Enterprise resource planning

Semester 5th BSc (IT)
Chapter: 1 Content:
1. Introduction to ERP 2. Evolution of ERP 3. What is ERP? 4. Reason for the growth of ERP 5. Scenario and Justification of ERP in India 6. Evaluation of ERP 7. Various modules of ERP 8. Advantages of ERP 1. Introduction to ERP Short for enterprise resource planning, a business management system that integrates all facets of the business, including planning, manufacturing, sales, and marketing. As the ERP methodology has become more popular, software applications have emerged to help business managers implement ERP in business activities such as inventory control, order tracking, customer service, finance and human resources. Enterprise resource planning's true ambition is to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs. Thus ERP attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs. ERP systems are IT systems which are meant to serve all the IT needs of a manufacturing company. ERP stands for "Enterprise Resource Planning". This type of system has evolved from earlier MRP and MRPII systems. MRP stands for "Material Requirements Planning", and is a computer technique for taking a product schedule as input and generating works and purchase orders as output. MRP II was a later development of MRP which arose because MRP needed a set of business processes surrounding it to make it effective. Not all of the business processes needed IT support, but others did, hence MRPII systems supported a wider range of business processes than MRP. The name MRPII came about because the new set of business processes was called "Manufacturing Resource Planning", and because the initials were the same as MRP, the II was tagged on.

MRPII systems tended to be so wide in scope that eventually systems developed towards giving IT support to all parts of a manufacturing company. This is when the term ERP came into use to signify its enterprise-wide scope. 2. Evolution of ERP The history of ERP can be traced back to the 1960’s, when the focus of systems was mainly towards inventory control. Most of the systems software were designed to handle inventory based in traditional inventory concepts. The 1970’s witnessed a shift of focus towards MRP (Material Requirement Planning). This system helped in translating the master production schedule into requirements for individual units like sub assemblies, components and other raw material planning and procurement. This system was involved mainly in planning the raw material requirements. Then, in 1980’s came the concept of MRP-II i.e. the Manufacturing Resource Planning which involved optimizing the entire plant production process. Though MRP-II, in the beginning was an extension of MRP to include shop floor and distribution management activities, during later years, MRP-II was further extended to include areas like Finance, Human Resource, Engineering, Project Management etc. This gave birth to ERP (Enterprise Resource Planning) which covered the crossfunctional coordination and integration in support of the production process. The ERP as compared to its ancestors included the entire range of a company’s activities. ERP addresses both system requirements and technology aspects including client/server distributed architecture, RDBMS, object oriented programming etc. Evaluation Criteria 1. Some important points to be kept in mind while evaluating ERP software include 2. Functional fit with the Company’s business processes. 3. Degree of integration between the various components of the ERP system 4. Flexibility and scalability 5. User friendliness 6. Ease of implementation 7. Ability to support multi-site planning and control 8. Technology - client/server capabilities, database independence, security 9. Availability of regular upgrades 10. Amount of customization required 11. Local support infrastructure 12. Reputation and sustainability of the ERP vendor 13. Total costs, including cost of license, training, implementation, maintenance, customization and hardware requirements.

To Enhance Profitability: a) Increase in sales b) /or Reduce Procurement Cost 2. d) New Product introduction. f) Focus on industry markets. e) Lower manufacturing lead time. h) Develop specific business methods and processes. Demands on the Industry: a) Better products at lower costs b) Tough competition c) Need to analyze costs / revenues on a product or customer basis d) Flexibility to respond to changing business requirements e) More informed management decision making 5. c) Distribution network spread.Why ERP? 1. timely information b) Applications not complete for existing business practices c) Modifications are time consuming or not feasible Solving these Problems will the company ahead of competition! . i) Integration with third party products. 4. b) Manufacturing Globally. Solving the Problems: a) Unable to get accurate. g) Satisfying the needs of customers. for Healthy Operations: a) Integration of Systems across the Functional Departments in a Company as well as across the Enterprise as a Whole. c) Introduction of Latest Technologies as and when the are ready for the Industry acceptance d) Expertise database e) Avoids data redundancy 3. Competition in the Market: a) Manufacturing Challenges. b) Better Customer Service.

