What is an ERP System?

Prepare by: Dr. Usman Tariq

17 January 2020
What is an ERP System?
• At its most basic level, ERP software integrates various functions into
one complete system to streamline processes and information across
the entire organization.
• The central feature of all ERP systems is a shared database that supports
multiple functions used by different business units.
• In practice, this means that employees in different divisions—for example, accounting
and sales—can rely on the same information for their specific needs.
What is an ERP System? (cont.)
• ERP software also offers some degree of synchronized reporting and
automation. Instead of forcing employees to maintain separate
databases and spreadsheets that have to be manually merged to
generate reports, some ERP solutions allow staff to pull reports from
one system.
• For instance, with sales orders automatically flowing into the financial system
without any manual re-keying, the order management department can
process orders more quickly and accurately, and the finance department can
close the books faster.
• Other common ERP features include a portal or dashboard to enable employees to
quickly understand the business' performance on key metrics.
Common myths about ERP
1. ERP is too expensive
2. ERP is only for Big Business
3. ERP slows down the organization
4. ERP only benefits executives, and management (Decision-makers)
5. ERP solutions are only used to impress customers
6. One ERP solution fits all
7. ERP, SCM, CRM and MRP are all the same
8. ERP takes too long to implement
• Customization is Difficult
9. ERP is an IT system and belongs in the IT department
• Implementation Cannot be Handled Internally
10. Organization can succeed without ERP
11. You get immediate results
12. ERP is all about optimizing internal processes
13. On-Premise ERP solutions are outdated
ERP History
ERP History (cont.)
• In the 1980s, MRP grew to encompass more manufacturing
processes, prompting many to call it MRP-II or Manufacturing
Resource Planning.
• By 1990, these systems had expanded beyond inventory control and
other operational processes to other back-office functions like
accounting and human resources, setting the stage for ERP as we've
come to know it.
• Today, ERP has expanded to encompass business intelligence (BI) while also
handling "front-office" functions such as sales force automation (SFA),
marketing automation and ecommerce.
• With these product advancements and the success stories coming out of these systems,
companies in a broad range of industries—from wholesale distribution to ecommerce—
use ERP solutions.
Material requirements planning (MRP)
system
• Material requirements planning (MRP) is a system for calculating the
materials and components needed to manufacture a product.
• It consists of three primary steps:
1. taking inventory of the materials and components on hand,
2. identifying which additional ones are needed and then
3. scheduling their production or purchase.
• MRP breaks down inventory requirements into planning periods so
that production can be completed in a timely manner while inventory
levels—and related carrying costs—are kept to a minimum.
• Implemented and used properly, it can help production manager’s plan for
capacity needs and allocate production time.
Material requirements planning (MRP)
system
What can MRP Do?
The Advantages of MRP
• On time availability of the right materials required for production.
• Reduce inventory
• Timely delivery of manufactured goods to customers
• Optimal use of manufacturing resources (equipment downtime
reduction).
• Decrease in capital cost due to decreased inventory levels and optimal
use of production resources.
• Collecting the busiess data for analysis and better planning.
Manufacturing resource planning (MRP II)
• Manufacturing Resource Planning (MRP II) is an integrated
information system used by businesses.
• MRP II evolved from early Materials Requirement Planning (MRP) systems by
including the integration of additional data, such as employee and financial
needs.
• The system is designed to centralize, integrate and process
information for effective decision making in scheduling, design
engineering, inventory management and cost control in
manufacturing.
MRP | MRP2 | ERP
MRP I included the following three major
functionalities:
• Master Production Scheduling;
• Bill of Materials; and
• Inventory Tracking.
MRP II includes those three, plus the following:
• Machine Capacity Scheduling
• Demand Forecasting MRP II Software
• Quality Assurance
• General Accounting
ERP Global Market
The Business Value of ERP
1. Gives a global, real-time view of data that can enable
companies to address concerns proactively and drive
improvements
2. Improves financial compliance with regulatory
standards and reduces risk
3. Automates core business operations such as lead-to-
cash, order-to-fulfillment, and procure-to-pay
processes
4. Enhances customer service by providing one source
for billing and relationship tracking
The Business Value of ERP (cont.)
• No matter what type of business you're in, implementing an ERP
solution is a critical project that must be taken seriously.
• From concerns about cost and demonstrating ROI, to practical considerations
about who will manage the process at your company, ERP implementation
efforts require commitment by a project team and support by business
leaders to ensure success.
• With proper planning and execution, implementing an ERP system should be a smooth
process and quickly improve efficiency across your business.
Select the Best ERP Implementation for Your Business
Benefits of ERP system
• Scalability: An ERP system is easily scalable. That means adding new
functionality to the system as the business needs change is easy. This could
mean easy management of new processes, departments, and more.
• Improved reporting: Much of the inefficiency in operational work stems
from improper reporting. With an ERP system, this possibility is eliminated
as reporting follows an automated template system, allowing various
departments to access information seamlessly.
• Data quality: As compared with manual record-keeping or other traditional
approaches, an ERP system improves data quality by improving the
underlying processes. As a result, better business decisions can be reached.
Benefits of ERP system (cont.)
• Lower cost of operations: An ERP system introduces fundamental
innovations in managing resources, which eliminates delays and thus
reduces cost of operations. For instance, use of mobility allows real-
time collection of data, which is indispensable to lowering costs.
