REVA Institute of Science and Management.

Department of Management Studies.

3.6.3.ENTERPRISE RESOURCE PLANNING

1. GENERAL INFORMATION

No.of Credits 4

No.of Hours Per Week 4

2. PERSPECTIVE OF THE COURSE

Enterprise resource planning is to make them aware of real time requirements in resource planning,
automation of documentation and decision process, and industry preparedness. The organization
requirements vary industry to industry. By running the ERP system, the organization can gain speed,
efficiency, and accuracy in its business operations. Through automation and integration,
the system increases the organization’s productivity while reducing time and labor costs.

3. COURSE OBJECTIVES AND OUTCOMES

OBJECTIVES

To provide a contemporary and forward-looking on the theory and practice of Enterprise Resource
Planning Technology.

To focus on a strong emphasis upon practice of theory in Applications and Practical oriented
approach.

OUTCOMES

To train the students to develop the basic understanding of how ERP enriches the business
organizations in achieving a multidimensional growth.

To aim at preparing the students technological competitive and make them ready to self-upgrade with
the higher technical skills.

4. COURSE CONTENTS AND STRUCTURE

MODULE1: INTRODUCTION 10
HOURS

Overview of Enterprise systems – Evolution - Risks and benefits - Fundamental technology - Issues to
be considered in planning design and implementation of cross functional integrated ERP systems, Case
studies
MODULE2:ERP SOLUTIONS AND FUNCTIONAL MODULES 10
HOURS

Overview of ERP software solutions- Small medium and large enterprise vendor solutions, BPR,
Business Engineering and best Business practices - Business process Management. Overview of ERP
modules -sales and Marketing, Accounting and Finance, Materials and Production management
etc. Quality Management - Functions of Quality Management; CAQ and CIQ; Materials
Management- Pre-purchasing; Purchasing; Vendor Evaluation; Inventory Management and
Invoice Verification and Material Inspection
 
MODULE3: ERP AND RELATED TECHNOLOGIES 10
HOURS

Business Process Re-engineering, Management Information systems, Decision Support

Systems, Executive Information Systems- Advantages of EIS; Disadvantages of EIS, Data
Warehousing, Data Mining, On-Line Analytical Processing, Product Life Cycle Management,
Supply Chain Management, ERP Security

MODULE 4 : ERP IMPLEMENTATION

10HOURS

Planning Evaluation and selection of ERP systems-Implementation life cycle - ERP implementation,
Methodology and Frame work- Training – Data Migration. People Organization in implementation-
Consultants, Vendors and Employees, Maintenance of ERP- Organizational and Industrial impact;
Success and Failure factors of and ERP Implementation
 MODULE 5: ERP VENDORS  08
HOURS
ERP Vendors,  SAP-AG: Products and technology R/3 overview; SAP advantage, Baan
Company , Oracle Corporation: Products and technology; Oracle Application; Vertical
solutions, Microsoft Corporation,  Ramco Systems, Systems Software Associates Inc. (SSA),  
QAD

MODULE 6: EMERGING TRENDS IN ERP

08 HOURS
Extended ERP systems and ERP bolt on CRM, SCM, Business analytics, ERP to ERP II-
Implementation of Organisation Wide ERP, Development of New Markets and Channels, Latest
ERP Implementation Methodologies, ERP and E-business, Market Snapshot, The SOA Factor.
1. PEDAGOGY

The ERP paper is to develop an insight on the resource planning on documentation and decision
making process. Hence, a mini project can be suggested to analyze different ERP programs
commercially available and open source programs. A mini project can be used to explain how to
develop a ERP system for a small firm. Case studies can be used to explain different concepts in ERP .

2. TEACHING/LEARNING RESOURCES

ESSENTIAL READINGS

1. Enterprise Resource Planning Alexis Leon McGraw Hill

2. Enterprise Resource Planning ,Mary Summer Pearson; 1 Edition
REFERENCES
1. Alexis Leon, ERP demystified, second Edition Tata McGraw-Hill, 2006.
2.Jagan Nathan Vaman, ERP in Practice, Tata McGraw-Hill,
3. Alexis Leon, Enterprise Resource Planning, second edition, Tata McGraw-Hill,
4. Mahadeo Jaiswal and Ganesh Vanapalli, ERP, Macmillan India,
5. Vinod Kumar Garg and N.K. Venkitakrishnan, ERP- Concepts and Practice, Prentice Hall of India,
6. Summer, ERP, Pearson Education,
 MODULE1: INTRODUCTION

Overview of Enterprise systems – Evolution - Risks and benefits - Fundamental technology - Issues to
be considered in planning design and implementation of cross functional integrated ERP systems, Case
studies

Enterprise Resource Planning (ERP) system

Need for Enterprise Resource Planning

Organizations today face twin challenges of globalization and shortened product life cycle.
Globalization has led to unprecedented levels of competition. To face such competitions,
successful corporations should follow the best business practices in the industry. Shortened life
cycles call for continuous design improvements, manufacturing flexibility, super-efficient
logistics control and better management of the entire supply chain. All these need faster access to
accurate information, both inside the organization and the entire supply chain outside. The
organizational units such as finance, marketing, production, human resource development etc.
need to operate with a very high level of integration without losing flexibility. ERP system with
an organization-wide view of business processes, business need of information and flexibility
meet these demands admirably. One of the developments in computing and communication
channels is providing tighter integration among them. The server technology today permits very
high reliability and access to large data securely at reasonable cost. The open system philosophy,
client-server architectures, high performance operating systems, relational database management
system (RDBMS) and Rapid Application Development tools that 13 permit such enterprise-wide
systems to be deployed are available today. These explain the motivating factors behind
contemporary ERP systems .

