REVIEWER

406
ENTERPRISE RESOURCE
PLANNING &
MANAGEMENT
WHAT IS ENTERPRISE RESOURCE PLANNING What are the primary business benefits of an
AND WHAT DOES IT DO? ERP system?

Enterprise resource planning (ERP) is the The primary business benefits of an ERP
integrated management of main business system include forecasting, planning, purchasing,
processes, often in real time and mediated by material management, warehousing, inventory,
software and technology. ERP is usually and distribution.
referred to as a category of business
management software—typically a suite of What is Enterprise Resource Planning?
integrated applications—that an organization can
use to collect, store, manage, and interpret Enterprise Resource Planning (ERP) is an
data from many business activities. ERP integrated computer-based system used to
Systems can be local based or Cloud-based. manage internal and external resources,
Cloud based applications are growing in recent including tangible assets, financial resources,
days due to information being readily available materials, and human resources. Its purpose is
from any location with internet access. to facilitate the flow of information between
all business functions inside the boundaries of
ERP provides an integrated and continuously the organization and manage the connections to
updated view of core business processes using outside stakeholders. Built on a centralized
common databases maintained by a database database and normally utilizing a common
management system. ERP systems track computing platform, ERP systems consolidate
business resources—cash, raw materials, all business operations into a uniform and
production capacity—and the status of business enterprise-wide system environment.
commitments: orders, purchase orders, and
payroll. The applications that make up the Who are the primary users of ERP systems?
system share data across various departments
(manufacturing, purchasing, sales, accounting, The primary users of ERP systems are
etc.) that provide the data. ERP facilitates accounting, finance, logistics, and production.
information flow between all business functions
and manages connections to outside
stakeholders.

Why ERP System is used in Organizations?

ERP System is used in an organization due to Principles for Implementation of an ERP
the following reasons: system are as follows:

● It Integrates various business functions . ● Know about the organization.

● It leads to effective utilization of ● Know the growth parameters of the
resources. organization.
● It Enables data simplification. ● Know the competitive advantage or the
● It helps in strategy building based on differentiation of the company from its
centralized data. competitors.
● It leads to Single centralized data. ● Work towards strengthening the core
● Integrates different functions of competencies of the organization.
business. ● Create and work as a team.
● Balances systems, process and people. ● Understand the country and the laws,
● Helps to create and retain customers. regulations, compliances etc. prevalent in
● Helps organization to be agile and flexible. that country.
● Helps acquire a competitive advantage. ● Understand the Industry in which the
company is operating.
Why ERP System is used in Organizations? ● Know the current systems in place
● Know the purpose for ERP
ERP System is used in an organization due to implementation
the following reasons: ● Understand the concerns and challenges
of implementation
● It Integrates various business functions .
● It leads to effective utilization of Advantages of implementing an ERP System in
resources. an Organization
● It Enables data simplification.
● It helps in strategy building based on ERP system in an organization facilitates the
centralized data. following:
● It leads to Single centralized data.
● Integrates different functions of ● Readymade solutions for most of the
business. Problems.
● Balances systems, process and people. ● Integration of all functions ensured.
● Helps to create and retain customers. ● Easy enterprise wide information
● Helps organization to be agile and flexible. sharing.
● Helps acquire a competitive advantage. ● Suppliers and Customers communication
can be on-line.
● Automatic adaptation to new technology.
● Drawbacks of Implementing ERP
Systems in an Organization

Principles for implementation of ERP Systems

Implementing an ERP System in an organization The various problems in the above System
has the following drawbacks: which was implemented before ERP Systems
came are as follows:
● Success depends on the skill and
experience of the workforce, including ● Delays
training. ● Lost Orders
● Customization of the ERP software is ● Keying into different computer systems
limited. This may involve changing of the invites errors
ERP software structure. ● Order Fulfillment after ERP an example
● ERP systems can be very expensive to
install. What is an Organizational Chart?
● Systems are too restrictive and do not
allow much flexibility in implementation The definition of an organization chart or "org
and usage. chart" is a diagram that displays a reporting or
relationship hierarchy. The most frequent
Why ERP projects fail? application of an org chart is to show the
structure of a business, government, or other
● Lack of understanding purpose of organization.
implementation.Inadequate requirements
definition How to Make an Organizational Chart
● Being solution oriented rather than
problem oriented We usually think of an organization chart of
● Lack of top management commitment having a fairly rigid, top-down structure. Here's
● Package does not address the basic the format of a basic three-level org chart.
business functions of the client
● Inadequate resources employed by the What Is a Business Process?
client
● Internal resistance to changing the 'old' We have all heard the term process before,
processes but what exactly does it mean? A process is a
● Unrealistic expectations of the benefits series of tasks that are completed in order to
● Inadequate training accomplish a goal. A business process,
● Unrealistic time frame expectations therefore, is a process that is focused on
achieving a goal for a business. If you have
Order fulfillment before ERP : An example worked in a business setting, you have
participated in a business process. Anything
from a simple process for making a sandwich
at Subway to building a space shuttle utilizes
one or more business processes. Processes
are something that businesses go through
every day in order to accomplish their mission.
The better their processes, the more
effective the business.
Some businesses see their processes as a There are different types of business
strategy for achieving competitive advantage. A processes under primary processes. These
process that achieves its goal in a unique way are as follows:
can set a company apart. A process that
eliminates costs can allow a company to lower 1) Sales:
its prices (or retain more profit). Sales standalone type of business process
which can make a company. Serious is
8 Types of Business Processes considered as a primary business process
because it is the ultimate revenue generator
A collection of processes is what makes the for any and every business and without
business. Different processes come together revenue business cannot survive or run. Most
to form an efficient business model. For a of the startups have a strong sales system in
business to flourish it is important that the order to get more revenue and profit
processes are optimized and the function generation to run the organization.
smoothly in the organization. The primary
function of processes is to add value to the Even the Conglomerates focus on the sales
business. There are different types of process in order to generate higher profits
processes which are used to enhance the and gains or retain market share in the market.
business. Basically, there are three categories Without sales, any organization cannot survive
under which all the types of business and that is the reason why the money spent on
processes fall under. the sales department is the second highest of
the expenses in the entire organization. The
A) Primary Types of Business processes : company may or may not have any other
These types of business process are department but it is essential to have a sales
extremely important and fundamental for department. Be it a small organization or
business. The deal with the basic values and roadside vendors or a multinational organization,
work alongside the vision and mission of the without sales, none of the businesses can
business. As the name suggests the primary survive.
process is a very basic process through which
the business ensures delivery of services or 2) Customer service:
products to their clients.
Since sales is an essential and primary type of
These processes are paid close attention to business process the next one is customer
since they are an integral part of the service. Once the sales orders are generated
organization. The ultimate aim of primary it is essential that there is a back in the team
processes is to optimize themselves so that which process is the orders and provides them
they add value at every step of the business to the customers. Customer service also helps
as well as to the end product which internal in managing the situation when customers
value to the client. This improves the processes required information about the product or
and has a direct effect on business output. service for assistance with the technicalities
of the product. Good customer service can
retain customers as well as bring back lost
customers better than size department.
3) Finance department: Once the product is designed, crafted and
Once the business picks up and the money approved the initial production of how the
starts flowing and it is essential to manage the product begins in the production or
finances. There should be a dedicated manufacturing facility.
department to manage the incoming and
outgoing server the finances properly so that This includes recruiting of the labors who are
profits are eating expenses are reduced and all involved in the production facility right from
the employees are paid on time. manufacturing of the product till packaging and
The finance department also looks after dispatching it. In case of services, the
expense management and investment production and manufacturing and services
management. It is essential that expenses are would mean crafting of services are deciding
kept under control and all the necessary on a standard flow of services. Once the
expenses are performed so that the savings services are standardized, they are delivered
and the profits left after reducing all the accordingly to the customers.
expenses or much higher. The finance
department also deals with daily activities like While this is true in case of the companies that
expense approvals salary disbursement and provide tangible products, in case of the
taking care of all the miscellaneous and companies that provide intangible products or
recurring expenses. services they would have to have a ready
process which the customers can avail. Having
4) Operations processes: a product or service to sell is the basic
Supply chain management and operations on the requirement of any organization. It does not
primary skill are an essential part of the matter if the product is on or not. The
business and that is why are categorized under product may be manufactured by whom
primary processes. Once the sale starts company or bought from other company and
generating inventory management and stock resold to the end customer, what matters is
management should be done in a proper way in having something to sell.
order to supply the clients with the products
or services. Supply chain management is also B) Support Types of Business Processes
essential for proper management of deliveries
and to receive deliveries stock management These are the types of business processes
and warehouse management. Basics of which are not involved in the delivery of the
operations are necessary without which final product to the clients but they create a
business cannot survive. suitable environment for the functioning of
primary processes.
5) Production: They are not directly involved in generating
Production or manufacturing of the product is value to the customer but support processes
of paramount importance for any business to are important for the functioning of
run. It is crucial that the organization has a businesses. This process includes management
product or service to sell and that is where processes, accounting process, human
the production and manufacturing come into resources and such other processes to
the picture. facilitate the smooth working of a company.
Improving these processes makes a business
strategy planning and fundamentally strong. 8) Human Resources:
While it is important to have a human
Following are few types of business process resources department, it is not exactly crucial
classified under support processes: and organization working doesn’t stop without
having a Human resource department. Hence it
6) Accounting process: is classified under the support process. Usually,
The finance department is a basic requirement the recruitment is usually done by the heads of
of every organization but Accounting the organization in a small company or startups.
processes are essential for the smooth and But as the workload and the corporate ladder
efficient performance of the finance increases are essential to have a dedicated
department. Accounting department deals with Human resource department.
the cash flow and the authenticity of the The department ensures smooth working of
transactions in the organization. people in the organization, helps to resolve
disputes, increases the communication between
It is the duty of the accounting department to departments, encourages human values, helps in
let know when profits are reducing and losses the career flow, is responsible also for
are increasing. Accounting department ensures appointing people in the organization induction of
that all of the assets and liabilities are new candidates and smooth exit of the older
maintained correctly in the balance sheet. It candidates. Human resources deal with
also deals with accounts receivables and improving the candidates and the company
accounts payables, a collection of payments equally and ensure mutual growth.
against sales, number of credit days to be
allocated for the customer and such other C) Management processes:
functions. These types of business processes are similar
to the support processes which do not add
7) Management process: value to the end consumer. Management
processes are concerned with orientation and
While it is essential that the top management is monitoring and analyzing the day to day business
present in the company irrespective of its size, activities. These processes reason increasing
the middle management comes into the picture the business by introducing your articles and
when there is an expansion of the organization. incorporating innovation into the business.
These are usually goal-oriented processes
Thus, middle management process falls under which I am at designing and redesigning was
the secondary support process. Middle achieving the tangible and intangible targets.
management is also responsible for getting the They also help in maintaining the enterprise
work done from the front line and reporting brand and ensure standing out in the market by
to the seniors about the work completion and providing their customers with added value in
target achievement. Management processes, intangible terms. Management processes include
like having a long chain of command is also a leadership and executive decisions which are
part of the support process. Work completion executed at the frontlines. Deciding on the
and delegation of authority becomes easier targets, new product launches, expansions or
when Management process is present. closing of different departments.
Evolution of ERP By the ‘90s, the first ERP systems were
developed with the aim of integrating the main
Integration of information systems started business functions and of aligning the business
even before ERPs came into being. This form processes to the ERP Software (Brown et al.
of integration had limited focus; nevertheless, 2003). For the first time, ERP systems made it
using information systems for possible to generate a seamless flow of
tracking and monitoring business processes information throughout the company, satisfying
were central to the existence in manufacturing not only the needs of external customers but
organizations. Material requirement planning also those of internal customers (that is,
(MRP-I) was practiced in information users); by doing so, it improved the
the 1960s and 1970s by many manufacturing effectiveness and the timeliness of the
organizations. MRP-I was a software which decision-making process (Ross et al. 2003;
automated production planning and inventory Ganesh et al. 2014).
control so that all the business
related to manufacturing was completed in a From the ‘90s on, vendors added further
seamless manner. The objectives of this system modules and functions to the basic ERP
were as follows: modules, thus laying the bases for the
“Extended ERPs”, or ERP II (Rashid et al. 2002).
1. Required input materials are available for By the 2000s, this “extended version” of ERP
production. was made possible also by the proliferation of
2. Required products are made from input the Internet (Lawton 2000), which allowed the
material and delivered to the customers. integration of ERP with other external business
3. Maintain an optional level of investors. modules, such as CRM (Customer Relationship
4. Schedule manufacturing activities to meet Management), SCM (Supply Chain Management),
delivery schedules for the customer. APS (Advanced Planning and Scheduling), BI
5. Schedule purchasing activities to meet (Business Intelligence), and e-business capabilities
manufacturing activities (Rashid et al. 2002).

