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Enterprise Resource Planning

MODULE 3 :Brief history of ERP

Topics

• Trends in business from 1960s?

• Bill Of Materials (BOM)/Economic Order Quantity (EOQ)
• Materials Requirement Planning (MRP-I)
• Manufacturing Resources Planning (MRP-II)
• Evolution of ERP.

1) Trends in business from 1960s: 1960s saw inventory control assuming prime
importance. Most of the information systems were designed and developed to help the
organizations manage the inventory. In 1970s and 1980s, more development and growth
in business information systems took place. In 1990s, with the advent of ERP
applications, large organizations started implementing such enterprise solutions. From
2000 onwards, with the support of internet, different innovative web technologies are
being developed by making enterprise applications web-enabled.

2) Bill Of Materials (BOM)/Economic Order Quantity (EOQ): As a first step in applying

information technology to business, simple software applications like Bill of Materials
(BOM) and Economic Order Quantity were developed for the usage of manufacturing
organizations. BOM is a list of the parts or components required to develop a finished
product. It is the product mix (product structure). EOQ is the optimal quantity of orders
that minimizes the total variable costs required to order and hold inventory. The
information systems helped the manufacturing firms to prepare a list of materials with
required quantities and reasonable prices to manufacture a product.

3) Materials Requirement Planning (MRP-I): In 1970s, as the manufacturing operations

picked up momentum, information systems with more features were developed to
identify, procure, manage and control all materials required for manufacturing. Such
applications were named as Materials Requirement Planning (MRP-I) systems. These
software applications added many more functionalities to the earlier systems to meet the
increased manufacturing requirements. They supported better planning and controlling
of production and material flowsby reducing lead times and better use of production
capacity.

4) Manufacturing Resources Planning (MRP-II): 1980s recorded further extension of

MRP-I applicationsby including shop floor and distribution management activities. Those
applications were known as Manufacturing Resources Planning (MRP-II) systems.The
concept of integrating information systems started in this period. The objective of MRP-
II was to effectively plan all the resources of a manufacturing company and even simulate

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Enterprise Resource Planning

the production capability. It had to address operational planning in manufacturing units

along with financial planning.

5) Evolution of ERP: In 1990s, ERP applications were developed as integrated information

systems by integrating not only the manufacturing processes but also other related
organizational ones. The increased complexity of businesses and the need to integrate all
the functional areas within an enterprise to sustain in the dynamic business environment
led organizations develop ERP (Enterprise Resources Planning) applications. ERP
systems were extension of MRP-II applications to cover the range of activities within any
enterprise. Important information technology aspects of client/server-distributed
architecture, relational database management systems, object-oriented programming, etc.
were addressed. Several ERP software packages were developed and implemented.
Since they were found inflexible, lot of modifications took place in those packages to
have more flexibility and adoptability. An example for a more flexible and adoptable
software was SAP R/3 Enterprise released in 2002 by SAP AG, Germany. Many other
leading ERP vendors, namely, Oracle, PeopleSoft, J.D.Edwards, BaaN, etc. entered the
market with their packages. Now web-enabling ERP software is a second development
in the evolution of ERP applications.

As an example, the following figure represents ERP system of an organization.

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Enterprise Resource Planning

MODULE 4 :Business processes

Topics
• Meaning of a business process.
• Dimensions of a business process.
• Range of a business process.

Business process
According to Davenport and Short (1990), a business process is a set of logically related tasks
performed to achieve a defined business outcome.

Hammer and Champy defined the business process as a collection of activities that takes one or
more kinds of input and creates an output that is of value to the customer.

According to Davenport, a business process is a structured, measured set of activities designed to

produce a specified output for particular customer or market.

A business process represents the manner in which work is organized, coordinated, and focused
to produce a valuable product or service. Business processes are concrete workflows of material,
information, and knowledge. Hence, a business process is a unique way of coordinating an
organization’s/department’s work, information, and knowledge.

Examples of business processes include preparation of a budget plan, development of a new

product, procurement of raw material from suppliers, preparation of a market plan, credit card
approval, renewal of driving license, etc.

An organization operates several business processes designed to attain its specified business
goals. For example, a manufacturing firminvolves the various business processes like customer
ordering, work orders, manufacturing, distribution, inventory management, etc. These business
processes involve customers, suppliers, employees, management, and in some cases,even
government agencies.

Examples for business processes in different departments/functional areas:

Department/Functional area Business process

Human resources Selection and recruitment
Evaluation of performance of
Employees
Organizing Training programmes
Sales and Marketing Lead management to identify customers
Campaign management & Advertising
Selling products/services

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Sales people management

Production Design of the product
Quality control
Bill of materials
Shop floor management

Finance and Accounting Budget planning

Developing financial statements
Managing cash accounts
Auditing
Logistics Collection of goods
Storage of goods
Transportation

Dimensions of a business process

According to Davenport and Short (1990), business processes may be defined based on three
dimensions – entities, objects, and activities.

A business process takes place between some organizational entities. Theses entities may be
either inter-organizational, or inter-functional or inter-personal. A business process can exist
between two different organizations. It may occur across two or more activitieswithin a
functional department or between two or more departments. A business process can happen
among two or more organizational people.

Business processes result in manipulation or transformation of objects from one form to another.
These objects may be either physical or informational. For example, in a business process, some
raw materials may be converted into semi-finished or finished product. The information like
status of raw material, number of manufactured products, etc. may change during the process.

Business processes involve two types of activities – managerial or operational. Examples for
managerial activities are preparing budget, market plan, control of budget and time, etc.
Examples for operational activities include assembling, packaging, etc.

Business processes are generally identified in terms of beginning and end points, interfaces, and
organization units involved, particularly the customer unit.

Range of a business process

A business process may begin in one department and end in the same department producing a
business result of specified value. A business process may also begin in one department and run
across other departments with a business value. The business processes that cross many

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functional areas require coordination across those departments. For example, a customer order
management involves coordination among different departments like sales, production and
logistics and even Accounts.

Each business process is handled by a number of people having different status in an

organization.

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