ERP and SCM…

Information Systems for Managers

Trimester VIII, MBA Tech program
@ MPSTME, 2008
 ERP
Enterprise resource planning (ERP) systems serve
as a cross-functional enterprise backbone that
integrates and automates many internal business
processes and information systems within the
 manufacturing,
 logistics,
 distribution,
 accounting,
 finance, and
 human resource functions
 of a company.
 What is ERP?

Characteristics of ERP software :

 ERP software is a family of software modules that supports the
business activities involved in vital back-office processes.

 ERP gives a company an integrated real-time view of its core business

processes.

 ERP systems track business resources, and the status of

commitments made by the business no matter what department has
entered the data into the system.

 ERP software suites typically consist of integrated modules of

manufacturing, distribution, sales, accounting, and human resource
applications.
 ERP benefits
 Quality and efficiency – ERP creates a framework for integrating and
improving a company’s internal business processes that results in
significant improvements in the quality and efficiency of customer
service, production, and distribution.
 Decreased costs – many companies report significant reductions in
transaction processing costs and hardware, software, and IT support
staff compared to the non-integrated legacy systems that were
replaced by their new ERP systems.
 Decision support – ERP provides vital cross-functional information on
business performance quickly to managers to significantly improve
their ability to make better decisions in a timely manner across the
entire business enterprise.
 Enterprise agility – ERP can be used in breaking down many former
departmental and functional walls, which results in more flexible
organizational structures, managerial responsibility, and work roles.
The result is a more agile and adaptive organization and workforce
that can more easily capitalize on new business opportunities.
 Risks and costs of ERP
 Hardware and software costs are a small part of
the total costs. The costs of developing new
business processes (reengineering) and preparing
employees for the new system (training and
change management) make up the bulk of
implementing a new ERP system.
 Converting data from previous legacy systems to
the new cross-functional ERP system is another
major category of ERP implementation costs.
 ERP failure causes
 Business managers and IT professionals underestimate
the complexity of the planning, development, and training
that are needed to prepare for a new ERP system that
would radically change their business processes and
information systems.
 Failure to involve affected employees in the planning and
development phases and change management programs
 Trying to do too much too fast in the conversion process.
 Insufficient training in the new work tasks required by the
ERP system.
 Failure to do enough data conversion and testing.
 Over-reliance by company or IT management on claims of
ERP software vendors or the assistance of prestigious
consulting firms hired to lead the implementation.
 ERP trends
Four major developments / trends evolving in ERP applications include:
 ERP software packages are gradually being modified into more flexible
products.
 In relation to the growth of the Internet and corporate intranets and
extranets prompted software companies to use Internet technologies
to build Web interfaces and network capabilities into ERP systems.
 Development of interenterprise ERP systems that provide Web-
enabled links between key business systems of a company and its
customers, suppliers, distributors, and others.
 ERP software companies have developed modular, Web-enabled
software suites that integrate ERO, customer relationship
management, supply chain management, procurement, decision
support, enterprise portals, and other business applications and
functions.
 SCM…supply chain mgmt
Supply chain management helps a company get the
right products to the right place at the right time, in
the proper quantity and at an acceptable cost.
The goal of SCM is to efficiently manage this
process by forecasting demand; controlling
inventory; enhancing the network of business
relationships a company has with customers,
suppliers, distributors, and others; and receiving
feedback on the status of every link in the supply
chain. To achieve this goal, many companies
today are turning to Internet technologies to Web-
enable their supply chain processes, decision-
making, and information flows.
 SCM
defined
Supply chain management is a cross-functional interenterprise system
that uses information technology to help support and manage the links
between some of a company’s key business processes and those of
its suppliers, customers, and business partners. The goal of SCM is to
create a fast, efficient, and low-cost network of business relationships,
or supply chain, to get a company’s products from concept to market.

Supply chain management has three business objectives:

 Get the right product to the right place at the least cost.
 Keep inventory as low as possible and still offers superior customer
service.
 Reduce cycle times. Supply chain management seeks to simplify and
accelerate operations that deal with how customer orders are
processed through the system and ultimately filled, as well as how raw
materials are acquired and delivered for manufacturing processes.
 Benefits of SCM

Major business benefits that are possible with

effective supply chain management systems
include:
 Faster, more accurate order processing,
reductions in inventory levels, quicker time to
market, lower transaction and materials costs, and
strategic relationships with suppliers.
 Companies can achieve agility and
responsiveness in meeting the demands of their
customers and the needs of their business
partners.
 Business challenges of SCM
Major business challenges include:
 Lack of proper demand planning knowledge, tools, and guidelines is a
major source of SCM failure.
 Inaccurate or overoptimistic demand forecasts will cause major
production, inventory, and other business problems, no matter how
efficient the rest of the supply chain management process is
constructed.
 Inaccurate production, inventory, and other business data provided by
a company’s other information systems are frequent causes of SCM
problems.
 Lack of adequate collaboration among marketing, production, and
inventory management departments within a company, and with
suppliers, distributors, and others.
 SCM software tools are considered to be immature, incomplete, and
hard to implement by many companies who are installing SCM
systems.
 3 stages of SCM system
implementation
Three possible stages in a company’s implementation of SCM
systems.
 First stage – a company concentrates on making
improvements to its internal supply chain process and its
external processes and relationships with suppliers and
customers.
 Second stage – a company accomplishes substantial supply
chain management applications by using selected SCM
software programs internally, as well as externally via intranet
and extranet links among suppliers, distributors, customers,
and other trading partners.
 Third stage – company begins to develop and implement
cutting-edge collaborative supply chain management
applications using advance SCM software, full-service
extranets links, and private and public e-commerce
exchanges.
 EDI
Electronic data interchange (EDI) involves the electronic exchange of
business transaction documents over the Internet and other networks
between supply chain trading partners (organizations and their
customers and suppliers). Data representing a variety of business
transaction documents are electronically exchanged between
computers using standard document message formats.
Characteristics of EDI software include:
 EDI software is used to convert a company’s own document formats
into standardized EDI formats as specified by various industry and
international protocols.
 Formatted transaction data are transmitted over network links directly
between computers, without paper documents or human intervention.
 Besides direct network links between the computers of trading
partners, third-party services are widely used.
 EDI eliminates the printing, mailing, checking, and handling by
employees of numerous multiple-copy forms of business documents.
 Benefits of the business use of
EDI

 Reduction in paper, postage, and labor costs

 Faster flow of transactions as formatted transaction data are
transmitted over network links directly between computers, without
paper documents or human intervention.
 Reductions in errors
 Increases in productivity
 Support of just-in-time (JIT) inventory policies
 Reductions in inventory levels
 Value-added network companies offer a variety of EDI services. They
can offer secure, lower cost EDI services over the Internet.
 Smaller businesses can now afford the costs of EDI services.