UNIT 5

Turbo Charge the ERP system

IT, ERP and Organizations

• The primary objective of almost all the information technology initiatives and

innovations is to reduce the amount of time it takes to acquire and use information, to

learn, to make decisions, to initiate action, to deploy resources and to innovate.

• Real-time business has finally become cost-effective because of the convergence of three

technologies:
 1. Enterprise resource planning (ERP) applications

2. data warehousing and other BI technologies

3. Internet.

• Today’s ERP packages allow customers to access their ERP data and applications over

the Internet and extranets with a user interface that supports HTML, Java and XML.

• ERP systems also provide an Internet interface for existing EDI data systems so that

manufacturing companies can integrate their trading partners in a modern e-commerce

system.

• ERP systems help the organizations to manage complex business processes so it can

improve profitability, increase productivity and run more efficiently.

• ERP systems serve an important function by integrating separate business functions—

materials management, product planning, sales, distribution, financials and others—into a

single application.

Turbo Charging ERP

• One simple and cost-effective way to overcome the limitations of the ERP system is to

add a data warehouse and a business intelligence front-end to the ERP system.

• A data warehouse or data mart organizes ERP data so that it is easily accessible for on-

line analysis.
 • Business intelligence systems improve business competitiveness by providing reporting

and analysis tools to the desktop, enabling communication with the entire supply chain

via the Web and automating alerts and actions.

• By allowing flexible reporting and analysis, a business intelligence system can unlock the

value of the data in ERP reports.

• Business intelligence systems provide on-line analytical processing (OLAP) and data

mining tools that managers can use from the desktops to answer the what, why and how

types of questions and to discover significant trends and patterns.

• Businesses can optimize their investment in ERP systems by closing the loop between the

business intelligence system and the ERP system.

• Business intelligence systems for ERP can also issue alerts when certain events occur or

thresholds are met, enabling your business to react more quickly to problems and

opportunities.

• The ultimate value from the ERP investment results from integrating the ERP system not

only with a business intelligence front-end, but also with the Internet.

Review Questions

1. Discuss the importance of the convergence of three technologies—enterprise resource

planning (ERP) applications, data warehousing and the Internet.

2. Discuss the limitations of ERP systems.

3. Explain what you mean by flexible reporting and analysis.

 4. Explain how to improve the power of ERP using business intelligence.

5. What are the implementation requirements of integrating the business intelligence as the

front-end to an ERP system?

Enterprise Application Integration (EAI)

• Enterprise Application Integration (EAI) is the process of linking these applications and

others in order to realize financial and operational competitive advantages.

• EAI intends to transcend the simple goal of linking applications and attempts to enable

new and innovative ways of leveraging organizational knowledge to create further

competitive advantages for the enterprise.

• Enterprise application integration (EAI) is a business computing term for the plans,

methods and tools aimed at modernizing, consolidating, and coordinating the business

applications in an enterprise.

• The advantages of EAI are real-time information access among systems, streamlined

business processes that helps in raising the organizational efficiency and ability to

maintain information integrity across multiple systems, etc.

• The disadvantages include prohibitively high development costs, especially for small and

medium business (SMBs), resources intense, complex and long duration

implementations, need for highly skilled professionals and project managers and so on.

EAI Implementation Pitfalls

 • 70% of the time EAI projects fail. Most of these failures are not due to the software itself

or technical difficulties, but due to management issues.

• EAIIC European Chairman Steve Craggs has outlined the 7 main pitfalls undertaken by

companies using EAI systems.

• The pitfall of EAI implementation are:

1. Constant change

2. Lack of EAI experts

3. Competing standards

4. Thinking of EAI as a tool as opposed to a system

5. Discarding details along the way

6. Emerging requirements

7. Unclear accountability

Uses of EAI

• EAI can be used for different purposes:

1. Data (information) integration — ensuring that information in multiple systems is

kept consistent. This is also known as EII

2. Process integration — linking business processes across applications

 3. Vendor independence — extracting business policies or rules from applications

and implementing them in the EAI system, so that even if one of the business

applications is replaced with a different vendor's application, the business rules do

not have to be re-implemented

4. Common interface — an EAI system could front-end a cluster of applications,

providing a single consistent access interface to these applications and shielding

users from having to learn to interact with different applications.

• Given the complexity of EAI applications and a number of applications to choose from,

finding the right EAI tool for an application integration project requires a substantial

amount of research.

