Puor and Mehdi.

Information

Technology

2. Concepts in Enterprise Resource Planning by Monk, Ellen and Wagner 3. Ensuring ERP implementation success by King. W.

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Unit 13
Structure: 13.1 Introduction Objectives 13.2 ERP Market 13.3 SAP – AG Products and Technology R/3 Overview SAP Advantage 13.4 BAAN Company Products and Technology Baan ERP Modules Global Support, Education, and Consulting 13.5 Oracle Corporation Products and Technology Oracle Applications Vertical Solution 13.6 People Soft Business Management Solutions Commercial Solutions Industry Solutions Applications 13.7 J D Edwards World Solutions Company Products and Technology Modules 13.8 Systems Software Associates Inc (SSA) Products and Technology BPCS Applications 13.9 QAD Application MFG/PRO Modules 13.10 Summary 13.11 Terminal Questions 13.12 Answers 13.13 Case Study 13.14 Glossary

ERP Market

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13.1 Introduction
By now you must be familiar with the concept of ERP, its essence in an organisation, its market and application in a wide variety of industries. This unit familiarises you with some of the vendors and the market space that various vendors have occupied with respect to ERP. The ERP market is fast growing and very competitive. AMR Research Inc. is a leading industry and market analysis firm specialising in enterprise applications and enabling technologies. They had analysed in 2002 that Enterprise Resource Planning (ERP) software market will grow at a compound annual growth rate of 3.7% over the next five years. During 2007 this revenue growth reached double figures. The findings of the AMR report indicate the continued growth of three primary factors. These are:  ERP vendors are expanding market presence continuously by offering new applications such as supply chain management, sales force automation, customer support and human resources. ERP vendors to sustain their rapid growth will try to sell more licenses into their installed base. Currently, ERP vendors have a 10-20% penetration (i.e. %age of total employees currently using the ERP system). This will grow to 40-60% within the next five years. ERP originated in the manufacturing industry. Today ERP usage has spread to nearly every type of enterprise including retail, utilities, public sector, and healthcare organisations. Most will purchase new ERP systems over the next five years, often for the first time.

In this unit, we will study some of the top vendors in the ERP market, their profile, their product offerings, and product features. The companies featured here are SAP AG, Baan Company, Oracle Corporation, People Soft, J.D. Edwards, SSA and QAD. Learning Objectives: After studying this unit you will be able to:  Describe the ERP market.  Explain the major players in ERP and their respective market share.  Assess the various market trends in ERP.  Recognise the target market of ERP.
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 

Analyse and know how to potentially use ERP in the market driven economy. Assess the seven major ERP vendors – SAPAG, Baan, PeopleSoft, JD Edwards, Oracle, QAD and SSA.

13.2 ERP Market
The vendors in the ERP market are segmented into two levels. They are focusing on expanding product functionality, new market targets and higher penetration rates. The top level consists of five vendors (1998) – SAP AG, Baan PeopleSoft, Oracle Applications, and J.D. Edwards. These companies, account for 64 % of the ERP market revenue and have grown over the past year at a furious pace of 61 %. In addition, Oracle, People Soft J.D Edwards, and Baan are each expected to approach or exceed $1 billion in total revenue in 1998, while SAP will approach $5 billion. In the survey conducted by ARM during the year 2005 the list had few changes with new players entering into the huge market of ERP. Some of the companies were not able keep up with the technology and lost their market like Baan. Some even went for merger like PeopleSoft and J.D. Edwards. The figure 1 13.1 shows the total revenue of the top five ERP vendors of 2005 survey. The graph in the figure 13.1 shows the total revenue in millions of the top five companies in ERP market (2005). The graph also shows the strength of each company in terms of revenue and the monopoly they have in the ERP market.

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Figure 13.1: Top Five ERP Vendors

The efforts these companies (SAP AG, Baan PeopleSoft, Oracle Applications, and J.D. Edwards) made as start-ups, created a new market for ERP. Although ERP was considered only for manufacturing large scale industries, they penetrated into new smaller markets during 90’s. AMR Research had predicted that the ERP market will reach $14.8 billion in total company revenue in 1998. In addition, when third party services like hardware, databases, and networking are considered, AMR Research estimated that the ERP infrastructure was worth over $ 42 billion. It was obvious that the market for ERP would continue to be one of the largest, fastest growing and most influential in the applications industry. It was poised for steady growth into the new millennium. It is evident from the figure2 13.2 that the SAP had conquered the major portion of the market with 29% of the total global market. This showcased the efficiency and the strength of the company in handling customers and technology. Oracle stood next to SAP followed by JD Edwards and PeopleSoft. The most important aspect noticed is that 27% of the markets occupied by other vendors were local vendors. They had a better picture of their local conditions and benefited from it.
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Baan 5%

SSA 5%

JBA 4%

Marcam 3%

Intentia 2%

QAD 2%

Others 27%

PeopleSoft 6% JD Edwards 7% Oracle Applications 10% SAP AG 29%

Figure 13.2: Shows the global market share of the major ERP vendors.

Compared to the global market the scenario in India is slightly different. The Indian ERP package Ramco's Marshal accounted for 9% of the market share as shown in Figure3 13.3. This proved the capability of Indian companies to penetrate the Indian market in spite of the presence of some global giants. According to the Dataquest survey (Dataquest, April 15, 1999), of the Indian ERP market, SAP is the market leader with 20% market share. The survey also showed that ERP does not appear to be new to the Indian market. This is indicated by the large number of solutions, which have been implemented. While SAPs R/3 and QADs MFG/PRO continued to dominate the Indian market, the presence of some of the lesser-known brands like J.D. Edward and SSA’s BPCS cannot be ignored. Other familiar and strong competitors like Oracle’s Financials, Ramco‘s Marshal, and Baan also dominate the second and third level of the domestic ERP market.

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Oracle 7% Ramco 9%

Baan 7%

MAMIS 4%

Others 23%

SSA 10%

JD Edwards 10%

QAD 10%

SAP 20%

Figure 13.3: Indian ERP Market Share

There was also an extensive list of ERP solutions being implemented in much smaller numbers. The ERP awareness in Indian organisations was growing. The survey shows around 35% of organisations are using ERP for more than 24 months. Some of the companies have been using ERP for less than 24 months and the number is growing. Assuming an average implementation process of 18 months, 35% of organisations have therefore, been grappling with ERP issues for close to 4 years and longer. Amongst the organisations planning to implement ERP in the future, the research indicated that SAP still remains the number one preferred solution. This is followed by Oracle Financials, Baan and MFG/PRO. Home-grown solutions like Marshal and MakESS have also been indicated as preferred options.

13.3 SAP– AG
Systems, Applications and Products in Data Processing popularly known as SAP or Systemanalyse und Programmentwicklung was founded in the year 1972, in Germany. It is the leading global provider of solutions for client/server business application. SAP has installations in over 107 countries. SAP’s ERP package is available in two versions – the mainframe version (SAP R/2) and client/server version (SAP R/3). Most prominent among
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SAP’s product range is the enterprise application suite R/3 for open client/server systems. With SAP Systems, customers can opt to install the core system and one or more of the functional components. You can even purchase the software as a complete package. SAP customers have chosen to install SAPs client/server suite in more than 19,750 sites worldwide. The System Software is accepted as the standard in key industries such as oil, chemicals, consumer products, and high technology and electronics. SAP has work force strength of over 19,300 and has offices located in more than 50 countries across the world. SAP is the most successful vendor of software on standard business applications. It is also ranked as the fourth largest independent software supplier in the world. During the fiscal year, ending December 31, 1998, SAP AG reported revenues of DM 847 billion, a 41% increase over 1997s revenues. In the same period, sales of R/3 rose by 31%. 13.3.1 Products and Technology SAP products feature a sophistication and robustness unmatched by other business software solutions. SAP has developed a huge library of more than 800 predefined business processes, spanning each functional software requirement. These processes can be selected from the SAP library. It is then included within the installed SAP applications, after modifying the application solution to suit the user's exact requirements. New business processes and technologies become available regularly to the customers. This enables the SAP customers to add state-of-the-art solutions to meet their ever-changing business demands. The power of SAP software lies in real-time integration. It has the ability to link a company's business processes and applications. It also supports immediate response for any change throughout the organisation on a departmental, divisional or global scale. The international strength of the products extend to every aspect of the application, such as the support of multiple currencies simultaneously, and the automatic handling of country-specific import/export, tax, legal, and language requirements. The complete suite of the applications on R/3 is

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available in over 24 languages, including Japanese and other double-byte character languages. 13.3.2 R/3 Overview R/3 employs three-layer client/server architecture. This is widely recognised by SAP customers, technology partners, and industry analysts. They believe it as a winning approach for solving some of the day's most demanding information-management challenges. The three-layered architecture separates a system into three functional layers, each structured to support the demands of its function.  The Database layer resides on mainframe or central servers host computers.  The Application layer holds the logic of processing for the system, preparing and formatting data for individual offices or departments. The Presentation layer, installed on Personal Computers (PC), handles all the tasks related to the presentation of data. This includes user interfaces that enable easy access to complex applications and data. SAP has also incorporated and integrated intranet and Internet technologies into business solutions for its customers. Both internally and together with its partners, the company is defines, and creates a number of Internet standard-based interfaces, applications, and business processes. This helps in stretching the usefulness of SAP software to entirely new ways and to new classes of customers. Through its Industry Business Units (IBUs) and extensive development network, SAP works closely with its customers to develop new information technology approaches. With the help of this SAP is trying to meet the unique demands of a wide spectrum of industries. With this approach, customers become members of the SAP development team, sharing their best practices, and solutions. R/3 enables react quick reaction and is more flexible, and leveraging on the changes is on added advantage. Everyday business will surge, and this means one can concentrate on strategically expanding to address new products and markets. The R/3 System is ideal for companies of all sizes, and industries and 50% of its users are small scale industries. It gives them
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a forward-looking information management system, and the means to optimise their business processes. R/3 consists of powerful programs for accounting and controlling, production, and materials management, quality management and plant maintenance, sales, and distribution, human resources management and project management. Already, over 2,000,000 users put R/3 business applications to test every day. R/3 also has information and early warning systems which helps in troubleshooting and problem resolution. R/3 brings together individuals who work on shared tasks within the same company, in a network of companies, or in their dealings with customers and business partners. R/3 unlocks ways to optimise organisational structures for a smoother flow of information at all layers and between all parts of the organisation. With integrated workflow management and access to up-to-the-minute information, R/3 lets employees assume greater responsibility, and work more independently. R/3's applications consist of various modules. They can either be used alone or in combination with other solutions. From a process-oriented perspective, greater integration of applications increases the benefits derived. The following are the R/3 modules:  Financial Accounting: Collects all relevant company data for accounting, and provides complete documentation and comprehensive information. At the same time it also provides up-to-the-minute basis information for enterprise-wide control and planning. Treasury: A complete solution for efficient financial management across the company worldwide ensures liquidity, proper structuring, financial assets profitability and helps minimise risks. Controlling: A complete array of friendly planning and control in instruments for company-wide controlling systems. Along with a uniform reporting system for coordinating the contents and procedures of the company's internal processes.

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Enterprise Controlling: Continuously monitors company's success factors and performance indicators on the basis of specially prepared management information. Investment Management: Offers integrated management and processing of investment measures and projects from planning to settlement. It also includes pre-investment analysis and depreciation simulation. Production Planning: Provides comprehensive processes for all types of manufacturing, from repetitive, make-to-order and assemble-to-order, production, through process, lot and make-to-stock manufacturing. Also to integrated supply chain management with functions for extended MRP-II and electronic Kanban, plus optional interfaces for PDC, process control systems, CAD and PDM. Materials Management: Optimises all purchasing processes with workflow-driven processing functions, enables automated supplier evaluation, lowers procurement and warehousing costs with accurate inventory and warehouse management and integrates invoice verification. Plant Maintenance and Service Management: Provides planning, control and processing of scheduled maintenance, inspection, damagerelated maintenance and service management to ensure availability of operational systems, including plants and equipment delivered to customers. Quality Management Monitors: captures and manages all processes relevant to your quality assurance along the entire supply chain, coordinates inspection processing, initiates corrective measures and integrates laboratory information systems. Project System: Coordinates and controls all phases of a project, in direct cooperation with Purchasing and Controlling, from quotation to design and approval, to resource management and cost settlement. Sales and Distribution: Actively supports sales and distribution activities with outstanding functions for pricing, prompt order processing and on-time delivery, interactive multilevel variant configuration and a direct interface to Profitability Analysis and Production.
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Human Resources Management: Provides solutions for planning and managing your company's human resources, using integrated applications that cover all personnel management tasks and help simplify and speed the processes.

13.3.3 SAP Advantage SAP has established partnership with hardware manufacturers, database providers and technology and service companies which play a significant role for successful implementation. Client/server architectures, database systems take care of managing enterprise data. They communicate with application servers that coordinate the actual applications and control communication with the database. At the client level, where the end users work, the cycle of tasks is appropriately distributed across various computers. The process ends with a presentation of the results on the desktop for the user to apply across various levels of management For efficient implementation and use of R/3, the Business Engineer application of SAP allows installation and customisation of R/3 quickly and smoothly. This is provided at minimum cost and with maximum reliability. After the Business Engineer is fully integrated into the R/3 System, it helps in analysing, designing and configuring business processes. As a result, considerable time is saved in implementing R/3 and in subsequently customising the system as business needs change, but it also greatly reduces the cost. The Business Engineer delivers a complete tool kit that greatly facilitates the implementation of R/3 and the engineering of the business processes. For example, the R/3 Procedure Model guides through the different project phases step-by-step from project generation to going live. in order to always be on the right track, a wide range of tried and tested, graphically portrayed business scenarios and processes are stored in the R/3 Reference Model. From this wealth of experience, the best possible processes can be chosen. The openness of R/3 sets the pace in the market for client/server software. You can:  Link together R/3 systems or loosely couple distributed R/3 applications.  Link both third-party software and popular desktop programs such as MS Word, MS Excel, and MS Project to R/3 applications.
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       

Integrate specialised systems for computer-aided design (CAD), plant data capture (PDC), or mobile data entry. Incorporate specific solutions for industry, such as laboratory systems or geographic information systems (GIS). Include enhancements to R/3 applications, such as systems for production optimisation and transportation planning. Open up new business opportunities with e-commerce, thanks to direct cooperation between R/3 and the Internet. Use Java technology to make R/3 available to users with a familiar GUI on the Internet. Include fax, e-mail, optical archiving systems and multimedia tools in the R/3 System's business applications. Electronically transmit via EDI, receive and process data from R/3 applications. Build cooperating groups of solutions between R/3 applications and SAPs R/2 System. Activity 1 Make a list of the various ERP software or solution providers with their various products available in the market today.

