What is Enterprise Resource Planning (ERP)

[Chandak Badri]

Enterprise Resource Planning (ERP)

                                                      

ERP comprises of a commercial software package that comprises the seamless integration of all the information flowing through the company – financial, accounting, human resources, supply chain and customer information.

 
ERP systems, fundamentally, integrate the different processes necessary in a business into a centralized pool that facilitates data sharing and eliminates redundancy.
 
The purpose of ERP technology is to support the business processes that support the company’s strategic opportunities.
 
Advantages
 
·        On-line/ real time information throughout all the functional areas of an organization.
·        Data standardization and accuracy across the enterprise
·        Best practices included in the applications
·        The efficiency they force an organization to undertake
·        The analysis and reporting that can be used for long term planning
 
Core Subsystems of ERP
 
•      Export and shipmen
•      Materials Requirement Planning
•      Capacity Requirements Planning
•      Bills of Material
•      Purchasing
•      Inventory
•      Shop Floor Control
•      Preventive maintenance
•      Costing
•      Human Resource Management module
•      Financial module which include:
          Accounts Payable/Receivable
            General Ledger
          Cash management
          Fixed assets
          Budgeting
          Forecasting
 
Points to prepare Master Plan for ERP
 
•      How do we want to run our business?
•      What business problem needed to be solved?
•      Do we know and understand our priorities?
•      Do we fully understand our as-is condition VS Could-be/should-be processes?
•      Have we carefully defined an action plan for
pre-implementation preparation activities?
•      What tasks will be accomplished and when?
•      What are the missing links in our current system and our software of choice?
•      What are the real costs, benefits and timetable going to be?
•      Who will implement ERP and make it work?
•      Availability of experienced ERP consultants.
 
 
 
 
 
 
 
 
 
Core Business Objectives of doing ERP
 
•      Increase Incremental revenue
•      Reducing Cost
•      Improving Quality
•      Improving time-to-market
•      Increase customer service levels
•      Engineering process improvements
•      Overcoming lack of information
 
 
Software Customization Problems
 
Following problems are encountered while customizing the software:
 
•      It Slow down the implementation process
•      Increases the Project Cost
•      Introduces dangerous bugs into the system and
•      Difficulty in up gradation of new versions
 
Business Process Re-Engineering (BPR)
 

It must be remembered that ERP is an opportunity for business re-engineering. One gets the opportunity to restructure and reorganize people and departments to meet new challenge and global competition. Information is a vital factor along with quality, cost, and delivery to establish competitive advantage. As such, it calls for attitudinal changes which will help in a smooth transition, learning best practices, and adopting them into the business.  

 
Principle of BPR
 
•      Understanding the existing practices
•      Simplifying the Processes
•      Automate the Process
 
 
Steps of BPR
 

•      Study the current system

•      Design and develop new systems

•      Define Process, organization structure and procedure

•      Customize the software, where require

•      Train people

•      Implement new system

 
Assembling the Right Team
 
•      It is a full-time mission-critical effort
•      The team must include
–   Well-established employees who have a strong grasp of the business
–   Who are opinion maker
–   Who understand the unique opportunity a system implementation provides
–   Who are passionate about making things happen
 
 
Phases of implementation of ERP
 
•      Project Planning
•      Business & Operational analysis including Gap analysis
•      Business Requirement mapping
•      Business Process Reengineering
•      Project team training
•      Installation and configuration
•      Module configuration
•      System interfaces
•      Data conversion
•      Custom Documentation
•      End user training
•      Acceptance testing
•      Post implementation/Audit support
 
Hurdles for Small/Medium size Organization
 
The organization will not be able to enjoy the full benefit of ERP:
•      Costly Customization
•      Long implementation process fetch the precious time of key persons
•      Poor training and inappropriate preparation of the personnel
•      Resulting poor usage of the system and less ROI
•      Over dependence on vendors or consultants
•      Success is highly dependent on commitment from upper management
 
Costs of the Project include:
 
•      Hardware costs
•      Software costs
•      Training
•      Integration and Testing
•      Consultant Fee
•      Data Conversion
•      Data Analysis
•      Post ERP Depression
 
Post ERP Depression Cost
 
•      According to Deloitte Consulting survey
•      Of 500 companies
•      One in Four admitted that they
           “Suffer drop in the performance when their ERP system went live.”
 
However, this trend reversed with the passage of time due to learning curve.
 
 
 
Management Requirements
 
•      Commitment
•      Global Readiness
•      Time Line
•      Clear Milestones
•      Training
 
Detailed Discussion Phase

Task:-

•      Project initialization

•      Evaluation of current processes & business practices

•      Set-up project organization

 

Deliverables

•      Accepted norms and Conditions

•      Project Organization chart

•      Identity work teams

 
Design and customization Phase

Task:-

•      Map organization,

•      Map business process,

•      Define functions and processes,

•      ERP software configuration and, Build ERP system modifications.

 Deliverables:-

•      Organization structure

•      Design specification

•      Process Flow Diagrams,

•      Function Model

•      Configuration recording and system modification.

 
 
 
Implementation Phase

Task:-

•      Create go-live plan and documentation

•      Integrate applications

•      Test the ERP customization

•      Train users

 

Deliverables:-

•      Testing environment report

•      Customization Test Report and

•      Implementation report

Production Phase

Task:-

•      Run Trial Production

•      Maintain Systems

•      Improvement in System

•       

Deliverables:-

•      Reconciliation reports

•      Conversion Plan Execution

 
Ten Mistakes to Avoid
•             Hiring inexperienced consultants. You need someone with the intelligence, experience and courage to challenge you.
 
•             Being afraid to rock the boat. Quantum improvements always shift the balance of power causing waves of turmoil.
 
•             Emotionally "buying" a particular system too soon. Don't let slick sales presentations convince you to skip through a thorough evaluation and selection process.
 
•             Underplanning. Thorough planning is a critical success variable.
 
•             Undisciplined testing. There is no substitute because it will not operate like it did on the drawing board.
 
•             Expecting short-term results. Don't kid yourself. An ERP system initialized today will not assure improvements by tomorrow night.
 
•             Underfeeding the system. An ERP system requires a long-term commitment of ongoing resources.
 
•             Abdicating too much. A good consultant is no substitute for a knowledgeable, committed team of owners!
 
•             Being overanalytical or overintuitive. A system must be rational, but quantum leaps cannot be proven in advance.
 

Finally, it is always remembered that ERP packages are tools to support the business. Close linkage to business must be reviewed and monitored to ensure that the required information is made available to the right people at the right cost and in the right format so as to gain competitive edge in the era of global competition. When a business crosses the boundaries of the nation and becomes multinational, it has no other option but to use ERP so as to standardize operations world wide.