MRP evolved after about ten years into MRP II, The extensions of ERP to CRM and SCM
which incorporated the financial accounting allowed for the effective management of the
system, sales planning functions and customer relationships among organizations, suppliers and
order processing (Somers and Nelson 2003). customers, from the procurement of
MRP II resolved many of the problems of MRP, materials to the delivery of the products,
which were mainly due to the latter’s incapacity thereby aligning the supply system with
to manage complex manufacturing business customer demand. Thus, the evolution from
processes (Ganesh et al. 2014). The main ERP to ERP II has been driven by new business
difference between MRP and MRP II is that requirements and new information technologies.
the former is a stand-alone software, whereas
MRP II is an initial example of an enterprise-level
system aimed at avoiding data duplication by
promoting data integrity and forecast
accuracy through customer feedback.
The latter do not necessarily represent an
invention of ERP vendors but arise from the
market and consist of single components, such
as application frameworks, databases, Decision
Support Systems (DSS), which,
incorporated into the enterprise
increase considerably the business benefits
(Møller 2005). BI and business analytics are
other examples of IT tools—namely, DSS tools—
which have become even more integrated with
the ERP system, as they use ERP data for
supporting managers’ decisions. In addition, the
eXtended Mark-up Language (XML) has been
gradually implemented in the
infrastructures (Møller 2005).
As some studies suggest, ERP II provides
benefits to the company only when
technology available on the market is well
integrated in the enterprise system;
hence, it is not sufficient that the technology
exists; it also has to be effectively embedded in
the information system (Akkermans et al. 2003;
Weston 2003). In this regard, the definition of
ERP II provided by the Gartner Research
Group in 2000 states that the extended ERP
(or ERP II) is a business strategy and a set of
industry domain-specific applications
create value for customers and shareholders
through collaborative operational and financial
processes (Oliver 1999).
A study based on a survey shows that: (a) ERP
II increases all the benefits of ERP, since
resources are better managed, and (b) ERP II
allows the decision-making process
supported even more effectively than would
be the case with a non-extended ERP, as the
resources of the whole supply chain are made
available (Wheller 2004).
The innovations explained so far mainly regard
the need for data and information quality, the
integration of ERP with other applications, and
the improvement of the decision-making
once process. However, more recently, technology
system, has provided another innovation for managing
ERP, which consists in purchasing the system
as a cloud computing service. Cloud computing
is a model of computing which provides access
to a shared set of IT resources by means of
the Internet. These resources consist in
computer processing, storage, software, and
other services provided in virtualization and
ERP accessible on the basis of an as-needed logic,
from any device connected to the Internet and
from any location (Laudon and Laudon 2015).
the Cloud computing technology is characterised by
the following essential features (Mell et al. 2011):
• on-demand self-service: consumers can obtain
services as needed, automatically and on their
own;
• ubiquitous network access: cloud resources
can be accessed through any standard Internet
device;
• location-independent resource pooling:
which computing resources are assigned to multiple
users, according to their demand. Users do not
know where the computing resources are
located;
• rapid elasticity: computing resources are
rapidly adapted to meet changing user demand;
• measured service: cloud resource fees are
proportional to the amount of resources used.
to be
Cloud computing consists of three different
types of services: Infrastructure as a Service
(IaaS), Platform as a Service (PaaS) and
Software as a Service (SaaS), and it can be
private, public and hybrid (Elragal and El
Kommos 2012). Cloud ERP belongs to the SaaS
category and allows companies to obtain ERP
services in a cloud environment.
The Internet has made it possible to introduce
in the company’s value chain many applications,
which are not necessarily owned by the ERP
vendors. Applications, in fact, reside on web
servers to which anyone on the intranet has
access using a connected device (from
personal computers to smartphones or
tablets). Following this logic, access to the
system and to the information does not imply
extra costs, and anyone who needs information
can obtain it with ease. This architecture has
advantages also in extending ERP, as it easily
allows for a selective access of suppliers and
customers by means of extranets or the
public Internet (Chaudhary 2017). Scalability,
easy upgrades and mobile access are
consequent advantages of this architecture.
Regarding the differences between ERP in
cloud and ERP on-premises, some studies show
that cloud ERP requires no capital expenditure
and no maintenance costs, as opposed to on-
premises ERP; furthermore, the cloud solution
is more flexible and more easily accessible
(Ramasamy and Periasamy 2017).
The disadvantages and concerns regarding
cloud ERP are mainly related to:
(1) data security (including privacy issues) and
(2) integration. In terms of data security,
business data is likely to be accessed from any
smartphone or device, which potentially
compromises data security (Chao Peng and
Baptista Nunes 2009). Nevertheless, in this
regard data security is completely controlled
by the vendor, as the company only uses the
services but does not own the servers where
data is stored, and it has no control over who
may access their business data (from the
vendor side) (Peng and Gala 2014).
In many cases, the company does not even
know where servers are geographically
located and how they are protected; this lack
of transparency may introduce further data
privacy concerns. For these reasons, Service
Level Agreements have a crucial role in
defining all the conditions, guarantees, actions
and remedies between vendor and customer
(Lenart 2011).
Regarding the second item, integration, it is
quite difficult both for companies and for
vendors to customise a cloud ERP and to
integrate it with other applications. For their
part, companies have limited control over the
cloud and do not have sufficient freedom and
rights to personalize a cloud ERP, whereas
vendors, in trying to make integrations, would
have to face the diversity of platforms and
technologies used for developing applications.
As a result, until now it has not been feasible
for vendors to customize the ERP package
and to provide a seamless integration between
the system and the applications purchased by
different client companies (Peng and Gala 2014).
Table 2.1 summarizes the evolution of ERP over
the years, showing how rapidly information
systems innovation is advancing. In fact, over
about 50 years, technology and other drivers
such as globalisation, hyper-competition and
market changes have dramatically changed
companies’ needs with regard to the integration
of information systems, data storage and
elaboration, and decision-making support.
The Structure of ERP ERP Advantages :
Here, we will discuss the advantages of ERP.
The essence of ERP is the fundamental Let’s have a look.
approach that takes an integrated view of the
subject. The established application systems, ● Flexible –
which the organization generally employs, treat In response to changing needs of an
each deal separately. They are built around the enterprise, it should be flexible. The
strong boundaries of specific functions that a client-server technology authorizes ERP
specific application is meant to carter. to run across various database backend
via open database connectivity.
Features of the Structure of ERP :
● Modular –
Here, we will discuss the basic features of the The ERP system has to have modular
Structure of ERP as following. implementation architecture. This means
that many performances are logically
● ERP considers them to be part of the clubbed into the different business
interlinked processes that make up total procedure and structured into a module
business and financial impact. Almost all which can be interfaced or detached
the typical application systems are whenever need without influence the
nothing but data manipulation tools. other modules. It should support multiple
● They store data, process them, and hardware platforms for the companies
present them inappropriately whenever having a heterogeneous collection of
requested by the user. systems. It must support some third-
● In this process, the only problem is that party add-ons also.
there is no link between the application
system being used by different ● Comprehensive –
departments. It should be able to support a diversity
● An ERP system also does the same thing of organizational functions and must be
but in a different manner. There are a suitable for a wide range of business
hundred such data tables that store organizations.
data generated as a result of the
diverse deal, but they are not confined ● Beyond the company –
to any departmental or functional It should not be confined to authoritative
boundaries. boundaries, rather, it should support the
● These are rather integrated for speedy on-line connectivity to other business
and precise results required by multiple entities of an organization. These
users, for multiple purposes, for features are the recent development
multiple sites, and at multiple times. and such ERP solution is referred to as
E-ERP.
 ● Belonging to the best business practices
ERP system must be updated with the The organizational structure also determines
best practices and must have a how information flows between levels within
collection of the best business the company. For example, in a centralized
processes applicable worldwide structure, decisions flow from the top down,
while in a decentralized structure, decision-
Use of above advantages : making power is distributed among various
● To make use of above advantages ERP levels of the organization.
Architecture must be designed using
advanced information technologies and Centralized vs. Decentralized Organizational
environments. Thus, ERP is typically Structures
executed through a client-server
environment. This technology divides the An organizational structure is either centralized
applications essentially into two or more or decentralized. Traditionally, organizations
components called servers and clients. have been structured with centralized
The client portion uses the function of leadership and a defined chain of command. The
the server. The server is centralized military is an organization famous for its highly
while clients tend to be spread out in centralized structure, with a long and specific
multiple locations. hierarchy of superiors and subordinates. In a
centralized organizational system, there are
Application : very clear responsibilities for each role, with
Here, we will discuss some important subordinate roles defaulting to the guidance of
applications of ERP. their superiors.

● ERP plays an important role in inventory Types of Organizational Structures

management to manage the inventory
and is very cost-saving. Organizational structures have evolved from
● In Analytics, it provides enough rigid, vertically integrated, hierarchical,
information to visualize the overall autocratic structures to relatively boundary-
structure for better analytics. less, empowered, networked organizations
● In compliance and risk management, it designed to respond quickly to customer needs
helps you to manage and maintain risk with customized products and services.
and compliance at every stage. Today, organizations are usually structured
vertically, vertically and horizontally, or with
What Is an Organizational Structure? open boundaries. Specific types of structures
within each of these categories are the
An organizational structure is a system that following:
outlines how certain activities are directed in
order to achieve the goals of an organization. ● Vertical—functional and divisional.
These activities can include rules, roles, and ● Vertical and horizontal—matrix.
responsibilities. ● Boundary-less (also referred to as
"open boundary")—modular, virtual and
cellular.
 for example, may have duties in both sales and
Functional Structure customer service.
Four types of common organizational
structures are implemented in the real world. What is Process?
The first and most common is a functional
structure. This is also referred to as a A collection of interrelated work tasks initiated
bureaucratic organizational structure and in response to an event that achieves a
breaks up a company based on the specific result.
specialization of its workforce. Most small-to-
medium-sized businesses implement a functional A process or workflow is, by definition, a
structure. Dividing the firm into departments sequence of repeated steps that an individual,
consisting of marketing, sales, and operations is or a team, must take on in order for the
the act of using a bureaucratic organizational business to operate, achieve goals, and maintain
structure. a level of productivity. They are a crucial part
Divisional or Multidivisional Structure of the business set-up – and are the building
The second type is common among large blocks to an efficiently-run and productive
companies with many business units. Called the business.
divisional or multidivisional structure, a company
that uses this method structures its leadership First, a few examples of processes:
team based on the products, projects, or • Cleaning the store
subsidiaries they operate. A good example of • Finding an email address
this structure is Johnson & Johnson. With • Deploying software
thousands of products and lines of business, • Customer profiling
the company structures itself so each • Onboarding a new employee
business unit operates as its own company with • Planning a wedding
its own president.
The earliest known definition of a business
Flatarchy Structure process comes from Scottish economist Adam
Flatarchy, a newer structure, is the third type Smith. Breaking down his idea to the simplest
and is used among many startups. As the name elements, in 1776 he described a business
alludes, it flattens the hierarchy and chain of process in place at a theoretical pin factory,
command and gives its employees a lot of involving 18 separate people to make one pin:
autonomy. Companies that use this type of
structure have a high speed of implementation. “ One man draws out the wire, another
straights it, a third cuts it, a fourth points it, a
Matrix Structure fifth grinds it at the top for receiving the
The fourth and final organizational structure is head: to make the head requires two or three
a matrix structure. It is also the most distinct operations: to put it on is a particular
confusing and the least used. This structure business, to whiten the pins is another … and the
matrixes employees across different important business of making a pin is, in this
superiors, divisions, or departments. An manner, divided into about eighteen distinct
employee working for a matrixed company, operations, which in some manufactories are all
performed by distinct hands,
though in others the same man will sometime must be performed in an exemplary
perform two or three of them.” manner to ensure a firm’s continued
competitiveness because it adds primary
value to an output.”
Business Process Design - Three Types of
Business Processe
● Management Process
● Operational Process
● Supporting Process
Management Process
A task from start to finish as they are
focused on planning and projecting the future
of company operations.
This is where the coordination of the above
processes takes place. This involves the
planning, monitoring and the general oversee.
Example Some of the Operational Business Processes
An example of a management process might be of a Company could be:
a CEO planning out how best to organize the
marketing team’s time and energy for a PR ● Marketing
launch campaign. The process part would be ● Sales
allocating resources, defining timeframes and ● Logistics – Product Delivery
checking that the systems are in place and ● Operations
optimized. Ensuring that the team is meeting ● Customer Support
targets, that the workplace is compliant and
safe, and that concerns of employees are
dealt with – among other managerial duties. It
also means identifying potential threats or
opportunities for your business too – perhaps
seeing a talent in one of your staff members,
and recommending them for some training, or a
new client that would result in a good deal for
your business.
● Operational Processes
● Concern with the core business
process Supporting Processes
● It is the procedures and tasks that play
a direct role in the production of supporting processes support the management
outputs – from the inputs – that are the and operational processes.
operational processes.
● Operational Business Processes (Core Supporting processes accompany the “primary
Business Processes) are the “key processes”, which do not typically result in final
activities or cluster of activities which products of the organization, but rather
indirectly contributes to the value added.
Documentation, configuration management,
verification, training and audit process are all
supporting processes.