not simply for development and maintenance. 2. accounting standards and so on can be covered in one system. In the case of ERP packages. this flexibility is essential and one can say that it has major advantages. The reason why ERP packages are considered to the integrated. Flexibility 3. and so on. customer satisfaction. For this reason. it has become an obstacle in the shift to new product and business classification. Furthermore. Better Analysis and Planning Capabilities 4. Since conventional company information systems were aimed at the optimization of independent business functions in business units. The following are some of the direct benefits of an ERP system: 1. they are disconnected. information integration for better decision making. and carry out various types of management decisions in a timely manner. . improved customer goodwill. For this reason. Better Analysis and planning Capabilities: Yet another advantage is the boost to the planning functions. Business Integration: The first and most important advantage lies in the promotion of integration. currencies. Different languages. 3. based on that information. and functions that comprehensively manage multiple locations of a company can be packaged and implemented automatically. but also in terms of management. one is able to grasp business details in real time. In the case of large companies in particular. To cope with company globalization and system unification. since it becomes possible to carry out. Use of Latest Technology. The direct advantages include improved efficiency. Flexibility: The second advantage of the ERP packages is their flexibility. etc. almost all were weak in terms of the communication and integration of information that transcended the different business functions.The advantages of ERP Installing an ERP system has many advantages -both direct and indirect. the data of related business functions is also automatically updated at the time a transaction occurs. it becomes possible to fully utilize many types of decision support systems and simulation functions. By enabling the comprehensive and unified management of related business and its data. is the automatic data updating (automatic data exchange among applications) that is possible among the related business components. the timing of system construction and directives differs for each product and department/ function and sometimes. The indirect benefits include better corporate image. Business Integration 2. 1. faster response time to customer queries.

maintenance and expansion phases. etc.Aided Acquisition and Logistics Support).new areas.flexible and in real time. 4. Internet/Intranet. they had to embrace the latest developments in the field of information technology. It is this quick adaptation to the latest changes in the Information Technology that makes the flexible adaptation to changes in future business environments possible. CALS (Computer. electronic-commerce. one is able to give the decision-makers the information they want. Use of Latest Technology: the fourth advantage is the utilization of the latest development in information Technology (IT). Therefore. What is that ERP enables? a) b) c) d) Systematic Look into your Systems & procedures Optimizing the processes Enables you to adapt yourself to new technologies Discipline across the functions Problems Taken Care of by the ERP: a) Availability check at the time of Accepting Sales order b) On-line Material Status & Shortages c) Productivity Enhancements d) Material Planning e) Customer Service f) Cash Management g) Inventory h) Quality What drives ERP?  Business drives a) b) c) d) Customer Satisfaction Business Development . the filing and analysis of data from a variety of dimensions. services Ability to face competition Efficient processes required to push the company to top gear  IT drives a) Present Software does not meet business needs b) Legacy systems difficult to maintain . thus enabling them to make better and informed decisions. It is this flexibility that makes the incorporation of the latest technology possible during system customization. client/ server technology. they quickly adapted their systems to take advantage of the latest technologies like open systems. The ERP vendors were quick to realize that in order to grow and to sustain that growth. products.

