ENTERPRISE RESOURCE PLANNING

Enterprise resource planning – integrates all departments and functions throughout an organization
into a single IT system (or integrated set of IT systems) so that employees can make enterprise-wide
decisions by viewing enterprise-wide information on all business operations
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

ERP COMPONENTS
1. Core components: traditional components included in most ERP systems and they primarily
focus on internal operations
- Accounting and finance component – manages accounting data and financial processes within the
enterprise with functions such as general ledger, accounts payable, accounts receivable, budgeting,
and asset management
- Production and materials management component – handles the various aspects of production
planning and execution such as demand forecasting, production scheduling, job cost accounting, and
quality control
- Human resource component – tracks employee information including payroll, benefits,
compensation, performance assessment, and assumes compliance with the legal requirements of
multiple jurisdictions and tax authorities

2. Extended components: are the extra components that meet the organizational needs not
covered by the core components and primarily focus on external operations. Many of the numerous
extended ERP components are Internet enabled and require interaction with customers, suppliers and
business partners outside the organization
- Business Intelligence: Describes information that people use to support their decision-making
efforts. The BI components of EFP system typically collect information used throughout the
organization, organize it and apply analytical tools to assist managers making decisions
- Customer relationship management (CRM): CRM involves managing all aspects of a customer’s
relationship with an organization to increase customer loyalty and retention and an organization’s
profitability. CRM components provide an integrated view of customer data and interactions
allowing organizations to work more effectively with customers and be more responsive to their
needs
- Supply chain management (SCM): SCM involves the management of information flows between
and among stages in a supply chain to maximize total supply chain effectiveness and profitability.
SCM components help an organization plan, schedule, control and optimize the supply chain from its
acquisition of raw materials to the receipt of finished goods by customers
- E-business components
E-business means conducting business on the Internet, not only buying and selling but also serving
customers and collaborating with business partners
E-business components include e-logistics and e-procurement
o E-logistics – manages the transportation and storage of goods
o E-procurement – the business-to-business (B2B) purchase and sale of supplies and
services over the Internet
E-business and ERP complement each other by allowing companies to establish a web presence and
fulfill orders expeditiously

ERP BENEFITS AND COSTS

1. Common ERP benefits
- Integrate financial information: to understand an organization’s overall performance, managers
must have a single financial view
- Integrate customer order information: with all customer order information in a single system, it is
easier to coordinate manufacturing, inventory and shipping to send a common message to customers
regarding order status
- Standardize and speed up manufacturing process: EPR systems provide standard methods for
manufacturing companies to use when automating steps in the manufacturing process. Standardizing
manufacturing processes across an organization saves time, increases production and reduces head
count
- Reduce inventory: with improved visibility in the order fulfillment process, an organization can
reduce inventories and streamline deliveries to its customers
- Standardize HR information: ERP provides a unified method for tracking employees’ time as well
as communicating HR benefits and services
2. ERP COSTS
- Software cost: purchasing the software
- Consulting fees: hiring external experts to help implement the system correctly
- Process rework: redefining processes in order to ensure the company is using the most efficient and
effective processes
- Customization: if the software package does not meet all of the company’s needs, customizing the
software may be required
- Integration and Testing: ensuring all software products are working together. Testing ERP system
includes testing all the integrations
- Training: cost of training users
- Data warehouse integration and data conversion: moving data from old system to new ones

ERP IMPLEMENTATION
 Initiation – develop business case, project scope, and implementation strategy
 Planning – establish implementation team, determine goals and objectives, establish metrics
 Analysis and process design – analyze and improve existing processes, map new processes
to be adopted by the system
 Realization – install a base system, customization, and test the system
 Transition – replace the formal system with the new system, data conversion
 Operation – monitor and improve system performance, provide continued training and
technical support

MAJOR CHALLENGES OF ERP IMPLEMENTATION

 Limitations of ERP technical capabilities
 Inconsistency with existing business processes
 Costs - implementation (hardware, software, training, consulting) and maintenance
 Impact on organizational structure (front office vs. back office, product lines, etc.)
 Changes in employee responsibilities
 Flexibility of software system upgrades
 Implementation timelines
 Availability of internal technical knowledge and resources
 Education and training
 Implementation strategy and execution
 Resistance to change

ORGANIZATIONAL CHANGE FROM ERP

Productivity decline: Jobs redefined, new procedures established, ERP fine-tuned, organization learns
to process new information streams
Productivity gain: Develop new skills, structural changes, process integration, add bolt-ones
Payoff: Transform organizational operations to efficient level