Management Information Systems

Prof. Surojit Mookherjee

VGSoM, IIT KHARAGPUR

Week 03: ERP

Lecture 01 : What is ERP ?
Course Expectations…..

• To make you understand ‘WHY ERP’.

• To help you understand some of the key product features at a very HIGH LEVEL
• How to take the BEST from an ERP.
• To help you understand the REQUIREMENTS from an organization in IMPLEMENTING an
ERP
• This course will NOT make you a SAP/ERP consultant
 ERP Overview – Defining ERP…..

 Enterprise: Any organization that has a set of common goals

 Resource: Assets of the enterprise in the form of Man, Machine,
Material
 Planning: Planning for effective utilization of resources

 ERP is integrated information system built on a centralized database and

common computing platform helps in effective usage of enterprise’s resources,
facilitates the flow of information between all business functions of the
enterprise.
Vendors Inbound Manufacturing Transportation Distribution Delivery Customer Consumer
Logistics

Logistics and Distribution Sales & Customer Service

 ERP Overview – Defining ERP

Enterprise resource planning (ERP) is a method of efficiently utilizing

people, hardware and software to increase productivity and profit.
Thus simplifying a company’s business processes.
ERP may include many software applications or a single (but more
complex) software package that smoothly disseminates data required
by two or more unique business departments.
 ERP Overview – Why ERP….

The need for enterprise resource planning (ERP) software grew with big business’
mandate for a centralized solution to manage all information system requirements.
An ERP may consist of many different business modules, including:
• Manufacturing / Planning
• Human Resources / Payroll
• Sales
• Materials / Inventory / Purchase
• Supply Chain / Partners
• Finance and Accounting
 ERP Overview – Why ERP

 The three Major Drivers:

 From Department To Enterprise
 From Function To Process ( e.g. Order to Cash )
 From Functional Silos To Integrated Information System
Stand Alone Solutions – Islands………. PAST
ORGANIZATION
Finance and Accounts
DATA
Sales and Production
DATA
Marketing DATA

DATA Maintenance
Purchase DATA

Quality Stores &

DATA DATA
Assurance Inventory
DATA
Human Resources

Slide 7
Integrated Platform………. Present
ORGANIZATION
Finance and Accounts

Sales and Production

Marketing

Maintenance
Purchase DATA BASE
Quality Stores &
Assurance Inventory

Human Resources

Slide 8
 Enterprise Resource Planning…..present
... synchronization of Company functions...
Question – When , Manufacturing happens ,
Purchase how do Purchase , Sales and Finance get
impacted ?

Manufacturing Finance

Sales

Slide 9
ERP… and extended to the complete value chain...

Vehicle OEM

Finance

Customer
Transport Fleet Operator
Component
Supplier

Slide 10
 Problems with Information Silos

 Duplication Of Data and chances of making mistakes

 No Integration between different Systems
 No online updation of information
 No real – time availability of information
 Multiple data entry , increase possibility of making mistakes
 Different ‘naming’ conventions in different departments.
ERPs bring Central Database and Integrated Information System

Warehouse and Finance and

Transportation Controlling
Plant
Maintenance

ERP Sales and

Database Distribution
Quality
Management

Production
Procurement and
Planning
Human Materials Mgmt.
Resource
 Integrated Covers all aspects of
the enterprise

Real Time Characteristics

of ERP
BPR
C
COON
N TT R
ROO LL LL II N
NGG
Finance Balance sheet Capital Costs

Purchasing Production Sales/distrib

Sales/ distrib..

Procurement Sales
market market

Machines Operating resources Human resources

R
R EE SS O
OUUR
RCCEE SS

Online Data Strong Security

Process
Validation & Control
Oriented

Slide 13
REFERENCES

 Enterprise Resource Planning : Rajesh Ray

 Enterprise Resource Planning Systems : O’Leary
Management Information Systems
Prof. Surojit Mookherjee
VGSoM, IIT KHARAGPUR

Week 03: ERP – Evolution and Benefits

Lecture 02 : Part 2 of 5

1
 ERP Evolution - MRP

 ERP systems evolved from MRP ( Material Requirement Planning ) systems of

60’s and 70’s.
Advantages
 Provides information on which items to buy or manufacture, how much
quantity and on which date.
Disadvantages
 Did not look at available capacity while planning
 Could not replan quickly
 Not integrated with other organizational processes.

2
 ERP Evolution – Closed Loop MRP

 Closed Loop MRP was the next evolution after MRP which partially solved some
of the MRP issues.
Advantages
 Does a manual feasibility check of MRP plan.
 Provides alerts / triggers if the plan is not feasible.

