Introduction

to
Enterprise Resource
Planning
--Satish Chinchorkar
BE (Mech), IIIE, MMS, CQA, COBIT5

Objectives

To give an insight into the necessity,

and applicability of ERP in any
business.

To realize what is ERP and how ERP is

evolved, the history of ERP.

To understand the functioning of ERP.

BACKGROUND
AND
NEED

Why to understand ERP

ERP Affects Most Major Corporations in the

World
ERP Impacts Small and Medium Enterprises
(SME)
ERP Affects Competitor Behavior
ERP Affects Business Partner Requirements
ERP Provides A Key Reengineering Tool
ERP has Diffused Many Best Practices
ERP explored the Client Server & Web
Computing
ERP Changed the Nature of the IS and
Accounting Functions
ERP has Changed the Nature of Jobs in All

Historical system
architectures
Historically, companies created islands of
automation.
A hodge-podge of various systems that
operated or managed various divergent
business processes.
Sometimes
these
systems
were
integrated
with
each
other
and
sometimes they werent.
Sometimes they were loosely interfaced
and sometimes they were more tightly
interfaced.

Problems with Non-ERP

Systems

In-house design limits connectivity outside

the company
Tendency toward separate ISs within firm

lack of integration limits communication within

the company

Strategic decision-making not supported

Long-term maintenance costs high
Limits ability to engage in process
reengineering

The IT Problem

What is Enterprise
Resource Planning (ERP)?

ERP is an enterprise-wide information

system designed to coordinate all the
resources,
information,
activities needed
to complete business processes such as;

order fulfillment
billing

How ERP Systems

Works?

A typical ERP system would use multiple

component of computer software and
hardware to achieve integration

ERP delivers a single database that

contains all data for the software
module

QUALITY

ERP SOLUTIONS

PRODUCTIVITY

CUSTOMER SATISFACTION

MARKET SHARE

COST

PROFIT

ERP in Decision Making

Process

ERP Benefits
Generally ERP deployment lead to the
tremendous benefits which are direct
and indirect.
Direct benefits include:

improved productivity, efficiency & quality

information integration for better decision

making

faster response time to customer queries,

etc.

ERP Benefits

Indirect
benefits
include:
better
corporate image, improved customer
goodwill, customer satisfaction and so
on.
Fundamentally the potential benefits
are:

Reduction of Lead-Time
On-Time Shipment
Reduction in Rejection
Better Customer Satisfaction

ERP Benefits
Others benefits are

Improved supplier performance

Increased flexibility

Reduction in quality costs

Improved resource utility

Improved information accuracy and

decision-making ability

Reduction of Lead-Time

The lead-time is the elapsed time

between placing an order and receiving
it. It has a great role in purchasing and
inventory control.
The
consequences
of
the
nonavailability of an item that is required
for production can result in a lot of
problems such as missing the delivery
schedules, losing the customer to the
competition.

Reduction of Lead-Time

The company must ensure the lead-time

to be as minimum as possible.
In order to reduce the lead-times, the
organization should have an efficient
inventory management system, which is
integrated
with
the
purchasing,
production planning and production
departments.
ERP systems help in automating this
task and thus, make the inventory
management efficient and effective.

Reduction of Lead-Time

ERP systems, by virtue of their

integrated nature and by the use of
latest technologies such as EFT
(Electronic
Funds
Transfer)
and
Electronic Data Interchange (EDI),
reduce the lead-times and make it
possible for the organizations to have
the items at the time they are needed
(just-in-time inventory systems)

On-Time Shipment

With ERP systems, businesses are not

limited to a single manufacturing
method, such as make-to-stock or
make-to-order.
Instead, many manufacturing and
planning methods, can be combined
within the same operation, with
unlimited flexibility to choose the best
method or combination of best methods
for each product at each stage
throughout its life cycle.

On-Time Shipment

ERP systems ensure on-time delivery of

goods to customers by integrating he
various business functions and automating
the procedures and tasks.

Reduction in Cycle Time

Cycle time is the time between receipt

of the order and delivery of the product.
Manufacturing spectrum can be viewed
in terms of make-to-order where cycle
time and cost of production are high or
make-to-stock.
In both cases ERP systems can reduce
the cycle time.

Improved Resource
Utilisation

Manufacturers
place
increased
emphasis upon planning and controlling
capacity.
The creation of an accurate, achievable
production
schedule
requires
the
availability of both material and
capacity.
The capacity planning features of most
ERP systems, offer both rough-cut and
detailed capacity planning.