Examples of Bad Processes and Human Error
Oversights
Examples of mistakes that have been made only
because of bad processes and human error
oversights include:
● Mixing up metric and imperial
measurements on software run by a
NASA satellite, costing $125m.
software contained algorithms
didn’t comply with Software. Interface
Specification and, well, the satellite
disintegrated.
● •A perfect storm of 6 human errors —
culminating with staff thinking it was ok
to turn off the emergency cooling
system — caused the Chernobyl disaster,
costing an inflation adjusted $720 billion,
30 deaths and an extreme amount of
unsafe radiation.
● Thanks to an IT error, 425 million
Microsoft Azure customers
experienced 10.5 hours of downtime
when engineers overlooked an infinite
loop in the source code.
● Xerox created a personal computer
with a GUI before Apple, but didn’t
bother to market it and only built 2000
of the things. There’s no formal marker
of how much this particular error cost
them, but my word are they kicking
themselves now that their brand name is
synonymous with nothing more than a
hilariously obsolete piece of machinery.
● Zenefits’ woefully under-managed illegal
operations blew up in its face in 2015
when it was found to be handing out
fake insurance broker licences that
were obtained through a hack called The
Macro. Not only does it sound more like
an underground resistance movement in
Star Trek, but it served to fool a
The computer into thinking that someone
that was logging training time when they
weren’t.
Whether it’s an IT problem, laziness, ineptitude,
startup bro arrogance or just a lack of
proper education, there have been countless
mistakes in business over the years that have
led to serious consequences, from billions of
dollars lost to the total downfall of huge
corporations.
And, in case you thought I was never going to
get to the point, it’s all because these
businesses weren’t following their processes.
It’s not like NASA didn’t have Software
Interface Specifications that would have
stopped engineers making a primary school
maths mistake. It’s not like Zenefits had a solid
legal process that said “develop software to
farm fake broker licenses”
Anatomy of Process
When a process is documented on paper (or
hopefully, digitally), it’s done in the form of a
standard operating procedure document. While
they aren’t the kinds of things you’d take to
read on an 18-hour flight, they do make or potential partner, a client, or a firm
processes much easier to understand, conducting due diligence for a possible
distribute, teach, and optimize. purchase
• value added to your business should you ever
wish to sell it Developing an SOP is about
systemizing all of your processes and
What is a Standard Operating Procedure documenting them.
(SOP)?
Every business has a unique market, every
An SOP is a procedure specific to your entrepreneur has his/her own leadership style,
operation that describes the activities and every industry has its own best practices.
necessary to complete tasks in accordance No two businesses will have an
with industry regulations, provincial laws or identical collection of SOPs. Below is a listing of
even just your own standards for running your just a few typical SOPs, which you will want to
business. Any document that is a “how to” falls consider writing for your own small business.
into the category of procedures. In a
manufacturing environment, the most obvious Production/Operations
example of an SOP is the step by step
production line procedures used to make ● production line steps
products as well train staff. ● equipment maintenance, inspection
procedures
An SOP, in fact, defines expected practices in ● new employee training
all businesses where quality standards exist.
SOPs play an important role in your small Finance and Administration
business. SOPs are policies,
procedures and standards you need in the • accounts receivable – billing and collections
operations, marketing and administration process
disciplines within your business to ensure • accounts payable process – maximizing cash
success. These can create: flow while meeting all payment
deadlines
• efficiencies, and therefore profitability
• consistency and reliability in production and Marketing, Sales and Customer Service
service
• fewer errors in all areas ● approval of external communications:
• a way to resolve conflicts between partners press releases, social media, advert, etc.
• a healthy and safe environment ● preparation of sales quotes
• protection of employers in areas of potential ● service delivery process, including
liability and personnel matters response times
• a roadmap for how to resolve issues – and ● warranty, guarantee, refund/exchange
the removal of emotion from troubleshooting – policies
allowing needed focus on solving the problem ● acknowledgment/resolution of
• a first line of defense in any inspection, complaints, customer comments and
whether it be by a regulatory body, a partner suggestions
 ● write SOPs in clear, concise language so
Employing Staff that processes and activities occur as
● job descriptions they are suppose to
● employee orientation and training ● the level of detail in SOPs should provide
● corrective action and discipline adequate information to keep
● performance reviews performance consistent while keeping
● use of Internet and social media for the procedures from becoming
business purposes impractical
● keep written SOPs on-site so that they
Legal can be used by supervisors and
• privacy – an explicit privacy policy is required, employees
specifying what information you will collect, ● drafts should be made and tested
why you are collecting it, how it will be used, before an SOP is released for
and how long you will keep the information on implementation
file. Ensure that everyone in the organization is ● the more decision makers, employees
only asking for the information they need to do and complexity in the business, the more
their job. SOPs are required
• accessibility – having accessible locations,
goods and services is going to be a legislated Process Modeling and Diagrams
right of all Ontarians, with the definition of
accessibility going well beyond traditional A business process is a collection of activities
concepts, like providing wheelchair access that takes one or more kinds of input and
washrooms. creates an output that is of value to the
customer” (Hammer and Champy, 1993). Their
Companies with fewer than 20 employees are definition emphasizes the transformation and
required to create a plan for how they will value-added nature of business processes.
comply with the Customer Service Standard
and then train their A model is a simplified representation or
employees. Companies with 20 or more abstraction of a part of the world, and a
employees must also put their plans in writing business process model is therefore a
and report to the government on how the simplified representation of a business
company is doing. process.

Tips Main Business Process

● establish prior to opening; review at

least annually
● develop procedures in the language, style
and format best for the establishment
(your industry/operations knowledge is
crucial here)
 work activities across time and place, including
clearly identified inputs and outputs. The typical
purposes of documenting business processes
are:

• To document the relationship between

business processes and IT.

• To have a common reference for change

and process improvement.

• To ensure consistent quality in process

execution (Svensson, Hvolby,2012). In such a
A business process can also be defined as a
scenario, a suitable architecture has to
set of connected actions which consumes
support the exchange of information and
(inputs) and produces (outputs) tangible or
triggers between different processes as well
intangible artefacts, is performed by people,
as a management platform that is capable of
contributes to achieve goals, takes place in a
monitoring a process and service landscape,
specific location and occurs during a period of
also generating interactions with users in
time.
different roles (Schlegel, Vidačkovic, Dusch,
Seiger, 2012).
A business process can be functionally
decomposed in as many levels of detail as
In large and complex supply chains, there are a
required (Figure 1.1.1). Modeling methods usually
considerable number of business entities that
prescribe various levels of decomposition and
are involved in the business processes, such as:
use different naming conventions for each
level (e.g. process, activity, task) (Caetano,
• Manufacturing.
Pereira, Sousa, 2012).
• Sales.
• Stock.
• Logistic.
• Accounting and other.

The determination of these participants is

crucial for establishing the boundaries of sub-
processes and discovering key interactions
between enterprises (cross-functional) or
departments (inter-departmental), hereinafter
business nodes (Figure 1.1.2).

A business process model is a collection of

business processes documented using a
standardized method. Business processes can
also be defined as the specific ordering of
 called activity-centric and its main
representative is the BPMN notation. Tasks
may be divided into:

In business practice the Enterprise Resource • Human tasks.

Planning (ERP) systems are used to manage the • Automatic tasks.
business processes as the enterprise-wide on-
line interactive systems that support cross- The human tasks are carried out by persons
functional processes using a common database. playing specific roles, e.g. customers and
ERP systems are designed to provide the account managers, and the automatic tasks are
seamless integration of processes across performed by software components. The
functional areas with improved workflow, precedence rules form the control flow of
standardization of various business practices, the process and are based on the completion
and access to real-time up-to-date data. The events of tasks. The implementation of tasks is
commercially available software packages outside the scope of the process, which acts
promise seamless integration of all information as an manager of activities: the process
flows in the company: elements representing tasks are placeholders
of external activities and are intended to pass
• Financial and accounting information. them input parameters and to receive results.
• Human resource information. Input parameters and results are mapped to
• Supply chain information. process variables (Bruno, 2014).
• Customer information.
So, BPM can be defined as a structured
A company represents an open, dynamic and approach to analyze and continually improve
goal-oriented system that constantly interacts fundamental activities such as manufacturing,
with its internal and external environment. marketing, communications and other major
Constantly changing environment significantly elements of a company’s operations (Akkoyun,
affects the overall efficiency and so also the Erkan, 2014). BPM as being a system which
competitiveness of enterprises. One of the supports business processes using methods,
conditions to maintain the competitiveness and techniques, and software to design, enact,
performance of the company is the ability to control and analyze operational processes
work properly and timely with information not involving humans, organization, applications,
only about past and present but also especially documents and other sources of information
about the future. ERP information system is a (Dragan, Ivana, Arba, 2014).
powerful tool that influences awareness,
flexibility and performance of the company These roles are equipped with the permissions
(Rajnoha, Kadarova, Sujova, Kadar, 2014). to perform their respective tasks. Human
users and other active entities (subjects) are
In the traditional view, a business process is an assigned to roles according to their work
organizational tool meant to provide a product profile. A process-related role based access
or service through a number of activities (or control model enables the definition of
tasks) that are performed on the basis of permissions and entailment constraints for the
predefined precedence rules. This approach is tasks that are included in business processes
(Hummer, Gaubatz, Strembeck, Zdun, Dustdar, managing change, training users, going live and
2013). maintaining support. It’s not a one-time event,
but rather a continuous process or life cycle.
To increase the flexibility and controllability of
the management of organizations, business The seven key steps for a successful ERP
processes are used to describe the services implementation are:
that an organization provides and the internal
processes that implement those services. As a ● Research
result, it is common to see collections of ● Installation
hundreds or even thousands of business ● Migration
process models (Yan, Dijkman, Grefen, 2012). ● Testing
● Training
In environments involving business collaborations, ● Deployment
business processes are increasingly complex ● Support
and integrated both within internal corporate ●
business functions (e.g., manufacturing, design Basic Concepts and Definitions There are
engineering, sales and marketing, and enterprise several key definitions and concepts that are
services) and across the external supply chain important to help understand ERP
(Papazoglou, Kratz, 2007). implementation strategy and methodology.

Manufacturing company’s challenges are driven

by increasing flexibility, agility, efficiency and The ERP Implementation strategy is how an
quality of their processes (Prades, Romero, organization goes about planning and directing
Estruch, Garcia-Domininguez, Serrano, 2013). the deployment of an ERP application.
Business process management is a management Implementation strategies address mapping the
approach that describes how companies can company’s business processes to a system in
achieve efficiencies by integrating and an organized and defined manner. ERP
improving their business processes and by strategies are mainly driven by industry best
aligning those business processes with practices and can be tailored to fit an
corporate strategies and goals. Companies that organization’s needs. ERP implementation
routinely practice BPM are able to consistently methodology is where the company declares
improve on the results obtained from existing their strategic decisions regarding how to
processes (Nikolova-Alexieva, 2012). conduct the implementation, and selects a
focused path for ERP deployment.
ERP Implementation
Company driven implementation strategy is
What is ERP implementation? when a company drives the leadership and
direction for how the ERP system is
ERP implementation is the process of examining implemented. Often, in order to support this
current business practices, strategic planning, type strategy a company has an established
streamlining operating procedures, installing and corporate implementation methodology that
testing software, cleansing and migrating data, dictates how to approach their software
implementations. A company’s software of time in exchange for the completion of
development department generally has the specific tasks. An emerging innovation used for
expertise to accomplish this type effort. ERP implementations is cloud computing, which
Vendor led implementation strategies are usually is a type of Internet-based technology whereby
proprietary in nature and are a well-defined, shared servers provide resources, software,
structured approach to the ERP and data to computers and other devices on
implementation. ERP vendors have turnkey demand.
implementation approaches based on best
practices and lessons learned from each The ERP implementation strategy is a major
successive implementations performed. Usually, decision for company executives and
the ERP vendor has worked out most issues stakeholders to make. The implementation
irrespective of the industry, and can provide a strategy describes the plan for change that
well-suited implementation. The ERP vendor ensures alignment with overall corporate
typically has templates, tools, procedures, and objectives and goals (Al-Mashari & Zairi, 2000).
knowledge experts readily available to jump The strategy defines the organizational
start an ERP implementation. ERP principles and approach to executing the ERP
implementation encompasses the processes, implementation. Figure 1 shows key aspects to
activities, and tasks to implement an ERP be addressed in order to sustain strategic
system. focus for the ERP implementation project.

The elements, variables, and actions are ERP Implementation Strategy

controlled during the execution of an ERP
system implementation. An ERP deployment
refers to the distribution of the ERP system
to determined recipients. There is a distinction
between these two terms where
implementation is the building of the necessary
structures to distribute, and deployment
encompasses ERP system distribution based on
company business criteria. Once the ERP
system has been deployed, the practical term
Sunset specificies when the legacy system is
no longer in use. ERP consultants and
contractors are expert ERP knowledge
workers hired for a specific project or Project Drivers
service. These individuals are usually trained
professionals who chooses to perform Project drivers are important, and many times
important ERP functions for a client. are lost in the implementation effort. The
reasons why the ERP system is being
The ERP contractor operates under the implemented and the expected benefits can
auspices of a working agreement with the shift due to other company priorities and
company, and is available for a specified period demands. For project success, it is important
that strategic goals include clear reasons for Project resources are integral for
the implementation, and are kept at the successfully carrying out the work designated
forefront of the strategy. It is crucial that by the ERP implementation methodology.
management executives and project Acquiring appropriate resources is one of
stakeholders establish expectations for the many key decisions in the implementation
project. process. Whether individuals are internal key
subject matter experts or external resources
Their role is to ensure broad business such as consultants or contractors, the right
requirements are fleshed out, and project skills and experience are required to meet
objectives are developed. Implementation project objectives. Not having the right
methodologies that include project management resources working on the implementation
processes are an essential mechanism to project can be a disaster. The project
sustain and accomplish the ERP implementation resources contribute to assessing risks that
process. could impede or delay implementation.

ERP Functional Modules

A company selects the ERP functional modules

to implement based on their business process
requirements. The aim is to implement an ERP
solution that will provide a strategic advantage
for the company.
Project Management The ERP functional modules should fit the
business processes and be transparent across
Project management includes the planning, organizations. Integration of the business
organizing, timing, resourcing, and scheduling processes and functions, real-time data, and
that define the beginning and end of the information flow should appear seamless.
implementation. The establishment of project Integration capability is the most recognized
management prepares the project team for reason that companies choose an ERP system
the structure and control needed to keep the for implementation.
project on track.
Existing Platforms, Systems, and Data
The role of project management in
implementation is critical. Many times, competing A company’s existing platforms, systems, and
projects and unexpected issues arise that can data are the lifeline of the ERP implementation.
derail the project implementation. Project The implementation strategy should address
management provides the process to monitor, how the legacy system environment will be
derive solutions, and stay on track with the handled respective of the new ERP system.
implementation. Data may need to be converted for use in the
ERP system, interfaces will possibly need to be
Project Resources developed to bridge data from the legacy
system, and configuration rules established for
operational transaction processing. Transition
from legacy systems can be one of the most
difficult challenges in the ERP implementation. Joint ventures are collaborative implementation
Great detail, major planning, and careful strategies among similar companies across a
execution are needed to ensure smooth particular industry. Companies typically
changeover and to “sunset” systems. participate in consortiums with other similar
companies to work in partnership to address
Cost Allocation economic concerns, performance impacts,
technology, outsourcing, value creation,
ERP systems are one of the most costly operations, and many other topics to enhance
technology initiatives that an organization can company performance.
implement. The total cost of ERP ownership
includes the packaged ERP software, The consortiums are a source for
hardware, professional services (consulting, on- benchmarking and best practices that can
going maintenance, upgrades, and optimization), assist with creating the strategic advantage,
and internal costs. Therefore, it is crucial to and enable better support for clients by
define the appropriate budget and funding aligning with key industry stakeholders.
sources for implementing the ERP solution. The Moreover, the interaction exchange facilitates
duration of the project and payback periods is the sharing of technology implementation
important to determine the expected return on strategies useful for ERP system
investment (ROI). implementations.