Disadvantages
 Could not replan quickly
 Not integrated with other organizational processes.

3
 ERP Evolution – MRP 2

 MRP 2 systems were much more stronger compared to MRP / Closed Loop MRP in
terms of functionality. These systems were well integrated with several
organizational business processes and had multiple modules.
Advantages
 Include processes for Sales planning, Demand management etc.
 Helped in several supply chain execution processes (like Purchase and Production
order execution, Sales execution etc.).
Disadvantages
 Not fully integrated with all organization processes (like: HR)

4
 History of ERP and Enterprise Applications
SCM

CRM

PLM

SRM
ERP

MRP II
MRP

Closed Loop MRP

60’s-70’s 70’s – 80’s 80’s – Till Date 2000 – Till

Date

Enterprise Applications = ERP, CRM, SRM, PLM, APS, EAM

5
 ERP – Some Early History of few Leading ERPs
• 1972: Five engineers ( IBM ) in Mannheim , Germany started the company SAP,
with the idea of producing and marketing standard software for integrated
business solutions.
• 1975: Richard Lawson, Bill Lawson, and John Cerullo started Lawson Software, a
pre-packaged enterprise technology solutions as an alternative to customized
business software applications.
• 1977: Jack Thompson (J), Dan Gregory (D), and Ed McVaney (ED) formed JD
Edwards. ( merged with Oracle ERP )
• 1978 Jan Baan begins The Baan Corporation that offered leading Baan ERP for
several years. It is currently known as Infor.
• 1987: PeopleSoft was founded by Dave Duffield and Ken Morris.

JD Edwards and PeopleSoft have been taken over by Oracle and merged
with Oracle ERP

6
 SAP - Systems Applications & Products in Data
Processing

SD FI
Financial
Sales &
Distribution Accounting

MM CO

R/3
Materials Controlling
Mgmt.
PP TR
Product Treasury
Planning

QM
Quality
Client/Server PS Project
Mgmt.
PM ABAP/4 WF
System

Plant Mainte- Workflow

nance
HR IS
Human Industry
Resources Solutions

Slide 7
SAP R/3 : 3 Tier Architecture
Presentation Layer ( GUI ) components are installed across many PCs.

The Application Layer

components are installed
across one or more high-
end servers.

The Database Layer

components are installed on
high-end database server.

Slide 8
Business Process benefits clients expect from an ERP project

• Global process/ Product management

• Integrated Supply Chain Management
• Leverage purchasing and vendor management
• Order cycle time/ customer service improvement
• Inventory reductions
• Reduced information systems costs on an ongoing basis

Slide 9
ERP Benefits
Brings
Best
Intra Organization
Reduce Order to cash Practice
Communication
cycle time

Real Time Inter Organization

Improved Customer Collaboration
Service

Integration Inventory
Forecasting
Better Data Management Models

Automate Better – Planning ,

Transactions Analysis and
Decision Making Facilitates BPR

10
 Getting the best out of an ERP – Maximize ROI…..

Need to have a comprehensive or thorough business case for the

executives and business stake holders
• It is not merely an IT project
• Provides with an excellent opportunity to transform
business
• It entails significant organizational change
• Without support from business, the ERP implementation
falters and IT often has a hard sell for keeping it going.

Slide 11 Contd…
 Getting the best out of an ERP – Maximize ROI….

• Know your ERP and reduce your old applications

• The standardized information and processes of these solutions will
streamline your operations so that they are more efficient.
• The industry best practices will prepare you to handle external
pressures, such as competition and compliance.
• Customization will ensure that your particular needs are being met.
• Avoid too many customization to make it cheaper with less bugs ,
better system performance ( response time ) and easier and less
expensive to upgrade versions.

Slide 12 Contd…
 Getting the best out of an ERP – Maximize ROI…..

Cross the IT-Business divide

• ERP Implementation is NOT an IT program but a Business Program
• ERP applications form the information backbone of your business.
Increasingly, business executives, the ones making decisions and trying
to increase profits, are using these applications and need the
information it can provide.
• Business professionals and not IT experts should be part of the process
of defining functional requirements for the application.

Slide 13 Contd…
 Getting the best out of an ERP – Maximize ROI

• Conclusion
• ERP software can be an expensive and time-consuming IT
investment
• ERP applications facilitate the standardization and acceleration of
business processes and contribute to the visibility necessary to run
your business well and grow revenue and profits.

