ENTERPRISE RESOURCE

PLANNING
FUNDAMENTALS OF DESIGN AND IMPLEMENTATION

LECTURE 01 : WEEK 01

Credit : (3 + 0) / Week
 TEXT AND REF. BOOKS
2

Text Book:
• Concepts In Enterprise Resource Planning,
Authors: Concepts in Enterprise Resource
 TEXT AND REF. BOOKS
3

Reference Book:
• Enterprise Resource Planning Fundamentals of
Design and Implementation, Authors: Ganesh,
K., Mohapatra, S., Anbuudayasankar, S.P.,
Sivakumar, P.
Online Reference:
VU Open Courses
https://ocw.vu.edu.pk/CourseOverview.aspx?cat
=Management&course=MGMT631
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 Learning Outcome
6

 Learning Objectives
 To provide an understanding of enterprise systems and their impact on
business processes.
 To appreciate critical roles of enterprise resource planning (ERP) in
automating business processes and meeting corporate objectives.
 How to integrate ERP with management information system (MIS).
ERP as a Business Enabler
Introduction
 In order to sustain and grow further, an organization must deal with all sales holders
such as:
 Employees
 stakeholders
 and the environment.
 The organization must design an information system that would collect information as
well as provide required information to all these stakeholders.
 Accordingly, business processes must be organized in such a way that these processes
use designed information systems to operate efficiently and enhance the overall
performance of the organization.
Introduction
 The business processes are organized in such a way that they provide value to their
stakeholders by prioritizing a strategy that would provide a faster and higher return
on investment (ROI).
 This prioritization ensures focus of these organizations in relation to their corporate
objectives.
 Since resources are limited, efforts are prioritized on certain business processes
which would yield tremendous and faster benefits to the stakeholders.
Introduction
 To achieve this, information systems are designed across the entire enterprise, which
would help in providing information for tracking and monitoring progress of different
processes.
 These enterprise-wide applications (known as enterprise resource applications, ERPs)
help in assisting in designing, integrating and automating these prioritized
information systems.
Introduction
Introduction
For example,
 Raising an invoice for customers is a business process that involves a set of activities.
This set of activities is different in different organizations.
 Different activities in this business process can be collecting details of sales, looking
up the rate chart, arriving at the value of goods and printing an invoice.
 In some organizations, these set of activities can be slow and inefficient, whereas in
others it can be fast and effective.
 One of the objectives of ERP is to design an efficient information system by
integrating and automating these set of activities to make it faster and transparent.
Introduction
 The degree of integration decides simultaneous publication of the information with
different stakeholders and helps improve the performance of the organization.
 This also becomes the source of competitive strength and can be the differentiating
factor with respect to its competition.
 ERPs help organizations to achieve this competitive advantage.
Introduction
 The ERP can be considered an integrated package of business processes.
 The scope of the ERP determines the extent of automation of business processes.
 For example,
 if the ERP covers human resource (HR) and finance business processes only, then business
process-related HR and finance are automated.
 Typically, business processes that are automated in HR and finance are employee entry and
exit processes, allocation of employee ID, payroll, processing, income tax planning, actual
deduction, etc.
 There is a seamless flow of employee data and information available at an effectively faster
rate to take appropriate decisions. Figure 1.1 shows a typical framework for ERP application
where HR and finance have focus.
Evolution of ERP
 Integration of information systems started even before ERPs came into being.
 This form of integration had limited focus; nevertheless, using information systems for
tracking and monitoring business processes were central to the existence in
manufacturing organizations.
 Material requirement planning (MRP-I) was practiced in the 1960s and
1970s by many manufacturing organizations. MRP-I was a software which
automated production planning and inventory control so that all the
business related to manufacturing was completed in a seamless manner.
Evolution of ERP
 The objectives of this system were as follows:
1. Required input materials are available for production.
2. Required products are made from input material and delivered to the
customers.
3. Maintain an optional level of investors.
4. Schedule manufacturing activities to meet delivery schedules for the customer.
5. Schedule purchasing activities to meet manufacturing activities.
Evolution of ERP
 Scope for MRP-I
 Customers want the products to be available in a short time irrespective of the cycle time
required for producing them.
