UNIT – 1

ERP CONCEPTS
Enterprise Resource
Planning

ERP
 What is ERP?
Enterprise Resource Planning (ERP)
systems attempt to integrate all data and
processes of an organization into a
unified system. A typical ERP system will
use multiple components of computer
software and hardware to achieve the
integration. A key ingredient of most ERP
systems is the use of a unified database
to store data for the various system
modules.
 Introduction
 Manufacturing Organizations are complex `Systems' where the
interactions between the various functions Sales, Distribution,
Manufacturing, Materials, Finance, Human Resources,
Maintenance have to be managed towards a common purpose of
delivering the customers maximum value at the optimum price.
 However, since most of these organizations have a ` Functional
Structure', each function/department works towards their own
goals and objectives, rather than the organizational goals.
 These are the issues addressed by `Enterprise Resource
Planning' software solutions providing a common, consistent
system to capture data organization wide, with minimum
redundancy.
 What is ERP?
 ERP integrates the information across functions,
and provides a set of tools for planning and
monitoring the various functions and processes
and ensuring progress towards a common purpose
 A business management system that integrates all
facets of the business, including planning,
manufacturing, sales, and marketing.
 ERP helps business managers to implement ERP
in business activities such as inventory control,
order tracking, customer service, finance and
human resources
 Enterprise Systems
 Enterprise systems, also known as enterprise
resource planning (ERP) systems, provide a
single information system for organization-wide
coordination and integration of key business
processes.

 Information that was previously fragmented in

different systems can seamlessly flow
throughout the firm so that it can be shared by
business processes in manufacturing,
accounting, human resources, and other areas.
 ERP is a commodity -- product in the form
of software

 SAP, Oracle Applications, PeopleSoft, JD

Edwards, Great plains etc. are world’s
leading ERP packages
ERP - Definition

“Software solution that addresses the

Enterprise needs, taking a process view of
the overall organization to meet the
goals,
by tightly integrating all functions
under a common software platform”
Why ERP?

For Management – to know what is happening

in the company
One solution for better Management
For cycle time reduction
To achieve cost control & low working capital
To implement latest technologies
To ignore the geographical gaps
To satisfy the customers with high expectations
To be Competitive & for survival
 ENTERPRISE RESOURCE
PLANNING
• ERP systems collect data from across an
organization and correlates the data
generating an enterprisewide view
 Enterprise Resource Planning
(ERP)
 At the heart of all ERP systems is a database, when a user
enters or updates information in one module, it is
immediately and automatically updated throughout the
entire system
 The Basics of ERP
Integrated Logistics

Production
Planning
/
m er
sto oyee
Cumpl Accounting
E
& Financials
Sales
e
Distributions
tur
(Order only) c
Human hite
c
Resources Ar
rise
 These apps are
p
t er themselves built from
En
smaller s/w modules
that perform specific
business processes
within a given
functional area
Functional Areas of Operation
 ERP System Costs and Benefits
 ERP implementation is expensive
 Usually ranging between $10 million and $500
million, depending on company size
 Costs of ERP implementation
 Software licensing fees
 Consulting fees
 Project team member time
 Employee training
 Productivity losses
 ERP System Costs and Benefits
(cont’d.)
 Companies must identify a significant
financial benefit that will be generated by ERP
system
 Only way companies can save money with
ERP systems is by using them to support more
efficient and effective business processes
 Companies must manage transfer of data from
old computer systems to new ERP system
 Functional areas are served by information
systems, which capture, process, and store data
to provide information needed for decision
making.
 Employees working in one functional area
need data from other functional areas.
Functional area information systems should be
integrated, so shared data are accurate and
readily available.
 Business managers are increasingly thinking in
terms of business processes that integrate
functional areas.
 The business process view promotes efficiency and
competitiveness.
 Business processes require information sharing
between functional areas.
 ERP software provides this capability by using a
single common database.
The Evolution of ERP
 Evolution of ERP
 1960’s: Inventory Control Systems
 1970’s: MRP: Material Requirement
Planning
 1980’s: MRPII: MRP & Distribution
 1990’s: MRPII  ERP with introduction
of other business functions 
CRM’s
 Today: Web Enabled ERP – Connecting
ERP Externally
The organization before ERP
ERP – bringing the organization together
 Business Intelligence And ERP

