Master of Business Administration in Information System

MBA- Semester IV
MI0029- Enterprise Resource Planning

1. What do you mean by Enterprise Resource Planning? Also discuss the advantages of
ERP?

Ans: An enterprise resource planning (ERP) system is an integrated computer-based

application used to manage internal and external resources, including tangible assets,
financial resources, materials, and human resources. Its purpose is to facilitate the flow
of information between all business functions inside the boundaries of the organization
and manage the connections to outside stakeholders. Built on a centralized database
and normally utilizing a common computing platform, ERP systems consolidate all
business operations into a uniform and enterprise-wide system environment.

An ERP system can either reside on a centralized 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.

The initialism ERP was first employed by research and analysis firm Gartner Group in
1990[3] as an extension of MRP (material requirements planning, later manufacturing
resource planning) and CIM (computer-integrated manufacturing), and whilst not
supplanting these terms, it has come to represent a larger whole. It came into use
because the creators of MRP software started to develop software applications beyond
the manufacturing arena. However, this does not mean that ERP packages have
typically been developed from a manufacturing core. Many of the major players started
their development of an integrated package from other directions, such as accounting,
maintenance and human resources management. ERP systems now attempt to cover all
core functions of an enterprise, regardless of the organization's business or charter.
These systems can now be found in non-manufacturing businesses, non-profit
organizations and governments.

To be considered as an ERP system, a software package should have the following

traits:

• An integrated system that operates in (next to) real time, without relying on
periodic batch updates.
• A common database, which is accessed by all applications, preventing redundant
data and multiple data definitions.
• A consistent look and feel throughout each module (sales, manufacturing,
accounting etc.)
• The ability to access the system without specialist integration by the Information
System (or IT) department.

Advantages of ERP

There are a number of powerful advantages to Enterprise Resource Planning.

It has been used to solve a number of problems that have plagued large organizations in
the past.

It should first be noted that companies that fail to utilize systems such as ERP may find
themselves using various software packages that may not function well with each other.
In the long run, this could make the company less efficient than it should be.

There are a number of processes that a company may need to integrate together. One
of these processes is called design engineering. When a company is in the process of
designing a product, the process of actually creating it is just as important as the end
result. ERP can be useful in helping a company find the best design process. Another
area where ERP can be useful is order tracking. When a company receives orders for a
product, being able to properly track the orders can allow the company to get detailed
information on their customers and marketing strategies. If different software packages
are being used, this data may not be consistent.

Perhaps one of the most important advantages of ERP is its accounting applications. It
can integrate the cost, profit, and revenue information of sales that are made, and it can
be presented in a granular way. Enterprise Resource Planning can also be responsible
for altering how a product is manufactured. A dating structure can be set up which can
allow the company to be informed of when their product should be updated. This is
important, because it will allow the company to keep better track of their products, and it
can allow the products themselves to be produced with a higher level of quality. Another
area where ERP can be an indispensable tool is the area of security. It can protect a
company against crimes such as embezzlement or industrial espionage.

However, with all the advantages that ERP offers, there are a number of disadvantages
as well. Perhaps one of the biggest disadvantages to this technology is the cost. At this
time, only large corporations can truly take advantage of the benefits that are offered by
this technology. This leaves most small and medium sized businesses in the dark. A
number of studies have shown that the biggest challenges companies will face when
trying to implement ERP deals with investment. The employees must be continually
trained on how to use it, and it is also important for companies to make sure the integrity
of the data is protected.

2. Explain SAP’s ERP Packages in detail?

Ans: The SAP ERP application is an integrated enterprise resource planning (ERP)
software manufactured by SAP AG that targets business software requirements of
midsize and large organizations in all industries and sectors. It allows for open
communication within and between all company functions.

SAP AG was founded by five former IBM employees in 1972 who wanted to create a
real-time business data system. The first name chosen for the company was not
Systeme, Anwendungen und Produkte in der Datenverarbeitung (German for "Systems,
Applications and Products" or the acronym SAP) but originally Systemanalyse und
Programmentwicklung (in English, "Systems analysis and program development"). It
uses the concept of modules (individual programs that can be purchased, installed, and
run separately, but that all extract data from the common database). SAP AG, the
company that provides the enterprise resource planning solution has upgraded the
package and launched it as SAP ERP Central Component (ECC) 6.0 in 2005. The
purpose of positioning it as ECC is to enable SAP to build and develop an environment
of other products that can function upon the foundation of the central component.