be cost competitive and provide value for money (improved quality at lower price). plant maintenance. utilities. Customer relationship management. Inhibitors or hurdles for the growth of ERP market: After posting significant gains for a 3-4 years the ERP market may be heading towards a slowdown. improve speed of delivery. c) Though the medium enterprises provide a good opportunity for growth. The main constraints to growth for the sector can be classified as: a) Saturation of the certain horizontal applications including Finance and accounting. Among the vertical application are industries such as retail. product data management. The new horizontal areas include E-commerce. field service. Indian companies therefore need to implement ERP systems for improving their business processes and becoming more competitive in the global environment. Though ERP . Companies still have growth avenues which include: Less penetrated modules within the ERP suite. transportation management etc. the margins from SMEs will be far below that from the larger players. Another major demand driver will be the e-commerce wave. The customer was taken for granted and quality was available only at a premium. Except for SAP most other players have witnessed a slowdown in revenue growth. Another problem that the SMEs present is the low transaction (order) size and the difficulty of reaching out to these players.. Most of the Fortune 500 companies and companies having revenues over $1bn have already implemented ERP. rather than innovating and improving internal efficiencies. pricing for these companies will have to be highly competitive and margins may come under pressure. MRP etc which accounted for nearly 45% of the ERP revenues during 1998. service contract management. Thus smaller players who have a cost advantage will have an edge over the others. Indian companies now need to increase customer focus. As more and more company move towards e-commerce it becomes necessary to implement ERP solutions. The mid market segment presents immense opportunities. They grew by managing the environment. both horizontal and vertical. data warehousing. warehousing & distribution. insurance. b) Saturation of large customers.c) Obsolete hardware/software difficult to maintain Drivers The market for ERP however does not sound so depressing. ERP in India Until recently Indian organizations were in a sellers market and operating in a regulated environment. Supply chain management. there is a paradigm shift in running the business. However. and government organizations. With globalization and gradual lifting of regulation. Also they are relatively less sophisticated on the technology side.

According to NASSCOM.implementation is costly and time consuming. According to the NASSCOM. The growth in the export market was far higher and more than doubled during the same time period. it has several benefits which will help recover these costs in the long run.4bn in 1998-99. during the year 1998-99. . by the end of FY2001-02. the total Indian ERP market is expected to multiply by nearly 4 times and reach Rs65bn compared to Rs13. the Indian ERP market has been estimated at R5200mn compared to Rs2800mn in the previous year ie a growth of 85%yoy.

ERP Modules .

ERP’s Central Database .

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Accounting software needs access to information in each area of organization. to the right people. This section provides an overview of the financial solutions in most the ERP packages. Material Management.All ERP packages contain many modules. Quality Management 4. 1. from materials management to human recourses to logistics. at the right time can make a critical difference to the organization. etc 5. because the most efficient way to get our enterprise to where you want it tomorrow is to know exactly where it is today. FINANCE MODULE: The entire concept of information technology is based on the premise that providing the right information. The number and features of the modules vary with the ERP packages. not numbers from records closed a month ago. In today’s business enterprise. distribution and sales. in order to achieve comprehensive advantage. Finance 2. or even a week ago. Some of the most common modules available in almost all packages are: 1. . from R&D and market research through manufacturing. This tight integration includes all the other different modules. But merely having the financial data is not enough. Sales and distribution Some packages will have a subset of this and some will have more modules and / or features. Financial solution must provide the management with information that can be leveraged for strategic decisions. What ever be the financial goals of the organization. And you need to know that this same ‘today’s’ data represents every segment of your organization's activities. the financial application components of the ERP solutions work hand-in-hand to improve the bottom line. Manufacturing and production planning 7. This is true because the financial functioning is tightly integrated across all business areas and all geographic areas. Much of this key information could be taken from the financial data. Plant Maintenance 3. You need a set of processes and views of your data that provided up-to-the minute financial information in exactly the form you need it to make that critical difference and help with that critical decision. you need to know that your financial decisions are based on today’s data. whether your enterprise stretches across a room or around the globe. This is essential. Inventory Management 6.

gives you the ability to centrally track financial accounting data within an international frame work of multiple companies . . languages . Legal Consolidation. These ERP systems include not only financial application components. 2. General Ledger b.The Finance modules of the most ERP systems provide financial functionality and analysis support to thousands of businesses in many countries across the globe.Based Costing Product Cost Accounting Profitability Analysis. Controlling a) b) c) d) 4. A. Depreciation Forecast e. General ledger The General ledger (GL) is essential both to the financial accounting system and to strategic decision-making. Logistics. Controlling d. Accounts Receivable/payable c. Business workflow and links to the internet. Investment Management: a. Activity. The financial accounting module of an ERP system . Special Ledgers. Simulation f. Financial Accounting: The objective of a good financial accounting system is to provide companywide control and integration of financial information that is essential to strategic decision –making . 3. Financial Accounting: a. Through active integration with business processes in logistics and in the accounting sub-ledgers. Calculation. The finance modules of most ERP systems will have the following subsystems: 1. the GL serves as a central pool of financial data for financial reporting as well as for other accounting areas The general ledger supports all the function needed in a financial accounting system . Fixed Asset Accounting d. Treasury Module Overhead Cost Controlling. Budgeting c. Investment Planning b. a. but also Human resources. currencies and charts of accounts .