Improved Resource
Utilisation

The system load each resource with

production requirements from Master
Production
Scheduling,
Material
Requirements Planning, and Detailed
Capacity Planning.
The ERP systems also have simulation
capabilities that help the capacity and
resource
utilization
scenarios
and
choose the best option.

Improved Resource
Utilization.

The efficient functioning of the different

modules in the ERP system like
manufacturing, materials management,
plant
maintenance,
sales
and
distribution ensures that the inventory
is kept to a minimum level, the goods
are produced only as per the demand
and the finished goods are delivered to
customer in the most efficient way.

Improved Resource
Utilization.

Thus the ERP systems help the

organization in drastically improving the
capacity and resource utilization.

Better Customer
Satisfaction

Customer satisfaction means meeting or

exceeding customers requirements for a
product or service.
Degree of satisfaction can be assessed
using the following measures:

Product or service has the features that are

most important to the customer.
Response to the customers demands in timely
manner.
Product or service is free of defects and
perform as expected.

Better Customer
Satisfaction

With the introduction of the web-based

ERP systems, the customers can place the
order, track the status of the order and
make the payment sitting at home.
Getting the technical support by accessing
the
companys
technical
support
knowledge base (help desk). Since
technical support dept have all knowledge
about products and customers hence
customer will be served well which will go
inline
with
improving
customer
satisfaction.

Improved Information Accuracy

and Decision-Making Capability

In order to manage the information, in order to

deliver high quality information to the decisionmakers at the right time, in order to automate the
process of data collection, collation and
refinement, organizations have to make IT an ally,
harness its full potential and use it in the best
way.
The major drawbacks of the legacy systems was
that it lacked an integrated approach.
Information was scattered throughout in which
different system existed in every department
which make organization to have islands of
information within organization.

Improved Information Accuracy

and Decision-Making
Capability

An organization cannot function as an

islands of different departments.
The production planning data is required
for the purchasing department, the
purchasing details are required for the
finance department and so on.
ERP systems help integrating all the
information islands which were functioning
isolate into a single system. And hence
improve
executives
decision-making
ability.

Improved supplier
performance

The ERP systems contain features which

support supplier management and
control processes that help organization
in managing the supplier relations,
monitoring the vendor activities and
managing the supplier quality.

Reduced Quality Costs

The Quality Management Systems in ERP

packages support the benchmarking and
use of optimal product design, process
reengineering, and quality assurance data
by all functional departments within the
manufacturing
enterprise,
and
the
continuous improvement of manufacturing
methods.
The ERP systems also provide tools for
implementing Total Quality Management
within an organization.

Reduced Quality Costs

ERP systems play a significant role in

reducing cost of quality by ensuring that
the company has an efficient and
effective
quality
assurance
and
management systems.

Increased Flexibility

Flexibility is a key issue in the formulation

of
strategic
plans
in
companies.
Sometimes, flexibility means quickly
changing something that is being done or
completely changing to adjust new
product designs.
Product flexibility is the ability of the
operation to efficiently produce highly
customized and unique product.
ERP Systems have the features that
increase flexibility in both the organization
as whole and manufacturing operations.

Increased Flexibility

ERP systems help the companies to

remain flexible by making the company
information
available
across
the
departmental
barriers
and
by
automating most of the processes and
procedures, thus enabling the company
to react quickly to the changing market
conditions.

Analysis

ABC Analysis
VED Analysis
Variance Analysis
Root Cause Analysis
What If Analysis
Capacity Planning
Plant Balancing

HISTORY
AND
EVOLUTION

Time frame and key

milestones
EOQ

Safety Stock

Theoretical /
conceptual
Improvements in
management
techniques

BOMP

Work Orders

1950s

MRP

1965

MRPII

1975

ERP

1990

ERM / ERPII

2000

Time frame and key

milestones
EOQ

Safety Stock

Computing power
enables
completely
integrated
manufacturing
solution

BOMP

Work Orders

1950s

MRP

1965

MRPII

1975

ERP

1990

ERM / ERPII

2000

Time frame and key

milestones
EOQ

Safety Stock

More functions
become
Integrated in the
process

BOMP

Work Orders

1950s

MRP

1965

MRPII

1975

ERP

1990

ERM / ERPII

2000

Time frame and key

milestones
EOQ

Safety Stock

More functions
become
Integrated in the
process +
technology
improvements

BOMP

Work Orders

1950s

MRP

1965

MRPII

1975

ERP

1990

ERM / ERPII

2000

Time frame and key

milestones
EOQ

Safety Stock

More functions
become
Integrated in the
process to add up
to complete
business solution