According to the 2011 Panorama report, the The Supply Chain consortium is a premier
majority of implementations will “pay back” in example of joint venture collaboration. The
less than three years. They also show that the consortium provides a broad range of tools,
average implementation project cost can range events, and processes to members in order to
from $1.1 million to $5.0 million, depending on the drive world class performance. A key focus
type of ERP solution and vendor. Funding of the consortium is to help companies deliver
sources should be well-developed to avoid major necessary business processes that have
financial challenges along the way. proven superior results in real world
implementations.
A contingency or fall-back plan to address
shortcomings or budget overruns should be in ERP Deployment Strategies
place to minimize project schedules and
logistics. Budget overruns are certainly more Companies typically choose the best approach
of a reality than an exception. Most budget to carry out the implementation, utilizing several
overruns are due to unanticipated or well-known and popular implementation
underestimated fees, staffing, or technical strategies which include big bang, phased-rollout,
issues. Evaluating and developing contingency parallel adoption, and a combination of phased-
for these concerns prior to software rollout and parallel adoption. Deciding which
implementation can minimize the cost and strategy to deploy is typically based on a
duration of the project. company’s business objectives, budget
constraints, available resources, and time
Joint Venture sensitivity. Each implementation strategy has its
strengths and weaknesses which are further system is a failure.
discussed in detail.
Mini Big bang

A variation of the Big Bang approach is to

combine it with a phased implementation
approach. This entails a series of “mini-bangs”
that affect logical functions of the business.
One example uses the mini-bang methodology to
deploy the ERP system division-by-division,
where each division of a company uses a Big
Bang to migrate to the new ERP system for
manufacturing plant operations. A second
Popular implementation strategies which include example might use a functional approach; where
big bang, phased-rollout, parallel adoption, and a appropriately interfacing both systems running
combination of phased-rollout and parallel their parts of the company, i.e. finance goes
adoption. first with the new system across all divisions
at one time, followed by manufacturing and
human capital management. Typically this
type of strategy encompasses one to three
modules at a time for the deployment.
Big Bang

Just as the name implies, big bang can be

described as a strategy to implement all
enterprise functionality and ERP modules in a
single instance as a major event (Mabert et al.,
2003). All users move to the new system at a
determined date, and are implemented across
the entire organization at once during a planned
go-live event.

This can be a large implementation across

multiple countries, multiple business divisions or
product lines, and generally affects the entire
organization. After implementation activities
have been successfully executed, and “lights
out” on the old system is achieved; the new ERP Phased-Rollout
system is launched. Reverting back to the
legacy environment becomes quite challenging if Another strategy which focuses on phasing in
at all possible. It is necessary to have modules a few at a time for a slower
documented fall-back plans just in case the implementation approach is the phased-rollout
initial changeover to the new ERP (Mabert et al., 2003). The phased-rollout
strategy encompasses implementation of the
ERP system that occurs in small increments
over phases for longer periods of time. Users
move onto the new systems in a series of
planned steps.
The idea is that project teams are allowed to
take their time in the planning, business process
mapping, customization, and testing
system while continuing with day-to-day job
responsibilities.
The downsides are that these types of phased
projects often lack the intense urgency and
focus of a big bang project. It can also lead to
“change fatigue,” which can cause employees to
become burned out on new initiatives over a
sustained period of time (Garside, 2004).
Instead of completing the project within a
shorter period of time, projects
constant change over longer periods, which
can be draining to employees. Of course there
are several options, including many variations
and combinations of these implementation
techniques. Just like big bang, a phased-rollout
strategy has advantages and disadvantages. A
few of the common opinions are listed below:
Parallel-Rollout
A parallel adoption encompasses both the
legacy and new ERP system executing at the
same time. Users learn the new system while
working on the old legacy system. Many ERP
vendors prefer this method since the issues of
data integrity and migration are, for the most
part, avoided (Xu, Nord, Brown, & Nord, 2002) .
of the This method attempts to defy the old myth of
“Garbage In, Garbage Out”. This approach is not
the most efficient, since each transaction must
be entered into both the legacy and new
system.
Software As A Service Rollout
involve
Software as a Service (SaaS), sometimes
referred to as “software on demand”, is the
newest implementation methodology attracting
small and medium size companies. The ERP
software is deployed over the internet to run
behind a firewall on a local area network,
personal computer, or both. With SaaS, an ERP
vendor provides ERP application licenses to
customers either as an on-demand service
through a subscription, in a “pay-as-yougo”
model, or scalable fee structure. This
approach to ERP implementations is part of
the “cloud computing” utility model where all of
the technology is accessed over the Internet
as a service. Due to the complexity of ERP
applications, SaaS offerings are currently
available for administrative and operational
functions typically confined to one domain, such
as payroll, customer relationship management
(CRM), or one business process (Wailgum,
2008).
 fair amount of research and testing. These
things take time. The following twelve steps can
take anywhere from 14 to 24 weeks to
complete, depending on the size of your
organization. While this may seem like a long
time, consider this: the next ERP system you
implement should support your organization for
at least ten years. By following our guide, you
will find that choosing an enterprise resource
planning system goes much smoother.

12 Steps for Selecting an ERP System

1. Understand Why You Need an ERP System

2. Determine Your IT Strategy
3. Build an ERP Selection Team
4. Determine Your Business Requirements
5. Improve Your Business Processes
6. Determine a Data Management Strategy

ERP Selection Process

7. Build a Long-list of ERP Systems
8. Build a Shortlist of ERP Systems
How to Select an ERP System
9. Schedule ERP Vendor Demos
You didn’t stumble upon this guide by accident.
10. Conduct a Business Readiness Assessment
Perhaps you are looking to purchase new ERP
11. Negotiate With ERP Vendors
software. Maybe you are in the middle of
12. Pause Before ERP Implementation
implementation and want to make sure you are
on the right track. Maybe you are just a
Supply Chains
curious person. Regardless of the reason
know this: selecting an ERP system can be a
Why Supply Chain Management
daunting task.

A supply chain is basically a group of

ERP software can either make or break your
independent organizations connected together
organization so it is important to get it right
through the products and services that they
from the beginning. A comprehensive and
separately and/or jointly add value on in order
planned ERP selection process should support
to deliver them to the end consumer. It is very
your overall organizational goals. A strong
much an extended concept of an organization
foundation of planning and strategy, and
which adds value to its products or services
preferably experience, is required when taking
and delivers them to its customers.
on this task. It should not be taken lightly.

But what is the benefit of understanding the

Keep in mind that the selection process for
value adding from the supply chain
any enterprise-wide software can require a
perspective? Why managing supply chain is subjects existed for hundreds or thousands of
becoming necessary and important to today’s years, but rather a young and even nascent
business success? These are some of the subject. It is only recently that business world
fundamental questions that must be first started making use of this concept.
addressed before discussing the “how to”
questions. So, the question is “Why now?” A convincing
answer to this question is that our business
Over the last three decades, the concept and environment has changed, which includes
theory of business management have globalization, more severe competition,
undergone profound changes and development. heightened customer expectation, technological
Many old ways of doing business have been impact and geopolitical factors and so on.
challenged and many new ideas and approaches Under such a renewed business environment, an
have been created, among them are business organization focused management approach is
process re-engineering, strategic management, no longer adequate to deliver the required
lean thinking, agile manufacturing, balanced competitiveness. Managers must therefore
scorecard, blue ocean strategy, … just to name understand that their businesses are only part
a few. Supply chain management is undoubtedly of the supply chains that they participated, and
one of those new and well grown management it is the supply chain that wins or loses the
approaches emerged and rapidly developed competition.
across all industries around the world.

The earliest appearance of the term ‘supply Thus, the arena of competition is moving from
chain management’ as we know it today ‘organization against organization’ to ‘supply
published in recognizable media and literatures chain against supply chain’. The survival of any
can be traced back to the early 1980s. More business today is no longer solely dependent on
precisely, it first appeared in a Financial Times its own ability to compete but rather on the
article written by Oliver and Webber in 1982 ability to cooperate within the supply chain. The
describing the range of activities performed seemingly independent relation between the
by the organization in procuring and managing organizations within the supply chain becomes
supplies. However the early publications of ever more interdependent. You “sink or swim
supply chain management in the 1980s were with the supply chain.” It is for this reason that
mainly focused on purchasing activities and gives rise to the need for supply chain
cost reduction related activities. The major management.
development and the significant increases of
publications in the areas of supply chain Defining Supply Chains
integration and supplier-buyer relationship came
in 1990s when the concept as we know it today Supply Chain is defined as a group of Inter-
was gradually established. connected participating companies that add
value to a stream of transformed inputs from
It is therefore clear that supply chain their source of origin to the end products or
management is not one of the legacy academic
services that are demanded by the designated At the end of a supply chain is the product
end-consumers. and/or service that are created by the supply
chain for the end consumer. Thus, the
In this definition, there are a number of key fundamental reason of a supply chain’s
characteristics that have been used to existence is hinged on to serving the end-
portrait a supply chain. First, a supply chain is consumer in the market place. The degree of
formed and can only be formed if there are how well a supply chain can serve their
more than one participating companies. Second, consumer ultimately defines its competitive
the participating companies within a supply chain edge in the market place.
normally do not belong to the same business
ownership, and hence there is a legal It is understandable that in real-world a supply
independence in between. Third, those chain is much more complex than the one
companies are inter-connected on the common depicted in Figure1. It is not really a “chain”,
commitment to add value to the steam of rather it is more like a “network”, when you
material flow that run through the supply chain. consider that there are usually multiple
This material flow, to each company, comes in suppliers and multiple customers for each
as the transformed inputs and goes out as the participating companies in the chain. There are
value added outputs. also possible nested chains within the chains.
For example an engine manufacturing supply
chain is a nested supply chain within the
connected automobile supply chain.

Intuitively, one can imagine a supply chain as Depend on how would like to see the supply
something resembles a “chain”, in which the chain, there are similar but different names
“links” are the participating companies that are you may like to call the supply chain. If you
inter-connected in the value adding process view a supply chain as basically a chain of value
(see figure 1). The link on the upstream side of adding activities, you may like to call it “Value
the material flow is the supplier’s supplier; and Chain”; if you perceive a supply chain as
on the downstream side of the material flow is continuous demands originated from the
the customer. There is usually an OEM – Original consumer and stretched to upstream suppliers,
Equipment Manufacturer in between. The OBM you may like to call the supply chain the
sometimes is represented by OBM – Original “Demand Chain”.
Brand Manufacturer, or sometimes simply the
“focal company.” Since the business connections between
organizations are pervasive, how could one
draw a boundary of a supply chain? In order
to answer this question, one needs to
understand the four intrinsic flows of a supply
chain.
Material Flow: All manufacturing supply chains foundation for supply chain integration and
have material flows from the raw materials at collaboration. The distribution and sharing of
the beginning of the supply chain to the finished this single financial resource fairly across a
products at the end of the supply chain. A supply chain will allow for the better alignment
furniture-making supply chain will have the between the contribution and reward for the
wood cut down from forest at the beginning participating companies.
of its supply chain and home furniture at the
end of supply chain. The continuous flow of Commercial flow: All supply chain represents a
wood been transformed through the chain and transactional commercial flow. This means that
end up to furniture ties the whole supply chain the material flow that run through the supply
together and defines its clear boundary. A chain changes its ownership from one company
furniture supply chain can never be confused to another, from supplier to buyer. The
with a chocolate manufacturing supply chain transactional process of buying and selling
because the material flows in between are shifts the material flow’s ownership from the
clearly different and never will they cross supplier to the buyer repeatedly until the end
with each other. of the supply chain – the end-consumer. This
transactional commercial flow will only take
Information Flow: All supply chain s have and place in a supply chain where there are more
make use of information flows. Throughout a than one companies. On the other hand, if it is
supply chain there are multitude of information with an organization there will be material flow,
flows such as demand information flow, but no ownership change, and hence no
forecasting information flow, production and commercial flow.
scheduling information flows, and design and NPI
information flows. Unlike the material flow the
information can run both directions,
towards upstream and downstream alike. The four flows described above not only
Interestingly most of them are unique to the better explain the function of the supply chain,
specific supply chain. The information of but also define it more rigorously. They
woman’s fashion clothing has no value to a represent four major areas of concerns and
motorbike supply chain. Any supply chain will research activities in the supply chain
have its own set of information flows that are management, which covers most of the known
vital to its existence which are often jealously issues in the published literatures.
protected against those of other supply chains.
Customer Orientation
Finance Flow: All supply chain have finance
flow. It is basically the money flow or the blood Having understood the supply chain model, one
stream of a supply chain. Without it, a supply may ask “Is the end-consumer a part of the
chain will surely demise. However, for any supply chain?” Most people will say “Yes”,
supply chain, there is only one single source of because consumer give the demand information;
such finance flow – the en-consumer. This consumer provide the financial reward and so
understanding of single source of finance has on. But the author will argue that strictly
led to a concept of “single entity” perspective speaking the end-consumer is NOT part of the
of a supply chain, which is a very useful supply chain; the supply chain only extend from
the very raw material suppliers to the retailer consumer as part of a supply chain will
(if that’s the last link in the supply chain before not be helpful in understanding the
the end-consumer). There are number of nature of a supply chain and may cause
fundamental reasons to support this argument. considerable confusion theoretically.

