Artificial Intelligence, Machine Learning and ERP

Shahanas A.M

School of Management Studies

CUSAT, Kochi-22

E-mail:shaanu92@gmail.com

Abstract: Machine learning and artificial intelligence (AI) have the potential
to reshape the world .  One of the significant impacts with AI and machine
learning has been the possible improvements to ERP software. Legacy ERP
systems were purpose-built to excel at production consistency first at the
expense of flexibility and responsiveness to customers’ changing
requirements. Designed to deliver results by providing AI- and machine
learning insights, Cloud ERP platforms, and apps can rejuvenate ERP
systems and their contributions to business growth. AI allows ERP
vendors to improve ERP systems using machine learning and natural-
language interfaces. The AI in ERP systems provides actionable data
insights enabling companies to improve their operational efficiency

Keywords: ERP ,Artificial Intelligence, Machine learning, operational

efficiency.

1.0 INTRODUCTION

Capitalizing on new digital business models and the growth opportunities they provide
are forcing companies to re-evaluate ERP’s role. Made inflexible by years of
customization, legacy ERP systems aren’t delivering what digital business models
need today to scale and grow. Legacy ERP systems were purpose-built to excel at
production consistency first at the expense of flexibility and responsiveness to
customers’ changing requirements. By taking a business case-based approach to
integrating Artificial Intelligence (AI) and machine learning into their platforms, Cloud
ERP providers can fill the gap legacy ERP systems can’t.

Companies need to be able to respond quickly to unexpected, unfamiliar and

unforeseen dilemmas with smart decisions fast for new digital business models to
succeed. That’s not possible today with legacy ERP systems. Legacy IT technology
stacks and the ERP systems they are built on aren’t designed to deliver the data
needed most.

That’s all changing fast. A clear, compelling business model and successful execution
of its related strategies are what all successful Cloud ERP implementations share.
Cloud ERP platforms and apps provide organizations the flexibility they need to
prioritize growth plans over IT constraints. And many have taken an Application
Programming Interface (API) approach to integrate with legacy ERP systems to gain
the incremental data these systems provide. In today’s era of Cloud ERP, rip-and-
replace isn’t as commonplace as reorganizing entire IT architectures for greater
speed, scale, and customer transparency using cloud-first platforms.

New business models thrive when an ERP system is constantly learning. That’s one
of the greatest gaps between what Cloud ERP platforms’ potential and where their
legacy counterparts are today. Cloud platforms provide greater integration options and
more flexibility to customize applications and improve usability which is one of the
biggest drawbacks of legacy ERP systems. Designed to deliver results by providing
AI- and machine learning insights, Cloud ERP platforms, and apps can rejuvenate
ERP systems and their contributions to business growth.

2.0 ENTERPRISE RESOURCE PLANNING (ERP)

Enterprise resource planning (ERP) system is a business management system that

comprises integrated sets of comprehensive software, which can be used, when
successfully implemented, to manage and integrate all the business functions within
an organisation. These sets usually include a set of mature business applications and
tools for financial and cost accounting, sales and distribution, materials management,
human resource, production planning and computer integrated manufacturing, supply
chain, and customer information. Furthermore, an ERP system can be used as a tool
to help improve the performance level of a supply chain network by helping to reduce
cycle times . However, it has traditionally been applied in capital‐intensive industries
such as manufacturing, construction, aerospace and defence. Recently, ERP systems
have been expanded beyond manufacturing and introduced to the finance, health
care, hotel chains, education, insurance, retail and telecommunications sectors.