Special Ledgers.these sub-ledgers are integrated . You can define an investment program hierarchy using any criteria-for example. enabling you to plan and manage your capital spending projects right from the earliest stage Investment Management module recognizes the importance of the asset accounting aspects of investment measures. managers the company’s fixed assets. which cannot be directly assigned to either the products manufactured. Within the Financial Accounting system.both with the general ledger with the areas in sales and distribution and Materials Management. you can plan balance sheet strategies to suit the company’s requirements. C. budget overruns. c. Investment Management provides tools. The Overhead Cost Controlling subsystem focuses on the monitoring and allocation of overheads. Fixed Asset Accounting Asset Accounting. which are used during the capital spending process. The system helps you monitor. In addition. debiting the correct costs to the asset under construction.b. It offers a versatile information system. Accounts receivable and payable: ERP system offer a financial overviews of global business partner relationships in the Accounts. a. Receivable and Payable functions . and thereby avoid. or to the services rendered. Investment Management Investment Management provides extensive support for investment processes right from planning through settlement. with standard reports and analysis paths for the most common questions. d. Overhead Cost Controlling Many organizations experience a significant increase in the percentage of indirect costs. Investment program allows you to distribute budgets. providing detailed information on asset. Investment management facilitates investment planning and budgeting at a level higher than that needed for specific orders or projects.related transactions. Accounts Receivable and payable transactions are performed automatically when related processes take place in other modules. . Asset accounting provides precise proof of origin for all transactions affecting acquisition and production costs. B. The system automatically separates costs requiring capitalization from costs that are not capitalized. Asset Accounting serves as a sub-ledger to the General Ledger. there are features for creating custom reports to supplement standard reports. Legal Consolidation Consolidated financial statements need to be integrated effectively with operational data ay the individual company level. By using different valuation methods. department-wise. where financial data originates. Controlling The controlling system gathers the functions required for effective internal cost accounting.

medium-term planning. where revenues are assigned to costs according to the market segment. the values in product Cost Controlling are crucial for determining the lowest price limit for which a product is profitable. based on individual internal measures.Based Costing module is a response to the growing need for monitoring and controlling crossdepartment business process. according to contribution and revenue margins. and long-term payment flows and the resulting risk exposure. Profitability Analysis is the last step in cost-based settlement. or providing a service. the costs arising from manufacturing a product. D. Integration with the logistics components results in a logistical quantity flow that provides instant information on actual cost object costs. for example between products. Cost Object Controlling It helps to monitor manufacturing orders. This system can monitor and automatically check budgets assigned to each measure. e. Product Cost Controlling Product Cost controlling module determines. Profitability Analysis It examines the sources of returns. and forecasting of incoming and outgoing resources in accounts receivable and payable. Treasury Module Company can gain significant competitive advantage by efficiently managing the short.b. serves in valuating warehouse stock and for contrasting revenues received with costs. As part of sales controlling. customers. Tasks such as short-term monitoring and concentration of bank account balances. medium. in addition to functions and products. when it comes to business process reengineering. Costs are assigned to the sub-areas of the organization where they originated. In addition. This subsystem can help defining any market segmentdistinguishing. The Activity.and evaluate it. Overhead Orders Overhead orders subsystem collects and analyses costs.Based Costing The goals of the entire organization should come before the goals of individual departments. They system offers a wide variety of methods for allocating posted amounts and qualities. Activity. Plan and standard values. c. sales organizations. d. to a long-term view of areas such as materials management and sales. underline the importance of integrating information from various company divisions. Cost Centre Accounting Cost centre accounting analyses where overheads occur within the organization. g. distribution channels and business areas. allowing ongoing costing calculations at any time. f. . orders.