Self Assessment Questions 1. _________________is a, the leading industry and market analysis firm specialising in enterprise applications and enabling technologies. 2. The _______________ is accepted as the standard in key industries such as oil, chemicals, consumer products, and high technology and electronics. 3. R/3 employs three-layer _____________ architecture. 4. The _______________ delivers a complete toolkit that greatly facilitates the implementation of R/3 and the engineering of your business processes. 5. Client/server architectures, ____________ systems take care of managing enterprise data.

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13.4 Baan Company
Baan Company is one of the leading providers of enterprise business software in the global market. Baan was founded in the Netherlands in 1978 by brother’s Jan and Paul Baan. Baan Company offers a widespread collection of best-in-class, component-based applications for front office, corporate office and back office automation. These applications are in use at over 7,000 customer sites worldwide. Baan Company products reduce complexity and cost, improve core business processes. They are faster to implement and use, are more flexible in adapting to business changes. They also optimise the management of information throughout the entire value chain. Baan Company's product family offers on-going delivery of open components for enterprise applications. It consists of a comprehensive and flexible suite of year 2000-compliant software solutions and best-in-class business modelling tools. These tools are based on a flexible, multi-level architecture which can scale to meet the needs of small, medium, and large enterprises. Baan Company makes this possible with its open architecture. This enables customers to migrate to new technologies and product releases at their own pace. Referred to within Baan Company as Dynamic Enterprise Modelling Strategy Execution (BaanDEMSE), this unique approach puts business requirements at the heart of the implementation process. Baan Company and its partners work closely with customers to insure the success of every installation. They also enable customers to achieve the highest level of self-reliance desired. The company's most important customer base includes industry leaders such as Boeing, Philips, Mercedes Benz, Nortel, Fujitsu Network Communications and Motorola. Baan Company aims to ensure that every interaction its customers have is in line with its “Three I” philosophies:  Integrity: In its interactions with its customers, colleagues, partners, and shareholders.  Innovation: In what it builds and how it delivers.  Initiative: In the speed and focus it brings to all aspects of its market opportunity.
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13.4.1 Products and Technology Over the past 14 years, Baan Company has evolved from revolutionising the Enterprise Resource Planning (ERP) software market to now offering the most complete set of single-vendor enterprise business applications. The foundation for Baan's products is differentiated through their open component architecture and through the use of BaanDEM. BaanDEM via a graphical process/model-based view provides a business view of the enterprise. It is modified or templated to the specific needs of industry groups or individual customers. BaanDEM delivers the capability to rapidly configure and re-install Baan. Company’s applications from a single view, helping to ensure that the Baan Company enterprise application accurately reflects a company's most current organisational structure, business practices, and operational procedures. Baan's product line features multi-layer architecture for maximum scalability and flexible configuration. Applications are isolated from the systems environment. This enables the support of new hardware, operating systems, databases, networks and user interfaces without any modification to the application code. Baan Company supports popular UNIX platforms as well as Microsoft NT. Baan has the distinction of being the first solution provider in its class to earn the 'Designed for Microsoft BackOffice logo certification. Products also support major relational database systems (Oracle, Informix, DB2, Sybase, and Microsoft SQL Server). Built on a commitment to reduce the complexity of IT solutions, the Baan product collection assembles best-of-class components. They keep them "evergreen" through on-going release cycles. This enables enterprises to update their information infrastructure in manageable and incremental initiatives. Three advantages distinguish each component element within the BaanSeries-based family of products including. They are: 1. Best-in-class components 2. Evergreen delivery;
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3. Version independent integration. The BaanSeries-based product family includes:  Baan Enterprise Resource Planning (BaanERP)  BaanFrontOffice  BaanCorporateOffice Solutions BaanSupply Chain Solutions.Baan offers specific vertical industry solutions for aerospace and defence companies engaging in multi-level projects and contracts. Baan's A&D offering includes BaanProject to enable the effective management of key functional business process areas. Baan also offers specific vertical industry solutions for automotive companies. Many of the world's leading automotive companies use Baan's business applications to support worldwide manufacturing, distribution, and financial operations. Baan's product suite offers automotive companies next-generation information technology across manufacturing, supply chain and front office operations. 13.4.2 BaanERP Modules BaanERP, the successor to Baan IV, is a proven enterprise resource planning software application. It is fully integrated and provides exceptional functionality across the enterprise. BaanERP consists of a number of interdependent components that can be deployed to meet business needs. The flexibility within BaanERP allows customers to maximise the benefits of both best-in-class solutions and a fully integrated, high-performance system. BaanERP includes the following components - manufacturing, finance, project and distribution.  Manufacturing Module: It includes Bills of Material, Cost Price Calculation, Engineering Change Control, Engineering Data Management, Hours Accounting, Product Classification, Product Configuration, Production Control, Production Planning, Project Budgeting, Project Control, Repetitive Manufacturing, Routings, Shop Floor Control, Tool Requirements, Planning and Control, Capacity Requirements Planning, Master Production Scheduling, and Material Requirements Planning.

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Finance Module: It includes Accounts Payable, Accounts Receivable, Financial Budgets System, Cash Management, Financial Reporting System, Fixed Assets, General Ledger, Cost Accounting, and Sales Invoicing. Project Module: It includes Project Budget, Project Definition, Project Estimating, Project Invoicing, Project Monitoring, Project Planning, Project Progress, and Project Requirements Planning) Distribution Module: It includes Sales Management, Purchase Management, and Warehouse Management.

13.4.3 Global Support, Education, and Consulting Support: Baan Global Support is a company's best source for fast, consistent problem resolution, as well as preventive technical advice. Baan Global Support offers a broad range of support services. It includes telephone support, Critical Incident Support, an Interactive Support Website, and an Ongoing Subscription to Innovation. Baan has closely linked Implementation Solution Centres around the world. They support internal and third party implementation consultants as well as customers. Baan also assists customers in establishing on-site competence centres to manage all aspects of the implementation and ongoing systems use. Products are available in over 59 countries through both direct and indirect channels, and are translated into more than 20 languages. Baan Education: As a partner in lifetime learning, Baan Education helps maximise the return on investment in people and technology. Baan Education addresses the education needs of everyone in an organisation. It includes newly hired employees to seasoned professionals who are maturing with technology. Baan Education offers new Internet-based learning called Virtual Campus. With Baan Education, a partner can realise the company's goals of profitability, productivity, and competitive advantage. Baan Education's process-based course, addresses not only specific Baan Company's enterprise applications. It also provides an in-depth understanding of the business processes that its applications automate. Thus, Baan Company extends education beyond simple functionality. It takes into account the various conditions within which its applications are used in their manufacturing, sales, financial, and technical environments of
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a company. This lifetime learning approach means that a company's workforce is always side by side with the latest technology and business developments. Baan Consulting: Baan Consulting is dedicated to implement Baan Company’s enterprise applications around the globe, along with the thousands of customers served by its consulting partners. Baan Consulting has a successful track record with well over 1,000 customers worldwide, in almost every business environment. Baan Consulting provides a wide range of services, such as Project Management, Business Consulting, Application Consulting, and Technical Consulting. Consultation support is provided throughout the implementation process, and after a company goes live with the project. Baan Consulting works with its client through Internet-based Baan Cyber Consult offering. Self Assessment Questions 6. _________________ product family offers on-going delivery of open components for enterprise applications. 7. These tools are based on a flexible, _____________ architecture which can scale to meet the needs of small, medium, and large enterprises. 8. ______________ are isolated from the systems environment. 9. ________________ helps maximise the return on investment in people and technology. 10. Baan Consulting works with its client through Internet-based _____________________ offering.

13.5 Oracle Corporation
Oracle Corporation (founded in 1977) is the world's second largest software company. It is also the leading supplier of software for Enterprise Information Management (EIM). With annual revenues exceeding $ 8.0 billion, the company offers its tools, database, and applications products, along with related consulting, education and support services. Oracle employs more than 41,000 people in more than 145 countries around the world. Oracle has its headquarters in Redwood Shores, California. It is the first software company to implement the Internet computing model for developing and deploying enterprise software across its entire product. They
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are application development, databases and relational servers, and decision support tools, and enterprise business applications. 13.5.1 Product and Technology Oracle software runs on personal digital assistants, set-top devices, network computers, PCs, workstations, minicomputers, mainframes, and massively parallel computers. Oracle8i, the latest version of Oracle industry's leading database, is the database for Internet Computing. Oracle's family of database, networking, and gateway products enable corporations to access any data, on any server, over any network, from any client device. Oracle's Warehouse Technology Initiative (WTI), one of the fastest growing and most comprehensive alliance programs in the data warehousing industry. It provides customers with a complete solution on data warehousing. This is based on the industry-leading Oracle database, and more than 60 complimentary third-party software products and services. WTI is designed to increase the quantity and quality of Oracle-based data warehousing solutions. This provides customers with greater choice, specialised tools, Oracle-optimised products, and streamlined support as they build their data warehouse system. Oracle's integrated Business Intelligence Solutions deliver powerful capabilities to users anywhere in the enterprise, at any time. End users benefit from sensitive tools that provide easy access to business data and fast answers to any question. Oracle's Business Intelligence family of products including integrated releases of Oracle Reports, Oracle's enterprise reporting tool, Oracle Discoverer, Oracle's award-winning ad-hoc query and analysis tool, Oracle Express, and Oracle's industry-leading enterprise online analytical processing (OLAP) engine. Oracle also offers pre-built OLAP applications like Oracle Financial Analyser and Oracle Sales Analyser which help to further reduce implementation time and costs. 13.5.2 Oracle Application It is a leading provider of packaged and integrated front office and ERP solutions for the enterprise. It is also a division of Oracle Corporation, the world's second-largest software company and the largest supplier of software for information management. Oracle Application’s strategy is to offer all the enterprise solution components like proven applications,
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advanced technologies, business expertise and partnerships required to enable customers to execute strategies quickly. It also assists in managing the risk of change, and lead their respective industries in right direction. Oracle Applications is the only collection of enterprise business applications from a major Enterprise Resource Planning (ERP) vendor that follows the Internet Computing (IC) model. Each of the over 45 modules for human resources, financials, manufacturing, supply chain, and front office automation is web-enabled. It also allows the modules to be deployed on corporate intranets with no software, other than a browser, required on users’ desktops. This architecture allows organisations to shift the complexity of application management, maintenance, and upgrading from users' desktops onto centralised, professionally managed servers. Hence, it significantly reduces the cost of deploying and administrating the software. By minimising network traffic, this approach also makes it economical to deploy the applications over Wide Area Networks (WANs) to hundreds or thousands of users. This system has enabled the company to distribute critical business information much more broadly which is only possible in the client/server model. Oracle Applications further exploit the low-cost and universal access in the Internet Computing model. By providing a set of applications specifically designed for secure, self-service business transactions across the Internet and corporate intranets this is achieved. These applications are integrated with Oracle Workflow to completely automate business processes. Oracle Applications comprise of 45-plus software modules, which are divided into the following categories:  Oracle Financials  Oracle Human Resources  Oracle Projects  Oracle Manufacturing  Oracle Supply Chain  Oracle Front Office More than 6,000 customers in over 76 countries use Oracle Applications. Available in more than 29 languages, Oracle Applications lets companies
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operate in multiple currencies and languages, support local business practices, and legal requirements. It also handles business-critical operations across borders. A brief overview of the Oracle Application categories is given below:  Financials: Oracle Financial Applications can transform a finance organisation into a strategic force. In today's fast-moving corporate field, organisations require access to critical financial management functions. With Oracle Financial Applications, companies will be able to work globally, lower their administrative costs, close their books faster, and improve cash management. At the same time they provide the strategic information required for making timely and accurate decisions. Projects: Oracle Projects Applications improve operational efficiency by providing an integrated project management environment. This supports the full lifecycle of every project in your enterprise, increasing top-line revenue growth and bottom-line profitability. It acts as the bridge between operations systems and corporate finance. Oracle Projects Applications provide a central storeroom of certified cost, revenue, billing, and performance data associated with your business activities or projects. Human Resources: Well-managed human resources directly improve the bottom line and contribute to competitive advantage. The ability to hire, motivates, and retains the most capable workforce; engage employees and line managers directly in managing their skills and careers. It also provides comprehensive and up-to-date workforce information for management on a global basis. These are a few of the characteristics important for success of this software. The Oracle Human Resource Management System (HRMS) provides comprehensive facilities for organisations to achieve such goals. Manufacturing: Oracle Manufacturing Applications are the industryleading mixed mode manufacturing solution. It enables companies to achieve market leadership by becoming more customer-responsive and efficient. This product family supports companies from small, singlefacility environments to multi-plant, global manufacturers with complex requirements. Oracle Manufacturing Applications help companies
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increase revenue, profitability, and customer loyalty. It is achieved by universally capturing demand, planning the extended enterprise in one rapid step. Along with these it ensures that the most efficient manufacturing process is used to produce each product in the respective company using it.  Supply Chain: Oracle Supply Chain Management Applications simplify supply-chain processes by providing a single, integrated environment for managing the extended enterprise. Oracle enables effective trading partner collaboration and supply-chain optimisation capabilities that are essential to gain and sustain competitive advantage. Oracle Supply Chain Management Applications help in increasing market share while improving customer service. It also helps the company in minimising the costs across the networked supply chain system. Front Office: Oracle Front Office Applications provide a true customercentric approach. Allowing you to better understand your customer relationships, their value and profitability. Oracle Front Office Applications increase revenues, decrease sales and service costs, and maintain customer retention and satisfaction. The sales, marketing, and service solutions provide deep integration with the entire enterprise collection of applications. Hence, enabling you to attract and retain profitable customers through a unified set of channels, including Web, mobile, and call centre.