● First, all supply chain supplies, and every Based on these three fundamental differences
member of the supply chain supplies; but between the nature of supply chain and that of
the consumer DON’T, it demands instead the consumer, it is more appropriate and less
of The fundamental function of a confusion if we separate the consumer away
supply chain is to supply; and the from the concept of the supply chain. This
consumer is the recipient of the supply, definition of supply chain without consumer will
but not a part of the supply. Supply not deprive the immense benefits that
chain’s existence is based on the consumer may contribute to the supply chain.
existence of the demand from the How the end-consumer plays this pivotal role in
consumer. Supply chain treats the existence and the management of supply
consumer as the object which it serves. chain is the core notion of supply chain
If a supply chain contains the consumer management.
within itself, then it will have no object to
serve and no recipient to take the The end-consumer to a supply chain is perhaps
supply; and it will lose its purpose of the most important factor of all as far as its
existence. management is concerned. Everything a supply
● Second, a supply chain adds value to the chain does is driven by the needs and wants of
product (or transformed inputs), but the end-consumer. The contents of SCM are
the consumer DON’T. Consumer populated with the approaches, activities as well
consumes the product and depletes its as the strategies that are aiming at delivering
market value. Used goods are always the products and services to satisfy the end-
cheaper than the new ones. consumer. Therefore, it is safe to say that the
A supply chain and every member in it SCM should be and has always been a
have the irrefutable duty to add values customer centered management. This reflects
to the material flow, and they must the typical characteristic of supply chain’s
learn how to improve the business and customer orientation.
its management; but consumers will Not only the end-consumer serves as the
never need to do that. Their job is to ultimate objective, it also provides vital
use the money to vote which supply information and practical assistance to the
chain best satisfy their decision making in the process of supply chain
● Third, a supply chain is always specialized management. The end-consumers needs and
and a consumer is always general. A wants, where they are, how many they are and
computer manufacturing supply chain how much they can afford and etc. give the
only produces computers, whilst a supply chain manager some very precise
consumer will have to buy food, clothing, guidance as how to achieve market
and automobile as well as computers. responsiveness.
Due to the extremely divers nature of It is therefore beyond the shadow of doubt
consumer’s purchasing, to put the that supply chain and its management have
always been, still are, and will certainly continue supply chain relationship is both strategic and
to be customer oriented. This customer operational.
orientation gives the fundamental reason and
purpose of its existence. It also ensures that Supply Chain Coordination refers mainly to the
supply chain management has to be a system inter-firm operational coordination within a
perspective-based management approach that supply chain. It involves the coordination of
engages every participating member of the continuous material flows from the suppliers
supply chain to align to the customer to the buyers and through to the end-
orientation. consumer in a preferably JIM Inventory
management throughout the supply chain could
Three Conceptual Components: be a key focal point for the coordination.
● Supply Chain Configuration Production capacity, forecasting,
● Supply Chain Relationship manufacturing scheduling, even customer
● Supply Chain Coordination services will all constitute the main contents of
the coordination activities in the supply chain.
Supply Chain Configuration is about how a The decision on the supply chain coordination
supply chain is constructed from all its tends to be operational.
participating firms. This includes how big is the
supply base for OEM (original equipment Outsourcing and Offshoring
manufacturer); how wide or narrow is the What is Outsourcing?
extent of vertical integration (which is the
single ownership of consecutive activities along Outsourcing is a business practice in which a
the supply chain); how much of the OEM’s company hires a third-party to perform tasks,
operations are outsourced; how the handle operations or provide services for the
downstream distribution channel is designed; and company.
so on. It is also known as supply chain
architecture. The decision on supply chain
configuration is strategic and at a higher level.

Supply Chain Relationship is about inter-firm What is Offshoring?

relationships across the supply chain albeit the
key focus of relationship is often around the Offshoring is the process of relocating the
OEM and its first tier suppliers and first tier business operations unit (production or
customers and the relationship in between. The services) to a different country (usually in
type and level of the relationship is determined developing nations) where cheap labour or
by the contents of inter-organizational resources are available.
exchanges. The relationship is likely to be “arm’s
length” if they only exchanged the volume and Outsourcing or strategic outsourcing is
price of the transaction; on the other hand, the commonly known as the “make-or-buy” decision.
relationship would be regarded as close Organizations may want to contract some of
partnership if the parties exchanged their its in-house operations such as design,
vision, investment planning, NPI process and manufacturing and marketing to its external
detailed financial information. The decision on suppliers. Most often such decisions to ‘buy’
the operation instead of ‘make’ itself is aiming ● Further differentiated competitive edge
at a reduced cost. If a Chinese organization ● Increasing business flexibility, thus supply
can produce the same components at a chain flexibility
fraction of the usual cost, it will surely attract ● Improved supply chain responsiveness
many OEMs to outsource the production of ● Raise the entry barrier through
the components to it. But it is also possible, focused investment
that if some companies, say in India, may have ● Enhanced ROI or ROE through
much better capability of developing the state- downsizing the fixed asset
of-the-art IT software it makes sense to
outsource the software development Outsourcing vs Off-shoring
operations to them in order to gain the supply
chain value adding. The decision and processes
of moving any strategically significant
operations out to the external suppliers is
called outsourcing.

There are two points to clarify from the

definition. First, outsourcing is not just a
decision of make or buy, but also a process The types of outsourcing business can be
that including identifying the potential suppliers, broadly observed in three categories.
contractual negotiation, regular evaluation and
review of the outsourced operation. Second, ● Business process outsourcing (BPO)
not all operations that carried out by the ➔ Marketing / call centre outsourcing
external suppliers are suitable to be classified ➔ R & D process outsourcing
as outsourcing; only the strategically significant ➔ Engineering process outsourcing (EPO)
operations can be classified as outsourcing. ➔ HR and recruitment process
outsourcing
➔ Knowledge process outsourcing (KPO)
For example, to a manufacturing supply chain,
outsourcing some key components
manufacturing operations is strategically ● Business function outsourcing
significant; but the external catering service ➔ Financial auditing
supply used by the same company is not. That’s ➔ IT services
why outsourcing is often interchangeably called ➔ Logistics services
strategic outsourcing.
● Facility and man power outsourcing
Apart from maximizing the value adding and ➔ Capital equipment leasing
minimizing the total cost discussed above, ➔ Free length experts hiring
outsourcing has many other potential benefits
which could form the prime motive for the Outsourcing is relatively simple to understand
decision makers: as a concept, but is difficult to implement in
● Focus on and further developing the practice. The debate surrounding the
core competences outsourcing decisions can be lengthy and
complicated. The decision often will involve Therefore, an outsourcing decision and its
many factors from all levels of management executions must be regularly reviewed and
and are intricately inter-related. It is therefore assessed against those risks strategically. The
recommended that managers should set up and review is essential because the changing
follow an appropriate process to make the business environment could easily make the
outsourcing decisions and execute the decisions. originally right decision no longer justifiable.
Here is a set of common steps of outsourcing When the capital or financial circumstance
processes: changes like the one in the economic downturn,
the outsourcing decision may have to be
● Understand competitive environment revised accordingly. Internal development of
● Clarify the strategic objectives and technologies and technical competences could
processes also affect the outsourcing decisions.
● Analysing the market needs
● Identify internal resources and What Is Inventory Management?
competencies
● Make or buy decision making Inventory management helps companies identify
● Identifying strategic suppliers which and how much stock to order at what
● Deciding on the relationships time. It tracks inventory from purchase to the
● Performance evaluation and reviewing sale of goods. The practice identifies and
responds to trends to ensure there’s always
Nevertheless, outsourcing like many other enough stock to fulfill customer orders and
management activities is not without any risks. proper warning of a shortage.
Far from it, the biggest concern of
outsourcing is perhaps the risk that it brings Once sold, inventory becomes revenue. Before
about. it sells, inventory (although reported as an asset
➔ Negative impact on company’s personnel on the balance sheet) ties up cash. Therefore,
➔ Loss control over key strategic design too much stock costs money and reduces
task, sub-system or component, cash flow.
resulting in negative impact on the
company’s One measurement of good inventory
➔ Could creating tomorrow’s competition management is inventory turnover. An
accounting measurement, inventory turnover
➔ Risk of severe business disruption due reflects how often stock is sold in a period. A
to failed supply from single sourced business does not want more stock than sales.
suppliers Poor inventory turnover can lead to
➔ Tactical, short term approach to deadstock, or unsold stock.
outsourcing may inhibits continuous
improvement and long term investment Inventory management definition
➔ Intellectual property right risks
➔ Foreign currency exchange risk if As a part of your supply chain, inventory
involves overseas suppliers management includes aspects such as
controlling and overseeing purchases — from
suppliers as well as customers — maintaining the
storage of stock, controlling the amount of
product for sale, and order fulfillment. Barcode scanner
Physical devices used to check-in and check-
Retail inventory management out stock items at in-house fulfillment centers
Retail is the broadest catch-all term to and third-party warehouses.
describe business-to-consumer (B2C) selling. Bundles
There are essentially two types of retail Groups of products that are sold as a single
separated by how and where a sale takes product: selling a camera, lens, and bag as one
place. SKU.
Cost of goods sold (COGS)
● First, online retail (eCommerce) where Direct costs associated with production along
the purchase takes place digitally. with the costs of storing those goods.
● Second, offline retail where the Deadstock
purchase is physical through a brick- Items that have never been sold to or used by
and-mortar storefront or a a customer (typically because it’s outdated in
salesperson. some way).
Decoupling inventory
Wholesale, on the other hand, refers to Also known as safety stock or decoupling
business-to-business (B2B) selling. Knowing the stock; refers to inventory that’s set aside as a
differences and best practices of retail and safety net to mitigate the risk of a complete
wholesale is critical to success. halt in production if one or more components
are unavailable.
Most businesses maintain stock across multiple Economic order quantity (EOQ)
channels as well as in multiple locations. The EOQ refers to how much you should reorder,
diversity of retail inventory management adds taking into account demand and your inventory
to its complexity and drives home its holding costs.
importance to your brand. Holding costs
Also known as carrying costs; the costs your
Importance of inventory management business incurs to store and hold stock in a
warehouse until it’s sold to the customer.
For any goods-based businesses, the value of Landed costs
inventory cannot be overstated, which is why These are the costs of shipping, storing, import
inventory management benefits your fees, duties, taxes and other expenses
operational efficiency and longevity. associated with transporting and buying
inventory.
From SMBs to companies already using
enterprise resource planning (ERP), without a
smart approach, you’ll face an army of Lead time
challenges, including blown-out costs, loss of The time it takes a supplier to deliver goods
profits, poor customer service, and even after an order is placed along with the
outright failure. timeframe for a business’ reordering needs.
Order fulfillment
Inventory management terms
The complete lifecycle of an order from the logistics (4PL) takes this a step further by
point of sale to pick-and-pack to shipping to managing resources, technology,
customer delivery. infrastructure, and full-scale supply chain
Order management solutions for businesses.
Backend or “back office” mechanisms that Variant
govern receiving orders, processing payments, Unique version of a product, such as a specific
as well as fulfillment, tracking and color or size.
communicating with customers.
Purchase order (PO) What Is Inventory?
Commercial document (B2B) between a Inventory is the raw materials, components and
supplier and a buyer that outlines types, finished goods a company sells or uses in
quantities, and agreed prices for products or production. Accounting considers inventory an
services. asset. Accountants use the information about
Pipeline inventory stock levels to record the correct valuations
Any inventory that is in the “pipeline” of a on the balance sheet.
business’ supply chain — e.g., in production or
shipping — but hasn’t yet reached its final Inventory vs. Stock
destination. Inventory is often called stock in retail
Reorder point businesses: Managers frequently use the term
Set inventory quotas that determine when “stock on hand” to refer to products like
reordering should occur, taking into account apparel and housewares. Across industries,
current and future demand as well as lead “inventory” more broadly refers to stored
time(s). sales goods and raw materials and parts used
Safety stock in production.
Also known as buffer stock; inventory held in
a reserve to guard against shortages. Some people also say that the word “stock” is
Sales order used more commonly in the U.K. to refer to
The transactional document sent to customers inventory. While there is a difference between
after a purchase is made but before an order the two, the terms inventory and stock are
is fulfilled. often interchangeable.
Stock keeping unit (SKU)
Unique tracking code (alphanumeric) assigned to What Are the Different Types of Inventory?
each of your products, indicating style, size, There are 12 different types of inventory: raw
color, and other attributes. materials, work-in-progress (WIP), finished
goods, decoupling inventory, safety stock,
packing materials, cycle inventory, service
inventory, transit, theoretical, excess and
maintenance, repair and operations (MRO).
Third-party logistics (3PL) Some people do not recognize MRO as a type
Third-party logistics refers to the use of an of inventory.
external provider to handle part or all of your
warehousing, fulfillment, shipping, or any other Inventory Management Techniques and Terms
inventory-related operation. Fourth-party
Some inventory management techniques use Dropshipping:
formulas and analysis to plan stock. Others In this practice, the supplier ships items directly
rely on procedures. All methods aim to improve from its warehouse to the customer.
accuracy. The techniques a company uses
depend on its needs and stock. Economic Order Quantity (EOQ):
This formula shows exactly how much
Find out which technique works best for your inventory a company should order to reduce
business by reading the guide to inventory holding and other costs.
management techniques. Here’s a summary of
them: FIFO and LIFO:
First in, first out (FIFO) means you move the
ABC Analysis: oldest stock first. Last in, first out (LIFO)
This method works by identifying the most and considers that prices always rise, so the most
least popular types of stock. recently-purchased inventory is the most
expensive and thus sold first.
Batch Tracking:
This method groups similar items to track Just-In-Time Inventory (JIT):
expiration dates and trace defective items. Companies use this method in an effort to
maintain the lowest stock levels possible
Bulk Shipments: before a refill.
This method considers unpacked materials that
suppliers load directly into ships or trucks. It Lean Manufacturing:
involves buying, storing and shipping inventory in This methodology focuses on removing waste
bulk. or any item that does not provide value to the
customer from the manufacturing system.
Consignment:
When practicing consignment inventory Materials Requirements Planning (MRP):
management, your business won’t pay its This system handles planning, scheduling and
supplier until a given product is sold. That inventory control for manufacturing.
supplier also retains ownership of the
inventory until your company sells it. Minimum Order Quantity:
A company that relies on minimum order
Cross-Docking: quantity will order minimum amounts of
Using this method, you’ll unload items directly inventory from wholesalers in each order to
from a supplier truck to the delivery truck. keep costs low.
Warehousing is essentially eliminated.
Reorder Point Formula:
Businesses use this formula to find the
minimum amount of stock they should have
Demand Forecasting: before reordering, then manage their inventory
This form of predictive analytics helps predict accordingly.
customer demand.
Perpetual Inventory Management:
This technique entails recording stock sales and stainless steel to ensure that there is always
usage in real-time. Read “The Definitive Guide to enough in stock to produce a sufficient
Perpetual Inventory” to learn more about this number of green widgets to meet demand.
practice.
However, what if the same raw material item
Safety Stock: were to be included in a number of products?
An inventory management ethos that prioritizes In this case, the varying demand levels for the
safety stock will ensure there’s always extra multiple products may very well offset each
stock set aside in case the company can’t other, resulting in a net level of variability for
replenish those items. the raw material item that is quite low. If so, it
may be possible to use this pooling of
Six Sigma: fluctuation risk to reduce the amount of raw
This is a data-based method for removing material safety stock that is kept on hand.
waste from businesses as it relates to
inventory. This risk pooling approach works best when
the same components are used in different
Lean Six Sigma: product lines, since entirely different products
This method combines lean management and Six are more likely to have offsetting demand
Sigma practices to remove waste and raise fluctuations than products within the same
efficiency. product line. Since there may not be much
commonality of parts among different product
Inventory Risk Pooling lines, this means that the risk pooling concept
may only be applicable to relatively generic
What is Inventory Risk Pooling? parts, such as fittings and fasteners.
Inventory risk pooling is the concept that the
variability in demand for raw materials is When rolling out the risk pooling concept,
reduced by aggregating demand across multiple follow this approach:
products. When properly employed, a business
can use risk pooling to maintain lower inventory ● Identify those components being used in
levels while still avoiding stockout conditions. multiple products.
● Monitor actual demand levels for these
Organizations tend to suffer from bloated components on a rolling quarterly basis.
inventories. One reason for this excessive ● Adjust safety stock levels to slightly
investment is that it can be difficult to exceed actual demand levels over the
forecast the amount of raw materials monitoring period.
inventory that should be kept on hand. Available
balances can vary considerably, depending on
the outside demand for the products of which
they are a part.
For example, if a green widget contains six
ounces of stainless steel, and the demand for What are Raw Materials?
the green widget is highly variable, it may be
necessary to retain a large quantity of
Raw materials are the constituent parts input Unique tracking code (alphanumeric) assigned
into a production process, where they are to each of your products, indicating style, size,
transformed into finished goods. Most raw color, and other attributes.
materials are highly standardized, and so can ➔ Stock keeping unit (SKU)
serve as inputs into multiple products. Raw
materials are tracked in a separate inventory Question 2
account at their historical cost. If their market Unique version of a product, such as a
value declines prior to being used, their specific color or size.
recorded cost is written down to market value ➔ Variant
(known as the lower of cost or market rule).
Since raw materials can be damaged or Question 3
become obsolete, and require working capital Which of the following Inventory Management
funding to hold, organizations try to keep only a Technique that prioritizes safety stock will
modest amount of raw materials on hand. ensure there’s always extra stock set aside in
case the company can’t replenish those items?
What is Safety Stock? ➔ Safety Stock