BOMP

Work Orders

1950s

MRP

1965

MRPII

1975

ERP

1990

ERM / ERPII

2000

Material Requirement
Planning

Emerged from BOMP in 60s

Conversion of production plan for parent
items (finished products) into a
production plan of production or
purchasing for component items
Explosion of the requirements for a top
level item through the BOM to generate
component demand
Executed at each level of Assembly /
sub-assembly

Principles of MRP

System to plan and control

production and material flows
core principle:
demand for material, parts and
components depends upon the demand
for finished product

Chain of causality from finished

goods back to inventories:

possible to reduce inventory to the

minimum
plan for procurement based on actual
needs

BOM = Recipe or formula

How to produce our products

List of components including possible
substitutes
How much of each
Special conditions of operation
Expected yields and labour
productivity (i.e. standards)
Extrapolate a cost per unit
Stored in a Bill of Material (BOM)

Example: Bill of Material

for desk
1 List out the components
2 describe the steps required for assembly
3 arrange them in a possible manufacturing
sequence

Solution
Desk
Top (1)

Screw Kit (1)

Adjustable legs (4)

Frame (1)

3 way junctions (4) Painted tubing (4)

Painted metal legs (4)

Leg Tubes (4)

Long Tubes (2) Short Tubes (2)

Paint (1 dl)

Paint (0.6 dl)

How MRP works

Master production schedule: drives the

system based on customer orders
Bill of material (dependent demand)
Inventory status file
MRP package - contains the logic

Master Production Schedule

Open Purchase Orders

Inventory
master part file

Open Shop Orders

MRP logic
Module

BOM

Reports:
+ planned order releases
+ Purchasing plan
+ work orders

Is this a good plan???

Master Production Schedule

Open Purchase Orders

Inventory
master part file

Open Shop Orders

MRP logic
Module

BOM

Reports:
+ planned order releases
+ Purchasing plan
+ work orders

Is this a good plan???

Benefits of MRP

Understanding the implications of changes

in production schedule (by de-expediting
parts)
Keeping inventory low (25% decreases
reported) while removing risk of stock-outs
Better planning leading to:

reduction in lead times

better use of capacity
lowered risk of obsolete production (e.g.
engineering firms)

Early warning system: earliest delivery

dates are known before promises are

Without MRP

Safety Stock

Demand variations

With MRP
Safety Stock

Demand variations

Integration of design and

manufacturing

integration of operations with upstream

design activities and downstream sales
activity
downstream: e.g. by integrating CAD with
Bill of Material
new designs go on-line immediately
no production of obsolete products /
assemblies
shorter time to market for new pdts

The Rise of MRP

Snowball effect as companies moving to

MRP imposed business changes to their
partners
MRP logic was always around, but
switching costs in manufacturing made
it worthwhile:

data processing costs decreasing

inventory costs rising

Sophisticated CIM systems easier to

justify
Other external pressures mean that

Master Production Schedule

Planned production
Sales orders
Open Purchase Orders

Open Shop Orders

Bill of resources
Inventory
master part file

MRP II logic
Module

BOM
Product routings

CRP / RCCP
Reports:
OK Y/N?

+ planned order
releases
+ Purchasing plan
+ work orders
+ dispatch plan

Move to MRP II

Extension to ERP
functionalities

Natural extension of MRPII

Mix of two competences:

Mix of targets

Engineering
Finance
Efficiency
Control / consolidation

End to end business processes

History of ERP

ERP
MRP II
MRP
Inventory
control
1960s

1970s

1980s

1990s

The Relationship Among

Three Components of ERP

Business
manageme
nt practice

Information
Technology
integrates with
your company's
core business
processes
Specific
business
objectives

History of organizational
systems

Calculation systems

Functional systems

Integrated systems

Calculation systems

1950-80

Single purpose

Eliminate tedious human work

Examples: Payroll, General ledger,

Inventory

Technology used: Mainframes, magnetic

tapes, batch processing

Functional systems

1975-20??