Evolution of Enterprise Resource Planning

Pre Material Requirement Planning (MRP) stage

Enterprise resource planning (ERP) has evolved as a strategic tool, an outcome of over four
decades. This is because of continuous improvements done to the then available techniques to
manage business more efficiently and also with developments and inventions in information
technology field. Prior to 1960s businesses generally relied on traditional ways of managing
inventories to ensure smooth functioning of the organizations. These theories are popularly
known as ‘Classical Inventory Management or Scientific Inventory Control Methods’. Most
popularly used among them were Economic Order Quantity (EOQ); Bill of Material (BOM) etc.
However these systems had very limited scope. ERP system has evolved from the Material
Planning System of 1980’s. There are various phases through which this evolution process has
gone through. The various phases of development of resource planning system in relation to time
and evolution of concept of ERP as shown in figure below

Stages of ERP Evolution:

1. Material Requirement Planning (MRP) MRP was the fundamental concept of production
management and control in the mid1970s and considered as the first stage in evolution of ERP.
Assembly operations involving thousands of parts such as automobile manufacture led to large
inventories. The need to bring down the large inventory levels associated with these industries
led to the early MRP systems that planned the order releases. Such planned order releases
ensured proper time phrasing and accurate planning of the sub-assembly items, taking into
account complex sub-assembly to assembly relationships characterized by the Bill of Materials.
A typical example is a bicycle manufacture. To manufacture 100 units of bicycles, one needs 200
wheels, 100 foot-pedals, and several thousands of spokes. On a given day, a plant may have 40
units of complete bicycles in stock, 57 units of wheels, 43 units of foot-pedals and 879 units of
spokes. If the plant is to assemble 20 units of bicycles for the next 4 days of production, wheels
and spokes-is a non trivial problem. If the independent demand of the spare parts is also to be
taken into account, one can 15 visualize the complexity of it. A typical automobile plant with
hundreds, if not thousands of parts, has to face problems that are in order of magnitude even
more difficult. MRP systems address this need. Using the processing power of computers,
databases to store lead-times and order quantities and algorithms to implement Bill-of-Material
(BOM) explosion, MRP systems brought considerable order into the chaotic process of material
planning in a discrete manufacturing operation. Essentially MRP addresses a single task in
manufacturing alone . Material requirement planning (MRP) system was adopted by firms for
creation and maintenance of master data and bill of material across all products and part within
an organization. MRP on the other hand was an outgrowth of bill of material (BOM) processing,
which is purchase order management that utilizes parts list management and parts development.

2. Manufacturing Resources Planning II (MRP- II)

A natural evolution from the first generation MRP systems was the manufacturing planning systems MRP
II that addressed the entire manufacturing function and not just a single task within the manufacturing
function. MRP II went beyond computations of the materials requirement to include loading and
scheduling. MRP II systems could determine whether a given schedule of production was feasible, not
merely from material availability but also from other resource point of view. Typically, the resources
considered from MRP II systems would include production facilities, machine capacities and precedence
sequences. The increased functionality enabled MRP II systems provided a way to run the system in a
loop. First it was used to check the feasibility of a production schedule taking into account the constraints;
second to adjust the loading of the resources, if possible, to meet the production schedules; third to plan
the materials using the traditional MRP II systems. Both MRP system and MRP II systems were fairly
successful in industry. Due to the power of information systems-databases, algorithms and their
integration, organizations did find real support for efficiently managing the manufacturing function in the
eighties .

3. Enterprise Resource Planning (ERP)

The nineties saw unprecedented global competition, customer focus and shortened product life cycles. To
respond to these demands corporations had to move towards agile (quick moving) manufacturing of
products, continuous improvements of process and business process reengineering. This called for
integration of manufacturing with other functional areas including accounting, marketing, finance and
human resource development. Activity-based costing would not be possible without the integration of
manufacturing and accounting. Mass customization of manufacturing needed integration of marketing
and manufacturing. Flexible manufacturing with people empowerment necessitated integration of
manufacturing with the HRD function. In a sense the 1990s truly called integration of all the functions of
management. ERP systems are such integrated information systems build to meet the information and
decision needs of an enterprise spanning all the functions of management .

4. Extended ERP (E-ERP)

Further developments in the enterprise resource planning system concept have led to evolution of
extended ERP (E- ERP) or web - enabled ERP. With globalization on one hand and massive development
in the internet technology on the other, need for web based IT solution was felt. Thus E- ERP is
development in the field of ERP which involves the technology of Internet and World Wide Web
(WWW) to facilitate the functions of an organization around the web.

5. Enterprise Resource Planning II (ERP- II)

ERP II is the advanced step of E-ERP. It is the software package which has strengthened the
original ERP package by included capabilities like customer relationship management,
knowledge management, workflow management and human resource management. It is a web
friendly application and thus addresses the issue of multiple office locations. It is capable of
delivering information in an instant to people who need it, no matter wherever they are.

ERP – A Manufacturing Perspective

ERP systems evolved out of MRP and MRP II systems. MRP systems addressed the single task of
materials requirements planning. MRP II extended the scope to the entire manufacturing function. The
manufacturing industry traditionally had a better climate to use computers. First of all the manufacturing
community being dominated by engineers had no computer phobia. Second the extensive use of
Computer Aided Drafting (CAD), Computer Aided Design (CAD) and Computer Aided Manufacturing
(CAM) had prepared the manufacturing function to use computers well, in fact exceptionally well. In fact
manufacturing engineers contributed significantly to the theoretical computer science by way of
contributions in the areas of graphics, computational geometry, significant visualization, feature
recognition etc. Large corporations like General Motors (GM), Ford, Hewlett Packard (HP), and Digital
primarily viewed themselves as manufacturing companies until the 1980s. Naturally complex MRP
systems were considered the ultimate in enterprise information systems. The investments in hardware and
software to manage such complex manufacturing solutions gave these systems a visibility unparalleled in
the industry. Compared to these systems accounting systems, financial systems or personnel information
systems were relatively inconsequential to the organization. With the globalization of operations and the
proliferation of computer networks, it was important that the manufacturing organizations extend their
information system across the supply chain. The supplier’s information system spread across continents
with complex combinations of hardware and software need to be integrated. Similarly the dealer-
distributor network had to be integrated with the manufacturing information systems. The reduction in
product life cycle necessitated a quick response manufacturing system that had its ears tuned to the
market. This forced manufacturing information systems to have a tighter integration with marketing
information systems. The manufacturing flexibility had translated into mass customization calling for
further integration of information systems. The opening up of several world economies including that of
the Asian giants like China and India, the emergence of trade blocks and consolidated markets such as
European Union paved the need for accounting and finance 18 functions to be tightly integrated with
manufacturing functions. It was not sufficient anymore just to manufacture and sell but organizations had
to arrange for finance, comply with complex trade restrictions, barriers, and quotas. The balance sheets
needed to account for multiple currencies, multiple export import rules and regulations, multiple
accounting codes, practices, accounting periods. This necessitated further integration of accounting and
financial information systems with manufacturing systems. In fact with large capacities built around the
world particularly in Asian countries, outsourcing and contract manufacturing became viable alternative
even in the high-tech industries like semi conductor manufacturing. Suddenly the need was for an
Enterprise Information System that looks beyond the manufacturing function to address inbound logistics,
outbound logistics, manufacturing, materials managements, project management, quality management,
accounting, finance, sales and personnel management. It was nearly impossible to integrate individual
modules of information systems. What was necessary was a system that addressed the enterprise needs
from the design stage. ERP systems were the natural choice in this changed scenario.