Enterprise Resource Planning Systems Offer Powerful Tools To Better Measure And
Control Organizational Operations . Many Organizations Have Found That This
Valuable Tool Can Be Enhanced To Provide Even Greater Value Though The Addition
Of Powerful Business Intelligence Systems . Business Intelligence In This Context Is
Supported By Sorting Data (Data Warehouse And Related Systems) And Conducting
Studies Using This Data To Solve Business Problems ( One Means To Do This
Though Data Mining ) . One Of The Most Popular Forms Of Data Mining In ERP
Systems Is Support Of Customer Relationship Management (CRM). Data Warehouses
Are One Of The Most Popular Extensions To ERP Systems , With Over Two-Thirds Of
U.S. Manufacturers Adopting Or Planning Such Systems ( And Slightly Less Than Two
– Thirds of Swedish Manufacturers doing the same ).
There Has Been Tremendous Progress In Computer Storage Of Data . Many
Applications Are Being Found For This new capacity . one major user of massive
storage capacity is ERP systems, witch have large storage requirements due to their
comprehensive nature .
 MRP
 Material requirements planning (MRP):
Computer-based information system that
translates master schedule requirements
for end items into time-phased
requirements for subassemblies,
components, and raw materials.
 Materials Requirements Planning
(MRP)
 Determines required quantity and timing of the
production or purchase of subassemblies and
raw materials needed

 Bill of material (BOM): list of the materials

(including quantities) needed to make a
product
 Material Planning Systems

 MRP translated a master schedule of final products

into time-phased net requirements for
subassemblies, assemblies, and parts
 First MRP systems evolved from closed-loop MRP
 Closed-loop MRP included production planning,
master scheduling, and capacity requirements
 In mid 1970’s, MRPII systems added functionality
to plan and execute all internal functions
 Manufacturing Resource Planning (MRP II)

 Goal: Plan and monitor all resources

of a manufacturing firm (closed
loop):
 manufacturing
 marketing
 finance
 engineering
 Simulate the manufacturing system
 Requirements of MRP
 Computer and necessary software
 Accurate and up-to-date
 Master schedules
 Bills of materials
 Inventory records
 Integrity of data
 Benefits of MRP
 Low levels of in-process inventories
 Ability to track material requirements
 Ability to evaluate capacity requirements
 Means of allocating production time
 Ability to easily determine inventory usage
 Tangible Benefits Of ERP
1. improves the productivity of process and personnel
2. Lowering the cost of products
3. No paper work
4. Postage cost reduction
5. Inventory reduction
6. Lead time reduction
7. Reduced buffer stock
8. Saves time & money
9. Automated ordering and payment
10. lowering payment processing and paper costs

Note :Tangible benefits are those measured in monetary terms

 Intangible Benefits Of ERP

1. Increases organizational transparency and responsibility

2. Accurate and faster access to data for timely decisions
3. Can reach more vendors
4. producing more competitive bids
5. Improved customer response
Saves enormous time and effort in data entry
6. More controls thereby lowering the risk of mis-utilization of resources
7. Facilitates strategic planning
8. Uniform reporting according to global standards

Note : intangible benefits cannot be measured in monetary terms but they do have a very significant business impact
 EMERGING TRENDS IN ERP
 Faster Implementation Methodologies
 Business Models
 WEB ENABLING
 Business intelligence (Bi)
 Need based applications (Modules)
 Cost factor
 Open Source
 wireless technologies

Note: Explanation with suitable Eg: needed

END OF UNIT - 1