Review Questions

1. What do mean by enterprise application integration?

2. Discuss the limitations of ERP systems.

3. What are the uses of EAI?

4. What are the EAI implementation pitfalls?

5. Discuss the advantages and disadvantages of EAI.

6. Discuss the trends in EAI.

7. What are the EAI products?

8. What do mean by messaging-oriented middleware?

ERP and E-Business

• ERP is a structured approach to optimizing a company’s internal value chain. The

software, if implemented fully across an entire enterprise, connects the various

components of the enterprise through a logical transmission and sharing of data.

• E-business stands for “electronic business,” which involves communications and doing

business electronically through the Internet. E-business is defined as the use of

electronically enabled communication networks that allow business enterprises to

transmit and receive information.

• When e-business is integrated with ERP, the whole extended system provides a vision of

business processes that span multiple businesses and enterprises.

• In the most ideal case, companies should be able to connect disparate platforms,

applications and data formats across the value chain, including not only suppliers but

customers as well.

• E-business is focused on efficiency and effectiveness of external, cross-enterprise

processes. While ERP technology supports business strategy, e-business opens the door

to new strategic opportunities, which forces ERP to take one step further—to move from

the single ERP system model to the extended ERP system model.

Supply Chain Integration

 Warehouse Organization

CRM

BusinesIntelligence

Management

EFT

Infromation Flow

• A fully integrated ERP system will capture and create accurate, consistent and timely

relevant data, and assist in intelligent business decision-making.

• The impact of ERP/ e-business integration is substantial, ranging from reduced inventory

and personnel level to improved order and cash management.

• It also results in improved customer responsiveness, reduced IT costs and the availability

of resources for value-added activities.

• Traditional businesses spend a lot of time, effort for communicating business information

and making and accepting payments. E-businesses do the same thing over digital

networks.
 • The savings in terms of time, effort, error reduction, etc. are quite dramatic. EDI

messages help business to automate the procurement and supply processes. EFT is used

to accept and make payments between trading partners.

• The organizations can accept payments—credit card payments, digital cash, etc.—over

the Internet. The use of electronic media for information transmission and financial

transactions greatly reduce the time required for completing a transaction at the same

time automating the business processes involved.

• A well run Web enabled ERP system will make the entire value chain very powerful.

Review Questions

1. How has e-business changed the definition of enterprise systems?

2. Discuss the connection between ERP and E-business.

3. Explain supply chain integration.

4. Discuss the E-business process model.

5. Explain the components of the e-business supply chain.

E-Business & E-commerce

• E-commerce (electronic commerce or EC) is the buying and selling of goods and services

on the Internet, especially the World Wide Web. E-commerce is also known as e-tailing,

i-commerce, etc.
• E-commerce can be broadly classified as the set of business activities involving

consumers, service providers, manufacturers and intermediaries who use computer

networks such as the Internet for conducting their business transactions.

• E-commerce can be divided into:

1. E-tailing or virtual storefronts on Web sites with online catalogs, sometimes

gathered into a virtual mall

2. The gathering and use of demographic data through Web contacts

3. Electronic Data Interchange (EDI), the business-to-business exchange of data

4. e-mail and fax and their use as media for reaching prospects and established

customers (for example, with newsletters)

5. Business-to-business buying and selling

6. The security of business transactions

• The primary goal of e-commerce is to bring organizations closer to their actual

customers, thus providing the customers with products and services much faster and at a

lesser cost than possible by traditional business models.

• The other goals include reduction in product and service cost, improved customer

response time, improved the quality of the products and services and improved customer

satisfaction.

• Implementing e-commerce has become a business necessity, as companies that fail to

take advantage of this technology will soon find themselves out of business.
 • Electronic commerce integrates communications, data management, and security

services, to allow business applications within different organizations to automatically

interchange information.

• E-commerce is a multi-disciplinary field that includes technical areas such as networking

and telecommunications, security and storage and retrieval of multimedia information,

business areas such as procurement, purchasing, production, marketing, billing and

payment, and supply chain management.

• Information is an integral part of electronic commerce, but electronic and traditional

commerce each deal with information differently. In electronic commerce, information

can be conveyed via a communications network or other electronic media.

• A number of activities, including mail exchanges, electronic funds transfer, remote access

to database systems and automatic monitoring of store inventory levels, automated

production planning and JIT manufacturing, automatic purchase order processing and

fulfillment, web-based customer support, etc. can be used in electronic commerce.

• By integrating communications, data management and security services with the business

application, electronic commerce can make these services transparently available to the

user. Through this integration and automation, conducting commerce is made more

efficient, convenient and accurate.