ERP System Overview

Meaning of ERP Enterprise resource planning is an integrated information system which is considered a
vital backbone information system of the enterprise. A cross functional enterprise system integrated and
automates all the internal cross functional business processes such as production, order processing,
logistics, sales, distribution, accounting, finance and human resource. It helps the enterprise to achieve
efficiency, agility and responsiveness. The meaning of ERP system is very well explained in figure

Definition of ERP

Researchers and practitioners have defined ERP in many different ways. Minahan6 (1998) defines ERP
as a complex software system that ties together and automates the basic processes of a business. ERP has
been defined by various authors but with few differences. Kumar et al. 7 (2000) define enterprise resource
planning (ERP) systems as “configurable information systems packages that integrate information and
information-based processes within and across functional areas in an organization” Al-Mashari and Zairi8
(2000) states that ERP represent an optimal enterprise-wide technology infrastructure. The basic
architecture of an ERP system builds on one database, one application, and a unified interface across the
entire enterprise. Nah et al. 9 (2001) defines ERP as “An enterprise resource planning (ERP) system is
typically defined as a packaged business software system that facilitates a corporation to manage the
efficient and effective use of resources (materials, human resources, finance, 20 etc.) by providing a total
integrated solution for the organization’s informationprocessing requests, through a process-oriented view
consistent across the company.” Wallace and Kremzar10 (2001) describes ERP as an enterprise- wide set
of management tool that balances demand and supply, containing the ability to connect customers and
suppliers into a complete supply chain, employing proven business processes for decision making and
providing high degree of cross functional integrations among sales, marketing, manufacturing, operations,
logistics, purchasing, finance and new product development and human resources, thereby enabling
people to run their business with high level of customer service and productivity and simultaneously
lower cost and inventories; and providing the foundation for effective e-commerce. It is seen that with
passage of time the definition of ERP has undergone changes as these systems were further extended to
include inter-firms activities through integration of front-office and back-office business applications such
as supply chain management and customer relation management.

Outline of ERP system

Enterprise resource planning (ERP) is a planning philosophy which is enabled with software technology
that successfully attempts to integrate all the business process to different department and functions
across a company onto a single computer system. Before ERP implementation each department within the
organization had its own computer system optimized for the requirements of that department’s needs
alone. As shown in figure 2.3 each department will maintain separate database and design application as
per their functionalities. This may result in good performance of the departments individually but it may
not maximize the overall performance of all the departments together or the company as a whole.

Traditional Stand Alone System

 ERP system program combines all the business requirements of the company together into a single
integrated software program that runs of a single database so that various departments can easily share
information and communicate with each other. Figure 2.4 show that ERP conceptually replaces the old
stand alone computer system with a single software program that facilitates various functional modules.
Thus everybody from different departments will get their own advantages of software along with the
added features of availability of information across other departments to improve decision quality and
overall performance of the organization.

Characteristics of ERP system

Study of various definitions of ERP put forth by various researches suggests that ERP system is an
integrated system that operates in real time. ERP system creates common database which support all
applications facilitating the organizational functions, activities and services. ERP system also facilitates
analytical planning and has the capability to bridge the information gap across the organization.
According to O’Leary11 (2000), ERP systems have the characteristics like: ERP systems are packaged
software designed for a client server environment, whether traditional or web-based; ERP systems
integrate the majority of a business’s process; ERP systems process a large majority of an organization’s
transactions; Use an enterprise-wide database that typically stores each piece of data once; It allow access
to the data in real time.

Thus the features of ERP system can be listed as follows

 (a) Flexibility: An ERP system should be flexible to respond to the changing needs of an enterprise. The
client server technology enables ERP to run across various data base back ends through Open Data Base
Connectivity.

(b) Modular and open: ERP system has to have open system architecture. This means that any module can
be interfaced or detached whenever required without affecting the other modules. It should support
multiple hardware platforms for the companies having heterogeneous collection of systems. It must
support some third-party addones also.

(c) Comprehensive: It should be able to support variety of organizational functions and must be suitable
for a wide range of business organizations.

(d) Beyond boundaries: It should not be confined to the organizational boundaries, rather support the on-
line connectivity to the other business entities of the organization.

(e) Best business practices: It must have a collection of the best business processes applicable world-
wide. (f) Simulation of reality: ERP system must stimulate the reality of business processes on the
computer system. In no way it should have the control beyond the business processes and it must be able
to assign accountabilities to the users controlling the system.

Modules of ERP System

Early implementers deployed ERP system modules that addressed key intra-firm activities pertaining to
the finance, logistics, and human resources functions. Typically firms deployed modules such as financial
accounting, controlling, personnel administration, personnel development, general logistics, materials
management, procurement, inventory control production planning, and sales and distribution. Each of
these modules in turn comprised of numerous sub-modules that accessed a common database

Modules and sub-modules can be deployed by firms either individually addressing the specific business
activity as per the need. Another way of deployment is they deployed one or more modules and/or sub-
modules as a partially integrated solution that addressed a group of business activities. Firms can also
choose to leverage the full integration potential of the ERP system by implementing all the modules and
sub-modules to form a complete ERP system. As firms stabilized their intra-firm deployments, they then
extended their implementations with the addition of modules that addressed inter-firm activities across the
supply chain. ERP modules that commonly found implemented are: Finance module (FI), Human
Resource Module (HR), Materials Management Module (MM), Production planning module (PP),
Quality management module (QM), Sales and distribution module (SD), Controlling (CO) , Supply Chain
Management (SCM), General logistics (LO), Project system (PS), Plant maintenance (PM), Customer
Relation Management (CRM), E-commerce (E-COM), Advance Planner Optimizer/ Advance Planner
Scheduler (APO/APS). Each of these modules in turn comprises of numerous sub-modules that accessed
the firm’s common database.