ERP is now considered to be the price of entry for running a business, and at least at
present, for being connected to other enterprises in a network economy to create
“business to business” electronic commerce
ERP packages touch many aspects of a company's internal and external operations.
Consequently, successful deployment and use of ERP systems are critical to
organizational performance and survival. Potential benefits include drastic declines in
inventory, breakthrough reductions in working capital, abundant information about
customer wants and needs, along with the ability to view and manage the extended
enterprise of suppliers, alliances and customers as an integrated whole 

2.1 ERP: An Overview

ERP allows companies to integrate various departmental information. It has evolved

from a human resource management application to a tool that spans IT management.
For many users, an ERP is a “do it all” system that performs everything from entry of
sales orders to customer service. It attempts to integrate the suppliers and customers
with the manufacturing environment of the organisation. For example, a purchase
entered in the order module passes the order to a manufacturing application, which in
turn sends a materials request to the supply‐chain module, which gets the necessary
parts from suppliers and uses a logistics module to get them to the factory. At the
same time the purchase transaction shows in general – a ledger module as revenue.
The traditional application systems, which organisations generally employ, treat each
transaction separately. They are built around the strong boundaries of specific
functions that a specific application is meant to cater for. ERP stops treating these
transactions separately as stand alone activities and considers them to be a part of
interlinked processes that make up the business The various modules of ERP include
engineering data control (bill of materials, process plan and work centre data); sales,
purchase and inventory (sales and distribution, inventory and purchase); material
requirement planning (MRP); resource flow management (production scheduling,
finance and human resources management); works documentation (work order, shop
order release, material issue release and route cards for parts and assemblies);
shopfloor control and management and others like costing, maintenance
management, logistics management and MIS. Also, the model of ERP includes areas
such as finance (financial accounting, treasury management, enterprise control and
asset management), logistics (production planning, materials management, plant
maintenance, quality management, project systems, sales and distribution), human
resources (personnel management, training and development and skills inventory)
and workflow (integrates the entire enterprise with flexible assignment of tasks and
responsibilities to locations, positions, jobs, groups or individuals).

3.0 ARTIFICIAL INTELLIGENCE

According to Stanford Researcher, John McCarthy, “Artificial Intelligence is the

science and engineering of making intelligent machines, especially intelligent
computer programs. Artificial Intelligence is related to the similar task of using
computers to understand human intelligence, but AI does not have to confine itself to
methods that are biologically observable.”

Simply put, AI’s goal is to make computers/computer programs smart enough to

imitate the human mind behaviour. Knowledge Engineering is an essential part of AI
research. Machines and programs need to have bountiful information related to the
world to often act and react like human beings. AI must have access to properties,
categories, objects and relations between all of them to implement knowledge
engineering. AI initiates common sense, problem-solving and analytical reasoning
power in machines, which is much difficult and a tedious job.

AI services can be classified into Vertical or Horizontal AI

What is Vertical AI?

These are services focus on the single job, whether that’s scheduling meeting,
automating repetitive work, etc. Vertical AI Bots performs just one job for you and do it
so well, that we might mistake them for a human.

What is Horizontal AI?

These services are such that they are able to handle multiple tasks. There is no single
job to be done. Cortana, Siri and Alexa are some of the examples of Horizontal AI.
These services work more massively as the question and answer settings, such as
“What is the temperature in New York?” or “Call Alex”. They work for multiple tasks
and not just for a particular task entirely.

AI is achieved by analysing how the human brain works while solving an issue and
then using that analytical problem-solving techniques to build complex algorithms to
perform similar tasks. AI is an automated decision-making system, which continuously
learn, adapt, suggest and take actions automatically. At the core, they require
algorithms which are able to learn from their experience. This is where Machine
Learning comes into the picture.

4.0 MACHINE LEARNING

Machine Learning (ML) is a subset of Artificial Intelligence. ML is a science of

designing and applying algorithms that are able to learn things from past cases. If
some behaviour exists in past, then you may predict if or it can happen again. Means
if there are no past cases then there is no prediction.

ML can be applied to solve tough issues like credit card fraud detection, enable self-
driving cars and face detection and recognition. ML uses complex algorithms that
constantly iterate over large data sets, analyzing the patterns in data and facilitating
machines to respond different situations for which they have not been explicitly
programmed. The machines learn from the history to produce reliable results. The ML
algorithms use Computer Science and Statistics to predict rational outputs.
 There are 3 major areas of ML:

Supervised Learning

In supervised learning, training datasets are provided to the system. Supervised

learning algorithms analyse the data and produce an inferred function. The correct
solution thus produced can be used for mapping new examples. Credit card fraud
detection is one of the examples of Supervised Learning algorithm.