Safety stock is excess inventory that acts as Question 4

a buffer between forecasted and actual A group of independent organizations
demand levels. This inventory is maintained so connected together through the products and
that a company has sufficient units on hand to services that they separately and/or jointly add
meet unexpected customer and production value on in order to deliver them to the end
demand. Safety stock does not just involve consumer.
finished goods; it can also be applied to raw ➔ Supply Chain
materials, to guard against delays in the delivery
of materials from suppliers. Question 5
All manufacturing supply chains have material
It is possible to fine-tune the level of safety flows from the raw materials at the beginning
stock needed, based on a statistical analysis of of the supply chain to the finished products at
historical demand records and future demand the end of the supply chain.
estimates. However, this can be an expensive ➔ Material Flow
and time-consuming approach, so it is more
common to set a fixed safety stock level, and Question 6
review the adequacy of this level from time to Forecasting information flow, production and
time. Pareto analysis can be employed to revise scheduling information flows, and design and NPI
safety stock levels on a more frequent basis information flows.
for only the most heavily-used inventory items. ➔ Information Flow

Question 1
Question 7
Helps companies identify which and how much Question 14
stock to order at what time. It tracks Which of the following Inventory Management
inventory from purchase to the sale of goods. term that supplier also retains ownership of
➔ Inventory Management the inventory until your company sells it?
➔ Consignment
Question 8
The transactional document sent to customers Question 15
after a purchase is made but before an order Also known as buffer stock; inventory held in
is fulfilled. a reserve to guard against shortages.
➔ Sales order ➔ Safety stock

Question 9
Which of the three conceptual component
that refers mainly to the inter-firm operational
coordination within a supply chain?
➔ Supply Chain Coordination
Question 16
Which of the following Inventory Management
Technique that method works by identifying the
most and least popular types of stock?
➔ ABC Analysis

Question 10 Question 17
The constituent parts input into a production Which of the three conceptual component
process, where they are transformed into that includes how big is the supply base for
finished goods. OEM, how a supply chain is constructed from
➔ Raw materials all its participating firms?
➔ Supply Chain Configuration
Question 11
Which of the following Inventory Management Question 18
Technique that combines lean management and Physical devices used to check-in and check-
Six Sigma practices to remove waste and raise out stock items at in-house fulfillment centers
efficiency? and third-party warehouses.
➔ Lean Six Sigma ➔ Barcode Scanner

Question 12 Question 19
Maintaining the storage of stock, controlling The material flow that run through the supply
the amount of product for sale, and order chain changes its ownership from one company
fulfillment. to another, from supplier to buyer.
➔ Inventory Management ➔ Commercial Flow

Question 13 Question 20
The process of relocating the business A business practice in which a company hires
operations unit (production or services) to a a third-party to perform tasks, handle
different country (usually in developing nations) operations or provide services for the
where cheap labour or resources are available. company.
➔ Offshoring ➔ Outsourcing
Cash Management
What is Cash Management?
Cash management, also known as treasury
management, is the process that involves
collecting and managing cash flows from the
operating, investing, and financing activities of a
company. In business, it is a key aspect of an
organization’s financial stability.
Cash management is important for both
companies and individuals, as it is a key
component of financial stability.
Financial instruments involved in cash
management contain money market funds,
Treasury bills, and certificates of deposit.

Companies and individuals offer a wide range

of services available across the financial
marketplace to help with all types of cash
management. Banks are typically a primary
financial service provider. There are also many
different cash management solutions for both
companies and individuals seeking to get the
best return on cash assets or the most
efficient use of cash.
Summary
● Cash management, also known as
treasury management, is a process that
involves collecting and managing cash
flows.
● Chief financial officers, business
managers, and corporate treasurers
are usually the main individuals
responsible for overall cash
management strategies, stability analysis,
and cash related responsibilities.
● Many businesses fail at cash
management and the reasons vary.
Typically, a poor understanding of the
 cash flow cycle, profit versus cash, paid for investing activities, and cash from
lack of cash management skills, and bad financing activities. The bottom line of the cash
capital investments are the reasons for flow statement shows how much cash is
failing at cash management. readily available for an organization.

The cash flow statement is divided into three

The Importance of Cash parts: investing, financing, and operating
Cash is the primary asset individuals and activities. The operating part of cash activities
companies use regularly to settle their debt is based heavily on the net working capital,
obligations and operating expenses, e.g., taxes, which is presented on the cash flow statement
employee salaries, inventory purchases, as a company’s current assets minus current
advertising costs, and rents, etc. liabilities. Businesses strive to make the current
assets balance exceed the current liabilities
Cash is used as investment capital to be balance.
allocated to long-term assets, such as
property, plant, and equipment (PP&E) and The other two parts of the cash flow
other non-current assets. Excess cash after statement are somewhat more
accounting for expenses often goes towards straightforward with cash inflows and
dividend distributions. outflows connected to investing and financing,
such as investments into real estate, buying
Companies with a multitude of cash inflows and new equipment and machinery, and originating
outflows must be properly managed to maintain stock repurchases, or paying out dividends as
adequate business stability. For individuals, part of the financing activities.
maintaining cash balances is also a major
concern. There are many internal controls utilized to
manage and achieve efficient business cash
Understanding Cash Management flows. Some of a business’s major cash flow
considerations comprise the average length of
In an organization, chief financial officers, account receivables, write-offs for
business managers, and corporate treasurers uncollected receivables, collection processes,
are usually the main individuals responsible for rates of return on cash equivalent investments,
overall cash management strategies, stability liquidity, and credit line management.
analysis, and other cash-related responsibilities.
However, many organizations may outsource WHAT ARE TREASURY BILLS?
part or all of their cash management When the government goes to the financial
responsibilities to some service providers. market to raise money, it does so by issuing
two types of debt instruments — treasury bills
The cash flow statement is the main and government bonds. Treasury bills are issued
component of a company’s cash flow when the government needs money for a short
management. The cash flow statement period. These bills are issued only by the
comprehensively records all of the central government, and the interest on them is
organization’s cash inflows and outflows. It determined by market forces.
includes cash from operating activities, cash What is PP&E (Property, Plant, and Equipment)?
Property, Plant, and Equipment (PP&E) is a non- payment for that revenue. So, a very fast-
current, tangible capital asset shown on the growing business that requires a lot of
balance sheet of a business and is used to inventory may be generating lots of revenue
generate revenues and profits. PP&E plays but not receiving positive cash flows on it.
a key part in the financial planning and analysis
of a company’s operations and future
expenditures, especially with regards to capital 3. Lack of cash management skills
expenditures. It is crucial for managers to acquire the
necessary skills despite the understanding of
What is the Balance Sheet? the abovementioned issues. The skills involve the
The balance sheet is one of the three ability to optimize and manage the working
fundamental financial statements and is key to capital. It can include discipline and putting the
both financial modeling and accounting. The proper frameworks in place to ensure the
balance sheet displays the company’s total receivables are collected on time and that
assets and how the assets are financed, either payables are not paid more quickly than is
through either debt or equity. It can also be needed.
referred to as a statement of net worth or a
statement of financial position. The balance 4. Bad capital investments
sheet is based on the fundamental equation: A company may allocate capital to projects
Assets = Liabilities + Equity. that ultimately do not generate sufficient
return on investment or sufficient cash flows
Causes of Problems with Cash Management to justify the investments. If such is the case,
Unfortunately, many businesses engage in poor the investments will be a net drain on the cash
cash management, and there are several flow statement, and eventually, on the
reasons for the problem. Let us look at some company’s cash balance.
of them:
ERP Life Cycle
1. Poor understanding of the cash flow cycle
Business management should clearly understand ERP systems are complex systems and require
the timing of cash inflows and outflows from proper planning and total support (support
the entity, such as when to pay for accounts from management, employees and end-users)
payable and purchase inventory. During rapid for its successful implementation. A successful
growth, a company can end up running out of ERP implementation raises the productivity of
money because of over-purchasing inventory, the enterprise and results in increased
yet not receiving payment for it. customer satisfaction. A company is likely to
benefit more if it is able to fully integrate ERP
2. Lack of understanding of profit versus into day-today business operations of the
cash company. An effective ERP system will be able
A company can generate profits on its income to accommodate rapidly changing business
statement and be burning cash on the cash conditions.
flow statement.
When a company generates revenue, it does ERP LIFE CYCLE
not necessarily mean it already received cash
An ERP system goes through several phases
during its whole life within the hosting
enterprise. These phases constitute the life
cycle of ERP.

ERP Life Cycle, as Suggested by Markus &

Tanis According to Markus & Tanis.
1. Adoption Decision Phase
1. Chartering In this phase, the need of a new ERP system is
This phase involves making decisions that will examined for the organization. The business
affect the business positively and analyze the requirements, the nature of the operations and
impact of ERP on the business. The decision to the goals and objectives of the company are
adopt ERP is made only after a great deal of carefully studied. What impact the ERP system
careful planning. will have on the company is also determined
2. In chartering phase, crucial decisions are before deciding to go for ERP adoption. It is
taken in an attempt to have a positive impact necessary to assess the organization’s
of ERP system on the business. readiness, management’s support and IT skills
3. Project phase involves customization of ERP required before the ERP adoption decision is
software package, testing, troubleshooting as taken.
well as changing the management programs and 2. Acquisition Phase
culture. This phase involves selecting the vendor and the
4. In shakedown phase the system is monitored ERP software that best addresses the needs
and evaluated for performance. of the business. The pricing models offered by
5. System maintenance and up-gradation of different vendors, the functionality of
ERP is carried out in onward and upward different ERP products, training required are
phase of ERP Lifecycle. some of the factors that are considered for
selecting an ERP package from a vendor. The
ERP Lifecycle Framework by Esteves and selection of a right ERP package for the
Pastor organization will minimize the risk often
associated with ERP implementation and
The ERP Lifecycle Framework given by increase the likelihood of success.
Esteves and Pastor include the following phases 3. Implementation Phase
as shown in Figure 2.2. In this phase, efforts are made to synchronize
existing business process with the ERP
software package. Customization of the
acquired ERP software may be required to
meet the specific needs of the business. This
phase also involves testing the ERP system and
providing training on the new system. It is
necessary to test data, procedures and
processes before launch of ERP system in
order to minimize errors after deployment.
4. Use and Maintenance Phase taken. Project phase involves activities such as
In this phase, the ERP system is up and running. customization, testing etc. Monitoring and
The system needs to be corrected in case of performance evaluation activities are carried
any malfunctions in the system. End-users are out during the shakedown phase of ERP life
trained to use ERP system efficiently so that cycle. The last phase-“onward and upward”
benefits from the system are obtained. involves maintenance and upgradation activities
to be carried out.