Advantages of ERP

ERP system selection and implementation is a major capital intensive strategic decision for any
organization. The business drivers impacting ERP strategies are cost reduction, customer service and
growth. Organizations go in for this decision to standardize their business process, as well as to integrate
and co-ordinate the people, processes and technology that can have a significant impact on the benefits
achieved by the organizations. Vendors of EPP packages mention and promise potential benefits of
improved process flow, better data analysis, higher quality data for decision making, reduced inventories,
improved coordination throughout the supply chain, and better customer service etc. Studies that surveyed
the impact of ERP systems in the performance of organizations indicated that company size and industry
segment do not affect the results. Benefits have been indicated for large and small firms, whether they
make standard or custom products or are in the service sector. These benefits can be broadly classified
into direct benefits and quantifiable benefits. These benefits are discussed in detail later in this chapter. In
other words, ERP has to provide timely and accurate productions- oriented information for long-range
planning and day-to-day operational planning and control. It has to improve productivity and enhance the
competitive edge by optimizing the use of resources, i.e. Men, Material, Machines and Money. It is a tool
in the hands of management to balance the demand and supply and to stay competitive.

In context of profitability, the interdependencies of various functions in an enterprise which are required
in order to improve profits and stay competitive are presented in the Profit Structure Design as shown in
figure 2.6. A production engineer’s perennial problem is shortage of parts, materials and sub-assemblies
to make products on time. At the same time, there is problem of high inventories and accumulated parts in
the stores due to various reasons like safety stock, product modifications and defectives storage methods.
Load balancing between various manufacturing and assembly shops as well as 26 quality and customer-
service problems need not be over-stressed. If we add cash flow and human resources problem to the
above, the production manager’s cup of woes is full

. Benefits of ERP:

(a) Business integration: The first and the most important advantage lie in the promotion of integration.
The reason ERP packages are called integrated is the automatic data up gradation between related
business components, since conventional company information systems were aimed at the optimization of
independent business functions in business units, almost all were weak in terms of the communication
and integration of information that transcended the different business functions in the case of large
companies in particular, the timing of system structure and directives differs from each product and
department / functions and sometimes they are disconnected. For this reason, it has become an obstacle in
the 27 shift to new product and business classification. In the case of ERP packages the data of related
business functions is also automatically updated at the time a transaction occurs. For this reason, one is
able to grasp business details in real time, and carry out various types of management decisions in a
timely manner based o that information

(b) Flexibility: The second advantage of ERP packages is their flexibility. Diverse multi functional
environments such as language, currency, accounting standards and so on are covered in one system and
functions that comprehensively managed multiple locations that span a company are packaged and can be
implemented automatically. To cope with company globalization and system unification, this flexibility is
essential, and one could say that it has major advantages, not simply for development and maintenance,
but also in terms of management .

(c) Better analysis and planning capabilities: Yet another advantage is the boosting of planning type
functions. By enabling the comprehensive and unified management of related business and its data, it
becomes possible to fully utilize many types of decision support systems and stimulation systems.
Furthermore, since it becomes possible to carry out flexibility and in real time the feeling and analysis of
data from a variety of dimensions, one is able to give decision makers the information they want, thus
enabling them to make better and informed decisions.

(d) Use of latest technology: The fourth advantage is the utilization of latest developments in
information technology (IT). The ERP vendors were very quick to realize that in order to grow and to
sustain that growth: they have to embrace the latest developments in the field of information technology.
So they quickly adopted their systems to take advantages of the latest technologies like open systems,
client server technology, internet/ intranet, computer aided acquisition and logistics support, electronic
commerce etc. It is this quick adaptation to the latest changes in information technology that makes the
flexible adaptation to changes to future business environments possible. It is this flexibility that makes the
incorporation of the latest technology possible during the system customization, maintenance and
expansion phases.

(e) Reduced inventory and inventory carrying cost: The manufacturing nature of many ERP users
makes the issue of process and material costs savings paramount. The main factor behind these savings is
that implementation of the ERP system allows customers to obtain information on cost, revenues and
margins, which allow it to better, manage its overall material cost structure. This ability to manage costs
is best seen in savings that organizations can obtain in their inventory systems. Customers can perform a
more complete inventory planning and status checking with the ERP system. These checks and plans
reveal existing surpluses or shortages in supplies. Improved planning and scheduling practices typically
lead to inventory reductions to the order of 20 per cent or better. This provides not only a one time
reduction in assets (cost of the material stocked), but also provides ongoing savings of the inventory
carrying costs. The cost of carrying inventory includes not only interest but also the costs of warehousing,
handling, obsolescence, insurance, taxes, damage and shrinkage.

(f) Reduced manpower cost: Improved manufacturing practices lead to fever shortages and interruptions
and to less rework and overtime. Typical labor savings from a successful ERP system are a 10 per cent
reduction in direct and indirect labor costs. By minimizing rush jobs and parts shortages, less time is
needed for expediting, material handling, extra setups, disruptions and tracking splits lots odd jobs that
have been set aside. Production supervisors have better visibility of required work and can adjust capacity
or loads to meet schedules. Supervisors have more time for managing, directing and training people.
Production personnel have more time to develop better methods and improve quality.

(g) Reduced material costs: Improves procurement practices lead to better vendor negotiations for
prices, typically resulting in cost reductions of 5 per cent or better. Valid schedules permit purchasing
people to focus on vendor negotiations and quality improvements rather than spending their time on
shortages and getting material at premium prices. ERP systems provide negotiation information, such as
projected material requirements by commodity group and vendor performance statistics. Giving suppliers
better visibility of future requirements help them achieve efficiencies that can be passed on as lower
material costs.

(h) Improves sales and customer service: Improved coordination of sales and production leads to better
customer service and increased sales. Improvements in managing customer contacts, making and meeting
delivery promises, and shorter order to ship lead times, lead to higher customer satisfaction, goodwill and
repeat orders. Sales people can focus on selling instead of verifying or apologizing for late deliveries. In
custom product environment, configurations can be quickly identified and prices, often by sales personnel
or even the customer rather than the technical staff. Taken together, these improvements in customer
service can lead to fewer lost sales and actual increase in sales, typically 10 per cent or more. ERP
systems also provide the ability to react to changes in demand and to diagnose delivery problems.
Corrective actions can be taken early such as determining shipment priorities, notifying customers of
changes to promise delivery dates, or altering production schedules to satisfy demand.