from trading to transferring data to Financial Accounting.Linking these operating divisions to realized and planned financial transactions and positions in Treasury. Market Risk Management involves a complex feedback loop encompassing data collection. The treasury components provide you with a basis for effective liquidity. b. or to eliminate currency risks. short-term cash management and medium and long-term financial budgeting. a. in ensuring company’s competitiveness. The company’s payment transactions are grouped into cash holdings. The Cash Management also monitors and controls incoming and outgoing payment flows. risk management. Depending on the time period under review. Market Risk Management acts as an integrated central risk control station with monitoring and management functions. Such integration also facilitates management and control of cash flows. positions and portfolios. analysis and simulation as well as active planning of financial instruments. By using common organizational elements throughout. Cash Management The Cash Management subsystem allows yo9u to analyze financial transactions for a given period. Treasury Management Treasury Management component offers functions for managing financial deals and positions. a distinction is made between cash position. various organizational structures can be represented in the system. This also ensures full integration of Treasury into other modules of the system. Treasury Management also supports flexible reporting and evaluation structures for analyzing financial deals. The Cash Management component thus ensures that all information relevant to liquidity is available to you for analysis. For short-term liquidity and risk management. such as a central enterprise-wide treasure department or ‘in-house banks’. The Cash Management provides information on the sources and uses of funds to secure liquidity in order to meet payment obligations when they become due. Market Risk Management Market Risk Management plays vital role within Treasury. . c. cash inflows and cash outflows. and supplies the data required for managing short term money market investments and borrowing. you can use the money market. creating a basis for the necessary cash management decisions. and records future developments for the purpose of financial budgeting. and risk positions through all the divisions in the company. portfolio and risk management. Cash Management also identifies. has a significant impact on the company’s success.

and Sales and Distribution. which affects profits. Consolidation. A company’s organizational structure is represented in the form of a profit centre hierarchy. which pools all cash flows from the business sectors. Funds Management Funds Management system enables you to control various funds commitments and determine how much of the budget has already been utilized via availability checking. forms the basis. where. and profit Centre Accounting. on when. Market-to-market. budget release and tracking. This module usually includes executive Information System. Business planning and budgeting supports the management teams of business units and groups in the calculations of business targets. g. The Market Risk Management component provides various measurements for analyzing and assessing interest rate and currency risks. and non-ERP data sources both inside and outside the enterprise. Asset Management. are automatically reflected in profit Centre Accounting . with the profit centre as the smallest unit of responsibility. and provides extensive analysis functions for budget monitoring. All business transactions in financial accounting. f. The information system can supply with information at nay time. As a result. and how funds commitments arose. all cash flows from the company’s operating business can be accessed for the purposes of risk management. Profit Centre Accounting Profit Centre Accounting analyses the profitability of internal responsibility centres. uploaded via data feed. is an absolute must. such as sales and distribution or purchasing. such as ROI. This module also supports central investment planning. Consequently. while meeting internal objectives for growth and investment. Analyses by responsibility area and commitment items allow identifying any budget bottlenecks. This module automatically transfers data about investment requirements from transaction applications. Material Management. Executive Information System The Executive Information System provides an overview of the critical information necessary to manage the organization. Business planning and Budgeting. d. effective rate and effective yield calculations are based on up-to-the minute market data. all financial transactions managed in Treasury management can be evaluated together with the cash flows generated by the various operating divisions. Cash management. Furthermore. e. This component integrates data from other ERP components. and financial transactions or position. Enterprise Controlling Enterprise Controlling comprises of those functions that will optimize shareholder value. Business planning and budgeting.Access to information on current and future cash flows and on financial deals already processed.