Use computers to improve operations

Applications: Human resources, order

entry, manufacturing resource planning

Technologies: Mainframes, PCs, LANs

Functional systems

Typically contained within a department

Islands of automation

Applications independently developed

and deployed

Driving force: availability of minicomputers

Functional system
applications

Human resources System

Accounting and finance System

Sales and marketing System

Operations management System

Manufacturing System

Human Resources

Recruiting

Compensation

Assessment

Development and Training

Career Succession Planning

Desertion

Accounting and Finance

General Ledger

Financial Reporting

Costing

Budgeting

Accounts Payable

Accounts receivables

Payroll

Sales and Marketing

Lead tracking

Sales forecasting

Target tracking, Incentive schemes

Customer management

Operations

Order management

Inventory management

Infrastructure management

Customer service

Manufacturing

Process

Inventory

Planning

Controlling

Types of Organizational
Information Systems

Administrative systems

Scheduling / Transaction systems

Value oriented systems

Reporting and controlling systems

Analysis and information systems

Planning and decision support systems

Problems with function based

application

Sharing of data between systems

Data duplication

Data inconsistency

Applications that dont talk to one

another

Limited or lack of integrated information

Isolated decisions lead to overall

inefficiencies

Solution to disparate
systems?

Integration

Consolidation

Right-sizing

Business Process Redesign

Enterprise wide system

Integrated systems
or
Enterprise Resource Planning
System

Origin of the term

The ERP was first employed by Gartner

Group in 1990 as an extension of MRP
(Material Requirements Planning); later
Manufacturing Resource Planning and
CIM
(Computer
Integrated
Manufacturing ).

ERP came into use as makers of MRP

software started to develop software
applications beyond the manufacturing
arena.

Evolution of ERP in one

shot

Material Requirement Planning (MRP).

1970s

Manufacturing Resource Planning (MRP II).

1980s

Extended to managing manufacturing process

Mainframe

Enterprise Resource Planning (ERP) ..1990s

Inventory reordering tool

Mainframe

Complete back office

Client - Server

Web Enabled Supply Chain .2000s

Extending the capabilities of ERP to customers, suppliers,

distributors etc.

ERP - Definition

ERP is a process of managing all

resources and their use in the entire
enterprise in a coordinated manner

ERP system: Definition

ERP is a set of integrated business

applications, or modules which carry out
common business functions such as
general ledger, accounting, or order
management

What is ERP?

Enterprise Resource Planning

Support business through optimizing,
maintaining, and tracking business
functions
Broken down into business processes

HRM
Distribution
Financials
Manufacturing

What makes ERP different

Integrated modules
Common definitions
Common database
Update one module, automatically
updates others
ERP systems reflect a specific way of
doing business
Must look at your value chains, rather
than functions

Why ERP?

Common set of data, to avoid

redundancy
Help in integrating applications for quick
and fact based decision making and
planning
Allow departments to talk to each other
Easy to integrate by using processed
built into ERP software, easy
consolidation
A way to force BPR (reengineering)

Vendors

ERP Software Companies &

Marketshares

Software Market Share

SAP
15.6
Peoplesoft 4.9
Oracle
4.8
Baan
3.0
CA
3.0
JDE
2.2
SSA
2.1
GEAC
2.0
IBM
1.8
JBA
1.7
Others
59.0

Common Pitfalls

Do not adequately benchmark current

state
Did not plan for major transformation
Did not have executive sponsorship
Did not adequately map out goals and
objectives
Highly customized systems to look like
old MRP systems

Current ERP

ERP systems now attempt to cover

all core functions of an enterprise,
regardless of the organization's
business or charter.
These systems can now be found
in non-manufacturing businesses,
non-profit
organizations
and
governments.

SAP R/3 (ESS)

SAP R/3 is software from SAP. SAP is a
world's leading provider of business
software.
SAP software runs in more than 120
countries world wide with more than
86,000 customers.
SAP solution is transforming your business
process into a best-run business.
SAP services are so good; they provide
superior services and supports.