Slide 14
REFERENCES

 Enterprise Resource Planning : Rajesh Ray

 Enterprise Resource Planning Systems : O’Leary

15
16
Management Information Systems
Prof. Surojit Mookherjee
VGSoM, IIT KHARAGPUR

Week 03: ERP

Lecture 03 : Advantages of ERP

1
Some of the impacts of ERP implementation

• ERP will impact

• Communication and information domain
• Leadership and authority
• Business Processes
• Best Practices
• Company policies
• Jobs and rewards
• Company structure and culture
• Skills and knowledge of employees

Slide 2
How the Organization uses ERP ?
 Cash in hand
Finance and  Accounts Receivable
 Customer Credit
Accounting
 Sales Revenue

Sales and Central Data Purchasing and

Marketing Base Materials
 Pricing and Rebates  Inventory in stock
 Sales Planning  Pending delivery from vendor
 Delivery dates  Open Purchase orders
 Sales returns Manufacturing  Vendor rating

 Production Planning
 Quality Assurance
 Order fulfilment

3
Order Invoicing Process – An Example
Supplier

Purchase Material
Requirement Manufacturing
Order Entry
Planning

Accounts
Invoicing Delivery
Receivable

Customer

4
Sales Order Enquiry Process Flow ( Retail sales )

Request from a Customer SD

Credit Management FI

MM
Availability Check – FG Stock
Shop Floor status PP
Goods in Transit WM
OK
SD Cash Forecast FI
Conforming Order- Price & Date

5
 Impact of a Goods Receipt Transaction…..

A simple Goods Receipt transaction can trigger several activities , e.g.

• Stock and Value of inventory get updated

• Inspection Lot gets created to trigger a quality inspection
• Stock and Consumption account updated
• Purchase order history gets updated
• A transfer request is created to move the goods to the warehouse
• Vendor evaluation process gets initiated

6
Areas of performance improvement through ERP ( 1 of 4 )

Revenue Generation
 Ability to Service new market segments.
 Increased asset utilization and capacity through better planning
 Redeploying workforce into higher value - added roles
 Broader Product Offering

7
Areas of performance improvement through ERP ( 2 of 4 )

Cost Reduction
 Reduced working capital requirements
 Better Supplier Management
 Global centralized purchase using Strategic Sourcing with leveraged procurement spend.
 Shared Services in Purchase , HR and other general functions.

8
Areas of performance improvement through ERP ( 3 of 4 )

Strategic Positioning
 Better information to run the business ( Real Time and Decision Support Systems )
 Strong and flexible foundation to support future growth ( seamless IT Platform )
 Improved supply chain integration ( with Vendors and Customers’ ERP systems )
 Standardized processes across divisions. This is very important for global /
multi-national organizations ( commonality of processes ).
 Ability to more easily operate as a “single” business.
 Better employee productivity
 Better employee satisfaction through job-enrichment

9
Areas of performance improvement through ERP ( 4 of 4 )

Improved Customer Satisfaction

 Reduced contract cycle times
 More accurate availability and delivery info
 Single face to the customer for sales, status and service
 Quicker response to contract and order changes
 ATP – Availability to Promise. Products can be booked for specific customers

10
REFERENCES

 Enterprise Resource Planning : Rajesh Ray

 Enterprise Resource Planning Systems : O’Leary

11
12
Management Information Systems
Prof. Surojit Mookherjee
VGSoM, IIT KHARAGPUR

Week 03: ERP

Lecture 04 : Risks and Challenges of ERP Projects
ERP Project Management -
Challenges and Best Practices

2
 Define and manage the scope of the ERP Project

1. Process Scope
2. Functionality Scope
3. Organizational Scope
4. Technical Enhancement Scope
5. Technical Infrastructure Scope
6. Interface Scope
7. Data Conversion Scope
8. Reports and Forms Scope

Slide 3
 Evaluation

Slide 4
Project Preparation

Business Blueprint

Realization
PHASES

Final Preparation
ERP Implementation Method

Go Live and Support

Sustain
People

Process

Knowledge

Technology

DIMENSIONS
 Blueprint ( Design ) Phase – Best Practices

 It is critical to have overall end to end picture of your future state

business processes. To-Be Scenario of the Organization.
 Business requirements should be as detailed as possible such that the
business SMEs and ERP consultants can understand your exact business
needs
 Only experts in ERP product knowledge should finalize the fit-gap
analysis as Custom development is one of the major Cost and Time
factor for the completion of the project.
 Custom development should be kept to the minimum to reduce cost
and have high system performance.