(i) Efficient financial management: Improves collection procedures can reduce the number of days of
outstanding receivables, thereby providing additional available cash. Underlying these improvements is
fast, accurate invoice creation directly from shipment transactions, timely customer statements and
follows through on delinquent accounts. Credit checking during order entry and improved handling of
customer inquires further reduces the number of problem accounts. Improved credit management and
receivable practices typically reduce the days of outstanding receivables by 18 per cent or better. Trade
credit can also be maximized by taking advantage by supplier discounts and cash planning, and paying
only those invoices with matching recipients. This can lead to lower requirements for cash-on-hand .

The benefits from ERP come in three different forms i.e. in the short-term, medium-term and long-term.
When initially implemented, in a year of the organization going live with ERP, it helps in streamlining the
operational areas such as purchase, production, inventory control, finance and accounts, maintenance,
quality control, sales and distribution, etc. This benefit is in form of ‘automating’ the transactions which
promises accuracy, reliability, availability and consistency of data.

The next level of benefits accrues in the medium-term after the data in the above area is in place. At this
stage the organization not only gets data but can use it in meaningful analysis and plan the major
resources (material, machine capacity, manpower and money). At this stage organization realizes benefits
in terms of reduced working capital (inventory and receivables) better financial forecasts, reduces cycle-
time for order fulfillment, improved coordination between various related processes in the organization,
etc.

The real benefits of the ERP comes in the long-term when the organization is in the position to apply the
experience of the best business processes evolved over years of implementing the ERP for other
organizations. At this stage the organization adopts the ‘Best Business Processes’ such as Total Quality
Management (TQM), Just-in-Time (JIT), and Computer Integrated Manufacturing (CIM). In the long-
term ERP also enhances the organizations competitive edge by providing it the ability to change easily.
An ERP package provides various ways of performing a business activity, and an organization can adopt
a different way of performing the same activity by reconfiguring the ERP and testing the changes

Al-Mashari et al. 26 (2003) classifies changes in performance measures due to ERP system
implementations into five categories. The operational category concerns improvements in functional areas
leading to cost reductions, cycle time reductions, and productivity improvements. Benefits such as better
resource management, improved decision-making, planning, and performance improvements fall into the
managerial grouping. Strategic benefits help firms to innovate, build cost leadership, generate product
differentiation, and build external links in the supply chain. The firm’s IT infrastructure benefits through
IT cost reductions and increased IT capacity. Organizational benefits such as business learning and
successful organizational changes also accrue to firms.

ERP investment is the single biggest information technology investment an organization makes, the
implementation cost running in millions of dollar for any medium size or large size organizations. Despite
of many benefits promised by the vendors, the adoption 31 of ERP system generally is found to result into
time and cost overrun. Also studies reveal that all the implementation do not deliver all the promised
benefits. Due to this high expenses and low success rate, role of critical success factors (CSFs) need to be
understood.

Critical Success Factors (CSFs)

A well-designed and implemented ERP system should help reduce the production manager’s problems.
However not at all ERP implementations succeed fully. It seems to be generally conceded that failure of
an MRP/ ERP installation can be traced to problems such as:

 Lack of top management’s commitment to the project

 Lack of training for those who will eventually have to use the system

 Unrealistic master production schedules and

 Inaccurate data

To achieve good results from an ERP system, top management has to review the ERP implementation,
support the efforts of key through the ERP implementation and take proactive action to enhance the utility
of ERP.

Along with effective implementation of ERP modules and sub-modules, studies have recognized various
critical success factors (CSFs) that are associated with effective implementation of the ERP system. CSF
affects various phases of ERP system implementation. Each one of the different CSF has a different
degree of importance in different stage of ERP implementation and ERP life cycle. Though, firms
generally reported success in their ERP system deployments, there are many failures or near failures in
implementing these systems. Therefore appropriate resources should be allocated to each of these factors
to reduce the chances of ERP failure.
Firms faced difficulties in completing their implementations and achieving effective integration due to
numerous technical, managerial, and organizational challenges. Most firms adopted a CSF-based
implementation approach to overcome these difficulties. 32 Early CSF research identified individual
CSFs and indicated that firms which focus on these factors will achieve implementation success.
Researchers later realized that these CSF are interdependent and hence later CSF research focused on
developing CSF frameworks to aid the ERP system implementation process. Realizing that different
CSFs are important in different phases of the ERP project, recent literature prioritized and classified
CSFs, according to the ERP life cycle implementation process.

. Instead of focusing on individual CSFs, studies indicate that firms developed unified CSF models to
ensure smooth ERP system deployments. Sousa and Collado31 (2000) classify CSFs into four categories.
The first one is organizational-strategic with CSFs like management support, organizational change
management, project scope management, project team composition, business process engineering (BPR),
user involvement, project champion, and trust between partners. The second category is organizational-
tactical and comprises of CSFs such as dedicated staff and consultants, internal and external
communication, formal project plan and schedules, training, preventive maintenance, effective use of
consultants, and empowered decision makers. The third one describes technological-strategic CSFs like
implementation strategy, minimal customization, and relevant ERP version. The last category includes
technological-tactical CSFs such as software configuration and legacy system knowledge. A synthesis of
research studies in the early part of this chapter suggests that most ERP system implementation problems
arise from an imbalance in focus among CSFs. An exclusive focus on technical CSFs would result in
technically successful ERP system implementations that would not meet business objectives.
Management support and organizational change management CSFs, on the other hand, have almost
nothing to do with technology and almost everything to do with people and process. Research studies
indicate that successful ERP deployments result from a balanced focus on people, process, and
technology issues.

