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Introduction to ERP

Contents
• • • • • • • Information System Silos ERP Systems Evolution of Business Software Role of ERP in Business Vanilla and Chocolate Implementations ERP System Components ERP Architecture

6/25/2013

Prof M P Sebastian, IIM Kozhikode

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Business Unit Silos
• As organizations become larger and more complex they tend to break functions into smaller units by assigning a group of staff to specialize in these activities.
– This allows the organization to manage complexity as well as some of the staff to specialize in those activities to enhance productivity and efficiency.

• The role of information systems has been and always will be one of supporting business activities and enhancing the workers, efficiency. • Over time, however, as business changes and expands, systems need to change to keep pace. The result is sometimes a wide variety of information systems and computer architecture configurations, which creates a hodgepodge of independent nonintegrated systems.
– These systems ultimately created bottlenecks and interfered with productivity.
6/25/2013 Prof M P Sebastian, IIM Kozhikode 3

IIM Kozhikode 4 . 6/25/2013 Prof M P Sebastian.Information System Silos • No decision-maker can take good decisions with the isolated information that they can get from the information produced by individual departments.

Information Silos… • In today's globally competitive environment. an organization will find it very difficult to operate and survive with silo information systems. and to help build teams that bring employees together from different functional areas. to process efficiency. Since the early !!"s. • Today's competitive business is cross-functional. 6/25/2013 Prof M P Sebastian. • Integrated information systems are needed today to focus on customers. and global. most organizations have tried to remove the functional barriers that had e#isted for decades. IIM Kozhikode 5 . dynamic.

IIM Kozhikode 6 . and production re$uirements of organizations. marketing. financial. • ER s are basically integrated information systems that support such enterprise functions as accounting. – This allows for real%time data flows between the functional applications.Enterprise Resource Plannin !ERP" Systems • Enterprise Resource lanning !ER " systems are the first generation of enterprise systems whose goal was to integrate data across and be comprehensive in supporting all the ma#or functions of the organization. 6/25/2013 Prof M P Sebastian.

IIM Kozhikode 7 .ERP 6/25/2013 Prof M P Sebastian.

partners. • An ER &s goal is to make the information flow dynamic and immediate. and vendors from anytime and anyplace. IIM Kozhikode 8 . integrate the various functional aspects of the organization as well as the systems within the organization with those of its partners and suppliers. clients.ERP • ER systems are comprehensive software applications that support critical organizational functions. 6/25/2013 Prof M P Sebastian. • An ER system acts as a central repository eliminating data redundancy and adding flexibility. • They work using web clients making them accessible to all of the organization&s employees. therefore increasing the usefulness and value of the information. thereby promoting the '(s effectiveness.

ERP… • )ompanies choose to implement ER systems – – – – – increase supply chain efficiency increase customer access to products and services reduce operating costs respond more rapidly to a changing marketplace extract business intelligence from the data • The central idea behind data integration is that clean data can be entered once into the system and then reused across all applications. IIM Kozhikode . 6/25/2013 Prof M P Sebastian.

) 6/25/2013 Prof M P Sebastian.s / Enterprise Resource lanning !ER ". 4artner 4roup first employed the acronym ER • 5*st century 6 ER 00 !ER with )R2. IIM Kozhikode 10 .s / 2anufacturing Re$uirements lanning !2R 00" • *++-. 7)2.s / 2aterials Re$uirement lanning !2R " and )losed%loop 2R • *+3-.-. etc.Evolution of Business Software • Origins in the manufacturing industry • *+.s / 0nventory management and control systems • *+1-.

s86 0nventory82anagement8and8)ontrol88 !02)"87ystems • 0nventory management and control is the combination of information technology and business processes of maintaining the appropriate level of stock in a warehouse. IIM Kozhikode 11 .-.*+. • The activities of inventory management include – – – – – – identifying inventory re$uirements setting targets providing replenishment techni$ues and options monitoring item usages reconciling the inventory balances reporting inventory status 6/25/2013 Prof M P Sebastian.

IIM Kozhikode MRP 12 .Materials Requirement Planning (MRP) • Outgrowth of bill of material (BOM) ro!essing • "ses the master ro#u!tion s!he#ule (MP$) to fin# out what ro#u!ts are going to manufa!ture#% • &ets the #etails of the materials require# to ma'e the ro#u!ts from BOM% • $ear!hes the in(entor) re!or#s to fin# out what items are in sto!'% • *al!ulates the items that nee# to be ur!hase# for ro#u!ing the goo#s% • MRP sol(es manufa!turing an# ro#u!tion lanning roblems an# ma#e manufa!turing of goo#s easier% IMCS 6/25/2013 Prof M P Sebastian.1970’s .