According to Esteves and Pastor, ERP life

5. Evolution Phase cycle consists of the following phases:
Upgradation and changes in ERP system is Adoption Decision, Acquisition, Implementation,
important and essential to improve the Use & Maintenance, Evolution and Retirement
performance of business. Here, additional phase. In adoption decision, the first phase of
capabilities are integrated into the company’s ERP life cycle, a careful examination of the
ERP system to obtain additional advantages. In business needs of organization is done before
“upwards” evolution, functionality in the ERP deciding to adopt ERP system.
system is provided in such a way that it enables
decision making with applications such as Acquisition phase involves the selection of the
advanced planning and schedule, data right ERP vendor and right ERP package to
warehouses and business intelligence systems. In meet business requirements. Implementation
“outward” evolution, ERP system is integrated phase involves customization of ERP software
with web and E-Commerce. It delivers added and testing data as well as the processes and
value to the traditional business ERP system. procedures to ensure correctness of ERP
6. Retirement Phase system. Use and maintenance phase deals with
An ERP system may become vulnerable to the corrections of any malfunctions that may
legacy system problems in the long run as occur in the working of the ERP system. It
technologies and the business state of art also involves training the end-users to ensure
change with time. It is advisable to retire the the effective use of ERP systems. Evolution
ERP system when the ERP system begins to phase is concerned with performing
provide difficulty in modifying and evolving upgradations in ERP systems. The ERP system
itself to meet new and constantly changing is integrated with web and e-commerce
business requirements. The manager may decide technologies to deliver more benefits to their
to replace ERP system with another newer customers.
ERP system with latest functionalities required.

SUMMARY

The different phases that an ERP system goes

through within the organization constitute the
life cycle of ERP. According to Markus and
Tanis, an ERP life cycle consists of chartering,
project, shakedown and onward & upward. In
chartering phase, ERP adoption decision is
Question 1
It involves many steps and stages right from
the start, planning for project implementation,
analysis, design, implementation, transition and
operations
➔ ERP Life Cycle

Question 2
This includes a customization process. this is to
ensure that productivity is increased from a
fluid workflow.
➔ Optimization

Question 3
Where the company has to select a good ERP
package that suits your company and your
business needs, with a proper research.
➔ Selection of packages

Question 4
The step involves many changes and alteration
in the number of employees and job
responsibilities which should be performed
carefully as it directly affects the efficiency
of the company.
 ➔ Re-engineering maintenance and upgradation activities to be
carried out?
Question 5 ➔ Onward and Upward
Based on experience most businesses try and
get the features they need from a vanilla ERP. Question 12
➔ Re-implementation Provides training to end-users
➔ Use and Maintenance
Question 6
Which of the following ERP Life Cycle Question 13
according to Markus and Tanis that involves Testing the system
activities such as customization, testing and ➔ Implementation
etc?
➔ Project Phase Question 14
After the data conversion and data base
work is over, the implementation of the new
ERP system will be done and then, the old
system will be removed.
➔ Application

Question 7
Your chosen software is first implemented in Question 15
the workplace after going through an This includes scheduling timelines and deadlines
extensive evaluation. for projects, identifying roles and assigning
➔ ERP Roll Out responsibilities for the ERP implementation
process.
Question 8 ➔ Project Planning
Malfunctions in the system are checked and
removed. Question 16
➔ Use and Maintenance Hard to update, harder to maintain. It simply
can't keep up with demand.
Question 9 ➔ Decaying Performance
Selection of right ERP vendor and right ERP
package. Question 17
➔ Acquisition The system is monitored and evaluated for
performance.
Question 10 ➔ Shakedown Phase
This will help the company to identify errors,
bugs and weak links before the implementation. Question 18
➔ Testing Old ERP system is replaced with new ERP
system with latest functionalities.
Question 11 ➔ Retirement
Which of the following ERP Life Cycle
according to Markus and Tanis that involves Question 19
Customization, if required.
➔ Implementation

Question 20
An ERP system goes through several phases
during its whole life within the hosting
enterprise.
➔ ERP Life Cycle

Security in ERP
ERP Security is a wide range of measures
aimed at protecting Enterprise resource
planning (ERP) systems from illicit access
ensuring accessibility and integrity of system
data. ERP system is a computer software that
serves to unify the information intended to
manage the organization including Production,
Supply Chain Management, Financial
Management, Human Resource Management,
Customer Relationship Management, Enterprise
Performance Management. Common ERP
systems are SAP, Oracle E-Business Suite,
Microsoft Dynamics.
ERP (enterprise resource planning) systems
have evolved significantly in recent years.
Modern systems can now automate practically
all day-to-day business processes,
human resources, sales, stock management, and
so on. That’s why many organizations are now
choosing ERP systems. The advantage of all-in-
one solutions like ERP systems is that they
remove the need for multiple software
applications to improve data consistency and
ensure all aspects of daily operations are
compatible and accessible. However, as with
any sort of fully comprehensive system which
covers such a broad spectrum, there are
naturally going to be some weak spots and
vulnerabilities that are important to keep an
eye out for.
Here are 7 common ERP system security
problems, and handy hints on how you can avoid
them:
Delayed Updates
It’s reported that a whopping 87 percent of
business computers feature outdated
software, including ERP systems which are not
up-to-date. If your version is currently
unsupported, it can make it difficult to rectify
any issues, such as crashes.
More importantly, it leaves your
vulnerable to risk. Updates happen for a
reason; sometimes to introduce new features,
but mostly to address weaknesses that have
been identified in the software. The world of
cybercrime is changing constantly, and hackers
are finding ways to get around even the latest
of measures. That’s why installing updates as
soon as possible is vital.
How to Avoid: If you’re finding you’re often
lagging behind when it comes to installing ERP
updates, then it might be worth looking into an
automatic updater which applies any software
updates when available.
Full Access Rights
The biggest threat to businesses undoubtedly
including comes from external sources, but that doesn’t
mean we can sit back and ignore potential in-
house risks. Full access rights shouldn’t come
as default; instead, it’s important to look at who
has access to what data. For example, in most
cases, a software developer wouldn’t require
access to employee salary information. It’s also
worth looking into which employees have
permissions to make changes to the system.
Access rights and permissions will largely
depend upon the needs and requirements of
your business, but as a general rule, it should
be a ‘need to know’ basis.
How to Avoid: It’s important to maintain audit
logs to track any changes. It’s also worth
adding ‘authorizations’ to checklists for new
hires, promotions, and any role change
documentation.
business
Inadequate Training
Following on from the above, it is certainly
worth considering the security risk posed by
internal sources in more detail. In some cases,
the risk may be intended and malicious, but in
most cases, it is more likely to be the result of
a lack of understanding. This could be a lack
of understanding of the ERP system as a
whole, or it could be a lack of understanding
of what is expected by the organization in multiple software programs are used
terms of security. This is especially true for simultaneously to achieve a single goal, such as
new hires who do not have an in-depth maintaining sales data on an ERP but running
knowledge of internal processes. While any reports using Excel. This practices still takes
errors may be classed as ‘innocent mistakes’, it places across many businesses, even if it is not
still leaves your business open to security risks. office protocol. It mostly comes down to
familiarity and preference for a specific
How to Avoid: Ask your ERP provider if application, and ease of use. This means that
system training is including as standard, data could exist within a number of different
nominate staff to train new hires, and ensure programs at the same time, where it is not
business protocols are widely available and adequately maintained, updated, or secure.
easily accessible to all employees.
How to Avoid: Firstly, look into preventing data
Failure to Comply export unless absolutely required. Secondly, if
your ERP system isn’t doing everything you
If your ERP system is being used to store need it to, then perhaps it’s time to upgrade to
confidential sales information, including personal a new system.
details and payment details, then it’s essential
that the system meets local security standards Automatic Trust
requirements. This could include PCI DSS Cloud ERP systems are becoming increasingly
requirements if credit card data is involved. popular. This means that any data that you
choose to enter into the system isn’t stored
The system itself should store details in locally, but is instead stored by a third party
encrypted form only, without retaining the 3- cloud hosting service. There are a number of
digit security code, and there are also advantages to cloud ERP; they can mean much
requirements for the business, too. You’ll be less work for your IT department, freeing
required to maintain secure passwords, them up for more profitable tasks, they can
restrict access to ‘need to know’, and track save you money, and it’s less drain on your
access to the data that you keep. You may also internal networks. However, there is a slight
need to comply with regulations within your downside, and that’s the need to place 100
sector. percent of our ERP system security into
someone else’s hands. Businesses need to have
peace of mind that their data is safe.
How to Avoid: Choose an ERP system that’s
designed to comply with necessary regulations. How to Avoid: Consider your cloud provider
It’s also important to change your vendor- very carefully, paying particular attention to
issued password and adhere to good security their security processes and their data
practices at all times. regulations. Ask around, read reviews, and don’t
be afraid to ask questions.
Use of Unauthorised Systems
The whole point of ERP is integration; to Single Authentication
remove the need for what is known as
‘Frankensteining’. Frankensteining happens when
As ERP systems have evolved, they’ve become and general information gathering attacks. In
capable of handling not only a much wider addition, firewalls group networks into
range of information but also more sensitive segments and isolate critical components to
information as well. Single authentication — help prevent access from an external
passwords, for example — is standard, but we network. If a disaster recovery plan is in place,
have to ask ourselves whether 1FA (one-factor staff won’t be left scrambling. The ability to
authentication) is enough for modern ERP react to an incident once it’s identified is
systems. Password cracking is one of the critical. An ERP system can detect
simplest and most common forms of hacking, unwarranted activity and take immediate action,
so it really doesn’t make sense to protect our often fixing the problem before it becomes a
most important, sensitive, and confidential larger issue. In the event of a larger issue,
business data through the use of passwords following a prepared plan can be the
alone which can be stolen or even guessed difference between minutes or hours of
relatively easily by experts. downtime and lost revenue. Having a plan in
place means quicker recovery and less loss of
How to Avoid: The obvious solution is 2FA. The data or funds.
good news is that the 2FA industry has
changed in recent years and there is no longer ERP Disaster Recovery
a need for a physical device. Instead, a code
can be sent to an email address. One of the most critical plans you can make is
to prepare for the worst, especially when it
Weighing Up The Benefits comes to your enterprise software system
and the database of all of the company’s
Although there are a number of security critical information. A proper disaster
factors to take into account when recovery plan is essential, if you are running an
implementing a new ERP system, it’s important ERP system, as it touches all aspects of the
to remember that the advantages far outweigh company. The plan can be as simple as a
the concerns. In fact, by maintaining a safe and backup and recovery strategy, or as extensive
secure ERP system, with high levels of data as a global hot site fail-over plan. In either case,
consistency, the system could actually help to you need to prepare and test your plan.
make your business even more secure,
providing peace of mind for your staff and
your clients.

In Case of Emergency
Develop a disaster recovery plan. An ERP ERP disaster recovery
system has multiple layers of security, designed
to help protect against targeted attacks Testing the plan is often where people fail. You
including distributed denial of service (DDoS) often plan for the eventuality of a hard drive
crash (and thus you use a RAID array), or you 5. Personnel (In a disaster, can the right people
plan for the possibility of natural disaster, but be there to recover?)
what if you have a hidden hardware problem 6. Priority levels and potential downtime
that is corrupting the database a little at a acceptability
time? 7. Costs

That happened with one company we worked
with. A failing motherboard caused problems
with the email virus scanner, which in turn
corrupted the email store a little at a time, so
that it was unrecoverable. What do you do
then? Well, in that case it was restore to the
point in time that the email store database was
usable. So the net impact was a few weeks of
data loss. That is one illustration, but what
happens if something like that occurs in your
ERP database? Again the key is backups.
ERP Disaster Recovery Resources
There are some excellent disaster recovery
resources on the web on this topic. One article
that we liked was on making proper backups
for your ERP system. We would suggest that
you invest the time to learn more about this
topic before it bites you. Remember that
disaster always strikes at the most
inconvenient time, so make the time now.

If backups are so critical, then why do people

choose not to bother with testing and
restoring them? This is a key concept in ERP
Disaster Recovery. Many people happily back
up night after night, but never try to restore
a data file or much less a database. Is it too
expensive to have a test server? The real
question is it too expensive to not have your
ERP data after a disaster? What is the
company worth? Millions? A few thousand
dollars for a test environment seems like a
reasonable investment.