SAP's ERP solution includes several modules that support key functional areas,
including:

• SAP ERP Financials

• SAP ERP Operations

Development

SAP R/3 through version 4.6c consisted of various applications on top of SAP Basis,
SAP's set of middleware programs and tools. When SAP R/3 Enterprise was launched in
2002, all applications were built on top of the SAP Web Application Server. Extension
sets were used to deliver new features and keep the core as stable as possible. The
Web Application Server contained all the capabilities of SAP Basis.

As a result of marketing changes and changes in the industry, other versions of SAP
have been released that address these changes. The first edition of mySAP ERP was
launched in 2003 and bundled previously separate products, including SAP R/3
Enterprise, SAP Strategic Enterprise Management (SEM) and extension sets. The SAP
Web Application Server was wrapped into NetWeaver, which was also introduced in
2003.

A complete architecture change took place with the introduction of mySAP ERP edition
2004. R/3 Enterprise was replaced with the introduction of ERP Central Component
(SAP ECC). The SAP Business Warehouse, SAP Strategic Enterprise Management and
Internet Transaction Server were also merged into SAP ECC, allowing users to run them
under one instance. Architectural changes were also made to support an enterprise
services architecture to transition customers to a services-oriented architecture.

Implementation

SAP ERP consists of several modules including: utilities for marketing and sales, field
service, product design and development, production and inventory control, human
resources, finance and accounting. SAP ERP collects and combines data from the
separate modules to provide the company or organization with enterprise resource
planning.

Although there can be major benefits for customers of SAP ERP, the implementation
and training costs are expensive. Many companies experience problems when
implementing SAP ERP software, such as: failing to specify their operation objectives,
absence of a strong commitment or positive approach to change, failing to deal with
organizational differences, failing to plan the change to SAP ERP properly, inadequate
testing. All these factors can mean the difference between having a successful
implementation of SAP ERP or an unsuccessful one.

If SAP ERP is implemented correctly an enterprise can go from its old calculations
system to a fully integrated software package. Potential benefits include: efficient
business process, inventory reduction, and lead time reduction.

Deployment and maintenance costs

SAP ERP systems effectively implemented can have cost benefits. Integration is the key
in this process. "Generally, a company's level of data integration is highest when the
company uses one vendor to supply all of its modules." An out-of-box software package
has some level of integration but it depends on the expertise of the company to install
the system and how the package allows the users to integrate the different modules.

It is estimated that "for a Fortune 500 company, software, hardware, and consulting
costs can easily exceed $100 million (around $50 million to $500 million). Large
companies can also spend $50 million to $100 million on upgrades. Full implementation
of all modules can take years," which also adds to the end price. Midsized companies
(fewer than 1,000 employees) are more likely to spend around $10 million to $20 million
at most, and small companies are not likely to have the need for a fully integrated SAP
ERP system unless they have the likelihood of becoming midsized and then the same
data applies as would a midsized company. Independent studies have shown that
deployment and maintenance costs of a SAP solution can greatly vary depending on the
organization. For example, some point out that because of the rigid model proposed by
the SAP tools, a lot of customization code to adapt to the business process may have to
be developed and maintained.. Some others pointed out that a return on investment
could only be obtained when there was both a sufficient number of users and sufficient
frequency of use. Deploying SAP itself can also involve a lot of time and resources.

Security

Communications

SAP systems - including client systems - communication with each other using SAP-
specific protocols (e.g., RFC and DIAG) and the http and https protocols. These systems
do not have encrypted communications out of the box; however, SAP does provide a
free toolkit for server-to-server communications. For client to server encrypted
communications (e.g., Secure Network Communications and Secure Socket Layer),
companies must use 3rd party technology.

ERP advantages and disadvantages

Advantages

• Allows easier global integration (barriers of currency exchange rates, language,

and culture can be bridged automatically)
• Updates only need to be done once to be implemented company-wide
• Provides real-time information, reducing the possibility of redundancy errors
• May create a more efficient work environment for employees
• Vendors have past knowledge and expertise on how to best build and implement a
system

Disadvantages

• Locked into relationship by contract and manageability with vendor - a contract

can hold a company to the vendor until it expires and it can be unprofitable to
switch vendors if switching costs are too high
• Inflexibility - vendor packages may not fit a company's business model exactly and
customization can be expensive
• Return on Investment may take too long to be profitable
• Implementations have a risk of project failure