ref%rbished or %sed for #arts. • !"osed "oo# M)P #"annin' is often &redited to I5M.*lose#-loo MRP (*+MRP) • !"osed "oo# $an%fa&t%rin' reso%r&e #"annin'.1970’s . the $an%fa&t%rer has $ore &ontro" o4er both s%##".&an be ins#e&ted and reso"d. takes res#onsibi"it. In s%&h a $ode". b%t the.&hain and $an%fa&t%rin' #"annin'. #ro&ess. the ori'ina" e/%i#$ent $an%fa&t%rer *01M.fro$ &%sto$ers or retai" &hanne"s. a"so kno(n as &"osed "oo# M)P *!+M)P.for the ret%rn "oo# *)+.&an a"so &o$e fro$ #rod%&tion fa&i"ities in the for$ of $an%fa&t%rin' b-2#rod%&ts or &o$#onents that fai" to $eet the $an%fa&t%rer3s /%a"it. is a $an%fa&t%rin' reso%r&e #"annin' $ode" that in&or#orates ret%rned #rod%&ts as #art of the s%##"&hain. IIM Kozhikode . often &o$e dire&t".&ontro" &riteria. 5. • • • Prod%&t ret%rns *a"so kno(n as &ores.be&a%se the.&"osin' the "oo# and $ana'in' the #rod%&t "ife&-&"e in a ho"isti& $anner. )et%rned #rod%&ts are &o%nted as in4entor. IMCS 6/25/2013 MRP CLMRP 13 Prof M P Sebastian..

finan!ial interfa!e an# simulation !a abilities for better #e!ision-ma'ing • MRP .in(entor) !ontrol to ro#u!t #istribution% IMCS MRP CLMRP MRP II MRP 14 6/25/2013 Prof M P Sebastian. IIM Kozhikode .arts ur!hasing. is a metho# for the effe!ti(e lanning of all the resour!es of a manufa!turing !om an) • "tili0es software a li!ations for !oor#inating manufa!turing ro!esses.) • .(ol(e# from !lose#-loo MRP • *ontains a##itional !a abilities li'e sales an# o erational lanning..Manufa!turing Resour!e Planning (MRP .19/0’s .from ro#u!t lanning..

improved productivity. • ER is broader in scope and is capable of dealing with more business functions and has a better and tighter integration with the finance and accounting functions. to the extended supply chain of customers and suppliers. • ER is an enterprise%wide set of forecasting. IMCS MRP CLMRP MRP II ERP 15 Prof M P Sebastian. IIM Kozhikode 6/25/2013 .RP) • 9undamentals of ER are the same as that of 2R 00.nter rise Resour!e Planning (. better inventory turnover !#ust%in%time inventory"..1990’s . • ER is more powerful because it applies a single set of resource planning tools across the entire enterprise. operating and financial data and connects resource planning approaches. planning and scheduling tool. cost reduction. provides real%time integration of sales. • The goals of ER include high levels of customer service. which links customers and suppliers into a complete supply chain. etc.

ER 00 encourages user participation. • ER 00 system is a much more :<eb%friendly. application that makes better use of the 0nternet. IIM Kozhikode . • ER 00 = ER > 7)2 > )R2 > ? IMCS 6/25/2013 MRP CLMRP MRP II ERP ERP II 16 Prof M P Sebastian. • ER 00 expands the scope of ER to offer solutions for a broader range of industries and sectors. primarily serving logistics. of ER and offers several advantages over traditional ER systems. especially as a means for support. • ER 00 solution offers greater flexibility in the integration of functions between departments and even industries. supply chain. facilitating interaction between customers and vendors. and warehousing functions.#$st century % ERP II • ER 00 is regarded as the :next generation. – ER systems have historically been mostly limited to the manufacturing sector. which effectively eliminates the difficulties that resulted from limited communication.

Rise of ERP Courtesy: 6/25/2013 Prof M P Sebastian. IIM Kozhikode 17 .

• Oracle/ 0n *+11. 6/25/2013 Prof M P Sebastian.0. and )laus <ellenreuther 6 launched a company called Systems Applications and Products in Aata rocessing in 2annheim. relational database 7ED was launched by Oracle. Claus Tschira. the first company to launch the concept of automation software was formed by 0'2 and @. five former 0'2 employees 6 Aietmar Bopp. )ase. Basso lattner.Business Software& Companies • Automation 7oftware/ 0n . Oracle was formed by Darry Ellison and in *+1+. Bans%<erner Bector. 4ermany. • 7A / 0n *+15.-s. IIM Kozhikode 18 .

6/25/2013 Prof M P Sebastian. is to better position the organization to change its business processes. beside integration of functional applications and organization information. • 2ost organizations have a set of policies and procedures to guide their business process. These processes may or may not agree with the organization&s current business processes.Business Policies and ERP • A crucial role of ER in business. – The ER software has hundreds of business processes built into the logic of the system. IIM Kozhikode 1 .

IIM Kozhikode 20 . customers.Choices for ERP Implementation • An organization has two choices when implementing ER / *. 6/25/2013 Prof M P Sebastian. modify the ER software to match the • The conse$uences of selecting either option have a long%term impact on the organization in terms of its performance of its employees. and other stakeholders.s functionality 5. change business processes software.