SAP B1 (business one)

SAP B1 (business one) software is also
form SAP. It is made for SME (small and
medium enterprise) segment to fulfill
their requirement at lower cost.
SAP B1 localization is quite good. It
contains 15 core modules. Report
module is discontinued in 2009 due to
purchase of Business Object, XL
Reporter and Crystal Reports 2008
Basic(One Free License per customer)

LN/BaaN
LN/BaaN is software from Infor Global offers the
breadth and depth of support for order-driven,
project-based discrete manufacturing.
It increase user productivity, operational
efficiency, better control of processes, better
communication and collaboration, enhance
performance and scalability, leverage IT
infrastructure and information assets and
reduce costs.
LN is ideal for companies in make-to-stock,
assemble-to-order, make-to-order, or engineerto-order environments.

Microsoft Dynamics AX
2009
Microsoft
Dynamics
AX
2009
(Microsoft
Axapta)
is
a
comprehensive enterprise solution for
mid-sized and larger organizations to
help people improve productivity.
Microsoft Dynamics ERP applications and
services
made
for
retailers,
manufacturers, wholesale distributors,
and service companies, doing business
domestically or in multiple countries.

Microsoft Dynamics
NAV
Microsoft Dynamics NAV (Microsoft
Navision) is an ERP software to assist
with finance, manufacturing, CRM
(customer relationship management),
SCM (supply chain management),
analytics and e-commerce for small and
medium-sized enterprises.

JD Edward
EnterpriseOne
JD Edward EnterpriseOne is an
integrated
applications
suite
of
comprehensive
enterprise
resource
planning software from Oracle that
combines business value, standardsbased technology, and deep industry
experience into a business solution with
a low total cost of ownership.

Oracle E-Business Suite

Financials
Oracle E-Business Suite Financials is
easy to operate shared services across
businesses and regions.
It delivers pre-integrated financial and
industry-specific processes.
It provides consistent financial and
operational
information,
dynamic
planning, budgeting and forecasting,
multi-dimensional profitability analysis,
etc.

Oracle PeopleSoft
Enterprise
Oracle
PeopleSoft
Enterprise
applications are designed for the most
complex business requirements.
They provide comprehensive business
and
industry
solutions,
enabling
organizations to significantly improve
performance, seamlessly integrate Web
services into heterogeneous application
environments, and a broad choice of
technology infrastructure.

Conclusion

ERP systems provide a mechanism for

implementing systems where a high
degree
of
integration
between
applications is required
The Business Case or Value Proposition
for implementation must be outlined
To successfully implement a proper mix
of people, processes and technology
should be maintained

Sample Case-Study
Colgate

Colgate Brief History

William Colgate established

Colgate in 1806
Mainly a starch, soap and candle
business
Merger with Palmolive in 1928;
Colgate-Palmolive-Peet
Corporate name changed to ColgatePalmolive in 1956

Colgate Brief History

(cont)

Continuous growth
$9.9 Billion company (2003)
Operations in more than 200
countries and territories
Colgate is recognized as one of the
leading manufacturers of oral care,
dental care, household surface care,
fabric care and pet nutrition products

Colgate Scenario

Divergence of operating platform

Dozens of platforms
Low IT skills/knowledge
No one understood all of the legacy
systems
Each CIO for each country very
decentralized IS organization no
standards or best practices in place
No centralized operation e.g. 80 CIO
Decided to implement ERP software in
1999

Integration of Processes
Some benefits
Activity

Before

After

Enter pricing data

5-80 days

5 min.

Customer credit check

15-20 min.

automatic

Enter customer order

30 min.

5 min.

Customer billing inquiry

15-20 min.

real-time

Ship evaluation unit

3-30 days

2 days

Ship replacement part

3-44 days

2 days

Credit returned item

1-5 months

5 days

Commit date for delivery

2 hrs.-3 wks.

real-time

Outcomes for Colgate

Availability of information in real time

Decision making made easy because of
availability of accurate and up-to-date
data
Business process re-engineered and in
some
cases different departments
consolidated into one
Improved efficiency: about 30% for the
database applications and about 50%
reduction in processing time

Outcomes for Colgate .

SAP handles 95% of the companys

$9.9 billion annual sales.
Colgate saved $225 million where
as target was $125 million.
Datacenters shrinks to 1 (and one
backup) from 75
Inventory reduce by 10%
Facilitated move to eCommerce.

Quiz

Elaborate the specific reasons why

Colgate need to go for ERP solutions?

According to you which business

processes are impacted most?

How will you justify the ERP benefits?

Q&

THANK YOU
For Participation in
Introduction to Enterprise Resource Planning
(ERP)
By
Satish Chinchorkar
chinchorkar@gmail.com 98224 06187