 The organization also needs to control both quantity and quality of materials that they get
from the suppliers; and these materials should be available at the lowest possible cost. There
could be a different combination of problems that the organization would face:
 If quantities purchased were lower, it would lead to a stock-out situation for customers.
 If the wrong quality or wrong input material is purchased, then the quality of the final
product will not match that required by the customer.
 If excessive quantities are purchased, it would lead to excess inventory; this means funds
are held up in the form of inventory leading to less inventory and consequently less profit.
Evolution of ERP
 These kinds of problems are tackled by MRP-I; thus, MRP- I helps to solve problems
 like:
 What items are required?
 What is the quantity of each item?
 What is the time frame for availability of these items?
Evolution of ERP
 Problems with MRP-I
 MRP-I was able to satisfy simple manufacturing business processes.
 In business processes, where bought-in items and sub-assemblies were involved,
the situation became complex.
 In these complex situations, a bill of material needs to be handled effectively to
take care of details of required materials, details of components and sub-
assemblies to make each product.
 MRP-I was not able to handle these complex situations effectively. The problems
faced with MRP-I are listed as follows:
Evolution of ERP
1. In these bills of material, integrity of data creates a major problem. Any incorrect
input in bill of materials inventory data would result in incorrect manufacturing
scheduled. In the 1960s, MRP-I was often considered inappropriate, because of
incorrect inventory data.
2. Lead time taken to manufacture a product from its component parts needs to be
stated explicitly. Any wrong data in this respect will bring out a wrong schedule for
production. The assumption here is that in each manufacturing cycle, the lead time
remains constant. Thus, any change in external facts would change this lead time
and MRP-I was not able to handle these changes.
Evolution of ERP
3. There were manufacturers who had factories at different locations. These locations
could be at quite far-off places. For efficient manufacturing, material needs to be
transferred from one location to another depending on the cost factor involved in
this transfer. MRP-I was not cost-effective in transferring goods from one location to
another.
4. Customization was also handled by MRP-I. This meant that dynamic changes in the
environment, including in customer needs, could not be handled by MRP-I.
5. MRP-I also never considered the capacity available in the factory. Thus, utilization
of capacity could not be factored in while using MRP-I for scheduling. All these
problems were dealt with in MRP-II.
Evolution of ERP
 MRP-II
 MRP-II came as an improvement of MRP-I in the 1980s. This, as the name suggests, was an
extension of MRP-I. Its scope covers manufacturing, scheduling, operational planning and
financial planning along with distribution management.
 Unlike MRP-I, this was not a software alone, but a combination of planning skills, data integrity
skills and computing resources. Thus, it gave birth to the concept of managing different
departments simultaneously by effectively using resources. Figure 1.2 shows how MRP-II is
represented.
 As Fig. 1.2 indicates, MRP-II integrates strategic planning, tactical planning, shop from
operation and market forecasting.
 For the first time, a concept was born which took care of enterprise-level planning. Unlike
MRP-I (which was a software alone), MRP-II changed the perspective of planning and
integration of different departments.
Evolution of ERP
 Benefits of MRP-II
 The integration of different aspects of an organization ensured that there was no
duplication of data, high data integrity and accuracy in forecasting using customer
feedback.
 The benefits from this integration can be summed up thus:
Evolution of ERP
 An accurate, consistent and effective way to run the organization
 Control and monitor the operation
 Ability to change internal business processes based on change in the market
condition
 Ability to incorporate any change based on customer feedback
 Availability of information at a quicker pace (compared to MRP-I) to take faster
decisions
Evolution of ERP
Evolution of ERP
 Consistency of information
 Rolling up of information at different levels and departments
 Accuracy of results
 Ability to meet customer demand in terms of delivery schedule, quantity and quality
required
 Faster response to changing customer demands
 Better utilization of inventory and other resources leading to higher productivity
 Better relationship with suppliers
 Improve cash and fund management
Evolution of ERP
 Problem with MRP-II
 MRP-II has been successful in manufacturing industries; however, in the
pharmaceutical industry or in food industries, specialized functions are needed.
 For example, in pharmaceuticals, chemicals are required to be stored for a certain
period of time under proper temperature and humidity.
 In food industries, food items have a certain shelf life.