Equipment lubrication. The attitude towards maintenance management has changed as a result of quick response manufacturing. . The plant Maintenance module includes an entire family of products covering all aspects of plant/equipment maintenance and becomes integral to the achievement of process improvement.2. along with higher production yields. Organizations simply cannot achieve excellence with unreliable equipment. In many situations. or piece of equipment. Machine breakdown and idle time for repair was once an accepted practice. Times have changed. and monitored. Maintenance tasks can be tracked for each machine. The preventive Maintenance module provides an integrated solution for supporting the operational needs of an enterprise-wide system. The major subsystems of a plant Maintenance module are: a) Preventive Maintenance Control b) Equipment Tracking c) Component Tracking d) Plant Maintenance Calibration Tracking e) Plant Maintenance Warranty Claims Tracking a. These modes could include tracking by hours of operation. All facets of plant location history and utilization history are described and tracked. it can shut down the production line and the customer’s entire plant. gallons of fuel consumed. Just-in-time reduction of work in process inventory and the elimination of wasteful manufacturing practices. Companies achieve higher machine utilization and improved machine reliability and tolerance control. Plant Maintenance Module The achievement of world class performance demands delivery of quality products expeditiously and economically. Preventive Maintenance Control enables organizations to lower repair costs by avoiding downtime. machine breakage and process variability. b. Equipment Tracking Equipment is an asset that needs to be monitored and protected. scheduling and control of facilities and equipment. Preventive Maintenance Control Preventive Maintenance Control provides planning. units of production produced. as well as calendar day frequency. or the number of days in operation since the last service interval. Today when a machine breaks down. components replacement and safety inspection can be planned schedule. equipment maintenance costs constitute the single largest controllable expenditure of an organization. by two user defined modes.

units of production. User-defined data sheets can be developed which allow for the grouping of user data into formats that can be linked to equipment specifications. or operating units. Planning components replacements. The other integrated modules in the system complement this functionality. Quality Management Module The ISO9000 series of standards defines the functions of quality management and the elements of a quality management system. The task priorities. A complete history is performed for each item covered by the warranty. for example. mileage stipulation. reduce unscheduled equipment downtime. The functions in the Quality Management module support the essential elements of such a system. d. hours. Components tracking include repair/exchange history and components service life. according to the quality loop. e. Features include the ability to establish the type and length of warranty. Component Tracking Components are. which provide detailed information for technical specialists working in equipment operations. shift form production (implementation phase) to production planning and product development (planning phase) to procurement and sales and distribution. and complete information regarding the warranty service provider is generated. months.This history includes acquisition and disposition information and associations between different pieces of equipment to pinpoint operational dependencies. The ISO standards require that quality management systems penetrate all processes within an organization. They can determine whether a repair or replacement should be covered by warranty. elapsed day. as well as into the entire usage phase. subsets of larger equipment and deserve the same amount of cost controlling scrutiny. days. Component tracking enables equipment managers to identify components with chronic repair problems. c. . 3. maintenance and transportation control. rather than waiting for components failure to occur. Plant Maintenance Warranty Claims Tracking Plant Maintenance Warranty Claims Tracking is an administrative system designed to provide control of all items covered by manufacturer and vendor warranties. It enables plant management to recover all of the warranty. reimbursements to which they are entitled but have not been able to recover in the past. Running totals for operational units to date 9miles. Each piece of equipment is defined by a model and serial number. etc) are also provided. typically. Plant Maintenance Calibration Tracking: Plant Maintenance Calibration Tracking allows organizations to leverage their investment in the plant Maintenance module by providing for the tracking of equipment calibration in support of ISO9000 requirements.