13.5.3 Vertical Solutions Oracle also provides vertical solutions with a full line of modular product components aimed at the unique requirements of many major industries, including automotive, aviation, aerospace and defence, communications, consumer packaged goods, energy downstream, energy upstream, financial services, high-tech, public sector, and utilities. This uniqueness and versatility of the company not only provides the required solution to the customer but also the support system has made it the most preferred choice of many companies. Their commitment and knowledge over the field has made them the most successful vendors in the ERP market. Their continuous innovation and up gradation in technology

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has provided an edge over other ERP vendors to firmly hold on to the ever changing ERP market.

13.6 People Soft
PeopleSoft Inc. was established in the year 1987 to provide innovative software solutions that meet the changing business demands of enterprises worldwide. It employs more than 7,000 people worldwide. The annual revenue for the year 1998 was $ 1.3 billion. PeopleSoft's objective is to provide innovative software solutions that meet the changing business demands of organisations worldwide. PeopleSoft develops software that supports enterprise wide solutions to handle core business functions. This includes human resources management, accounting and control, project management, treasury 'management, performance measurement, and supply chain management. It provides enterprise solutions which is industry-specific to customers in select markets. Like healthcare, manufacturing, communications, financial services, higher education, public sector, services, retail, transportation, US federal government, and utilities. PeopleSoft Select offered by the company is a complete packaged solution including software, hardware, and services to address the needs of medium sized organisations. Solutions of PeopleSoft run on a variety of leading hardware and database platforms. Like IBM, Sun Microsystems, Compaq, Hewlett-Packard, Informix, Microsoft SQL Server, Sybase, DB2, and others. PeopleSoft delivers Webenabled applications, workflow, OnLine Analytical Processing (OLAP), and so on. 13.6.1 Business Management Solutions PeopleSoft solutions extend across the globe. The applications help in managing a broad set of business processes, from human resources and finance to supply chain management. One can implement a single application, or a complete enterprise wide solution. The flexible design lets you modify the applications to your specific needs. The PeopleSoft's business management solutions are in the areas given below:  Human Resources Management  Accounting and Control
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       

Treasury Management Performance Measurement Project Management Sales and Logistics Materials Management Supply Chain Planning Service Revenue Management Procurement

13.6.2 Commercial Solutions Supply Chain Management: PeopleSoft has the industry's only complete enterprise resource planning solution that is built around supply chain optimisation. A Demand Planning module enables sophisticated forecasting, using both real-time and historical information. PeopleSoft's complete suite of Supply Chain Management products provides comprehensive support for any organisation that produces or markets a physical product. Service Industry Solutions: PeopleSoft also provides a complete commercial support solution for service industries. The Service Revenue Management suite features modules supporting the tracking of time and labour, payroll processing, project management, billing, and expense and receivables processing. A suite of Procurement modules is also available supporting purchasing, inventory management, payables and expense processing, and asset management. 13.6.3 Industry Solutions PeopleSoft supports industry-specific market initiatives in many business sectors. The initiatives include industry specific products, customisation of existing applications, and sales and marketing support through direct channels and business alliances. PeopleSoft has 11 distinct business units, which provide software solutions specific to a broad range of public and private sector industries. These Industry partners help in making the solutions widespread and spanning the enterprise from the back office to the front lines. From service and manufacturing to education and government, PeopleSoft solutions are

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global, enterprise-wide, and modified to unique industry requirements. The different business units are:  Communications  Federal Government  Financial Services  Healthcare  Higher Education  Manufacturing  Public Sector  Retail  Service Industries  Transportation  Utilities 13.6.4 Applications PeopleTools is an integrated set of client/server business application development and customisation tools from PeopleSoft. These tools enable customers to implement, modify, and maintain PeopleSoft applications as well as to extract, analyse and manipulate data. PeopleTools includes several tools for reporting, customisation and workflow. PeopleSoft continually adds and refines technology to optimise their customer’s information systems. They help customers take advantage of new and emerging technologies, giving them more choices and freedom to develop their own innovative business processes. Some of them are given below:  Self-Service Applications: Helps to improve productivity throughout the organisation. PeopleSoft focuses on providing the occasional user with easy access to information and functionality specific to their role. They have developed a set of self-service applications to help companies quickly and cost-effectively distribute functionality throughout the enterprise over the Internet, and intranets. Built with a spontaneous interface based on a standard Web browser such as Netscape Navigator or Microsoft Explorer. These Java-based, cross-platform applications enable employees, customers, suppliers, and other occasional users to perform self-service administrative tasks easily. SelfPage No. 298

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service applications are linked to PeopleSoft core product lines. Such as PeopleSoft Accounting and Control, Human Resources Management, and Materials Management.  Web Client: Self-service applications use the PeopleSoft Web Client. The Web Client is downloadable on demand and runs on a Web browser across multiple platforms. Its affordability, open architecture and simplicity provide an ideal framework for delivering enterprise solutions to a large number of people. Applications don't need to be installed at every desktop; they are accessed easily through a browser. In addition to supporting self-service applications, the PeopleSoft Web Client has a Work list and Query interface. This improves the flow of the company's business processes and improves access to information for occasional users. Furthermore, all data transmitted between the Web Client and the application server is coded for added security. Because the Web Client takes advantage of PeopleTools, self-service applications can be deployed across the Internet or existing corporate intranets with common business rules workflow logic and security features. Multi-layer Transaction Processing: The ability to support large numbers of parallel users, while maintaining reliable, and superior performance, is critical to enterprise-wide data processing. PeopleSoft works in a variety of settings over Local Area Networks (LANs) and Wide Area Network (WANs), throughout organisations. In the latter, the application logic runs on an application server instead of the client. The application server is designed to relieve the client from processing intense SQL transactions, thereby reducing LAN traffic and improving performance across WANs. Three layered architecture also provides increased scalability to accommodate high volumes of parallel users while maintaining a consistent and reliable performance level. PeopleSoft continues to support its traditional two layered architecture as well. OnLine Analytical Processing (OLAP): Companies must be able to quickly extract and analyse the information they require for effective decision-making. OLAP, or online analytical processing, is a powerful method for interactively analysing data online. PeopleSoft integrates
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popular OLAP tools including Cognos PowerPlay and Arbor Essbase that enable users to easily share multidimensional data stored in various locations. With the Cube Manager application, users can define the data they want to extract into an OLAP cube. It enables them to quickly view information from all different angles to test conclusions, conduct what-if scenarios and compare alternative strategies. With multidimensional information presented in quick-read formats, managers can make better decisions, react faster to competitive threats and identify inefficiencies.  Workflow: An essential part of the solution, PeopleSoft workflow capabilities help communications companies achieve enterprise-wide integration of information, applications, and people. Workflow enables a company to automate many time-consuming clerical tasks, while putting useful data into the hands of users. With workflow, the company's PeopleSoft applications do more of the work. For example, if managerial approval is needed for a work order, the system automatically forwards the request. Workflow can also help the company track projects, by initiating a workflow message to the appropriate person when a project exceeds a predetermined cost. The company can even bring nonPeopleSoft users into the workflow process, using e-mail systems and the Internet for collecting, and distributing data. Activity 2: Visit a nearby departmental store and find out the features as a small business unit what the requirements an ERP package must provide them. Self Assessment Questions 11. Oracle's __________________ one of the fastest growing and most comprehensive alliance programs in the data warehousing industry. 12. Oracle Applications further exploit the low-cost and universal access inherent in the ____________________ model. 13. Oracle Projects Applications improve operational efficiency by providing an integrated _____________________ environment. 14. _____________ focuses on providing the occasional user with easy access to information and functionality specific to their role.
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15. PeopleSoft works in a variety of settings over _____________and ________________.

13.7 JD Edwards World Solutions Company
1977 Denver, Colorado, three men left the accounting world to form a software company that would specialise in midrange computing solutions. Each of the three founders Jack Thompson, Dan Gregory and Ed McVaney lent a small portion of his name for the company name. On March 17, JD Edwards was formed. In the early years, JD Edwards designed software for several small and medium-sized computers. They eventually started focusing on the IBM System/38 in the early 1980s. It was in this effort that JD Edwards pioneered the Computer-Aided Systems Engineering (CASE) software development and design tool. This lend for consistency across the broad range of JD Edwards' integrated applications. As JD Edwards' business continued to grow, it became obvious that servicing a large number of customers was creating challenges. The company could either remain small or serve customers on an individual basis or, with a breakthrough in technology; it could become an industry leader in enterprise software. When McVaney and Thompson began to design and implement Worldsoftware, they provided the pathway to success. By the mid-1980s, JD Edwards was being recognised as an industry-leading supplier of applications software for the highly successful IBM AS/400 computer, a direct successor of the System/38. With the June 1996 introduction of OneWorld, the company once again achieved a technological breakthrough. Building on the CASE technology pioneered in the 1980s, OneWorld combines a full range of platform independent applications with an integrated toolset. OneWorld gives organisations the power to configure their systems and applications as their needs change. Today, JD Edwards is a publicly traded company that has more than 4,700 customers with sites in over 100 countries and more than 4,200 employees. The company attributes much of its success to a corporate culture that
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emphasises quality at all levels. JD Edwards' commitment to its product quality, its corporate culture and a customer centric approach enable the company to deliver and support leading enterprise software solutions that solve business problems. 13.7.1 Product and Technology JD Edwards offers its solutions primarily for the AS/400 platform. JD Edwards's has two application suites, OneWorld and WorldSoftware. WorldVision, provide comprehensive supply chain management functionality across the wide range of technology. Both can run parallel on the same the AS/400 platform, share data and interact with each other as a unified solution. 13.7.1.1 OneWorld JD Edwards OneWorld is flexible enough to support an extended solution by integrating with existing, best-of-breed and other company products. This can be achieved without sacrificing the security, integrity, or consistency of the existing systems or data. OneWorld's own Application Programming Interface’s (APIs) , as well as such industry standards as CORBA, ODBC and other packaged integration solutions ensure that you won't be locked into limited functionality, and any of the future opportunities. OneWorld embraces change with its modular architectural foundation. The information processing is segmented into five functional elements. They are database, data warehouse, business objects, reporting, and GUI. The users can link these elements in a variety of configurations from one level, with every element running on a stand-alone PC, to five levels or more. One can also distribute the elements geographically, departmentally, or administratively. You also can configure and reconfigure in the field, as requirements change. There are provisions to add new servers, even Web servers, without having to rewrite applications for the new machine. OneWorld has the tools and technologies that will quickly bring archived data to light. And you can extend and supplement those technologies with solutions offered by leading industry data warehousing and decision support specialists. The customer has the option to choose the data warehousing

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solution that he wants. OneWorld provides alternatives, so that you can choose the most appropriate solution based upon your own requirements. With OneWorld, you can distribute your enterprise applications to employees, business partners, and customers using web-based technology, without rewriting your applications. OneWorld software version supports client/server and Internet modes. This results in an extended enterprise that works together to support the same business tasks. No matter how well your applications fit, they probably need a little modification to fit precisely to the needs of your organisation. With OneWorld, you get a powerful set of tools to make those alterations. OneWorld's toolset uses business logic, not symbols and syntax, to drive the modification process. Change your business specifications, and the toolset automatically regenerates the appropriate object code. You can modify applications, balance processing loads run reports, and build graphical user interfaces without writing codes. Add hardware and databases without bringing your business to a halt. Since modifications are made with the same toolset used to build OneWorld, it's all integrated. When a new release arrives, your changes will automatically be incorporated you won't have to make them again. The interface is consistent whether you are partitioning applications or replicating data. This will save a lot of time and effort in reprogramming and retraining. OneWorld allows you to build highly flexible workflow solutions and execute, predefined, and unplanned processes in your organisation. With OneWorld, your ability to learn, implement, and maintain workflow at all levels of your organisation is simplified. 13.7.1.2 WorldSoftware and WorldVision In the age of technology change, the popularity of many enterprise software solutions is fleeting. The resulting obsolescence is frustrating and costly. It is better to have a system that has the necessary functionality with built-in longevity. More than 4,000 customers have found this staying power in JD Edwards WorldSoftware. On its strength and the reliability of it’s host-centric. IBM AS/400 foundation, WorldSoftware's global popularity has endured in the ERP marketplace for over a decade.

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Inherently flexible and easy to use, WorldSoftware readily adapts to your situation, letting you:  Selectively mix, match and integrate software applications from among its diverse industry product suites.  Easily modify it to ongoing business, local and organisation-specific requirements.  Add WorldVision, its advanced graphical user interface, to gain client/server benefits.  Optionally run it alongside OneWorld, JD Edwards' network-centric solution, to gradually incorporate other computing platforms into your network. JD Edwards WorldVision provides the Graphical User Interface (GUI) with a look and feel common to the PC. At the same time it protects your investment in WorldSoftware and the AS/400. WorldVision also allows you to:   Maximise productivity by shrinking the amount of training users need. Make a safe move to client/server by leveraging your existing hostcentric WorldSoftware applications.