5
 Deployment & Go Live – Best Practices

 System Preparedness – Completeness of all System Integration Testing

 Completion of all End – User training
 System performance Testing ( stress testing ) to ensure better
performance after go-live
 Checklist to verify internal and external constituent readiness :
 Support Help desk in place
 All IT equipment fully tested
 Service Level Agreements in place
 All stakeholders duly trained and made aware

6
Continuous Engagement with Stakeholders and Project Leaders (Do’s and
Don’ts ) ……
 Work closely with Implementer’s senior executive (partner / delivery
leader) to discuss avenues of improvements in project execution, faster
project delivery, resource challenges, solution optimization and scoping
issues.

 Review risks associated with project delivery, budget overrun, solution

quality and Q-gates with vendor executives and propose mitigation plan.

 Oversee and advice the periodic (daily or weekly) project leadership

meeting. Ensure accurate project progress is reported and discussed. Advice
on options to mitigate any known project risks or issues.

7
Continuous Engagement with Stakeholders and Project Leaders (Do’s and
Don’ts )
 Manage disagreements or conflicts between business teams, internal
leaderships and systems integrator. Serve as an independent unbiased
advisor to resolve these conflicts and keep the entire project team
motivated throughout.

 Evaluate and qualify project progress report for preparing periodic

"steering committee presentation". Provide expert opinion and advice to
the Steering Committee when needed.

 Ensure that all sign-off and deliverable approval procedures are followed
throughout the project organization.

8
ERP Challenges…( 1of 3 )

Project Implementation Challenges

 Scope Changes
 Huge Budget
 Long Timeline
 Process redesign challenges
 Unrealistic expectation
 Complex Interfaces
ERP Challenges…( 2 of 3 )

Support / Maintenance Challenges

 Getting right people
 Managing multiple vendors
 Managing regular upgrades
 Technology obsolescence
 Large application portfolio
 Managing transition
 Realizing benefits
ERP Challenges…( 3 of 3 )

Managing People
 Managing Change
 Managing large project team
 Managing employee retention and relocation
 Top management support
 Reasons for ERP project risk
Organizational Inexperienced
Multiple
Politics Projects Core Team

Aggressive
Computer Literacy
Time Frame
of Employees

Frequent change
in scope
Connectivity in remote
location Lack of Top Mgmt
Support
Five Step Project Risk Management Approach

Find potential risk elements of the project

Analyze Impact of each of these elements

Assess the Probability of occurrence of these risk elements

Prioritize the risk

Develop a Risk Mitigation Plan for top risk elements

Some Critical Success factors ……………

 Ownership & Support from top management

(Project Sponsor & Steering Committee)
 Commitment to the Product ( e.g.SAP )
 COMMITMENT TO CHANGE
 Quick decision making and avoid lengthy
discussions on trivial issues.
 Avoid frequent changes to requirements
 Strict adherence to the project plan

Slide 14
 ERP – Recent Trends

 ERP vendors are moving into Enterprise Applications space

( CRM,SRM,PLM,SCM etc.)
 SME clients are everybody’s focus
 ERP vendors are going vertical i.e. building more industry specific extensions
 New ERP deployment models are emerging in the form of SAAS, Cloud
Computing etc.
 Newer types of ERP projects are emerging – Migration, Consolidation,
Harmonization etc.
REFERENCES

 Enterprise Resource Planning : Rajesh Ray

 Enterprise Resource Planning Systems : O’Leary
Management Information Systems
Prof. Surojit Mookherjee
VGSoM, IIT KHARAGPUR

Week 03: ERP

Lecture 05 : Class Discussion and Conclusion
Conclusion

• ERP software can be an expensive and time-consuming IT investment

• Implementing an ERP software is full of risks from a project management
perspective.
• ERP applications facilitate the standardization and acceleration of business
processes and contribute to the visibility necessary to run business well and
grow revenue and profits.
• ERP applications form the information backbone of a business.

• ERP Implementation is NOT an IT program but a Business Program

 Class Discussion -

1. When , Manufacturing happens , how do Purchase , Sales and Finance get impacted ?
2. CTO ( Chief Technical Officer ) > CIO ( Chief Information Officer ) > CDO ( Chief Digital Officer ) :
What has made these transitions / change in title ?
3. When a running ERP system fails , how large would be the loss for the organization ?
REFERENCES

 Enterprise Resource Planning : Rajesh Ray

 Enterprise Resource Planning Systems : O’Leary