The Quality Management module uses the system’s integration to link the tasks of quality management with those of the other applications. procurement. The ERP system takes this into consideration by integrating the quality management functions into the affected applications themselves ( for example. Quality Inspection ( Trigger inspections. The integration allows the quality management functions to influence all processes within a company. Quality planning (Management of basic data for quality planning and inspection planning. Quality Control. Quality Management Module-Functions The quality Management module fulfills the following functions: 1. it support quality management in procurement. warehouse management. quality documentation and in the processing of problems. Quality notifications for processing internal or external problems and initiating corrective action to correct the problems. Inspection processing with inspection plan selection and sample calculation. Inspection lot processing and problem processing. instead of delegating them to isolated CAQ systems. Quality Management Information system for inspections and inspection results and quality notifications). . product verification. production and sales/distribution). Quality Control: (Dynamic sample determination on the basis of the quality level history. Make the usage decision and trigger follow-up actions). Application of statistical process control techniques using quality control charts. As a part of the Logistics applications. 2. according to ISO 9000. Quality inspection iii. As a result of this approach. print shop papers for sampling and inspection. warehouse. thereby affecting all phases of a product’s life cycle. Quality planning ii. because an isolated CAQ system cannot carry out the comprehensive tasks of a quality management system. such as materials management. 3. the processes described in the quality manual can be implemented and automated in the electronic data processing (EDP) system. Record results and defects. For example. Material specifications. the Quality Management module handles the traditional tasks of: i. The quality Management module’s internal functions do not directly interact with the data or processes of other modules. Computer-integrated Quality Management (CIQ) The integration of Quality Management in the ERP systems considerable advantages because only an integrated system can support all the elements of a quality management system.CAQ and CIQ Computer-integrated Quality Management (CIQ) is more appropriate term in comparison to Computer-Aided Quality Management (CAQ). Inspection planning). Quality scores for inspection lots.

When creating such specifications. 2. warehouse management. The pre-purchasing activities include maintaining a service master database. both items with services and items with materials. award of contract and acceptance of services. sales and distribution ( delivery. Use of this technique means that data only has to be entered once. The system also keeps a separate set of service specifications that can be created for each concrete procurement project or proposed procurement in the purchasing document. The Quality Management module is integrated with the master data and processes of the following applications: 1.production. lower procurement and warehousing costs with accurate inventory and warehouse management and integrates invoice verification. Planned service specifications mean that service whose precise nature and intended scope are already known at the beginning of a procurement project. material requirements planning). the data is simply copied from the master data. Purchasing . Pre-purchasing Activities This system supports the complete cycle of bid invitation. sales/distribution and cost accounting. Materials Management Module: The Material Management module optimizes all purchasing processes with workflowdriven processing functions. the user does not have to list individual services manually. creation of quality certificates) 4. Vendor Evaluation 4. Pre-purchasing Activities 2. Instead. Materials management (purchasing. enables automated supplier evaluations. Sets of service specifications may include. Invoice Verification and Material Inspection. Production ( work scheduling. shop floor control) 3. An inspection that is triggered automatically upon goods receipt is an example of this. inventory management. The manual entry effort is reduced to a minimum There are two ways of entering service specifications-planned and unplanned. Inventory Management 5. in which the descriptions of all services that are to be procured can be stored. The main modules of the Material Management module are: 1. Purchasing 3.

inventory management and invoice verification. you can assign it to a sales order. In the case of procurement of materials. Vendor Evaluation The vendor evaluation component has been completely integrated into the Material Management module. you can improve your enterprise’s competitiveness. For example. it works side by side with the following modules: 1. Sales and Distribution: Within the framework of material requirements planning (MRP). prices and quantities can be taken from purchase orders. and terms of payment and delivery. The Material Management module is fully integrated with other modules in the system. the system helps you select sources of supply and facilitates the continual monitoring of exiting supply relationships. Information on each vendor is stored in a vendor master record which contains both accounting and purchasing information. It supports all phases of material management: materials planning and control. customer requirements from Sales can be passed on to purchasing. goods receiving. Purchasing system performs tasks like procurement of materials and services. purchasing. such as goods receipt data from Inventory Management. Financial Accounting: Purchasing and Accounting both maintain information on vendors. and so on. determination of possible sources of supply for a requirement identified by the materials planning and control system or arising directly with in a user department. By evaluating vendors. It provides you with accurate information on prices. 2. .Purchasing is a very important component of the Material Management module. Vendor Evaluation also uses data from Quality Management. Cost Accounting System: Orders for materials and services consumed directly illustrate the interface to the cost accounting system. monitoring of deliveries and payments to vendors. such as the results of incoming inspections or quality audits. Purchasing communicates with other modules in the system to ensure a constant flow of information. Information such as delivery dates. In the case of procurement of services. when creating a requisition. you can check the reliability of the vendors from which you procure services on a plant by plant basis. In addition. You can quickly determine and resolve any procurement problems that may arise on the basis of detailed information and in collaboration with the relevant vendors. Good communication between all participants in the procurement process is necessary for purchasing to function smoothly. It also assesses basic data in Materials Management. You can determine whether the vendors perform the services within the specified timeframes and appraise the quality of the work carried out. This is because they can be assigned to a cost centre directly.