And like WorldSoftware, another bread of software WorldVision is developed and continually enhanced for the future. For example, you can have WorldVision as a Windows 95/NT style GUI for a PC and as a Javabased interface for use across the Internet, or intranets. 13.7.3 Modules The different product modules available from JD Edwards are:  Foundation Suite: Consists of Back Office, CASE Foundation, Environment/ Toolkit, Financial Analysis Spreadsheet Tool and Report Writer, WorldVision GUI, Electronic Burst & Bind. Financial Suite: Consists of General Accounting, Accounts Payable, Accounts Receivable, Fixed Assets, Financial Modelling and Budgeting, Multi-Currency Processing, Cash Basis Accounting, Time Accounting) Logistics/Distribution Suite: Consists of Forecasting, Requirements Planning, Enterprise Facilities Planning, Sales Order Management, Advanced Pricing, Procurement, Work Order Management, Inventory
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Management, Bulk Stock Management, Quality Management, and Advanced Warehouse.    Management: Consists of Equipment Management, Transportation Management, Job Cost and Service Billing Services Suite: Contract Billing, Subcontract Management, Change Management, and Property Management. Manufacturing Suite: Consists of Configuration Management, Cost Management, Product Data Management, Capacity Planning, Shop Floor Management, and Advanced Maintenance Management) Architecture, Engineering, Construction, Mining and Real Estate Suite: Consists of Procurement, Inventory Management, Equipment Management, Job Cost, Work Order Management, Subcontract Management, Change Management, Contract Management, Contract Billing, Service Billing, Homebuilder Management, and Property Management. Energy and Chemical Suite: Consists of Agreement Management, Advanced Stock Valuation, Sales Order Management, Bulk Stock Management, and Load and Delivery Management. Government, Education, and Not-for-Profit Solutions: Consist of Financial Administration and Reporting, Budget Administration, Fund and Encumbrance Accounting, Grant and Endowment Management, Purchasing and Material Management, Warehousing and Central Stores Management, Human Resources Management, Service and Work Order Management, Capital Project and Construction Management, Contract Management, Plant, Equipment, and Fleet Maintenance. Utility and Energy Solutions: Consists of Customer Information System, Human Resources Management, Work Management, Regulatory Reporting, Supply Chain Management, Project Management, Enterprise Maintenance Management.

JD Edwards offers customers the means of achieving greater ongoing control of their businesses. It is enabled by their ability to define and redefine the way they do business as markets, customers and competitive conditions change. Behind this customer commitment is a twenty-two year
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history of listening to customers, understanding what they ask of business technology. At the same time learning the problems and requirements of their industry and developing solutions accordingly. By emphasising solutions, relationships, and value, JD Edwards maintains its focus on what truly matters to its customers. Self Assessment Questions 16. _____________ combines a full range of platform independent applications with an integrated toolset. 17. Change your business specifications, and the toolset automatically regenerates the appropriate__________. 18. A network of certified service and support providers complements the services directly available from ______________ to ensure timely implementation and ongoing quality of the solution. 19. Through continual enhancements in features and functionality, ____________________ opens to other technologies.

13.8 Systems Software Associates Inc.(SSA)
System Software Associates (SSA), Inc. is one of the leading providers of software for industrial businesses in the world. The company was founded in 1981 by Roger E. Covey. Covey at age 26 was already experienced in selling software manufacturing systems. He had worked previously for Chicago, Illinois-based Professional Computer Resources, Inc before starting his own company. The reason for the company's early growth was its unique distribution system. Covey had determined that selling through retail channels made it difficult to find customers, while selling though a direct sales force and providing extensive servicing made it difficult to turn a profit. Therefore, SSA instead developed a network of local affiliates, trained by SSA, that would sell, install, and service the products for a commission. This enabled the company to expand at an impressive rate while keeping its overhead costs low. Covey and his employees decided to focus on improving the company's specialty, integrated software packages for industry. Instead of searching for the ways to diversify the product line the company had. In 1984, SSAs sales
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reached $3.9 million. This growth continued rapidly through the mid 1980s with the services they offered to medium-sized companies. Since these companies often needed to expand their computer system capacities and software capabilities. However, they wanted to achieve this without hiring programming personnel as a part of their work force. Since hiring program developers was not only costly but also required resources to support it. SSA was able to make use of this opportunity and establish its market is these medium sized companies. SSA by 1989 had a workforce of 400 employees with over 4,000 customers in 30 countries. The company was producing software in eight languages, including French, German, Italian, Chinese, and Japanese. They were offering twenty-six integrated software products for their customers. At a price rang varying from $50,000 to $500,000, depending on the size of the computer on which the applications were to run. Network of associates working for SSAs had grown to 52 by the middle of 1989, penetrating nearly every major market in the world. The competition became tough when IBM's improved integrated software package was released to the market. However, the market for integrated software for medium-sized companies remained somewhat under-penetrated, and SSA was able to sustain its rapid growth rate through the year. The company's sales increased to $95 million, with net income reaching $11.1 million in 1989. SSA had made its presence felt in the ERP market. After Covey's resignation, his place was filled by Larry J. Ford. Larry J. Ford was the vice-president of IBM, in charge of marketing the AS/400. Ford, who had been with IBM for 28 years, had occupied the posts of president, chairman, and chief executive of SSA. Under leadership of Ford, SSA continued to prosper. Increasing stress was placed on the company's CASE products, which assist clients in adapting software for their own purposes as business conditions change. SSA had over 4,000 customers, more than half of them were overseas customers. The company's net income finally began to stabilise during that year, although sales continued to climb, reaching $146 million. SSA concentrated its attention on a new strategy for supporting opensystem client server computing environments. Using its CASE technology, it
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began offering more flexible software than compared to previously available. The company's new version of its most important BPCS series was called Business Planning and Control System/Advanced Solution (BPCS/AS). BPCS/AS consists of over 40 applications integrated in it. These applications can be easily modified to keep up with rapid changes taking place in the hardware on which they are run and the business climates in which they are used. The company announced that its new client/server application products can run on systems based on UNIX as well as on the AS/400. Now SSA is the single largest supplier of software for IBM manufactured AS/400 line of minicomputers. The flexibility of SSAs software products are so flexible that they can be reconfigured to meet specific customer and business demands in any industry. The company through offices and business support system in 67 countries maintains its global presence. It also provides support for clients with the help of a network of over 5,000 professionals working round the clock. 13.8.1 Product and Technology Business Planning and Control System (BPCS) is the main product line of SSAs. This is an integrated group of software products for industry that includes applications for manufacturing, distribution, and financial operations. The company is also a major force in Computer-Aided Systems Engineering (CASE) technology. Its AS/SET line uses CASE technology to allow clients to construct their own applications. Electronic Data Interchange (EDI) enables businesses to communicate electronically with trading partners, is another area in which SSA has developed advanced products. The company's new software line the Main/Tracker automates, maintenance, performs safety inspection, and warranty tracking. Therefore it is one of the leading maintenance management system software in the world. Some of the most popular products of SSA are:  Business Planning Control System (BPCS): BPCS consists of processes that monitor various functions of distribution and manufacturing. Business Performance Management: Business performance management (BPM) consists of a set of management and analytic processes, supported by technology, that enable businesses to define
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strategic goals and then measure and manage performance against those goals.  Customer Relationship Management (CMR): CMR consists of the processes a company uses to monitor and organise its contacts with its current and future customers. CRM software is used to support processes. Also information about customers and their interactions can be entered, stored, and accessed by employees in different company departments. Typical CRM objective is to improve services provided to customers, and to use customer contact information for targeted marketing. Financial Management (FM): FM is the sub-division of finance that concerns itself with the managerial significance of finance techniques. It is focused on assessment rather than technique. It is an interdepartmental approach that borrows from both managerial accounting and corporate finance. Human Capital Management (HRM): HRM is the strategic and rational approach to the management of an organisation's most valued assets the people working there who individually and collectively contribute to the achievement of the objectives of the business. Product Lifecycle Management (PLM): PLM is the process of managing properly the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. PLM integrates data, processes, people, and business systems and provides a product information backbone for companies and their extended enterprise. Supply Chain Management (SCM): SCM is the management of a network of businesses that are interconnected, involved in the ultimate provision of product and service packages required by end customers. It monitors the movement and storage of raw materials stock, inventory, work-in-process, and finished goods from point of origin to point of consumption. Supplier Relationship Management (SRM): SRM is a discipline of working in cooperation with the suppliers that are vital to the success of

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your organisation, to maximise the potential value of the relationships of the supplier. Lets us study about SSAs highly popular product the BPCS. Business Planning Control System (BPCS) was developed by System Software Associates (SSA), which later became SSA Global Technologies. This software is used to control the operations of manufacturing company’s processes.  BPCS consists of MRP logic for manufacturing operations, provided there are high standards of data validity such as engineering specifications and inventory accuracy. It runs on several systems, which includes the IBM System also known as IBM AS/400 or IBM eServer iSeries.  It is written in SQL, As/Set, RPG, and other IBM languages somewhat unique to the System. The main strength of BPCS that helps it to compete with other ERP vendor is its manufacturing and planning applications. 13.8.2 BPCS Applications BPCS Applications dependent very much on the BPCS software version of SSA. Since, SSA enters into partnerships with various specialty suppliers of applications such as Data Mining, Bar Coding, and so on, and suppliers that integrated with a particular version. Most planning in BPCS Application suite functions are used in both Distribution and Manufacturing. The BPCS Application suite includes:  Financial: It consists of Costing (CST), Accounts Payable (ACP), Accounts Receivable (ACR), Billing BIL, General Ledger GLD, Cash Management (CSH), Multiple Currencies (MLT), Currency Translation (CTR), Financial Assistant (FIN), Fixed Assets (FXA), Payroll (PAY), Business Modeling, and Data Mining. Planning: It consists of Forecasting (FOR), Master Scheduling (MPS), Material Requirements Planning (MRP), Capacity Planning (CAP), Distribution Resource Planning (inter facility) (DRP), Planner's Assistant (PLN), and Simulations.

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Distribution: It consists of Inventory (INV), Purchasing (PUR), Customer Order Processing (ORD), Billing (BIL), Sales Analysis (SAL), Promotions and Deals (PRO), and Performance Measurement (PRF),(such as supplier quality and on-time, your company performance in supplying to the customers, our internal quality control, Multiple Environments, Companies, Divisions, Facilities, Warehouses, and Locations). Manufacturing: It consists of Bill of Material (BOM), Inventory (INV), Shop Floor Control (SFC), Master Scheduling (MPS), Material Requirements Planning (MRP), Capacity planning (CAP), Laboratory Management (LMS), Just In Time (JIT), Quality Control (QMS), Repetitive Manufacturing, CIMPath (Barcoding and Data collection) (CIM), Advanced Process (chemical) Industries (API), and Performance Measurement (factory production) (PRF). Systems Applications: It consists of ASAP Information Retrieval, Misc Reports & Retrievals, System Parameters or Business Rules, Transaction Effects, Documentation, Data Base X-Reference, Interest Area Menus, Sliding Y2K Window, and Data Base upgrade.

13.9 QAD
QAD was founded in 1979 and now has a presence in 21 countries and employs more than 1100 people. The company's products include MFG/PRO, On/Q, Service/Support Management, Decision Support, and Qwizard. The company's flagship product is its ERP solution MFG/PRO. It is available in 26 languages and has more than 4,000 installed sites in over 80 countries. The company got the ISO certification in 1995. QAD offers a variety of supply chain and Enterprise Resource Planning (ERP) software products to manufacturing industries within the automotive, consumer products, electronics, food and beverage, industrial products and medical sectors. QAD software optimises your enterprise by increasing the speed of internal processes and by synchronising distributed operations. QADs flagship product, MFG/PRO software, provides multinational organisations with an integrated Global Supply Chain Management solution. It includes financial, manufacturing, distribution, and service/support
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management applications within an open system environment. InternetEnabled MFG/PRO allows you to share information and conduct commercial transactions over the Internet. QAD's On/Q Extended Supply Chain Applications manage the complex demand and fulfilment transactions of large multinational corporations with dynamic, collaborative relationships spanning multiple enterprises. Service/ Support Management are designed for companies who not only manufacture and sell their products but also offer after-sales service and support. QADs Decision Support is a tool designed to provide manufacturers with access to information necessary for informed decisionmaking. Qwizard, QADs interactive mentor for users of MFG/PRO software, is a value-added tool that provides easy-to-use business modelling, implementation, and interactive learning tools. QAD has currently developed a number of business arrangements with Product Alliance Partners to enhance the effective functionality of QADs products. 13.9.1 Application MFG/PRO software is one of the successful client/server ERP applications as it dramatically increases the internal efficiencies of distributed operations within months of purchase. The software is complete, open, flexible, scalable, interactive, and designed to address the operations requirements of today's manufacturers. It is available in 26 languages, is year-2000 compliant, and supports multiple currencies including the Euro. MFG/PRO includes a large set of solution components for manufacturing, distribution, financial, supply chain, and service /support management. Configurable and interoperable, it is open to best-of-breed components, uses either Oracle or Progress databases, and runs in UNIX, Windows and Windows NT environments. MFG/PRO can be implemented at multiple locations and it easily scales to meet the changing business requirements. MFG/PROs user interface is an ultra-thin Java browser. MFG/PRO is also available with a Windows Character User Interface (CUI).or Graphical User Interface (GUI).

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Manufacturers need a solid strategy for achieving and maintaining competitive advantage. MFG/PRO software quickly synchronises distributed operations within your enterprise, enabling you to balance supply and demand across multiple sites. MFG/PROs supply chain functions include centralised order processing, centralised purchasing, enterprise operations planning, distribution requirements planning, and enterprise materials transfer. By using MFG/PROs enterprise-level supply chain functions, you can manage supplies within your enterprise far more effectively, no matter how widely distributed your sites are. This means you will be able to respond to customer needs much more rapidly. 13.9.2 Modules MFG/PRO of QAD is a fully integrated software package available on a module by module basis. MFG/PRO addresses the entire manufacturing band from repetitive to configure-to-order. It is appropriate for batch process like make-to-stock, configure-to-order, and repetitive manufacturing environments. With world class supply chain management tools, it is particularly useful for multinational companies. The various modules of MFG/PRO are:  Distribution: The Distribution Modules (DM) of MFG/PRO are used to monitor inventory balances and manage purchasing and sales order entry activities. Manufacturing: The Manufacturing Modules (MM) are used to regulate all manufacturing activity within the various types of production environments. Financials: The Financial Modules (FM) interface with the Distribution, Planning and Manufacturing modules to report the financial implications of the company's activities. Service/Support: Service/Support Modules (SM) are designed for companies which not only manufacture and sell their products, but also offer after-sales service and support. Supply Chain: Supply Chain Management (SCM) is the control of goods and information from supplier to customer.