Phases of ERP System Implementation

Like any other project the ERP implementation also has to go through different implementation phases.
There are no clear separating lines between these phases and in many cases one phase will start before the
previous is complete. Although these phases 33 may seem very linear and distinct from each other, but in
real, throughout the actual implementation, the phases are in fact quite fluid. In many cases companies go
through many implementations – in different business units, different modules, or manufacturing
locations, so at any given time, more than one of the phases may be operational. Some companies opt for
one and only one ‘Big Bang’, while other companies favor sequential roll out, the life cycle phases are the
same.

a)Pre- evaluation screening

Once the company decides to go for ERP system the search for the perfect package starts. But there are
hundreds of ERP vendors - of all shapes and sizes- all claiming to have the solution that is ideal for a
company. Analyzing all packages before reaching to a decision is not possible. It is also very time
consuming process. So it is better to limit the number of packages that were evaluated to less than 5. It is
always better to do a thorough evaluation of small number of packages, rather than doing a superficial
analysis of dozen of packages. So the company should do a pre-evaluation screening to limit the number
of packages that are to be evaluated by the committee.

(b) Package evaluation.

The evaluation/ selection process is one of the important phases of the ERP system implementation
because the package that a company selects will decide the success or failure of the project. Since ERP
systems involve huge investments, once a package is purchased, it is not an easy task to switch to another
one. So it is ‘do it right the first time’ proposition and there is no room for error. The most important
factor to be kept in mind while evaluating the package is that none of them are perfect. The idea that there
is no perfect package needs to be understood by everyone in the decision making team. The objective of
the selection process is not to identify a package that covers each and every requirement. It is to find a
package that is flexible enough to meet the company’s needs, or in other words, software that could be
customized to obtain a ‘good fit’.

Some important points to be kept in mind while evaluating ERP software includes:

 Functional fit with the company’s business process

 Degree of integration between various components of the ERP system

 Flexibility and scalability

 Complexity

 User friendliness

 Quick implementation
 Ability to support multi-site planning and control

 Technology- client/ server capabilities, database independence, security

 Availability of regular upgrades

 Amount of customization required

 Local support infrastructure

 Availability of reference sites

 Total cost including cost of license, training, implementation, maintenance, customization and hardware
requirements.

(c) Project planning phase

This is the phase that designs the implementation process. It is in this phase that the details of how to go
about the implementation are decided. Time schedules, deadlines, etc. of the project are arrived at. The
project plan is developed. Roles are identified and responsibilities assigned. The organizational resources
that will be used for the implementation efforts are decided and the task allocation is done. This phase
will decide when to begin the project, how to do it and when the project is to be completed. This is the
phase which will plan what to do in case of contingencies; how to monitor the progress of
implementation, what control measures should be installed and what corrective actions should be taken
when things get out of control. Usually a committee constituted by the team leader of each
implementation group, do the project planning. It will be headed by the ERP in-charge and will meet
periodically to review the progress and chart the future course of action.

(d) Gap analysis This is arguably the most crucial phase in the success of the ERP implementation. This
is the process through which the company creates a complete model of where they are now and where
they want to be headed. The trick is to design a model which both anticipates and covers any functional
gaps. It has been estimated that even the best ERP package, custom tailored to the company’s need meet
only 80 per cent to the company’s functional requirement. The remaining of the requirement present a
problematic issue for the company’s business process reengineering one of the company’s most
affordable solutions entails altering the business to fit the ERP package.

Other solutions include:

 Pinning hopes on an upgrade

 Identifying a third party product that might fill the gap

 Designing a custom program

 Altering the ERP source code

(e) Reengineering

It is the phase that the human factors are taken into account. In ERP implementation settings,
reengineering has two different connotations. The word reengineering in the ERP field refers to an ERP
implementation model initially designed and used with much success by the major ERP consulting firms.
The BPR approach to an ERP implementation implies that there are really two separate but closely linked
implementations involved in an ERP site: a technical implementation and business process
implementation. The BPR approach emphasizes the human element of necessary change in an
organization, this approach is generally more time consuming and has received its share of criticism for
creating bloated and extended projects. But adherences of the BPR approach to ERP would argue that
there is no way that you can ignore the human element to an implementation that involves significant
changes in responsibilities. As the ERP market shift to the mid-market focus and as all implementations
are becoming more cost- sensitive the BPR approach has come under some real scrutiny.

(f) Customization This is main functional area of ERP implementation. It is a bit of mystique around the
customization process and for good reason. In order to do so, business processes have to be understood
and mapped in such a way that they arrived at solutions match up with the overall goals of the company.
But, companies cannot just shut down their operations while the mapping processes take place. Hence,
the proto type a simulation of the actual business processes the company- will be used. The prototype
allows for thorough testing of the ‘to-be’ model in a controlled environment. As the ERP consultants
configure and test the proto type, they attempt to solve any logistical problem inherent in the BPR before
the actual go-live implementation.

(g) Implementation team training

Around the same time the these customization is taking place, the implementation team is being trained,
not so much on how to use the system, but on how to implement it. This is the phase where the company
trains its employees to implement and later run the system. The ERP vendors and the hired consultants
will leave after the implementation is over, but for a company to be self sufficient in running the ERP
systems; it should have a good in house team that can handle the various situations. So it is very vital that
the company recognizes the importance of this phase and selects employees with the right attitude people
who are willing to change, learn new things and are not afraid of technology and good functional
knowledge. (h) Testing

This is the phase where the company tries to break its system. It is the phase where the company is testing
real case scenario. This system is configured and now you must come up with extreme case scenario-
system overloads, multiple users logging on the same time, user entering invalid data, hackers trying to
access restricted areas and so on. The test cases may be designed specifically to find the weak links in the
system and these bugs should be fixed before going live.

(i) Going live

This is the phase where ERP is made available to the entire organization. On the technical side the work
is almost complete- data conversion is done and the databases are up and running and on the functional
side the prototype is fully configures and test and ready to go operational. The system is officially
proclaimed operational, even though the operational team must have been testing it and running it
successfully for some time. But once the system is ‘live’ the old system is removed and the new system is
used for doing business. (j) End user training

This is the phase where the actual users of the system will be given training on how to use the system.
This phase starts much before the system start going live. The employees who are going to use the new
system are identified. Their current skills are noted and they are divided into groups, based on their
current skill levels. Each group is then given training on the new system. This training is very important
as the success of the ERP system is in the hands of the end users. Therefore these training sessions should
give the participants an overall view of the system and how each person’s action affect the entire system.
In addition to these general topics, each employee is trained on the job or the tasks that he or she is
supposed to perform once the system goes live. It is human nature to resist change. Also many people are
afraid of computers and other new technologies. So there will be resistance to change. Another factor is
that not all people will be successful in making the changeover. The company management should
address these concerns and should take necessary actions to avoid failures. End-user training is much
more important and much more difficult than the implementation team training. Companies are beginning
to take this phase seriously as there is now statistical evidence, which shoes that the most implementation
fail because of lack of end-user failure.