Evolution of ERP
 Hence, in these industries,
 MRP-II has not been successful. Handicraft and tableware industries also have fewer
wages for MRP-II as they do not need a complex planning process.
 Probably, the industries that cannot use MRP-II appropriately are knowledge
industries; they use intellect to provide products and services to the customer and
are not capital inclined. In these types of industries, support functions such as HR,
finance, administration, etc. play vital roles in providing facilities to the employees.
 Different employee benefits are given to motivate employees, create better
conditions and develop brand equity for the organization.
Need for ERP
 The early 1990s witnessed a trend where every organization (including in the
manufacturing sector) wanted to be productive and develop competitive advantage
through cast leadership effectively utilizing resources from the support department.
 The organizations observed that to meet their corporate objectives, there should be
effective utilization of resources not only in the production department but also in
support departments.
 Business processes have to take care of products and services delivered to not only
the external customers but also to internal customers. For the first time, the concept
of an internal customer was introduced to address seamless information flow
between departments. Figure 1.3 derives this concept.
Need for ERP
Need for ERP
 Figure 1.3 shows that for sustainable development and growth of an organization,
the departments have to coexist and operate at the same level of efficiency and
productivity.
 The gap shown has to be filled up so that the entire organization can operate at the
same level of efficiency. This level of operation again has to be consistently
maintained with accuracy.
 There has to be a seamless flow of information throughout the organization and a
need for applications which can fulfil all these besides meeting the capabilities of
MRP-II. At an organizational (also known as enterprise) level, this application would
help management take fast and effective decisions.
 For these types of needs, ERP was born.
Overview of ERP
 ERP integrates the business processes of department functions and departments into
one unified system. In this integrated system, different components of software and
hardware take care of different business processes.
 The business processes are grouped into different models and different components
of ERP are designed in such a way that each software component can take care of
independent models.
 All these models are finally integrated to give the organization unified views. The
basic concept behind using this unified system is the usage of the organization or
enterprise database. Figure 1.4 explains this unified database.
Overview of ERP
 Each stakeholder is benefited from the information system integration provided by
ERP. Organizations choose to implement modules of ERP one by one.
 Usually, large organizations have the required IT skills in-house and typically go
module by module to reduce the risk associated with automation. This also reduces
the impact of a disharmony that automation can break in the present business
process.
 An organization with IT skills may choose to implement some modules of an ERP
while developing an interface to other stand-alone modules.
Overview of ERP
 In the case where stand-alone modules provide satisfactory results to end users, this
approach is preferred.
 For example, Polaris preferred to implement PeopleSoft Human Resource
Management System (HRMS) and financial system and integrate it with the project
management tool.
 Likewise, some may perceive SAP’s manufacturing tool and customer relationship
management (CRM) system to be better than PeopleSoft modules.
 In such cases, the organization can integrate different modules from different
vendors and integrate them.
 This is done to reduce the cost of implementation by not purchasing some of the
modules from an ERP vendor.
Overview of ERP
 Modules of ERP
 ERP as an application consists of different modules. Each module typically takes care of one
function. Thus, there will be different modules such as: finance asset management; materials
management; production management; project management; quality management;
maintenance management, sales and distribution; HR management; CRM, etc. These modules
usually cater to one function or department of an organization. The ERPs can also have
different packages for different industries.
 These packages are meant for providing solutions for specific industries alone, such as process
industry, gas, steel, automobile, textile, cement, banking, finance, etc.
 In all these packages, the functional modules take care of one function only. However, these
functional modules can be integrated later on depending on the scope of the implementation.
 In the following section, some of the functional modules have been described to provide an
understanding of the information flow given for automating business processes associated with
that function.
37 END OF LECTURE
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