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Master Files: Master File’s (MFs) functions provide access to a series of foundation modules that are used by the rest of the MFG/PRO applications. These master files include: Inventory Control Settings, Items/Sites, Addresses/Taxes, Physical Inventory, Multiple Database configurations, and Manager Functions. Activity 3 Consider that you are a manager, in a manufacture industry and you are asked by your management to recommend ERP software for one of the supply chain process. What are the criteria’s that you keep in mind before choosing software or an ERP system?

Self Assessment Questions 20. SSA concentrated its attention on a new strategy for supporting ________________ client server computing environments. 21. ______________________ is the main product line of SSAs. 22. _____________ includes an extensive large set of solution components for manufacturing, distribution, financial, supply chain, and service /support management. 23. MFG/PRO is also available with a Windows graphical user interface______________________.

13.10 Summary
Analysing ERP market share is quiet different when compared with reviewing the market segments for any other product or service. The segmentations in that case will be numerous and in the form of many criteria like physical, geographical, functional, distribution level and many more factors. ERP the segmentation falls in than three main categories namely type of the industry, size of the industry and geographical areas in terms of the nations where the product is demanded. This helps in arriving at ERP market and ERP software market share. (Instead use ERP Market can be segmented into three major segments/Categories). While discussing size of industry it refers to the volume of business transacted and the capacity of the firm in terms of large sized or mid sized or low rung. When it comes to the question of type it refers to the mode of
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business via hospitality or insurance or manufacturing or health and so on. The market for them purely depends on the services offered by the vendor. The question of geographical segmentation involves a detailed study when it comes to ERP markets. The companies SAP, Baan, Oracle, PeopleSoft, JD Edwards, SSA and QAD and their respective products have not only revolutionised the ERP market but also give it a new dimension. With new technologies and the capability to provide solutions to the small scale industries along with the customer support services have enabled them to penetrate into the small and unorganised sectors. Both the vendors and the customers are benefiting form this highly flexible and cost effective solutions.

13.11 Terminal Questions
1. Who are the major players in the global ERP market and what are their market shares? 2. Who are the major ERP players in the Indian market and what are their market shares? 3. What are the modules available in SAP R/3? 4. Write a note on Oracle and its application. 5. What are the functions of Baan’s Global Support, Education, and Consulting operations? 6. Discuss briefly about JD Edward’s and PeopleSoft’s applications and their various modules.

13.12 Answers
Self Assessment Questions 1. AMR Research Inc. 2. System Software 3. Client/server 4. Business Engineer 5. Database 6. Baan Company's 7. Multi-level 8. Applications 9. Baan Education
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10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

Baan Cyber Consult Warehouse Technology Initiative (WTI), Internet Computing Project management PeopleSoft Local Area Networks (LANs), Wide Area Networks (WANs) OneWorld Object code JD Edwards Architecture Open-system Business Planning and Control System (BPCS) MFG/PRO Graphical User Interface (GUI)

Terminal Questions 1. Refer section 13.2 2. Refer Section 13.2 3. Refer Section 13.3 4. Refer Section 13.5 5. Refer Section 13.4 6. Refer Sections 13,6 and 13.7

13.13 Case Study
The new Chief Information Officer's responsibility was to replace the out dated computer systems with new packaged systems. It had to provide a competitive advantage through technology for the company. This meant using sophisticated systems to bring more resources to market (that is, filling jobs faster with their temporary employees), while at the same time slashing prices by reducing operating margins. The objective was to implement improved business processes by configuring and installing packaged ERP systems according to the results of an enterprise-wide reengineering effort.

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The sales and service department will be able to fill jobs faster with temporary employees by using sales support applications. This was supposed to be configured in to the new system based on best practices identified and propagated throughout the organisation's distribution network. New business acquisition and retention of existing customers is going to be enhanced through customer management software and customer information reporting. With the use of the packaged applications the field offices will be able to reduce operating margins. This is meant to support field office functions, such as billing, payroll, time accounting, and collections. The definition of flow of activities, core business processes, and decision support needs will ensure the proper configuration of the packaged software to take advantage of reengineered processes with the latest technologies. The pre-integrated nature of the ERP-packaged software that is going to be implemented will provide a new baseline for all the company's systems. Plans were made to include those that will not be involved in the initial installation. These included systems that were isolated without integration requirements, systems that were not included in the available ERP functions and some special in-house applications and customised applications. Systems will be modified into the new order on a scheduled basis, and new development will target the standards established by the new ERP implementation. Integration will increase as all application of the company move into the new ERP environment. Therefore, the company will begin to develop superior knowledge management at the corporate level to be used for decision-making. But the CIO's main problem was the seemingly overwhelming gap between what he knew (the fragmented puzzle of the company's current systems) and what he needed to know (business requirements for the new systems). The CIO had minor information about how the existing systems were actually being used to conduct business in the company. His field managers, technical managers, and the headquarters staff that supported them all wanted the package installation to succeed. All the managers held a piece of the information needed to make it a success,
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but none could see the whole picture. Without the crucial analysis of the use of current systems as a basis for defining future business requirements, the implementation project risked missing the mark. Questions: 1. Do you think the company’s management was clear about the implementation process that it wanted to carry out? Is their any requirement of the company’s top manager to take the responsibility of the implementation process? 2. What were the results the company was expecting from the new implementation? 3. How do you think the CIO has to overcome the problem that he is facing in this situation?

13.14 Glossary
Term Attributes Description To regard somebody or something as having particular qualities required or demanded by a particular organisation or group to meet some requirements. In the market of ERP companies performing extremely well when compared to its counterparts is considered to be the best in that group. Power over other people, especially something that gives an advantage but is not referred to openly in an organisation. A fast powerful computer with a large storage capacity that can accommodate several users simultaneously It is the state of being which occurs when an object, service or practice is no longer wanted even though it may still be in good working order. A collection of computer programs, usually application software and programming software of related functionality, often sharing a more-or-less common user interface and some ability to smoothly exchange data with each other.

Best-of-breed

Leverage

Mainframe Obsolescence

Application Suite

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References 1. ERP Demystified 2/E by Alexis Leon. 2. ERP Market by M.H. Lakdawla. 3. www.amrresearch.com.

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Unit 14

ERP Vendors, Consultants, and Users

Structure: 14.1 Introduction Objectives 14.2 In-House Implementation – Pros and Cons 14.3 Vendors Role of the Vendor 14.4 Consultants Role of the Consultants 14.5 End Users 14.6 Factors for the Success of an ERP Implementation 14.7 Summary 14.8 Terminal Questions 14.9 Answers 14.10 Case Study 14.11 Glossary

14.1 Introduction
By now you must be familiar with the concept of ERP and the ERP market. This unit familiarises you with various roles of vendors, consultants and users of ERP in the market. The main question that many people ask is: Why can't companies develop their own ERP packages? ERP package is very complex and needs a lot of skilled manpower and other resources to develop. Many companies have personnel in their Information Technology departments who can absorb the necessary knowledge and who have experience in developing sophisticated systems. But then such specialised computer work is not the main business of these companies. They should direct all their available resources into improving their own products or services so that they can remain competitive, serve their customers better and continue to grow instead of trying to develop an EPR system for which they will need to invest more resources and time. Software firms who are specialised in designing and implementing these integrated software packages provide better quality systems than any other companies whose in-house team come up with an idea to develop these software packages. These software firms (ERP vendors) can produce
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sophisticated packages and provide their clients with products that allow them to maintain a focus on their own chief activities, thus improving revenues, profits and shareholder returns. ERP consultants are very crucial players in ERP implementation. They provide professional services including IT strategy planning, software evaluation, and ERP system implementation experience. The ability of consultant's service is the source of providing customer satisfaction. With proper training on ERP, end-users can make effective use of this system and provide maximise business benefits to the company. Learning Objectives After studying this unit you will be able to:  Evaluate the three major players in an ERP implementation and their profiles.  Describe the roles of each of these players.  Elucidate the reasons for success of an ERP implementation.

14.2 In-House Implementation – Pros and Cons
The next question that many people ask is: why can't the company carry out the ERP implementation by itself? To successfully set up and implement an ERP package, which functions perfectly, is not an easy task. One cannot go in for a trial-and-error method of implementation strategy due to the huge amount of investments involved. The consequences of a failed ERP implementation can be quite catastrophic. It might put the organisation out of business. For example, the pharmaceutical distribution company FoxMeyer Drugs was forced to declare bankruptcy after an unsuccessful ERP implementation. Also, the ERP implementation process cannot go on for a long time. It has to be completed within a reasonable time period. To successfully carry out the implementation within a reasonable timeframe, the in-house people who are designated to do the job should possess a certain amount of knowledge and skill. To start with, the company should have people who are familiar with the ERP package and with the technical issues. Implementing the ERP software means, assigning the optimum values to the various parameters and the variable elements of the system. Experience has proven that a good professional needs at least one year to become reasonably good in an ERP system and that this one year should
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be hands-on practical experience. It is not possible to become an expert by reading product brochures and on-line help files. You need to have practical implementation experience. The only advantage of the in-house ERP implementation is that companies will depend less on the vendors and will have access to the open community that is as the owner of the software, you can become an integral part of the Open Community of developers and can submit feature requests, questions and get free guidance. However, software vendors have their own team of consultants, whose responsibility is to ensure that their software package follows a standard approach or methodology. Definitely, these people know the product and can be of great value during implementation. But, developing a good software package and successfully implementing it are two entirely different propositions. A good package vendor need not be good at implementing it‟s own product. Also, each group of people in an implementation project (vendors, consultants, in-house team, users and so on) have definite roles to play in the implementation. If the same party is performing multiple roles, it can create a conflict. For example, if the vendor is doing the implementation, the vendor's consultants may not be as open to the ideas of the in-house team as third-party consultants, because the vendor's consultants will have a mindset which will prevent them from seeing the other side's perspective. Besides having a very good knowledge of the product, the people who are to implement the ERP system should possess the following skills:  Knowledge of how to organise and run a project: This requires good organisational skills, project management skills, team management skills and knowledge of scientific methods of software project management.  Experience in handling problems and issues that arise during the implementation: No implementation will be a smooth process; there will be problems, cost overruns, time overruns and so on. Knowing what to do in these situations is vital for the success of the project.  Good people skills: Any ERP implementation will face resistance from the employees. The resistance could be due to ignorance about the product, fear of unemployment, fear of training, fear of technology and

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so on. So it is very important that the people in the implementation team are very good diplomats, adept at diffusing crisis situations. Good leadership skills: ERP implementation involves dealing with a lot of people, good leadership, broad technical knowledge and effective communication skills. Excellent training skills: Every ERP project involves considerable amount of training at various levels and in various details. There will be familiarisation programs for all the employees, executive programs for the top management, functional training for the implementation team members and end-user training.

In today's business environment, where the trend is to reduce manpower and focus more on the company's core competencies, it becomes ever more difficult to take the total responsibility of the ERP implementation and get it done using in-house resources. If the company is planning to do the ERP implementation in-house, it might have to hire experts and have them on the company's rolls. This is an expensive plan because once the implementation is over, you won't need that many experts to keep the system running in the post-implementation phase. You will need only a handful of people may be a few of them in each functional area, to effectively handle the post-implementation scenario. If the company is planning to do the ERP implementation all by itself, then it will be wasting a lot of its resources and spending a lot of money on training–most of which are not needed after the package implementation. Hence, it is always a better idea to leave the implementation to the people who are specialising in it and focus the company's efforts on preparing its personnel to administer the package after it is implemented. Once these employees have been trained, they can help the company in its implementation efforts in other units of the company, or provide training to the employees in using the system and so on. By getting the employees trained during the implementation, the company can save a lot of money that otherwise would have been spent on hiring trainers. In brief, it is better for companies to concentrate on their business and leave the job of ERP implementation to people who are in that business. But to get maximum benefit out of a packaged solution, the company personnel should participate fully during the implementation of the package. The company
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should plan the participation so that its people play an appropriate role in the implementation project so that it has enough experts in-house, once the implementation is over. The company should bring in the know-how and experience that will guarantee the best possible use of the acquired package. Self Assessment Questions 1. __________ will face resistance from the employees. 2. Mention any two skills that people should possess to implement the ERP system. 3. The Company cannot go in for a __________ method of implementation strategy due to the huge amount of investments involved.