Unsupervised Learning

Unsupervised Learning algorithms are much harder because the data to be fed is
unclustered instead of datasets. Here the goal is to have the machine learn on its own
without any supervision. The correct solution of any problem is not provided. The
algorithm itself finds the patterns in the data. One of the examples of supervised
learning is Recommendation engines which are there on all e-commerce sites or also
on Facebook friend request suggestion mechanism.

Reinforcement Learning

This type of Machine Learning algorithms allows software agents and machines to
automatically determine the ideal behaviour within a specific context, to maximise its
performance. Reinforcement learning is defined by characterising a learning problem
and not by characterising learning methods. Any method which is well suited to solve
the problem, we consider it to be the reinforcement learning method. Reinforcement
learning assumes that a software agent i.e. a robot, or a computer program or a bot,
connect with a dynamic environment to attain a definite goal. This technique selects
the action that would give expected output efficiently and rapidly.

Artificial Intelligence and Machine Learning always interests and surprises us with

their innovations. AI and Ml have reached industries like Customer Service, E-
commerce, Finance and where not. By 2020, 85% of the customer interactions will be
managed without a human

5.0 CLOUD ERP WITH AI AND MACHINE LEARNING

Despite its relative infancy, artificial intelligence is making serious waves in the
software market. ERP software, which boasts operational efficiency as a defining
characteristic, is a particularly pertinent case study, proving to be a breeding ground
for the implementation of such future-forward technologies. Recent advancements in
AI and machine learning have shown limitless potential for ERP vendors—but with
that comes a lot of uncertainty.

The following are different ways to improve Cloud ERP with AI and machine learning,
bridging the information gap with legacy ERP systems:
1. Cloud ERP platforms need to create and strengthen a self-learning knowledge system that
orchestrates AI and machine learning from the shop floor to the top floor and across
supplier networks. 

Having a cloud-based infrastructure that integrates core ERP Web Services, apps,
and real-time monitoring to deliver a steady stream of data to AI and machine learning
algorithms accelerates how quickly the entire system learns. The Cloud ERP platform
integration roadmap needs to include APIs and Web Services to connect with the
many suppliers and buyer systems outside the walls of a manufacturer while
integrating with legacy ERP systems to aggregate and analyze the decades of data
they have generated.

AI and machine learning help improve the manufacturing portion of a business

through integration with an ERP. AI is able to identify any processes or practices that
are inefficient, mechanically or otherwise, and help manufacturers come up with a
viable solution that will save resources. The ability to predict a problem before it
occurs will keep things running smoothly, reducing the risk of increased energy usage
or damaged, unusable goods.

Furthermore, AI can identify processes that are using an unacceptable amount of

energy and thus reduce the consumption during the manufacturing process.
Predictive diagnostics can reduce the need for test runs that also contribute to energy
usage and wasted resources. In a nutshell, AI and machine learning assist the
manufacturing process from conception to shipping.

2. Virtual agents have the potential to redefine many areas of manufacturing operations, from
pick-by-voice systems to advanced diagnostics. 

Virtual agents are the AI and machine learning tools that were once dreamed about in
science fiction. With the proper integrations, they can be used to train employees and
guide them through complex processes and even provide customer service.
Integrating AI into ERP systems give an extra focus on customer service, as they are
able to see what their customers are asking about in real-time, while a virtual agent
answers all the pertinent questions.

Apple’s Siri, Amazon’s Alexa, Google Voice, and Microsoft Cortana have the potential
to be modified to streamline operations tasks and processes, bringing contextual
guidance and direction to complex tasks. An example of one task virtual agents are
being used for today is guiding production workers to select from the correct product
bin as required by the Bill of Materials. Machinery manufacturers are piloting voice
agents that can provide detailed work instructions that streamline configure-to-order
and engineer-to-order production. Amazon has successfully partnered with
automotive manufacturers and has the most design wins as of today. They could
easily replicate this success with machinery manufacturers.