Choices for ERP Implementation… • This is not an easy decision – A wrong decision can bring down the entire organization – A right decision can reap enormous benefits • A good understanding of the ER technology and implementation process can significantly improve efficiency and effectiveness of the organizations& business processes. IIM Kozhikode 21 . 6/25/2013 Prof M P Sebastian.

– Thus.Pro'lems with (odification of ERP Processes !chocolate" • Fendors assert that they have embedded the Gbest practices or leading practices. IIM Kozhikode 22 . 6/25/2013 Prof M P Sebastian. of a business process in their software. the 0T staff will have to upgrade the application and upgrade the modifications. • 0t is therefore possible for organizations to maximize their benefits by taking advantage of these best practices only when organizations do not make ma#or modifications to their ER software during implementation. • Any future upgrades to the ER system once it has been modified become cumbersome and expensive. This is due to the fact that the modified system logic needs to be updated separately on every new version of the software. every time an organization has to upgrade the ER system.

IIM Kozhikode 23 . Employees..Pro'lems with As)is Implementation !vanilla" 0f the organization decides to implement the ER system :as is. This can generate resistance from the users. and clients will have to be retrained in the new business processes !in addition to the ER system". 6/25/2013 Prof M P Sebastian. disruptions can occur with the functioning of the organization. adding to the training expense for the implementation. business partners.

IIM Kozhikode 24 . • These components must work together seamlessly for the implementation to be successful. Server !hardware" Software Company Processes People *ata'ase 6/25/2013 Prof M P Sebastian. procedures.ERP System Components • The key components for an ER implementation are hardware !servers and peripherals". and people !end users and 0T staff". and policies". information !organizational data from internal and external resources". software !operating systems and database". processes !business processes.

and data play a significant role in an ER system implementation. 6/25/2013 Prof M P Sebastian. IIM Kozhikode 25 . • Bardware. • The implementation team must carefully evaluate each component in relation to the others while developing an implementation plan.ERP System Components… • These components work together to achieve an organization&s goal of enhanced efficiency and effectiveness in their business processes. • Each component must be layered appropriately and each layer must support the efficiency of the other layers. software. • 9ailures are often caused by a lack of attention to the business processes and people components.

maintenance.ERP Architecture • The architecture of the ER implementation influences the cost. and the use of the system. • A system&s architecture is a blueprint of the actual ER system and transforms the high level ER implementation strategy into an information flow with interrelationships in the organization. 6/25/2013 Prof M P Sebastian. • A flexible architecture is best because it allows for scalability as the needs of the organization change and grow. IIM Kozhikode 26 .

ERP Architecture… • The layered approach provides the ability to change layers without significantly affecting the other layers. 6/25/2013 Prof M P Sebastian. IIM Kozhikode 27 . • This can help organizations lower the long%term maintenance of the ER application.

ERP Architecture… • An ER package can have a very different implementation outcome from one organization to another. • 2any organizations often make the mistake of ignoring the system architecture stage and #umping directly into ER implementation because they have planned a GvanillaG or Gas isG implementation. • The architecture sets the stage for modifications or customizations to support an organization&s policies and procedures. security. system maintenance. This can be disastrous because the organization will not be prepared for long%term maintenance and upkeep of the system. upgrades. 6/25/2013 Prof M P Sebastian. access. IIM Kozhikode 28 . data conversion. back%ups. and controls.

ERP Architecture vis)+)vis I. IIM Kozhikode 2 . Architecture • 0T architectures are generally driven by organizational strategy and business processes • ER architecture is often driven by the ER vendor !package-driven architecture". • The ER architecture be conceived only after the selection of the ER software • The architecture is conceived well before buying or developing software in other 0T implementations 6/25/2013 Prof M P Sebastian. – 2ost ER vendors claim to have the best practices of their industry&s business processes captured in their system logic which is convincing the organizations to spend millions of dollars for the ER package.

Prof M P Sebastian. IIM Kozhikode 6/25/2013 30 . an ER system can he very complex and must be designed and tested thoroughly before implementing it in the organization.Architecture of ERP at a -ar e University 0n the architecture of a large university.

ERP -o ical Architecture • The8logical8architecture8focuses88on8 supporting8the8needs8of8the8end%users 6/25/2013 Prof M P Sebastian. IIM Kozhikode 31 .

IIM Kozhikode 32 .ier$& .& *etails on the applications that support the various 'usiness functions 'uilt in to the ERP system • .ERP lo ical architecture … • .ier.he core 'usiness processes and 'usiness lo ic handled 'y the system • .he data'ase schemas of entities and relationships • .ier#& .he end)users do not ever see the first and second tiers 'ecause they interact primarily with the client)user interface application tier that provides them access to the functional applications/ 6/25/2013 Prof M P Sebastian.

IIM Kozhikode 33 .ERP Physical Architecture • .he physical architecture focuses on the efficiency of the ERP system/ 6/25/2013 Prof M P Sebastian.

IIM Kozhikode 34 .Conclusion • • • • • • • Information System Silos ERP Systems Evolution of Business Software Role of ERP in Business Vanilla and Chocolate Implementations ERP System Components ERP Architecture 6/25/2013 Prof M P Sebastian.