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INTRODUCTION TO ENTERPRISE RESOURCE

PLANNING (ERP)
SYNOPSIS

What is ERP?

Enterprise Resource Planning or ERP is an industry term for integrated, multi-module


application software packages that are designed to serve and support multiple business functions.
An ERP system can include software for manufacturing, order entry, accounts receivable and
payable, general ledger, purchasing, warehousing, transportation and human resources. Evolving
out of the manufacturing industry, ERP implies the use of packaged software rather than
proprietary software written by or for one customer. ERP modules may be able to interface with
an organization's own software with varying degrees of effort, and, depending on the software,
ERP modules may be alterable via the vendor's proprietary tools as well as proprietary or
standard programming languages.

Brief History of ERP

The focus of manufacturing systems in the 1960's was on Inventory control. Most of the software
packages then (usually customized) were designed to handle inventory based on traditional
inventory concepts. In the 1970's the focus shifted to MRP (Material Requirement Planning)
systems that translated the Master Schedule built for the end items into time-phased net
requirements for the sub-assemblies, components and raw materials planning and procurement.

In the 1980's the concept of MRP-II (Manufacturing Resources Planning) evolved which was an
extension of MRP to shop floor and Distribution management activities. In the early 1990's,
MRP-II was further extended to cover areas like Engineering, Finance, Human Resources,
Projects Management etc i.e. the complete gamut of activities within any business enterprise.
Hence, the term ERP (Enterprise Resource Planning) was coined.

Why is it Necessary?

By becoming the integrated information solution across the entire organization, ERP systems
allow companies to better understand their business. With ERP software, companies can
standardize business processes and more easily enact best practices. By creating more efficient
processes, companies can concentrate their efforts on serving their customers and maximizing
profit.

Market Leaders

The top five ERP vendors, SAP, Oracle Corporation, Peoplesoft, Inc. (now Oracle Corp.), JD
Edwards & Company, and Baan International, account for 64 percent of total ERP market
revenue. These vendors continue to play a major role in shaping the landscape of new target
markets, with expanded product functionality, and higher penetration rates. SAP dominates the
$6.7 billion ERP applications market in Europe with 39% market share. Oracle and PeopleSoft
come second and third respectively, followed by SAGE Group and Microsoft Business
Solutions.

The Future of ERP

Industry analysts expect that every major manufacturing company will buy the software, which
ranges in cost -- with maintenance and training -- from hundreds of thousands of dollars for a
small company to millions for a large company. AMR Research of Boston says consolidation
among the major players will continue and intensify. ERP vendors are expected to put more
effort into e-commerce, CRM and SCM initiatives, with leaders redirecting between 50% and
75% of their R&D budget to these projects.

Popular ERP Products

SAP

SAP pioneered Enterprise Resource Planning. The company’s R/3 System, a family of integrated
components such as Production, Sales and Distribution, Controlling and Human Resources can
be used as a whole or individually. R/3 is also internet-compatible and can be easily combined
with other types of software or customers’ own systems.

Probably the only leader, SAP, according to AMR has a market share of 33% which is higher
compared to the next 4 competitors put together. The company has more than 19,300 employees
worldwide. The company’s R/3 system is in use in more than 107 countries
BAAN

Baan is one of the world’s leading providers of scalable enterprise business solutions. The
company was founded in 1978 by Jan & Paul Baan. Currently, more than 2,800 of its enterprise
systems have been implemented at approximately 5,000 sites in more than 80 countries across
the world. It has more than 4,500 employees worldwide.

It delivers a comprehensive and flexible suite of enterprise business applications that address the
complete value chain, from Enterprise Resource Planning (ERP) and supply chain management,
to customer interaction software.

The company’s flagship product, BAAN IV, is a suite of open-systems-based, software


applications for enterprise information management. The software enables companies to manage
all aspects of the business; from sales forecasting and inventory control, to manufacturing,
distribution, and finance in one, integrated environment.

The foundation for the products is Orgware, a suite of tools and methodologies which reduce the
time and costs associated with implementation and enable continuous improvement. With
Orgware, Baan is enabling a new paradigm called Dynamic Enterprise Modeling, which delivers
a framework for insuring that enterprise applications are in close alignment with an
organization’s changing processes and business model.

The company’s software applications include Baan Manufacturing, Baan Project , Baan Finance,
Baan Service, Baan Process, Baan Distribution & Transportation, Baan SYNC family, Aurum
Customer Enterprise, Aurum Interactive Selling Solution.

The company also provides dynamic enterprise modeling solutions which include Enterprise
Modeler, Enterprise Performance Manager, Enterprise Reference Models, Enterprise
Implementor.

People soft

PeopleSoft is co-founded by Dave Duffield (President, Chief Executive Officer - owns 28% of
the company) and Ken Morris (Senior Vice President, Chief Technology Officer). The company
started its operations in 1987 to design Client/server applications. In 1988, the first product
Peoplesoft HRMS for Human resources market was released and today commands more than
50% of the human resources market.

Currently the company provides e-Business and analytic applications for human resource
management, financials, distribution, manufacturing, and supply chain, along with a range of
industry-specific solutions. The company has more than 3,000 customers, and an employee
strength of more than 6,000.

Its products include PeopleSoft 7.5, PeopleSoft Materials Management, PeopleSoft


Manufacturing, PeopleSoft Distribution, PeopleSoft Financials, PeopleSoft HRMS, PeopleSoft
Supply Chain Management And People Tools.

JD Edwards

J D Edwards, formed on March 17, 1977 was co-founded by Jack Thompson , Dan Gregory and
C. Edward McVaney making J D Edwards. Edward is the Chief Executive Officer who owns
more than 30% of the company. The company has more than 4100 employees and operations
spanning 48 countries.

Advantages of ERP:

In the absence of an ERP system, a large manufacturer may find itself with many software
applications that do not talk to each other and do not effectively interface. Tasks that need to
interface with one another may involve:

• design engineering (how to best make the product)


• order tracking from acceptance through fulfillment
• the revenue cycle from invoice through cash receipt
• managing interdependencies of complex Bill of Materials
• tracking the 3-way match between Purchase orders (what was ordered), Inventory
receipts (what arrived), and costing(what the vendor invoiced)
• the Accounting for all of these tasks, tracking the Revenue, Cost and Profit on a granular
level.
Disadvantages of ERP:

 Personnel turnover; companies can employ new managers lacking education in the company's
ERP system, proposing changes in business practices that are out of synchronization with the
best utilization of the company's selected ERP.
 Customization of the ERP software is limited. Some customization may involve changing of
the ERP software structure which is usually not allowed.
 Re-engineering of business processes to fit the "industry standard" prescribed by the ERP
system may lead to a loss of competitive advantage.
 ERP systems can be very expensive to install often ranging from 30,000 to 500,000,000 for
multinational companies.
 ERP vendors can charge sums of money for annual license renewal that is unrelated to the
size of the company using the ERP or its profitability.

Conclusion:

The success of the system is fully dependent on how the workers utilize it. This means they must
be properly trained, and a number of companies have attempted to save money by reducing the
cost of training. Even if a company has enough money to implement ERP, they may not be able
to successfully use it if they do not have enough money to train their workers on the process of
using it. One of the biggest problems with ERP is that it is hard to customize. Very few
companies can effectively use ERP right out of the box. It must be modified to suit their needs,
and this process can be both expensive and tedious. Even when a company does begin changing
the system, they are limited in what they can do.