14.3 Vendors
Vendors are the people who invest huge amounts of time and effort in research and development of the ERP package. They come up with innovations that make the packages more efficient and flexible to implement and use. If one studies the history of the ERP packages and finds out how each package evolved, it soon becomes evident that every ERP package grew out of the experience or opportunity of a group of people, working in a specific business, who created systems that could deal with certain business segments. ERP market place is crowded with more and more players and competitor entering the market to provide ERP packages that have features and functionality to cater to the needs of businesses in almost all sectors. The ERP vendors spent billions of rupees in research to come up with new ideas that make the packages more efficient and flexible. With the evolution of new technologies, the vendors constantly upgrade their product to make the best and latest advancements in technology available in the market. For example, SAP is the global market leader in ERPs with approximately 30 to 60 percent of the world market; The company spends a large percentage of its revenue in research and development of new technologies. 14.3.1 Role of the Vendor As soon as the company signs the contract, the vendors should supply the product and its documentation. Once the software is delivered, the company

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can develop the training and testing environment for the implementation team. The roles of the vendors during and after implementation of ERP are: The vendor is responsible for fixing any problems in the software that the implementation team encounters. The vendor should have a liaison officer to constantly interact with the implementation team. The vendors provide initial training for the company's key users. These key users are the ones who will define, together with the consultants, how the software is to serve the company. They are also called as in-house functional experts who decide how the functionalities are implemented to adapt the product to suit the company's unique requirements. It is very important to provide these in-house experts a through training on the features of the package. Vendor's training should include showing the key users how the package works, what are the major components, how the data and information flows across the system, what is flexible and what is not, what can be configured and what cannot, what can be customised and what should not, what are the limitations, what are the strengths and weaknesses and so on. The objective of the vendor training is to show how the system works, not to show how it should be implemented. This means that the vendor demonstrates the product as it exists and highlights what are the possible options available. The company's employees who are participating in the vendor training should try to understand the characteristics of the package and the impact of the system on their business processes. The trainees should use these training sessions to question the vendor on all aspects of the system. Now some of you might ask, we are hiring consultants who are experts in the package so why can't we get training from the consultants? This is true. Most of the consultants are capable of providing sound training for the packages. But we are hiring the consultants for implementing the system. However, the consultants also have a role to play during this vendor training. They should participate in the training sessions to evaluate how the users react to the reality that is starting to take shape from the detailed presentations and demos. Consultants should also ask questions that the vendors are trying to avoid and the users are unaware of. This is the best

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way to present the real picture to the users and it will also prevent the vendors from making false claims. Vendors play an important role in project support function and exercise the quality control with respect to how the product is implemented. It is the vendor who understands the finer details and subtleties of the product and can make valuable suggestions and improvements that could improve the performance of the system. It is also in the best interests of the vendor that this participation continues, because if the implementation fails, most of the blame will fall on the vendor. Also a successful implementation means another satisfied client, improved goodwill and good referrals and so on. So the vendor will continue to participate in all the phases of the implementation, mostly in an advisory capacity, addressing specific technical questions about the product and technology. Vendors help to fill gaps between the package and the actual business processes. The software might have to be customised to suit the company's needs. Here, customising means altering the product so that it is suited for the company's purposes. The choice of whether to customise or not is the one that can have enormous impact on the project and it often constitutes a point of conflict between the consultants and users. But if the decision to customise has been taken, it is the vendor's duty to carry out the necessary modifications. This is because only the vendor knows the product well enough to make the necessary changes without affecting the other parts. Moreover, the company should get a guarantee (in writing) from the vendor that despite the customisation, it will be able to benefit from the future software improvements introduced by the vendor. ERP integrates business process reporting for the different business divisions. It creates transparent data exchange and facilitates timely and informed decision making for senior managers. The successful implementation of the enterprise resource planning software improves the management and planning of a business corporation. It increases the performance of the organisation. This increasing trend has enhanced the value of ERP vendors in the market. ERP vendors are continuing to expand market presence by offering new applications. The top three players namely SAP AG, Oracle, Baan PeopleSoft account for 64 per cent of the ERP market revenue.
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(For more information on these vendors, refer to ERP unit 13). Self Assessment Questions 4. _______ are the people who invested huge amounts of time and effort in research and development of the ERP package. 5. The vendor should have a _______ who should to constantly interact with the implementation team. 6. Key users are also called as in-house functional experts. True or False. 7. Vendors help to fill gaps between the _____ and the ________. Activity 1: List out the names of the companies spending a large percentage of its revenues in research and development of ERP packages.

14.4 Consultants
Business consultants are professional who specialise in developing techniques and methodologies for dealing with the implementation .They are the experts in the administration, management and control of various problems that crop up during the implementation. Each of them has many man-years of implementation experience with various industries and would have time-tested methodologies and business practices that ensure successful implementation. They are good at all phases of the implementation lifecycle, right from package evaluation to end-user training. The only problem with these business consultants is that they are very expensive. Many of the big consulting firms invest a great deal of money in developing a range of consulting services and assign many of their professionals to become specialists in the various aspects of ERP packages and their implementation. These firm develop an in-depth understanding of each product's strengths and weaknesses, work by the side of the ERP vendors to confirm that the vendor's package actually works, learn the tricks and techniques of the trade, find out the pitfalls and mistakes that should be avoided and thus create a pool of experts who could handle the ERP implementation without failure. Thus, consultants are people who have made the business of ERP implementation their business and have invested huge amount, of money
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and manpower for that purpose. So when you want to get the services of these consultants, the first question that will be asked is – "Are they going to be expensive?" The answer is a definite YES. The consultants will be expensive, so the company will have to formulate a plan regarding best optimum use of the money spent on consultants. If you study the statistics, you can see that a well-selected, integrated system that was successfully implemented and which is successfully working usually pays for itself in a relatively short period–between 10 and 30 months. If you analyse the cost break-up, you will find that the most expensive part of the implementation was the consultation charges. For a typical ERP implementation, the cost of consultants is 1.5 to 3 times for every rupee invested in the software product. Sounds amazing; but it is true and it is also true that the software will pay for itself – the software cost, the consultant's charges and other expenses incurred during implementation – in the above mentioned period (10-30 months). But the catch is that the product has to be the right one and the implementation has to be successful. That is why the expertise of the consultants becomes invaluable and the money spent on good consultation is never wasted. So finding the right consultants–people who have the necessary know-how, who will work well with the company personnel, people who will transfer their knowledge to the company's employees and people who are available in case their services are required again is very important. 14.4.1 Role of the consultants The role of the ERP consultants is known to all of us as we have seen many of them in action. The company places its trust in the consultants, that its business objectives will be achieved. The consultants ensure the success of the project. This produces quantifiable results to the satisfaction of the company management. Consultants administer each of the phases of the implementation. This ensure that the required activities occur at the scheduled time and at the desired level of quality with effective participation of all those who must participate. The consultants are responsible to convert the planned methodology into task and allocate right resource to complete that task. Consultants add value to the project. They bring the know-how about the package and about the implementation – the know-how that is not included
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in the standard documentation. This know-how (also know as practical knowledge) is derived from their expertise which stems from practical experience. Thus by eliminating the trial-and-error method of implementation, and by doing it right the first time, the consultants help in saving huge amounts of money, time and effort. Consultants should remain impartial while questioning current company processes in an effort to promote better businesses practices and better implementation results. They should strive to improve the company's business processes so that the software package can be used as it was originally intended by its developers. Refining the company's processes can only optimise the performance of the system and maximise future user satisfaction. The consultants are also responsible for analysing and clearly addressing the customisation issues. ERP consultants show the advantages and drawbacks of each area to the management and reach a consensus decision. Consultants need to balance their loyalty to the client and the project with that of defending the package vendor, when such defence is technically correct. Consultant alerts the company management about actions and decisions to be taken. This ensures that job will not be compromised and the implementation will not be jeopardised. Once the project is complete, consultants will leave the company. However, the knowledge of the project should remain within the organisation. Hence, consultants should train enough people in the organisation so that the work they have started is continued. There are other tasks performed by the ERP consultants. They:  Maintain technical documents on the projects.  Analyse business requirements.  Prepare the functional specifications for ERP program development.  Perform Gap analysis and related studies.  Assess the competence level of the users of the ERP system.  Perform Product design and operations review.  Identify requirements of the users of the ERP system.  Interact with other modules consultants.

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Self Assessment Questions 8. _________ are professional who specialise in developing techniques and methodologies for dealing with the implementation. 9. The consultants are responsible to convert the _________into task. 10. The consultants are not responsible for analysing and clearly addressing the customisation issues. True or False Activity 2: Consider that you own a manufacturing company with around 100 employees. You decide to implement ERP software package to control and track finance and human resources. What are the skills you would look at in the people who are to implement the ERP system to successfully carry out the implementation process within a reasonable timeframe?

14.5 End-Users
ERP end-users are the people who will be using the ERP system once it is implemented. Most of the functions that the end users used to perform are being automated by the ERP system. ERP system brings drastic transformation in the actual work process which leads to change in old job descriptions. It is human nature to resist change. Implementation of an ERP system brings change in a very massive scale. Employees will fear that system will replace existing jobs, as many functions will be automated. Also people will be afraid of the amount of training they have to undergo and learning they have to do to use the new system. Job profiles will change, job responsibilities will undergo drastic alterations, and people will be forced to develop new skill sets. If these fears are not addressed and alleviated well in advance, it will cause trouble for the organisation. The automation of the business processes, through technology, can eliminate the jobs of many employees whose function it is to record, control, calculate, analyse, file or prepare reports. Even though ERP systems eliminate many existing jobs, it creates many new ones with more responsibilities and value addition. Employees get away from the monotonous clerical work and transform themselves into highly valued individuals, in a new and challenging working environment using modern
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technology. If the company succeeds in convincing its employees to accept this fact and assist by giving them proper training, then the major obstacle in the path of an ERP implementation is solved. For example, the recent research on SAP end-user training suggested that enterprises should allocate 17 percent of the total cost of an ERP project to training. Gartner research recognised training as the top priority, and suggested that companies that budget less than 13 percent of the implementation costs for training are three times more likely than companies that spend 17 percent or more to see their ERP projects run over time and over budget. The impact of application on ERP end-user productivity is a complex undertaking because of the wide range of business functions and user types who interact with such systems. The business productivity framework is developed to measure how ERP end-users feel system affects their personal productivity. This also develops an opportunity to create a framework to evaluate new system.

Figure 14.1: Business Productivity Measurement Frameworks

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The six dimensions that comprise the business productivity frameworks are: Usability:  Ease of the application to use.  Ease „in command‟ of application.  Easy to navigate in the software.  User enjoys using the software.  Familiarity:  Intuitiveness of the system.  Easy to learn.  Comfortable with application.  Proficient with the application.  Transactional Efficiency:  Easy to execute common and repetitive tasks.  Efficiency of user interface.  Speed and reliability of system  Flexibility:  Ease of completing infrequent tasks.  Easy to adapted specific business needs and processes.  Quick in handling unexpected issues.  Business Insight:  Ease of comprehensive reporting.  Ease to access real-time information.  Ease to gauge the impact of business decisions. Collaboration:  Ease of collaboration with colleagues.  Efficiency of application workflow.  Ease of communication with suppliers, partners, customers. Productivity is crucial in maintaining profitable business. The business productivity measurement framework1 used in this study provides a useful mechanism to study the perceptions of actual end users and to standardise the applications according to the six productivity dimensions. Thus it encourages the company as a whole to dedicate itself to encourage enduser productivity in all its dimensions.
1

Reference: ERP End-User Business Productivity: A Field Study of SAP & Microsoft

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Self Assessment Questions 11. The functions that the end users used to perform are being automated by the ________. 12. Employees get away from the __________and transform themselves into highly valued individuals using modern technology. 13. __________ is crucial in maintaining profitable business. 14. Even though ERP systems eliminate many existing jobs, it creates many new ones with more responsibilities and value addition. True or False

14.6 Factors for the Success of an ERP Implementation
Many assume that the success or a failure of a project depends on the vendor the company select for their software purchase. However the actual fact is that, success or failure is in the hands of the company implementing the software and not the software vendor. The few factors for the success of an ERP implementation are: Focus on business processes and requirements: The focus of the company to check the business operations and identify the key requirements brings more effective ERP software selection process. This leads to success of an ERP implementation. Focus on achieving ERP ROI (Return on Investment): This also monitors post-implementation performance measurement and set baselines and targets for those measures. This in turn helps to maximise the business benefits of ERP. Strong project management and resource commitment: A strong project manager and good support of employees are the reasons for success of an ERP implementation Commitment from company executives: Support from top management to deal with any problem is another factor for the success of an ERP implementation. Adequate training and change management: A good understanding of the ERP software enables you to use it effectively. Understand why you’re implementing ERP: This is the most important factors for the success of an ERP implementation. With clear understanding of the business objectives and proper vision of what to achieve with an ERP system, maximises the business benefits of ERP.
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14.7 Summary
Enterprise resource planning (ERP) is the term used to describe the automation of core business functions, including production, accounting, distribution, supply chain and human resources. A well-implemented ERP system creates significant efficiencies across your business. This results in timely business information, better customer relationships, a more cost-effective supply chain, improved internal process and, ultimately, increased profitability. ERP implementation strategy needs huge amount of investments. Hence, one cannot go for trial-and-error method of implementation process. A company should be familiar with ERP package and with all the technical issues. Hence, it is always a better idea to leave the implementation to the people who are specialising in it and focus the company's efforts on preparing its personnel to administer the package after it is implemented. Vendors are the people who develop ERP package and come up with innovations that make the packages more efficient and flexible to implement and use. The vendors provide initial training for the company's key users. They play an important role in project support function and exercise the quality control with respect to how the product is implemented. They also help to fill gaps between the package and the actual business processes. Business consultants are the experts in the administration, management and control of various problems that occur during the implementation. Consultants administer each of the phases of the implementation. They bring the practical knowledge about the package and about the implementation. Consultant alerts the company management about actions and decisions to be taken. Even though ERP systems eliminate many existing jobs, it creates many new ones with more responsibilities and value addition. Employees get away from the monotonous clerical work and transform themselves into highly valued individuals. ERP system enables you to enter the customer order information once and then make it available throughout the business. This in turn helps you to have clear and timely information to take critical business decisions.

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14.8 Terminal Questions
1. 2. 3. 4. Why is it that a company cannot develop an ERP system in-house? Who is an ERP vendor and what are his roles? Who are the consultants and what are their roles? Who is an end-user and why are they so critical for the success of the ERP implementation? 5. Explain the six Business Productivity dimensions?