(k) Post implementation (operations and maintenance)

One important factor that must be kept in mind is that the post implementation phase is very critical.
Once the implementation is over the vendors and the hired consultants will go. To reap the benefits of the
ERP system, the system should get enterprise wide 38 acceptance. There should be people within the
organization who have technical prowess to make necessary enhancements to the system, as and when
required. The system must be upgraded as and when new version or new technologies are introduces.
Here the organization should think in terms of incremental benefits. Of the new enhancements, there will
be a lot of other aspects, like user training, that have to be considered. So instead of going in for upgrade
as and when a new version is announces by the vendor, the organization should first analyze the cost and
benefits.

The post ERP organizations will need a different set of role and skills than those with less integrated
types of systems. At a minimum, everyone who uses the system needs to be trained on how they work,
how they relate to the business process and how a transaction ripples through the entire company
whenever they press a key. The training will never end; it is an ongoing process; new people will always
be coming in and new functionality will always be entering the organization.

Evaluation of ERP System Performance

Evaluation of ERP system performance

Benefits that are accrued to the firm increase with the implementation of modules and sub-modules. It is
seen that the benefits enhances as the modules implemented are effectively integrated within the ERP
system. Along with the technical implementation the organizational changes need to be done so as to
maximize these benefits. The literature available has been proactive in determining the types of benefits
that companies might anticipate from their ERP systems and to what extent organizations had actually
attained those benefits on a post-implementation. Companies anticipated realizing both tangible and
intangible benefits from the implementation of ERP systems. But to achieve these benefits the role of the
CSFs are very crucial. CSFs are found to have different degree of importance at the different stages of
ERP implementation. Not only this, CSFs also affect the performance of the ERP system throughout the
life cycle of the ERP system. Thus it is the ERP system which affects the change in performance of the
firm with the moderating effect of the CSFs at various stages.

General Model for Evaluation of ERP system

Performance Madapusi (2008) in his study found a gap in the present available literature and tried to
fulfill this gap by evaluating the change in performance and benefits arising flowing in due to
implementation of ERP system and as well as by investigating the impact of various factors that are found
critical for the ERP system deployment.
Benefits of ERP :
Following are some of the benefits they achieved by implementing the ERP packages:

 Gives Accounts Payable personnel increased control of invoicing and payment

processing and thereby boosting their productivity and eliminating their reliance on
computer personnel for these operations.
 Reduce paper documents by providing on-line formats for quickly entering and retrieving
information.
 Improves timeliness of information by permitting posting daily instead of monthly.
 Greater accuracy of information with detailed content, better presentation, satisfactory for
the auditors.
 Improved cost control.
 Faster response and follow-.up on customers.
 More efficient cash collection, say, material reduction in delay in payments by customers.
 Better monitoring and quicker resolution of queries. Enables quick response to change in
business operations and market conditions.
 Helps to achieve competitive advantage by improving its business process.
 Improves supply-demand linkage with remote locations and branches in different
countries.
 Provides a unified customer database usable by all applications.
 Improves International operations by supporting a variety of tax structures, invoicing
schemes, multiple currencies, multiple period accounting and languages.
 Improves information access and management throughout the enterprise.
 Provides solution for problems like Y2K and Single Monetary Unit (SMU) or Euro
Currency.

ERP IMPLEMENTATION
 The success of an implementation mainly depends on how closely the implementation
consultants, users and vendors work together to achieve the overall objectives of the organisation.
 The implementation consultants have to understand the needs of the users, understand the
prevailing business realties and design the business solutions keeping in mind It is the users who
will be driving the implementation and therefore their all these factors active involvement at all
stages of implementation is vital for the overall success of implementation.
 It is worthwhile to remember that ERP is an enabling tool, which makes one do his work better,
which naturally need additional efforts.
 During the course of implementation the standard package may undergo changes which may be a
simple one or a major ‘functionality’ change. Implementing such changes is known as
Customization.
 The contents of the package are known as modules and the modules are further divided into
Components.
  The roles and responsibilities of the employees have to be clearly identified, understood and The
employees will have to accept new processes and procedures configured in the system laid down
in the ERP system.
 At the same time these processes and procedures have to be simple and user friendly.
 A well-managed and implemented ERP package can give a 200 percent return on investment
where as a poorly implemented one can yield a return on investment as low as 25 percent.
 Key Planning and Implementation decisions a number of the key decisions that need to be made
when this discussion looks at considering an enterprise integration effort.
ERP or Not to ERP?
The decision to implement an ERP should be based on a business case rational. Technology
justifications include the need to address the Y2K problem (in most cases, this is no longer
applicable), integrate the functions of disparate systems, merge acquisitions with new
capabilities such as web accessibility into the business environment. Process improvements
address actions that result in personal and IT cost reductions. Productivity improvements include
the need to close the financial cycle and increase the overall production from an enterprise
standpoint. Strategic considerations to implement new strategies not supported by the current
software, improve customer service and satisfaction, respond to competitive responsiveness.

Follow Software’s Processes or Customize: This key decision may determine the success or
failure of the ERP effort. If the organization decides to follow the process of the software, this
will result in the organization following Best practices within its sector, thereby giving it a
chance to improve and standardize their processes. However, this processes approach can create
significant turmoil by requiring employees to change their ways of doing business. If the
organization decides to stick with its current processes and customize the software to fit these
processes, the organization obviously will not have to experience the pain and
IT has the advantage of allowing the organization to continue to focus on its core the mission,
avoid a relative substantial financial commitment (in some cases) and minimize impact on the
MIS department. On the downside, providing opportunities to those external to the organization
may poorly impact employee morale and may give rise to security issues. In-house
implementation include: a better match between the software and the business, applications
optimized for the organization and better maintained security. However, an in-house approach
cannot be accomplished if there is a lack of internal expertise and personnel to support such an
effort.

ERP Implementation Methodology

Several steps are involved in the implementation of a typical ERP package. These are:

Identifying the Needs: Some of the basic questions, which are to be answered, are
Why should an ERP package be implemented?

Will it improve profitability?