Key ERP Disaster Recovery Priorities

Here are some of the things you need to think
through when planning for ERP Disaster
Recovery:

1. Backups and Recovery procedures

2. Off-site storage of backup media
3. Security of backup media
4. Remote site backups (In a disaster, can you
get the business up if the server site is
destroyed?)
Question 1
 The process a business undertakes to Question 7
determine and evaluate potential major projects A systematic way of executing tasks. It is
or investments such as PPE’s and machinery. concerned with the transformation of inputs
➔ Capital budgeting into outputs.
➔ Process
Question 2
Once the communication stops the ERP Question 8
system maybe affected and the ERP system A system of policies, procedures, reviews,
may not be maintained properly due to lack of segregation of duties, and other activities that
systematized process of communication. are used to minimize the risk of asset loss,
➔ Missteps in Communication produce accurate financial statements, and
conduct operations in an efficient and orderly
Question 3 manner.
A manual process involving interaction with ➔ Internal controls
human beings that entails both planning and
control Question 9
➔ Management Control process These vendors are the ones that don’t actually
support the software in the long run.
Question 4 ➔ Ineffective Vendor Selection
Some web applications allow SQL injection and
privilege escalation, and they possess business Question 10
logic flaws that allow users to manipulate parts A costing method that allocate product and
of the system that should otherwise be services overhead and indirect costs
disallowed or blocked. ➔ Activity-based costing
➔ Web application-specific vulnerabilities
Question 11
Question 5 Creating this type of a team, with each
IT leaders can't address the most common executive having a specific responsibility to
ERP security issues if they don't know about support the overall project’s execution.
them. ➔ Improperly Structured Internal Team
➔ Lack of proper testing ➔
Question 12
Question 6 A process that brings scarce human and
A management process to aim at achieving material resources together and motivates
defined goals within an established timetable and people to achieve common organizational goals.
comprises of three components: (1) setting It is not a one-time act but an ongoing
standards, (2) measuring actual performance, progression of complementary activities.
and (3) taking corrective action. ➔ Management
➔ Control
Question 13
The system is hardly being utilized and lack of Question 20
use. Instead of taking advantage of the great Used as a tool for coordinating the actions of
features offered by the ERP system, the individuals and department within the
company is throwing away money on a organization.
software investment that’s not improving their ➔ Budgeting
business.
➔ Lack of Consistent Use

Question 14
Which of the following ERP security issue
that many workstations and servers are
missing needed software updates?
➔ Missing software updates

Question 15
ERP is extremely tech-intensive. It requires an
in-house IT staff in order to oversee that the
software is up to date and running smoothly.
➔ Failure to Gather Requirements

Question 16
Refers to the ongoing reduction of process
errors and the streamlining of operations.
➔ Total quality management

Question 17
Many organizations haven’t fully identified their
security gaps, let alone addressed them.
➔ Unknown vulnerabilities

Question 18
Which of the following ERP security issues
that certain ERP systems -- usually older ones
-- require all network users to have access to
the ERP system folders?
➔ Open network shares

Question 19
The process of assessing the risks involved
with a company or firm’s business practices.
➔ Risk management
 Which of the following Inventory Management
Technique that method works by identifying the
most and least popular types of stock?
➔ ABC Analysis

Question 7
Which of the following ERP Implementation
Strategy key aspects that involves project
Question 1 schedules and logistics?
Displays the company’s total assets and how ➔ Project Management
the assets are financed, either through either
debt or equity. It can also be referred to as a Question 8
statement of net worth or a statement of Also known as buffer stock; inventory held in
financial position. a reserve to guard against shortages.
➔ Balance Sheet ➔ Safety stock

Question 2 Question 9
Unique tracking code (alphanumeric) assigned The entry to replenish a petty cash fund
to each of your products, indicating style, size, includes a credit to
color, and other attributes. ➔ Cash
➔ Stock keeping unit (SKU)
Question 10
Question 3 Which of the three conceptual component
A business practice in which a company hires that refers mainly to the inter-firm operational
a third-party to perform tasks, handle coordination within a supply chain?
operations or provide services for the ➔ Supply Chain Coordination
company.
➔ Outsourcing Question 11
All manufacturing supply chains have material
Question 4 flows from the raw materials at the beginning
The biggest concern of outsourcing is of the supply chain to the finished products at
negative impact on company’s personnel. the end of the supply chain.
➔ True ➔ Material Flow

Question 5 Question 12
Which of the following ERP Implementation The process of relocating the business
Strategy key aspects that business processes operations unit (production or services) to a
fit and integration? different country (usually in developing nations)
➔ ERP Functional Modules where cheap labour or resources are available.
➔ Offshoring
Question 6
Question 13
 Deals with the financial aspect of the Identifying strategic suppliers is one of the
organization and its processes by recording common steps of outsourcing processes.
business transactions, i.e. Accounts Receivables ➔ True
/ Accounts Payable, journal entries, and general
ledger which are used to produce necessary Question 20
financial reports such as income statements A company may allocate capital to projects
and balance sheets. that ultimately do not generate sufficient
➔ Accounting Information System return on investment or sufficient cash flows
to justify the investments.
➔ Bad capital investments

Question 14
The constituent parts input into a production Question 21
process, where they are transformed into Which of the following ERP Selection Process
finished goods. that collect feedback from the people who will
➔ Raw materials use the software, paying particular attention to
any manual processes that can slow down your
Question 15 users?
Which of the following Inventory Management ➔ Gather User Requirements
Technique that combines lean management and
Six Sigma practices to remove waste and raise Question 22
efficiency? Forecasting information flow, production and
➔ Lean Six Sigma scheduling information flows, and design and NPI
information flows.
Question 16 ➔ Information Flow
Poor inventory turnover can lead to
deadstock, or unsold stock. Question 23
➔ True What does OEM stand for?
➔ Original Equipment Manufacturer
Question 17
The transactional document sent to customers Question 24
after a purchase is made but before an order Which of the following implementation
is fulfilled. strategies that the ERP software is deployed
➔ Sales order over the internet to run behind a firewall on a
local area network, personal computer, or
Question 18 both?
Unique version of a product, such as a ➔ Software As A Service Rollout
specific color or size.
➔ Variant Question 25
Vilfredo Pareto, an Italian economist created
Question 19 20/80 rule. According to him if time is managed
efficiently we save millions of dollars. inventory may be generating lots of revenue
According to him but not receiving positive cash flows on it.
➔ Lack of understanding of profit
Question 26 versus cash
Migration is part of ERP implementation.
➔ True Question 33
Materials Requirements Planning handles
Question 27 planning, scheduling and inventory control for
Raw materials are the constituent parts input Accounting.
into a manufacturing process. ➔ False
➔ True

Question 28
Which of the following implementation Question 34
strategies that all users move to the new A group of independent organizations
system at a determined date, and are connected together through the products and
implemented across the entire organization at services that they separately and/or jointly add
once during a planned go-live event? value on in order to deliver them to the end
➔ Big Bang consumer.
➔ Supply Chain
Question 29
Physical devices used to check-in and check- Question 35
out stock items at in-house fulfillment centers Offshoring is the process of outsourcing the
and third-party warehouses. business operations unit to a different country
➔ Barcode Scanner where cheap labour or resources are available.
➔ True
Question 30
The fundamental function of a supply chain is Question 36
to deliver. The primary asset individuals and companies
➔ False use regularly to settle their debt obligations and
operating expenses, e.g., taxes, employee
Question 31 salaries, inventory purchases, advertising costs,
Supply Chain something resembles a circle. and rents, etc.
➔ False ➔ Cash

Question 32 Question 37
When a company generates revenue, it does Which of the following ERP Selection Process
not necessarily mean it already received cash that a contract by which one or more parties
payment for that revenue. So, a very fast- agree not to disclose confidential information
growing business that requires a lot of
that they have shared with each other as a ➔ Cash Management
necessary part of doing business together?
➔ Non-Disclosure Agreement Question 45
It can include discipline and putting the proper
Question 38 frameworks in place to ensure the receivables
Some people also say that the word “stock” is are collected on time and that payables are not
used more commonly in countries to refer to paid more quickly than is needed.
inventory. ➔ Lack of cash management skills
➔ True
Question 46
Question 39 A non-current, tangible capital asset shown on
ERP consultants and contractors are expert the balance sheet of a business and is used to
ERP knowledge workers hired for a specific generate revenues and profits.
project or service. ➔ Property, Plant, and Equipment
➔ True
Question 47
Is outsourcing easy to implement in practice?
➔ False
Question 40
Supply chain’s existence is based on the Question 48
existence of the demand from the consumer. Most vendors will want you to sign their Non-
➔ True Disclosure Agreement
➔ True
Question 41
ERP implementations include cloud computing. Question 49
➔ True Which of the following Inventory Management
Technique that prioritizes safety stock will
Question 42 ensure there’s always extra stock set aside in
Which of the three conceptual component case the company can’t replenish those items?
that includes how big is the supply base for ➔ Safety Stock
OEM, how a supply chain is constructed from
all its participating firms? Question 50
➔ Supply Chain Configuration Business management should clearly
understand the timing of cash inflows and
Question 43 outflows from the entity, such as when to pay
Software as a Service (SaaS), sometimes for accounts payable and purchase inventory.
referred to as “software on demand”. ➔ Poor understanding of the cash flow
➔ True cycle

Question 44 Question 51
The process that involves collecting and One measurement of good inventory
managing cash flows from the operating, management is inventory turnover.
investing, and financing activities of a company. ➔ True
 Question 59
Question 52 In selecting an ERP System you build an ERP
Which of the following ERP Implementation Selection Team.
Strategy key aspects that legacy systems and ➔ True
interfaces, data conversion and configuration?
➔ Existing Platforms, Systems, and Data Question 60
The material flow that run through the supply
Question 53 chain changes its ownership from one company
which include big bang, phased-rollout, parallel to another, from supplier to buyer.
adoption, and a combination of phased-rollout ➔ Commercial Flow
and parallel adoption.
➔ ERP Deployment Strategies

Question 54
Accountants use the information about stock
levels to record the correct valuations on the
balance sheet.
➔ True

Question 55
Which of the following Inventory Management
term that supplier also retains ownership of
the inventory until your company sells it?
➔ Consignment

Question 56
Everything a supply chain does is driven by the
needs and wants of the end-consumer.
➔ True

Question 57
Maintaining the storage of stock, controlling
the amount of product for sale, and order
fulfillment.
➔ Inventory Management

Question 58
Helps companies identify which and how much
stock to order at what time. It tracks
inventory from purchase to the sale of goods.
➔ Inventory Management
 E-Commerce

The first-ever online sale was in 1994 when a

man sold a CD by the band Sting to his friend
through his website Net Market, an American
retail platform. This is the first example of a
consumer buying a product from a business
through the World Wide Web or e-commerce
as we commonly know it today.

Types of E-Commerce:

There are basically 4 main types of e-

commerce models that can describe almost
every transaction that takes place between
consumers and businesses.

Business to Consumer(B2C): When a good or

service is sold to an individual consumer by a
business, e.g., we buy a pair of shoes from an
online retailer.
Business to Business(B2B): When a good or
service is sold by a business to another
business, e.g., a software-as-a-service is sold by
a business for other businesses to use.
Consumer to Business(C2B): When a
consumer’s own products or services is sold
to a business or organization, e.g., an authority
offers exposure to their online audience in
exchange for a fee or a photographer
Difference Between ERP and E-Commerce licenses their photo for a business to use.
Difficulty Level : Basic Consumer to Consumer(C2C): When a good or
service is sold by a consumer to another
E-Commerce is a business model that allows to consumer, e.g., we sell our old furniture on
buy and sell goods and services over the eBay to another consumer.
internet. It is also known as Electronic
Commerce and Internet Commerce. Also, the ERP systems are the kind of software tools
Transaction of money, funds are also that are used to manage the data of an
considered as part of E-Commerce. enterprise. ERP system helps different
organizations to deal with different
Some E-Commerce Software: Amazon, departments of an enterprise. Different
Flipkart, Quikr, Paytm, etc. departments like receiving, inventory
management, customer order management,
production planning, shipping, accounting, human ERP system is created by vendors that are
resource management, and other business ordered by some organization. After purchase,
functions. It combines all the Databases across the organization can use it. E-Commerce is
the department into a single database that can available free to use. It only cost that things
be accessed by all employees of that that are bought online.
enterprise. It helps in the automation of the Less user-friendly on the mobile system. More
tasks involved in performing a business user-friendly on the mobile system.
process. One particular ERP system is limited to just an
Organization, company, etc. Everyone can
Some ERP Marketplace: SAP, Oracle, access E-commerce.
PeopleSoft, BaanERP, etc. Example: SAP, Oracle, PeopleSoft, etc.
Example: Flipkart, Amazon, Paytm, etc.
ERP Types of ERP:

Types of ERP: Cloud-Based ERP

Server Based ERP
An ERP system is a modular application that Types of E-Commerce:
contains various tools for different business
processes. Let’s see the most important ERP Business to Consumer(B2C)
system modules: Business to Business(B2B)
Consumer to Business(C2B)
On-Premise ERP: On-premise ERP solutions are Consumer to Consumer(C2C)
installed locally on your computer’s hardware
and servers and then managed by your IT It basically deals with Business to Business
Staff. where One Business will sell their product (i.e.
Cloud ERP: It is also called SaaS, or Software- ERP) to other businesses. It deals with all i.e.
as-a-Service- is provided as a service. In this B2B, B2C, C2B, C2C.
type of deployment, a company’s software and Data in ERP is more Secure as it is limited to
its associated data are managed centrally by only a particular organization. Data is
the ERP vendor and are accessed by available like Price, Rating, products, etc. freely
customers using a web browser. due to this everyone can copy from it which
Comparison Between E-Commerce and ERP: decrease its security level.
Many ERP systems provide Business intelligence
ERP features due to this data analysis become easy.
E-Commerce E-Commerce doesn’t provide Business
ERP Stands for Enterprise Resource Planning. intelligence Services to the Customers.
E-commerce Stands for Electronic- Many ERP platforms offer built-in reports
Commerce. such as cash flow and income, so they can be
ERP comprises the selling of ERP systems to generated without any IT assistance. E-
various organizations and companies. Commerce Platform only has reporting
capabilities on Marketing and Sales. In order to
E-commerce comprises with selling and buying require more facilities, IT assistance is
of goods and services over the internet. required.
Automation occurs in ERP. For Example: If an
employee wants to print some important
documents, but he is far away from the
printer, so he can automate this task easily.
Automation cannot occur in E-
Commerce.
If a can of any fault in ERP, the organization
gives feedback to the ERP vendor, and they
will surely correct that fault in the ERP
System. If users can face any fault then
they will provide feedback for their problems,
but it is not sure that those who provide an E-
Commerce facility will solve the issue.
ERP System ties together with various business
functions. E-Commerce Focuses only on
the User or Customer’s
When an organization wants to update its ERP,
ERP Vendor will cost charges to the
organization. E-Commerce System is Updated
freely for the Users.
All the Data of an Organization in ERP systems
is Analyzed by them. All Data of User are
analyzed by Producer of E-Commerce System
and on the basis of this Product
Recommendation and other stuff is shown to
the user according to their past data.
ERP System supports credit limits or net
terms. E-Commerce Platforms don’t support
credit limits or net terms.