3. Design in the Internet of Things (IoT) support at the data structure level to realize quick
wins as data collection pilots go live and scale. 
 Cloud ERP platforms have the potential to capitalize on the massive data stream IoT
devices are generating today by designing in support at the data structure level first.
Providing IoT-based data to AI and machine learning apps continually will bridge the
intelligence gap many companies face today as they pursue new business models.
Capgemini has provided an analysis of IoT use cases shown below, highlighting how
production asset maintenance and asset tracking are quick wins waiting to happen.
Cloud ERP platforms can accelerate them by designing in IoT support.

4. AI and machine learning can provide insights into how Overall Equipment Effectiveness
(OEE) can be improved that aren’t apparent today.

 Manufacturers will welcome the opportunity to have greater insights into how they can
stabilize then normalize OEE performance across their shop floors. When a Cloud
ERP platform serves as an always-learning knowledge system, real-time monitoring
data from machinery and production assets provide much-needed insights into areas
for improvement and what’s going well on the shop floor.

5. Designing machine learning algorithms into track-and-traceability to predict which lots from
which suppliers are most likely to be of the highest or lowest quality.

Machine learning algorithms excel at finding patterns in diverse data sets by

continually applying constraint-based algorithms. Suppliers vary widely in their quality
and delivery schedule performance levels. Using machine learning, it’s possible to
create a track-and-trace application that could indicate which lot from which supplier is
the riskiest and those that are of exceptional quality as well.

6. Cloud ERP providers need to pay attention to how they can help close the configuration
gap that exists between PLM, CAD, ERP and CRM systems by using AI and machine
learning.

 The most successful product configuration strategies rely on a single, lifecycle-based

view of product configurations. They’re able to alleviate the conflicts between how
engineering designs a product with CAD and PLM, how sales & marketing sell it with
CRM, and how manufacturing builds it with an ERP system. AI and machine learning
can enable configuration lifecycle management and avert lost time and sales,
streamlining CPQ and product configuration strategies in the process.

7. Improving demand forecasting accuracy and enabling better collaboration with suppliers
based on insights from machine learning-based predictive models is attainable with higher
quality data. 

Analytics and algorithms play another significant role in ERP: forecasting capabilities.
By searching through the data collected, AI integrations can make predictions that will
improve your ability to forecast for upcoming periods. It will be able to detect
seasonality in your business, making recommendations about increasing or
decreasing production accordingly. If you drill down, it will also be able to look at
customer history and identify any behavior patterns, allowing you to predict future
order quantities.
 Other than being convenient and cutting down on the resources used to create
forecasts that may or may not be accurate, machine learning and AI in ERP
streamline your business processes. By manufacturing the required amount of
inventory, you’re reducing the risk of over or under production. This means fewer
inventory storage issues and no costly small-scale productions to make up a
difference. Ultimately, AI in ERP means lower costs and higher revenue.

By creating a self-learning knowledge system, Cloud ERP providers can vastly

improve data latency rates that lead to higher forecast accuracy. Factoring in sales,
marketing, and promotional programs further fine-tunes forecast accuracy.

8. Reducing equipment breakdowns and increasing asset utilization by analyzing machine-

level data to determine when a given part needs to be replaced. 
When a system goes down, it costs a business valuable resources, such as
productivity, time, and money. Through machine learning, not only can the cause of a
problem be identified quickly, but it’s also possible to predict– and thus prevent– a
problem as well. Machine learning creates this kind of advance preparation for ERP.
As technology advances, the ability to prevent shutdowns and wasted resources will
become better; diagnostics will be used to prevent rather than diagnose.

It’s possible to capture a steady stream of data on each machine’s health level using
sensors equipped with an IP address. Cloud ERP providers have a great opportunity
to capture machine-level data and use machine learning techniques to find patterns in
production performance by using a production floor’s entire data set. This is especially
important in process industries where machinery breakdowns lead to lost sales. Oil
refineries are using machine learning models comprise more than 1,000 variables
related to material input, output and process perimeters including weather conditions
to estimate equipment failures.

9. Implementing self-learning algorithms that use production incident reports to predict

production problems on assembly lines needs to happen in Cloud ERP platforms. 

A local aircraft manufacturer is doing this today by using predictive modeling and
machine learning to compare past incident reports. With legacy ERP systems these
problems would have gone undetected and turned into production slowdowns or
worse, the line having to stop.