the physical stocks reflect all transactions resulting in a change in stock and thus. continues with purchasing and goods receipt and ends with the invoice receipt. Continuous Inventory. if necessary. Controlling and Asset Accounting components. If an invoice refers to an existing transaction. not only are the stocks in the warehouse shown. course costs. Account assignment for cost accounting Both the quantity and the value are updated automatically when entering a goods movement. With every goods movement. The information required for these processes is passed on to other departments. It allows invoices that do not originate in materials procurement ( for example. but also the stocks ordered but not yet delivered. you must enter this information into the system.5. correct any possible variances. For each material. 2. either as invoice cancellations or discounts. certain items of information will already be available in the system. In the Inventory Management system. expenses. Most Inventory Management systems support inventory methods like periodic inventory. The system proposes this information as default data so that you only need to compare it and. The stocks are managed not only on a quantity basis but also by value. To post an invoice. reserved for production or for a customer. Each invoice contains various items of information. It allows credit memos to be processed. It provides the link between the material Management components and the Financial Accounting. Inventory Management Inventory Management system allows you to manage your stocks on a quantity and value basis. Stock value for inventory management 2. It completes the material procurement process-which starts with the purchase requisition. plan. Invoice verification does not handle the payment or the analysis of invoices.a prerequisite for cost accounting. Inventory sampling and Cycle counting. services. courses. If an invoice refers to a purchase order. enter and check any goods movements and carry out physical inventory. in updated inventory levels. the following values are updated: 1. The user can easily obtain an overview of the current stocks of any given material. Invoice Verification and Material Inspection. Invoice Verification component is part of the Material Management system. etc. and the stocks in quantity inspection can be monitored. Invoice Verification in Material Management serves the following purposes: 1. you only need to enter the number Market players and profiles . for example.) to be processed 3.

Other major players include Baan. larger ERP firms are shifting their focus to the middle market. SAP. The slowdown has been attributed to the Y2K crisis. other areas like Supply Chain Management (SCM). the top end of the market is captured by a few players. R/3 is also internet-compatible and can be easily combined with other types of software or customers’ own systems. accounts for 17% of the total market (1998). SAP. Controlling and Human Resources can be used as a whole or individually. Sales and Distribution. As the Fortune 500 market for product license revenue becomes saturated. a family of integrated components such as Production. the market leader. recent trends in the industry indicate a slowdown in the traditional ERP market. However. SAP contributes 17% of the total revenues followed by People Soft. SAP SAP pioneered Enterprise Resource Planning. which is round the corner and the stagnant world economy. Customer Relationship Management (CRM). Oralce. The company’s R/3 system is in use in more than 107 countries. Baan and J D Edwards. and PeopleSoft etc . according to AMR has a market share of 33% which is higher compared to the next 4 competitors put together. ERP companies including SAP.300 employees worldwide. The company’s R/3 System. the market is also witnessing new avenues like the emergence of SMEs (Small and Medium Enterprises – turnover of $50mn to $500mn) as a major ERP spender with significant demand for module specific implementation. The ERP market During the last 3-4 years the ERP market witnessed considerable growth rates driven mainly by the Y2K crisis.5bn by IDC a growth rate of around 26%yoy. However. PeopleSoft. Probably the only leader.While 52% of the total market is accounted for by the unorganised and small players the rest is accounted for by around 10 major players. However. extended ERP and Web enabled ERP are catching attention. Also. Oracle and Baan etc have recorded consistent growth in revenues. The company has more than 19. which were well above the 20% mark. Oracle. Growth rates which were as high as 40% per annum is expected to slowdown considerably to around 15-20%. The ERP market is widely spread with the top ten players accounting for almost 48% of the total market the rest of the market is accounted for by the small and regional players. During the year 1998 the total ERP market is estimated to be around $17.

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