• Better CRM: A direct benefit of using a good ERP system is improved
customer relations as a result of better business processes.
• Business analytics: Having high-quality data allows businesses to use
the power of intelligent analytics tools to arrive at better business
decisions. In fact, many good ERP systems have built-in analytics
functionality to allow easier data analysis.
Benefits of ERP system (cont.)
• Improved data access: Controlling data access properly is always a
challenge in organizations. With an ERP system, this challenge is overcome
with the use of advanced user management and access control.
• Better supply chain: Having the right ERP system in place means improved
procurement, inventory, demand forecasting, etc., essentially improving the
entire supply chain and making it more responsive.
• Regulatory compliance: Having the system in control means organizations
can better comply with regulations. Further, the most important and
recurring regulatory requirements can be built right into the system.
Benefits of ERP system (cont.)
• Reduced complexity: Perhaps the most
elegant argument in the favor of ERP
systems is that they reduce the complexity
of a business and introduce a neatly
designed system of workflows. This makes
the entire human resource chain more
efficient.
• IT savings for Cloud ERP is quite high when
compared to Premise ERP.
Disadvantages of ERP System
• The cost of ERP Software, planning, customization, configuration,
testing, implementation, etc. is too high.
• ERP deployments are highly time-consuming – projects may take 1-3
years (or more) to get completed and fully functional.
• Too little customization may not integrate the ERP system with the
business process & too much customization may slow down the
project and make it difficult to upgrade.
• The cost savings/payback may not be realized immediately after the
ERP implementation & it is quite difficult to measure the same.
Disadvantages of ERP System (cont.)
• The participation of users is very important for successful
implementation of ERP projects – hence, exhaustive user training and
simple user interface might be critical. But ERP systems are generally
difficult to learn (and use).
• There may be additional indirect costs due to ERP implementation – like
new IT infrastructure, upgrading the WAN links, etc.
• Migration of existing data to the new ERP systems is difficult (or
impossible) to achieve.  Integrating ERP systems with other standalone
software systems is equally difficult (if possible). These activities may
consume a lot of time, money & resources, if attempted.
Disadvantages of ERP System (cont.)
• ERP implementations are difficult to achieve in decentralized
organizations with disparate business processes and systems.
• Once an ERP systems is implemented it becomes a single vendor lock-
in for further upgrades, customizations etc. Companies are at the
discretion of a single vendor and may not be able to negotiate
effectively for their services.
• Evaluation prior to implementation of ERP system is critical. If this
step is not done properly and experienced technical/business
resources are not available while evaluating, ERP implementations
can (and have) become a failure.
ERP (yes / no)
• Despite the disadvantages outlined above it is unlikely that
organizations will go back to traditional and more archaic methods of
corporate management. Instead these disadvantages are likely to be
dealt with through technical, organizational and individual changes.
Risks of ERP
• Number of integration points. Projects that attempt to
integrate everything at once, sometimes called “the big bang
approach,” are prone to adverse results due to the extreme
complexity and large number of interdependencies. Scale
down the scope of your first few projects and focus on
quick, easy wins while your team increases its capabilities.
• Changing Requirements. When the use case has been
poorly thought through, requirements can change frequently
and create chaos in an ERP integration project. Make sure
you spend enough time in the requirements gathering and
process planning phases to gather the best possible set of
requirements for your project. There is nothing wrong with
using agile methodology, but it still helps to have a clear
vision before you begin.
Risks of ERP (cont.)
• Inadequate integration infrastructure. Undertaking an ERP
integration project with the wrong infrastructure to support
your team can lead to serious issues and excessive costs.
Avoid solutions that rely on manual programming or overly
complex, heavy middleware software sets. Focus on single
stack, single studio solutions with an integration platform for
enterprise class integration projects.
• Impossible Schedules. Aggressive schedules are fine but
impossible schedules must be avoided. Set realistic
expectations by establishing an accurate estimate of the
integration efforts required for your project. If necessary,
bring in an outside firm to provide an estimate of the effort
required.
Risks of ERP (cont.)
• Staff Turnover. Changes in project management,
business analysts, developers, and stakeholders can
complicate completion of a project. Try to avoid turnover
by gaining commitments from participants that they are
available for the expected duration of the project.
• Inadequate Change Management Procedures. Some
organizations lack the formal methodology to handle
change orders. In addition, changes to the ERP and other
systems being integrated may not be locked down during
the integration project. The result can be chaotic from a
requirements, implementation and testing perspective.
Risks of ERP (cont.)
• Lack of Staff and Management Experience. ERP integration may be new territory for
your IT staff and management. Try supplementing your experience with proven consultants
or consulting firms that can leverage experience across a wide array of ERP integration
projects.
• New Business Processes. Introducing change to an organization always carries with it the
risk of institutional or market resistance. Make sure the processes have been vetted by
stakeholders and customers and that they are introduced properly so as to gain maximum
adoption and adherence.
• New integration infrastructure. New or unproven integration infrastructure represents a
risk factor. Make certain vendor experts are available to back up your team not only with
technical bugs but with implementation experience and best practice advice and or services.
• Inadequate testing plans. Test plans should introduce testing early and often. Test scripts
and automated testing may be able to help ensure accelerated and more complete discovery
of problems early in the ERP integration project.
Review Questions