14.9 Answers
Self Assessment Questions 1. ERP Implementation 2. The two skills that people should possess to implement the ERP system are: • Good people skills • Good leadership skills 3. Trial-and-error 4. Vendors 5. Liaison officer 6. True 7. Package and the actual business processes 8. Business consultants 9. Planned methodology 10. False 11. ERP system 12. Monotonous clerical work 13. Productivity 14. True Terminal Questions 1. Refer section 14.2 2. Refer section 14.3 3. Refer section 14.4 4. Refer section 14.5 5. Refer section 14.5

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14.10 Case Study
ABC is the world's best ERP and business applications vendors with offices all around the globe. The client from ABC company made a plan to implement a Management Consulting Portal to deal with the challenge of knowledge sharing amongst consultants located all around the world. This portal helped to build communities amongst the client‟s Consultants and Partners. The ABC company needed a solution that could allow their consultants to upload and manage their content by themselves. They addressed this challenge by implementing Microsoft‟s SharePoint software. SharePoint software was customised and well-integrated to suite with the rest of the site to provide perfect interface with other portal pages. Users were not only able to load and manage content but were also able to change the attributes and layout of different document libraries from the portal itself. The Management Consulting Portal used SharePoint features to provide document libraries and links, news and discussion board. With the help of role based security, safety measures were put in place so that only official or authorised users could access various parts of the site and change or upload content in the portal. With the help of management consulting portal, the client is now able to effectively share knowledge amongst consultants and partners. Questions: 1. Why did ABC company decide to employ a Management Consulting Portal? 2. How did SharePoint Software help the client to share knowledge amongst consultants and partners?

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14.11 Glossary
Term Adept Catastrophic Diplomats Jeopardised Liaison Strategy Description Having knowledge, skills and aptitude in any field Extremely harmful causing financial ruin in case of improper implementation of ERP software. A person who deals tactfully with others and engage in international negotiations Possibility of incurring loss A channel for communication between groups Systematic plan, which are adopted by different types of organisation.

References 1. Aladwani, A.M., 2001, “Change Management Strategies for Successful ERP Implementation”, Business Process Management Journal, Vol. 7 no.3 pp. 266-275. 2. ERP Tools, Techniques, and Applications for Integrating the Supply Chain. Second Edition by Carol A. Ptak ISBN 0-203-59294-8 . 3. ERP: Making It Happen: The Implementers' Guide to Success with Enterprise Resource Planning By: Wallace, Thomas F.; Kremzar, Michael H. Published By: John Wiley & Sons, Inc.

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Unit 15

Future Directions in ERP

Structure: 15.1 Introduction Objective 15.2 New Markets ERP Trends 15.3 New Channels 15.4 Faster Implementation Methodologies 15.5 Business Models and Business Application Programming Interface (BAPI) 15.6 Application Platforms 15.7 New Business Segments 15.8 Summary 15.9 Terminal Questions 15.10 Answers 15.11 Case Study 15.12 Glossary

15.1 Introduction
By now you must be familiar with the various roles of vendors, consultants and the users of ERP in the market. This unit familiarises you with the future trends and technologies in the ERP market. It also helps you to take decisions with respect to these trends and technologies. The movement towards a global ERP system is a key factor in shaping the future of Enterprise Resource Planning (ERP). ERP industry watchers agree on at least one point: 'one-size-fits-all', across the board integration, i.e. the goal of ERP system is to provide single application that can monitor all the business functions. To achieve this, ERP vendors are advancing their system by adding more features to their products and integrating new applications to deliver a one-stop application to the organisations. ERPs are dominating Back-Office practices such as Financial Management, Human Resources and basic manufacturing. ERP vendors are expected to advance in mid-market sector. There are now increasing investment in
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innovative Front-Office applications such as electronic commerce and supply-chain and HR/customer self-service. To achieve the company’s objectives, ERP vendors evaluate functionality of their applications and also transform the business processes. Effective ERP implementation methodologies have been developed based on industry experiences gained over many years in this business. Effective business models have been developed to deliver quick and effective return on investment. Faster implementation methodologies not only save the overall cost of the system, but also provide a faster time-to-benefit. The top-tier ERP vendors such as SAP AG Inc., Oracle Corporation, and Baan Co will continue their supremacy in the global core applications while the small companies will advance in industry-specific Front-Office market to capture best of niche applications. This unit familiarises you with all the factors that are necessary to consider while selecting the application platforms and also introduces you with all the emerging business segments that enables various ERP vendors to make their products more efficient. These factors greatly affect the total cost, efficiency and future extendibility of an ERP system. Learning Objectives After studying this unit you will be able:  Describe the future directions of the ERP market and trends.  Elucidate how these trends will shape the future ERP products.  Describe how ERP vendors striving for more market share are making their product more efficient and loaded with features by using new technological innovations.

15.2 New Market
The ERP market is very competitive and fast growing. Over the last decade, ERP emerged as big hit in the market, where many companies were able to run their business more efficiently by using the software which replaced staff working in back-office functions such as accounting and administration. ERP holds an undisputed demand in the national and the global level. According to AMR Research Inc., one of the leading market analysis firms specialising in enterprise application and enabling technologies, the ERP software market will have a growth rate of 37 per cent over the next five
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years. ERP vendors have to sell more licenses into their installed base to maintain this growth rate. For example, at present the vendors have a 10-20 per cent penetration that is percentage of total employees currently using the ERP system. This is expected to grow to 40-60 per cent within the next five years. As larger enterprises become saturated with new-generation client/server ERP systems, the vendors strive to find new markets for their product suites to have a rapid growth in the business. ERP vendors have increased their appeal to small business clients through a number of initiatives. These initiatives include the following: Increasing their direct sales force with the resellers channels.  Lowering the entry point of their software to make it financially feasible.  Arranging their software offerings on the basis of reduced functionality.  Improving the implementation methodologies for faster operation.  Modifying the products to platforms such as Microsoft Windows NT. While ERP initiated in the manufacturing market, ERP usage has gradually spread in almost every type of enterprise such as retail, the public sector and healthcare organisation. The following growth is expected to come from software that enables companies to link up their back offices with those of partners, automating a process which is largely done via human contact such as procurement officers. ERP Trends According to the advancement in technologies, ERP requires constant modifications and up gradations. This has increased pressure on ERP developers to fulfil the demands of both vendors and companies. Hence it is vital to analyse the ERP's trends. The latest trends that have rejuvenated the functioning of ERP are:  Open Source ERP: This has cut down the hassle of paying the license fees not only during installation but also whenever a modification is made.  Web enabled ERP: This has made enterprise operations go online. This trend has helped stakeholder or the third party to easily access the required information by sitting anywhere in the world. It also helps during emergencies when the details are to be sourced with immediate effect.
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Wireless ERP: It is sharing enterprise information through devices like internet and other devices. This has helped to make effective use of the communication channels. It also makes possible for outsiders to access the required information.

To study the future trends of ERP we must first look at the present state of ERP software industry. ERP software was earlier developed and manufactured from MRP (Manufacturing Resource Planning) and MRP II. However, it is now being used for CRM (Customer Relationship Management) and SCM (Supply Chain Management). Most of the ERP companies are catering to SMEs (Small and Medium Enterprise) to expand the capacity and efficiency of their product. Internet and E-commerce are the two important aspects to shape the future ERP products. Many companies are in the process to combine their SCM functions with Internet. This helps the suppliers to easily access the information from anywhere in the world. Most of the ERP companies are focusing on SME as their future trend. As many large companies are implementing integrated software system, the market will gradually decrease for large companies. Thus the growth for the ERP will be in SME segment only, which will enable ERP companies to provide better products and service at lower cost and reduce the complexity of implementation. The vendors will have to understand the need of SME to obtain superior quality products from ERP companies. Thus to sustain in the future ERP market, companies must be able to adapt the new technologies. ERP trends bring positive signals for the ERP vendors and companies availing their services. Only through proper coordination, teamwork and nurturing a cordial atmosphere both vendors and the company will be able to make use of these modern services.

15.3 New Channels
ERP vendors such as SAP AG Inc., Oracle Corporation, and Baan Co., are building worldwide reseller channels to provide complete-one-stop shopping for their ERP solutions. ERP software is made more affordable by lowering the entry price point for each module, to reach even the smaller businesses that are looking for these ERP solutions.
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By comparing with middle-market client/server offering from companies such as Platinum Software and Great Plains Software, Oracle has been much favourable in terms of software pricing. JD Edwards ventured by complementing its OneWorld suite with a lower-cost line called Genesis; however most of the vendors including SAP have avoided producing lessexpensive 'lite' versions of their software. Many channel companies have invested in ERP because of the benefits it brings to business. There are also many compelling case for smaller channel partners to consider making use of ERP. As ERP implementation is cost and time intensive, it is better to evaluate various alternative channels and choose the one that best fits your requirements and budget. Vendors select different channels strategies depending on the customers they target. For example, customers who use QuickBooks business accounting can purchase directly from Intuit Software Company. The high end customers depend on consulting services and reseller advice when buying an Oracle or SAP solution. Self Assessment Questions 1. The ERP market is very competitive and fast growing. (True/False) 2. ___________ ERP has made enterprise operations go online. 3. _______ is sharing enterprise information through devices like internet and other devices. 4. JD Edwards ventured by complementing its OneWorld suite with a lower-cost line called Genesis. (True/False)

15.4 Faster Implementation Methodologies
Most of the ERP vendors have opinion that their software is difficult and costly to implement. This is a kind of perception that has provided huge profits to the ('Big 5') accounting firms that have generated billions in fees from their ERP software implementation practices. Even though only 10-15% of the implementations have taken years to complete, the facts remains that implementing ERP packages is difficult. Faster the ERP is implemented the better are the advantages and delivery in terms of results. Many different business departments use ERP system modules that are deployed on a multinational basis. There may also be change in IS infrastructure-say from a mainframe to a UNIX platform with
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simultaneous re-engineering the core business processes. ERP vendors have made an effort on making the implementation process easier by offering tools and methodologies to speed up the process. This is achieved by using model-based approaches and opening up their systems for easier integration. For example, SAP has introduced a method called Accelerated SAP (ASAP) that takes knowledge obtained from thousands of R/3 implementations to combine this skill in a product called the Business Engineer. This product enables implementation team to configure the SAP modules to accept the processing style of some 100 business operating settings. ASAP methodologies also reduce SAP implementation times to less than six months in many cases. Oracle has introduced a similar method called Fast Forward, which speed up implementations of Oracle Applications suites and cut down the implementation costs. The ERP Services OnePoint Implementation Methodology also offers value and increase business efficiency by adding new functionality, or by upgrading to a new version of your existing applications. This method provides disciplined approach to implement enterprise software backed by the people with the applications knowledge and skill. This in turn makes your implementation process fast, and accurate. The ERP Services OnePoint Implementation Methodology companies to:  Reduce risk.  Increase operational effectiveness.  Achieve strategic goals.  Optimise your systems at a low total cost of ownership.  Improve competitive advantage.
1

helps

Despite the availability of new channel partners and implementation methodologies of the major consulting firms, ERP systems have often been difficult to implement because of a dearth of skilled consultants. As a result, initiatives such as Oracle's OracleOne or SAP's Platinum consulting services are leading the way in creating highly skilled consulting teams and

1

http://www.ssaglobal.com/documents/SSAPD_SOIGEENA4.pdf

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are charged with delivering fully trained and experienced consultants on a worldwide basis to push implementations through faster. Activity 2 Imagine that you are a project manager of a company. What are all the benefits you expect to gain by using OnePoint ERP Implementation Methodology?

15.5 Business Models and BAPIs
A company's business model is usually referred as revenue architecture that consists of major value creation principles. This business model describes revenue sources and the way the company organises its activities to profitably exploit these sources. With the current business model, companies can achieve the better business results which includes lower the amount of waste, reduce errors, increase delivery speeds and so on. The change in current business model provides new ways to fulfil orders, create products and service customers. ERP Business Modelling is a well-defined approach to arrive at full and specified descriptions of the business processes that are supported with the new ERP package. ERP Business Modelling emphasise on managing the group decision-making process for developing the required process descriptions. This process also highlights on employing a systems and modelling-oriented perspective to look at different functions as one integrated whole. ERP Business Modelling can be called as process facilitation approach rather than an expert approach. Here, the client plays a leading role in the whole business modelling process. Although clients have an in-depth knowledge of their business processes, they lack in identifying the overall view and the relationships between the business processes. External expertise will only be used if explicitly desired by the client. The major role of consultants is to assist the client’s project team in gathering that information to construct a well-understood model of the business processes which are to be supported by the new ERP package. This can be achieved with the help of workshop and group facilitation techniques.

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For example, with the help of Intellicorp Inc.'s LiveModel, implementation teams are able to review and simulate changes to the SAP R/3 application Reference Model that provides views of R/3 processes, data models and functions. Any changes made to the Reference Model are stored in the LiveModel repository which can further be audited and changed on demand. Furthermore, because LiveModel is OLE compliant, the R/3 models can be manipulated and documented through desktop OLE applications such as Microsoft Word. The Open ERP business model is developing popularity in enterprise management. A Global Business Process Model is also developed, which comprises the whole ERP software product. This model is imposed in three levels. They are:  System Configuration Level: This level scopes on high-level optionality on the entire system and is static. The high-level option of the ERP system is chosen for the organisation, which cannot be made undone at any stage.  Object Level: This level scopes on single data objects and is more dynamic.  Occurrence level: This level analyses single process occurrences and is very dynamic. This level elaborates on object parameters. Further, the optional levels of ERP modelling are used to reverse engineer the ERP system and the organisational structure. The right way to align both ERP and organisational models is as follows:  Convert the ERP system database to an object model.  Construct a global business process model.  Identify the system configuration-level business process alternatives.  Identify the object-level variants of the business processes.  Expose the occurrence-level business process options. Business Application Programming Interface (BAPI) BAPI (Business Application Programming Interface) is a set of interfaces to object-oriented programming methods that enable a programmer to integrate third-party software into the proprietary R/3 product from SAP. For specific business tasks such as uploading transactional data, BAPIs are

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implemented and stored in the R/3 system as remote function call (RFC) modules.2 BAPI is the most dominant tool in the SAP consultant’s toolkit. It is one of a set of tools for interfacing with an SAP R/3 system. The priority of BAPI is calling data in and out of SAP. For the SAP consultant, BAPIs are the small, powerful ships that keep these barges of data moving. SAP's R/3 system is now open by releasing the specifications for some 170 business application programming interfaces (BAPIs). This helped third-party applications interact with R/3 directly. BAPIs can be called as sets of methods that allow external applications to collaborate with specific R/3 business objects such as customers, accounts, or employees. As R/3 data is addressable through callable methods, BAPIs gives flexibility to the third party application vendors to build supporting applications for the R/3 system. In similar way, Baan offers OrgWare which is based on integrated businessmodelling tool, combined with business-specific templates that automate the configuration of the software to suit specific operational needs. Baan is in the process of advancing this tool with new setup wizards to accelerate software implementation on the Windows NT platform. Self Assessment Questions 5. Oracle has introduced ____________ method to speed up implementations of Oracle Applications suites. 6. A company's business model is usually referred as ______________. 7. ERP Business Modelling can be called as ____________. 8. _______ is the most dominant and commanding tool in the SAP consultant’s toolkit.