Can the delivery times of products be reduced?

How does it improve customer satisfaction in terms of quality, cost, delivery time and service?
Will it help to reduce cost of products?

How can it help to increase business turnover and at the same time reduce manpower?
Will it be possible to reengineer the business processes?
Evaluating the “AS IS” situation of the business:
To understand the present situation of the business, the various functions should first be listed.

Total time taken by the business processes.

Number of decision points existing in the present scenario.

Number of Departments/Locations of businesses process.

The flow of information and its routing.

The number of reporting points currently available.

Evaluation of various ERP packages: Evaluation of ERP packages are done based on the
following criteria:-
Flexibility: It should enable organizations to respond quickly by leveraging changes to their
advantage, letting them concentrate on strategically expanding to address new products and
markets.
Comprehensive: It should be applicable across all sizes, functions and industries. It should have
in-depth features in accounting and controlling, production and materials management, quality
management and plant maintenance, sales and distribution, human resources management and
plant maintenance, sales and distribution, human resources management, and project
management.
Beyond the company: It should support and enable inter-enterprise business processes with
customers, suppliers, banks, government and business partners and create complete logistical
chains covering the entire route from supply to delivery, across multiple geographies, currencies
and country specific business rules.
Best business practices : The software should enable integration of all business operation in an
overall system for planning, controlling and monitoring and offer a choice of multiple ready-
made business processes including best business practices that reflect the experiences,
suggestions and requirements of leading companies across industries. In other words, it should
intrinsically have a rich wealth of business and organisational knowledge base.
1. Finding an efficient and capable project manager
2. Creating a balanced team of implementation consultants who can work together as a
team.
3. Selecting a good implementation methodology with
minimum customisation.
 4. Training end users.
5. Adapting the new system and mating the required changes in the working
environment to make effective use of the system in future.
POST- IMPLEMENTAION
To start at the beginning, many post implementation problems can be traced to wrong
expectations and fears. The expectations and fear that corporate management have from
an ERP have been greatly published. Of course, some of the blame for this is on the
ERP vendors and their pre-implementation sales hype. A few of the popular
expectations are:
• An improvement in processes
• Increased productivity on all fronts.
• Total automation and disbanding of all manual processes.
• Improvement of all key performance indicators.
• Elimination of all manual record keeping.
• Real time information systems available to concerned people on a need basis.
• Total integration of all operations.
ERP implementation also engenders a host of fears. Some of them are:
• Job redundancy.
• Loss of importance as information is no longer an individual prerogative.
• Change in job profile.
• An organizational fear of loss of proper control and authorization.
• Increased stress caused by greater transparency.
• Individual fear of loss of authority.
Balancing the expectations and fears is a very necessary part of the implementation
process.
RISK AND GOVERNANCE ISSUES IN AN ERP
Organizations face several new business risks when they migrate to real-time,
integrated ERP systems. Those risks include:
• Single point of failure : Since all the organization’ data and transaction processing is
within one application system and transaction processing is within one application
system. Structural changes significant personnel and organizational structures
changes associates with reengineering or redesigning business processes.
• Job role changes : transition of traditional user’s roles to empowered-based roles
with much greater access to enterprises information in real time.
• Online, real-time : An online real-time system environments requires a continuous
business environment capable of utilizing the new capabilites of the ERP
 application and responding quickly to any problem requiring of re-entry of
information.
• Change management: It is challenging to embrace a tightly integrated environment
when different business processes have existed among business units for so long.
The level of user acceptance of the system has a significant influence on its success.
Users must understand that their actions or inaction have a direct impact upon other
users and, therefore, must learn to be more diligent and efficient in the performance
of their day-today duties. Considerable training is therefore required for what is
typically a large number of users.
• Distributed computing experience : Inexperience with implementing and managing
distributed computing technology may pose significant challenges.
• Broad system access : Increased remote access by users and outsiders and high
integration among application functions allow increased access to application and
data.
• Dependency on external assistance : Organization accustomed to inhouse legacy
systems may find they have to rely on external help. Unless such external assistance
is properly managed, it could introduce an element of security and resource
management risk that may expose the organizations to greater risk.
• Program interfaces and data conversions : Extensive interfaces and data conversions
from legacy systems and other commercial software are often necessary. The
exposures of data integrity, security and capacity requirements for ERP are
therefore often much higher.
• Audit expertise : Specialist expertise is required to effectively audit and control an
ERP environment. The relative complexity of ERP systems has created
specialisation such that each specialist may know only a relatively small fraction of
the entire ERP’s functionality in a particular core module,
More recently, some of the additional risks and good governance issues introduced by
the enabled ERP environments concern:
Single sign on : It reduces the security administration effort associated with
administrating web-based access to multiple systems, but simultaneously introduces
additional risk in that an incorrect assignment of access may result in inappropriate
access to multiple systems.
Data content quality : As enterprise applications are opened to external suppliers and
customers, the need for integrity in enterprise data becomes paramount.
Privacy and confidentiality : Regularity and governance issues surrounding the
increased capture and visibility of personal information, i.e. spending habits.
Why do ERP projects fail so often?
If the people in the different departments that will use ERP don’t agree that the work
methods embedded in the software are better than the ones they currently use, they will
 resist using the software or will want IT to change the software to match the ways they
currently do things. This is where ERP projects break down.
Political fights erupt over how or even whether the software will be installed. IT gets
bogged down in long, expensive customisation efforts to modify the ERP software
tofit with powerful business barons’ wishes.
Customisations make the software more unstable and harder to maintain when it finally
does come to life. Because ERP covers so much of what a business does, a failure in
the software can bring a company to a halt, literally.
The mistake companies make is assuming that changing people’s habits will be easier
than customising the software. If people are resistant to change, then the ERP
project is more likely to fail.
HOW DOES ERP FIT WITH E-COMMERCE?
It assumes that the only people handling order information will be your employees, who
are highly trained and comfortable with the tech jargon embedded in the software. But
now customers and suppliers are demanding access to the same information your
employees get through the ERP system - things such as order status, inventory levels
and invoice reconciliation, except they want to get all this information simply, without
all the ERP software jargon, through your website.
E-commerce means IT departments need to build two new channels of access into ERP
systems,
• one for customers (otherwise known as business-to-consumer)
• one for suppliers and partners (business-to-business).