Evolution of E-Commerce

• E-commerce has been around in various forms for over 30 years.

 • Electronic data interchange (EDI) and electronic funds transfer (EFT) technologies were

first introduced in the latter half of the 1970s.

• The growth and acceptance of credit cards, phone banking and automated teller machines

(ATM) in the 1980s are also forms of e-commerce.

• The exponential increase in popularity of the Internet and WWW is the foundation that

propelled the growth of e-commerce.

• The advancements in data encryption and capability to securely transfer data across

commercial networks was another factor that contributed for the growth of e-commerce.

• “In this emerging digital marketplace nearly anyone with a good idea and a little software

can set up shop and then become the corner store for an entire planet. The Internet makes

any connected computer that central location and any desktop can be a doorway to a

global mall with a sign that says, ’Open 24 hours a day, 7 days a week, 365 days a year.”

– Al Gore (former US Vice President), 1998.

E-Commerce Growth Factors

• Growth of internet and internet population - The most important factor is the growth and

commercialization of the Internet and the popularity of the WWW.

• Technology - The explosion of methods and applications of information technology is

another growth factor.

• Consumer protection and privacy - Another set of factors that plays an important role in

the growth of e-commerce is the increasing confidence in consumer protection and

privacy.
 • Improvements in Internet security - The emergence of modern encryption and security

methods like Virtual Private Networks (VPN), Secure Socket Layers (SSL), Secure

Electronic Transactions (SET), etc. have played a major role in improving consumer

confidence and reducing fraud over the Internet.

• Entry of small and medium sized business - Internet has made it possible for small and

medium sized enterprises (SMEs) to compete effectively with the larger organizations.

• Global reach - With the global reach of the Internet, e-commerce quickly connects buyers

and sellers from around the world.

E-Commerce and E-Business

• E-commerce is generally associated with the buying and selling of information, products

and services via computer networks.

• E-business (electronic business) is the conduct of business on the Internet, not only

buying and selling but also servicing customers and collaborating with business partners.

• Today, major corporations are rethinking their businesses in terms of the Internet and its

new culture and capabilities.

• Companies are using the Web to buy parts and supplies from other companies, to

collaborate on sales promotions, and to do joint research.

• Exploiting the convenience, availability, and world-wide reach of the Internet, many

companies, such as Dell Computers, Amazon.com, FedEx, McGraw-Hill Education,

Citibank, Indiaplaza, etc. have already discovered how to use the Internet successfully.
 • With the security built into today's browsers and with digital certificates now available

for individuals and companies from certifying companies like Verisign, much of the early

concern about the security of business transaction on the Web has abated and e-business

accelerating.

E-Business

• E-Business is, in its simplest form, the conduct of business on the Internet. It is a more

generic term than E-Commerce because it refers to not only buying and selling but also

servicing customers and collaborating with business partners.

• E-business, in addition to encompassing e-commerce, includes both front and back office

applications that form the engine for modern business. E-business is not just about e-

commerce transactions; it’s about re-defining old business models, with the aid of

technology, to maximize customer value.

• E-business involves not merely setting up the company web site and being able to accept

credit card payments or being able to sell products or services on-line. It involves

fundamental re-structuring and streamlining of the business using technology.

• Transforming a traditional organization to do e-business involves using technology to the

fullest.

• E-business uses technologies like enterprise resource planning (ERP) systems, supply

chain management (SCM), customer relationship management (CRM), data warehousing,

data marts, data mining, on-line analytical processing (OLAP), geographical information

systems (GIS), etc. to conduct business on the Internet at ‘Internet speed’.

 • It is technology and innovative and new business processes that are making the conduct

of business at ‘Internet speed’ possible.

Review Questions

1. Discuss the terms e-commerce and e-business.

2. Discuss the IT revolution and how it has changed the people and organizations.

3. How have technological advancements affected our lives?

4. Trace the evolution of e-commerce.

5. What were the growth factors of e-commerce? Discuss.

6. Discuss the transformation of organizations from e-commerce users to e-businesses.

7. Discuss e-business with examples.

8. Discuss how an e-business is different from a traditional business.

ERP, Internet, and WWW—ERP

ERP II

• By extending the existing applications to support e-commerce, organizations could not

only leverage existing investments in their ERP solution but also speed the development

of their e-commerce capabilities.

• ERP needs to be tightly integrated with the Internet and WWW or World Wide Web, in

order to take advantage of that powerful medium.