10. Improving product quality by having machine learning algorithms aggregate, analyze and
continually learn from supplier inspection, quality control, Return Material Authorization
(RMA) and product failure data.

Putting an ERP in place that bridges the gap between inventory, sales, and
accounting can be a daunting task. Finding one that connects these different aspects
of a business without flaws is near impossible. With AI and machine learning, these
processes can be simplified, creating a streamlined, centralized platform for customer
relationship management, reporting, product lifecycle, and sales. The more efficient a
business runs, and the less reconciliation required between the various aspects of
that business, the more successful that business will be.
  Cloud ERP platforms are in a unique position of being able to scale across the entire
lifecycle of a product and capture quality data from the supplier to the customer. With
legacy ERP systems manufacturers most often rely on an analysis of scrap materials
by type or caused followed by RMAs. It’s time to get to the truth about why products
fail, and machine learning can deliver the insights to get there.

11. Advanced analytics

With machine learning, you can pull tailored data that will provide detailed insights and
analytics about the metrics you decide are important. For example, this could be an in-
depth look at the buying behaviors of a certain demographic of customers so that you
can tailor your offerings for better conversions. If you run an online store, the metrics
you pull could pertain to how long a customer spent on a particular product page.

With the right technology, you could use this information to create a tripwire at
checkout or send an email reminding customers of the object they desire. Your
advanced analytics give you the power to create that will drive your business. It’s one
thing to be able to pull data from a system; it’s game-changing to be able to analyze it
effectively.

12. Marketing

One of the most important considerations in regards to having an ERP with machine
learning capabilities is the identification of new opportunities for sales and
marketing. AI and machine learning allow a business to not only identify purchasing
behavior but also hone in on who is buying what. They may find that there is a viable
target market that has been left in branding and marketing schemes. By identifying
this group and catering marketing efforts toward them, they may be able to achieve
greater market share and vastly improve the business’s revenue.

6.0 RISKS TO CONSIDER WHEN IMPLEMENTING AN AI-BASED ERP

1. Integration Can Fail Without Adequate Resources

For vendors, having the resources to unleash the power of AI is essential to realizing
its full potential. But even those that do have the means are at risk without exhaustive
research and preparation.

“AI is a specialized art right now,” Huffman says. “You need data scientists and
developers who understand how to analyze the data that you’ve got and run it through
these algorithms, to make your application into a self-learning system. That’s not
something you develop overnight.”

This is true of all ERP upgrades, including those devoid of artificial intelligence. But
automated tasks can have significant unintended consequences without thorough
planning, and introducing AI to the mix enhances these risks.
2. Minor Mishaps Can Quickly Turn Into Serious Issues

The nuts-and-bolts argument is that the sheer power and scalability of AI presents
businesses with the responsibility to consider the impact their technology can have
when things don’t go as planned.

Systems designed for humans require a certain level of user training and control, and
when non-human intelligence is added to the mix, the probability of unintended
consequences increases. Again, this doesn’t mean killer robots taking over the planet,
but it could disrupt the user experience.

When selecting an ERP system, SMBs should ask the vendor the extent to which they
plan to leverage AI technology in their platform.

7.0 CONCLUSION

Machine learning and artificial intelligence (AI) have the potential to reshape the
world as we know it. Due to the exponential advancement in these areas, the world
ten years from now could be nearly unrecognizable compared to now. One of the
significant impacts with AI and machine learning has been the possible improvements
to ERP software. Although an ERP system is a pure software package, it embodies
established ways of doing business. Studies have illustrated that an ERP system is
not just a pure software package to be tailored to an organisation but an
organizational infrastructure that affects how people work and that it “imposes its own
logic on a company's strategy, organisation, and culture”
Some effective ways to improve ERP with AI and machine learning are:
Catching problems before they occur, Advanced analytics, Forecasting,
Improving interdepartmental processes, Marketing, Identifying inefficient production
processes, Improving customer service with virtual agents etc.

. In this modern era, it’s not whether one can afford to incorporate AI and ML into
ERP– it’s whether you can afford not to.
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