15.6 Application Platforms
The company has to take very cautious steps while choosing ERP platforms. Most of the companies normally go for a platform that is similar to the current work setting. This enables them to easily work with existing systems rather than to opt for a new one. The other factors to consider while choosing application platforms are:

2

http://searchsap.techtarget.com/sDefinition/0,,sid21_gci845424,00.html

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Any experience with ERP: The company should check if the platform, which is successfully experimented in an ERP environment, provides greater credibility. As the platform has demonstrated competence in ERP, it increases the comfort zone and provides better results. Networking facilities: The platform should allow free flow and exchange of data between networks and should work in the latest atmosphere. Proper designs: ERP applications are the complex concept and can create a worse condition if the preferred ERP platforms are also of the same status. Hence the designing part of the platform should be in a manner that can be used freely either in integrated or distributed applications. Effective outputs: Application platform are bound to face problem in the introduction stage that arises during any output procedures. The platform you select should resist the errors that come during these procedures even though these problems are not directly connected with the platform. Sustainability: The desired platform should have the capacity to suite well within the company's environment. The company should make sure that the platform they implement will sustain for considerable longer time.

The growing popularity of Microsoft Windows NT Platform has forced almost all ERP vendors to offer products that cater to this segment. SAP R/3 has been available since April 1994 on NT and since October 1995 on SQL Server – while Baan, Oracle, and PeopleSoft have announced the general availability of their applications on the BackOffice platform in 1997. SAP claims to have over 2,000 R/3 installations on NT and holds Microsoft itself as the company's best customer. Baan sports the 'Designed for Microsoft BackOffice' certification. Oracle boasts its support for its own NTbased clustering technology, and PeopleSoft shows off its recent switch to BackOffice as its primary development and initial rollout platform. As Microsoft scales up its enterprise versions of NT and SQL Server to support more processors as well as failover clustering and row-level locking, BackOffice is simply becoming a more viable platform for running demanding ERP applications. The BackOffice platform is already the platform of choice among the middle market vendors of accounting and
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distribution software, with the NT/SQL Server combination grabbing market share from the popular Novell/Btrieve platform. The company should look at all the internal and external factors to decide on the matter of choosing the ERP platforms. Each company is trying to extend the reach of its software and to make it an application platform rather than a suite of modules. For example, SAP has its R/3 product that can manage centrally using platform management tools from vendors such as Computer Associates (UniCenter TNG) and Tivoli (TME). Activity 1 List out the types of application platform installed by various companies for implementing the ERP system to improve their business efficiency.

15.7 New Business Segments
All the ERP vendors are now capable of delivering specialised variants of their applications to service vertical markets such as government, healthcare, financial service, or retail environments. Some vendors are also moving into more specialised areas, such as supply chain management and demand forecasting or sales automation and marketing.

Figure 15.1: New Business Segments in ERP Sikkim Manipal University Page No. 348

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As the new ERP business segment, the PeopleSoft has bought Red Pepper Software in the business to enhance its supply chain offering. Baan has also developed Aurum Software for its Aurum Customer Enterprise suite of customer relationship management tools. Baan strengthen its financial modules by linking Hyperion's financial accounting and budgeting solutions with Baan's distribution and manufacturing modules. With new technological innovations ERP vendors are striving to make their products more efficient. They focus mainly on decision support. Baan is associating its applications with Gentia product to provide OLAP capabilities for monitoring of key performance indicators. JD Edwards grouped with Information Builders to deliver a data mart, based on Information Builders Inc.'s SmartMart suite of data transformation and OLAP tools. With the help of data mart designer and builder, Oracle has created data marts. For querying, charting and reporting data from Oracle's Applications suite, Oracle offers an end-user tool called Oracle Discoverer. PeopleSoft will integrate PeopleSoft applications with Arbor Software Corp.'s multidimensional Essbase server and client-based Cognos Corp. PowerPlay multidimensional OLAP tool. To improve the product efficiency, SAP has previewed its Business Information Warehouse product for synchronising the R/3 transaction system with a data warehouse. This enables SAP to manage both R/3 and non-R/3 data, by using metadata repository and a front-end OLAP engine. Table 15.1: Major ERP Vendors and their Products
Vendor SAP AG Oracle Corporation JD Edwards World Solutions Co. PeopleSoft Inc. Baan Co. Product R/3 Oracle Applications OneWorld PeopleSoft Baan IV

Web Enabling ERP vendors are now being forced to move from a client/server to browser/server architecture to Web-enable their software. This helps them to deliver self-service and electronic commerce capabilities. ERP vendors
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are using Java rather than Microsoft's ActiveX for their first generation of Web-enabled applications. Baan is working to distribute a Java-based Web interface to its products. Automating supply-chain relationships via the Internet, offering e-commerce via the Microsoft Merchant Server and using Hyperion Software Corp.'s Spider-Man technology for alert distribution across the Web are the main focus of Baan. PeopleSoft is set to deliver Java-based self-service applets with its PeopleSoft 7. JD Edwards is using Java OneWorld functionality to make it available either through a Windows client or a Web browser. Oracle has already used Java to deliver its Oracle Web Employees, Oracle Web Customers, and Oracle Web Suppliers modules. ERP vendors are using Java as a means to deliver and deploy their Web functionality. This is considered as the first move away from proprietary technologies to more open tools. Implementing solutions from SAP and PeopleSoft can be expensive because the tools for customising their products such asABAP4 and PeopleTools are proprietary. However, many lower-tier software vendors are using commercial tools such as PowerBuilder, Visual Basic, or Microsoft Access to build the front ends of the application. Oracle is a tool vendor, which uses Oracle Forms, Developer 2000, and Designer 2000 to develop its Oracle Applications. Market Snapshot Even with zero growth at SAP, it would still take any competitor a couple of years of triple-digit growth to overtake the German giant. PeopleSoft has not made a wrong move so far, and Baan is also showing that it has the mentality and results to become a top-three player. Oracle has lately focused more attention on its applications business as a growth engine and seem to be reaching, most aggressively, into the territory targeted by the middle-market client/server accounting players. JD Edwards seem to be in the most vulnerable position, with their continued reliance on the momentum of IBM's AS/400 line, coupled with their need for transition to new product lines and platforms, where their previous market-leading positioning was less than clear cut. Even during the transition from client/server through browser/server, ERP vendors are striving to maintain their growth momentum in the market. We can see many achievements in the lines of the Baan/Aurum deal, an
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increasing focus on the Microsoft BackOffice platform, and advancement in ERP packages. Integration with new, cutting-edge technologies such as Sales Force Automation (SFA) and customer management are the rising trends in the enterprise packaged application industry. With the huge impact of Internet-based Enterprise Resource Planning commerce, there is some leading divergence between so-called Back Office and Front Office functionalities. Self Assessment Questions 9. The company need not have to take cautious steps while choosing ERP platforms. (True/False) 10. Mention any two factors to consider while choosing application platform. 11. ERP vendors are using ____ as a means to deliver and deploy their Web functionality. 12. Integration with new, cutting-edge technologies such as _________and ______ are the rising trends in the enterprise packaged application industry. 13. The BackOffice platform is already the platform of choice among the middle market vendors of accounting and distribution software. (True/False)

15.8 Summary
ERP is an industry that always shows various prospects of investment rather than just technology. It is basically considered as an investment in the business and its people. The most challenging part is implementing the system into a company’s culture, where it is necessary to develop a business and fulfil a vision. Despite these challenges, the movement toward a global ERP system is a key factor shaping the future of enterprise resource planning. The future of the ERP holds certain demands in the national and global level. Here, ERP trends also reflect positive signals for the ERP vendors and companies availing their service. ERP product and ERP software will always be on great demand. As the ERP market is very competitive and fast growing, vendors are striving to find new markets for their product suites to have a rapid growth in the Business. ERP vendors have increased their appeal to small business clients through a number of initiatives. According to the advancement in technologies, ERP requires constant modifications and upgradations.
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Vendors now select different channels strategies depending on the customers they target. Faster the ERP is implemented the better are the advantages and delivery in terms of results. ERP vendors are making the implementation process easier by offering tools and methodologies to speed up the process. Despite the availability of many new methodologies, ERP systems have often been difficult to implement because of a dearth of skilled consultants. ERP Business Modelling also called as process facilitation approach, emphasise on managing the group decision-making process of developing the required process descriptions. BAPI (Business Application Programming Interface) is a set of interfaces to object-oriented programming methods that enable a programmer to integrate third-party software into the proprietary R/3 product from SAP. The company takes cautious steps while choosing ERP platforms. The proper selection of the application platform enables an organisation to easily work with existing systems rather then to opt for new one. Some of the ERP vendors are moving on to new business segments such as supply chain management and demand forecasting or sales automation and marketing. This helped many vendors to improve their product efficiency. Even during the transition from client/server through browser/server, ERP vendors are striving to maintain their growth momentum in the market.

15.9 Terminal Questions
1. Explain the latest trends that have rejuvenated the functioning of ERP 2. Which are the new channels explored by the ERP vendors? 3. Mention the implementation method used by various ERP vendors to increase the efficiency of their product. 4. What is BAPI? Why BIAP is considered as commanding tool in the SAP consultant’s toolkit? 5. Explain the various factors to consider while choosing application platform.

15.10 Answers
Self Assessment Questions 1. True
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2. 3. 4. 5. 6. 7. 8. 9. 10.

Web enabled Wireless ERP True Fast Forward Revenue Architecture Process Facilitation Approach Business Application Programming Interface (BAPI) False The two factors to be considered while choosing application platform are: Prior experience with ERP Networking facilities 11. Java 12. Sales Force Automation (SFA) and customer management 13. True Terminal Questions 1. Refer section 15.2 2. Refer section 15.3 3. Refer section 15.4 4. Refer section 15.5 5. Refer section 15.6

15.11 Case Study
PLIVA is the largest pharmaceutical company that consist of 44 legal entities, has 5 major business divisions and 9 strategic/corporate divisions. PLIVA was following classical transaction information system with centralised, hand-entered data. Pressured by a lack of time, the management decided on the purchase of a complete system, keeping the SAP package in mind. In 1997, implementation of the SAP solution took place in cost centre accounting and profit centre accounting. The main idea was to control financial resources, forecasts and provide new type of analysis. The consulting company PriceWaterhouseCoopers conducted a reengineering project, during the implementation of the IS. SAP modules were implemented through 4 phases:
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1. phase: 1996-1997 (SAP 3.0) 2. phase: 1998-2000 3. phase: 2001 4. phase: 2002 The transfer of operations to the new system lasted 12 days, as the problem of shifting from the old coded system need to be resolved. The process preparations and system training lasted for 4 months. During the implementation of the new system, operations were halted for 10 days. In addition to employees’ resistance to change, the most significant problems in the system implementation were in the weak experience and quality of consultants who bid in the public tender. Lack of time and the specificity of the pharmaceutical industry were also some of the problem occurred during implementation process. After successful implementation and utilisation of ERP system, the PLIVA Information Department was able to achieve USD 1 million in revenues, which was the remarkable profit of the year 2001. In this 2% of revenues were reserved for information from the strategic business plans and the IT Committee gave global initiatives and a strategic development direction. The Information Department in PLIVA is directly responsible for the company management and is developing as a profit centre, meaning that daughter companies are billed for use of the information system and the transfer of the existing system is underway in the daughter companies. PLIVA has over 1500 SAP licenses, a help desk, highly educated employees and an organisational management for user support, which allows PLIVA to become a SAP Customer Competence Centre, which would then reduce the costs of license maintenance on 20%. In addition to the plans to implement new ERP modules such as SCM and CRM, the PLIVA also plans to create a unique methodology for project management in the near future. Questions: 1. Mention the four phases used for the implementation of SAP modules. 2. What were the results of successful implementation of ERP system?

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15.12 Glossary
Term Business Information Warehouse Description Also called as Business Warehouse is a combination of databases and database management tools which are used to support management decision making. Insufficiency number of resource or consultants. It is a collection of information that documents databases. It is used to describe a person, who works full time in the field of purchasing. These are the types of systems that are developed by and for a specific business entity.

Dearth Metadata Repository Procurement Officers Proprietary Technologies

References 1. Enterprise Resource Planning Second Edition by Alexis Leon ISBN(13): 978-0-07-065680-2. 2. ERP in Practice, ERP strategies for steering organisational competence and competitive advantage by Jagan Nathan Vaman ISBN 13: 9780070621077. 3. ERP Tools, Techniques, and Applications for Integrating the By: Ptak, Carol A; Schragenheim, Eli Published By: CRC Press Edition: 2. 4. Enterprise Resource Planning (Paperback), Third Edition by Bret Wagner (Author) and Ellen Monk (Author).

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