• Since most of the business transactions are conduced over the Internet and most

information is accessed and disseminated over the organization’s portal on the WWW,

these two media are becoming important for organizations.

• With the advancements in encryption technologies and Internet security, conducting

business over the Internet is becoming safer. So extending the ERP applications to the

Internet and WWW is the next logical step for organizations.

• ERP systems are used to integrate and optimize an organization's internal manufacturing,

financial, distribution and human resource functions. In contrast, ERP II addresses the

integration of business processes that extend across an enterprise and its trading partners.

• ERP II forms the basis of Internet enabled e-business and collaborative commerce.

• The main reason why ERP II came into existence was the need to look at a way to give

customers and partners access to scheduling, delivery, inventory, manufacturing,

invoicing and planning information.

• Over the last few years, solutions like CRM and SCM have leveraged the Internet to

support these processes. ERP II incorporates them all in a single package.

• To be globally competent, an organization needs to open and reach out to its

collaborative partners. ERP II enables businesses to compete by providing information

on-line and adding real value to businesses of all types and sizes.

• ERP II is a solution that includes the traditional materials planning, distribution, and

order-entry functionality strengthened by capabilities like customer relationship

management (CRM), human resources management (HRM), document/ knowledge

 management (KM) and workflow management. Such a system can quickly, accurately

and consistently operate an entire organization.

• With ERP II the customer, the vendor, the supplier and the company all work in unison.

• The strongest features of ERP II are its web-centricity and designed-to-integrate

architectures.

Review Questions

1. Explain the growth and popularity of Internet and its impact on ERP systems.

2. Explain the importance of the integration of ERP with Internet and WWW.

3. What is ERP II? Explain its importance and advantages.

4. Discuss the best practices of ERP II.

Future Directions and Trends in ERP

ERP Trends

The main ERP trends and future directions are:

1. New markets - As larger enterprises become saturated with new generation client/ server

ERP systems, vendors are being forced to find new markets for their product suites to

continue to drive their growth.

2. New channels – ERP vendors are building re-seller channels to reach the smaller

businesses that are looking for the complete one-stop shop for their ERP solutions.
3. Faster implementation methodologies – ERP vendors and other organizations are creating

methodologies and tools to make the implementation process simpler and faster.

4. Easier customization tools - Customization is one of the hidden costs of any ERP

implementation. In order to lower the customization costs, most ERP vendors offer

customization tool kits along with their products.

5. Business models and BAPIs – These products help the implementation teams in

reviewing and to perform simulations of changes thereby making implementation easier.

6. Application platforms – ERP vendors are trying to extend the reach of its products and

make them more like an application platform than a suite of modules.

7. New business segments – All the ERP vendors are now capable of delivering specialized

variants of their applications to service vertical markets such as government, healthcare,

financial service or retail environments.

8. Need-based applications - The latest ERP software programs offer need-based

applications. The organizations can choose and install software programs pertaining to

that particular function.

9. Product cost - ERP was a very costly affair. The popularity of the Internet and open

source applications has helped SMEs to enter the market of prospective buyers, by

offering low-priced products.

10. Reduction in implementation time – The new ERP systems are easier to implement, offer

many implementation tools and thereby reduce the implementation time.

11. Open source, web enabled and wireless technologies - These are three important elements

that have rejuvenated the functioning of ERP. Open source ERP has done away with the

hassles of paying license fees. Web enabled ERP helps in making the enterprise

operations go on-line. Wireless ERP has helped organizations to make use of the

communication channels effectively and efficiently.

12. Enterprise application integration - As the need for integrating the supply chain is

becoming more and more urgent, most ERP vendors are offering these applications (like

supply chain management, customer relationship management, business intelligence,

analysis and reporting, etc.) as part of their ERP offerings.

13. Market snapshot - SAP will remain the undisputed leader of the ERP market for the

foreseeable future, but the acquisitions of PeopleSoft and JD Edwards by Oracle make it

a worthy competitor. These two organizations together hold more than 60% of the market

share and will decide the events of the ERP marketplace. The next 8 competitors put

together, account for only 16% of the ERP market share.

14. Shifting revenue models - Significant shifts are taking place in how ERP vendors

generate revenues. Echoing changes taking place throughout the software industry, the

transition is toward recurring and variable revenue models—with maintenance charges

driving industry growth.

15. The SOA factor - The need to implement service-oriented architectures (SOAs) will

continue to grow as a factor in ERP purchase decisions.