 Introduction to ERP

 Evolution of ERP
 What is ERP?
 Reason for the growth of ERP
 Scenario and Justification of ERP in India
 Evaluation of ERP
 Various modules of ERP
 Advantages of ERP

Introduction to ERP
Enterprise resource planning,
a business management system that integrates all facets of the business, including planning,
manufacturing, sales, and marketing. As the ERP methodology has become more popular,
software applications have emerged to help business managers implement ERP in business
activities such as inventory control, order tracking, customer service, finance and human
resources.

Enterprise resource planning's true ambition is to integrate all departments and functions
across a company onto a single computer system that can serve all those different
departments' particular needs. Thus ERP attempts to integrate all departments and
functions across a company onto a single computer system that can serve all those different
departments' particular needs.

ERP systems are IT systems which are meant to serve all the IT needs of a manufacturing
company. ERP stands for "Enterprise Resource Planning". This type of system has evolved
from earlier MRP and MRPII systems.MRP stands for "Material Requirements Planning",
and is a computer technique for taking a product schedule as input and generating works
and purchase orders as output.

MRP II was a later development of MRP which arose because MRP needed a set of business
processes surrounding it to make it effective.
Not all of the business processes needed IT support, but others did, hence MRPII systems
supported a wider range of business processes than MRP. The name MRPII came about
because the new set of business processes was called "Manufacturing Resource Planning",
and because the initials were the same as MRP, the II was tagged on.

MRPII systems tended to be so wide in scope that eventually systems developed towards
giving IT support to all parts of a manufacturing company. This is when the term ERPcame
into use to signify its enterprise-wide scope.

Evolution of ERP
The history of ERP can be traced back to the 1960’s, when the focus of systems was mainly
towards inventory control. Most of the systems software were designed to handle inventory
based in traditional inventory concepts. The 1970’s witnessed a shift of focus towards MRP
(Material Requirement Planning).

This system helped in translating the master production schedule into requirements
for individual units like sub assemblies, components and other raw material planning
and procurement. This system was involved mainly in planning the raw
materialrequirements.Then, in 1980’s came the concept of MRP-II i.e. the Manufacturing
Resource Planning which involved optimizing the entire plant production process. Though
MRP-II, in the beginning was an extension of MRP to include shop floor and distribution
management activities, during later years, MRP-II was further extended to include areas
like Finance, Human Resource, Engineering, Project Management etc.

This gave birth to ERP (Enterprise Resource Planning) which covered the cross-functional
coordination and integration in support of the production process. The ERP as compared to
its ancestors included the entire range of a company’s activities. ERP addresses both system
requirements and technology aspects including client/server distributed architecture,
RDBMS, object oriented programming etc.

Evaluation Criteria
1. Some important points to be kept in mind while evaluating ERP software include
2. Functional fit with the Company’s business processes.
3. Degree of integration between the various components of the ERP system
4. Flexibility and scalability
5. User friendliness
6. Ease of implementation
7. Ability to support multi-site planning and control
8. Technology - client/server capabilities, database independence, security
9. Availability of regular upgrades
10. Amount of customization required
11. Local support infrastructure
12. Reputation and sustainability of the ERP vendor
13. Total costs, including cost of license, training, implementation, maintenance,
customization and hardware requirements.

Why ERP?
1. To Enhance Profitability:
a) Increase in sales b)/or Reduce Procurement Cost
2. for Healthy Operations:
1. Integration of Systems across the Functional Departments in a Company as well as
across the Enterprise as a Whole.
2. Better Customer Service.
3. Introduction of Latest Technologies as and when they are ready for the Industry
acceptance
4. Expertise database
5. Avoids data redundancy
3. Competition in the Market:
1. Manufacturing Challenges.
2. Manufacturing Globally.
3. Distribution network spread.
4. New Product introduction.
5. Lower manufacturing lead time.
6. Focus on industry markets.
7. Satisfying the needs of customers.
 8. Develop specific business methods and processes.
9. Integration with third party products.
4. Demands on the Industry:
1. Better products at lower costs
2. Tough competition
3. Need to analyze costs / revenues on a product or customer basis
4. Flexibility to respond to changing business requirements
5. More informed management decision making
5. Solving the Problems:
1. Unable to get accurate, timely information
2. Applications not complete for existing business practices
3. Modifications are time consuming or not feasible

The advantages of ERP

Installing an ERP system has many advantages -both direct and indirect. The direct
advantages include improved efficiency, information integration for better decision making,
faster response time to customer queries, etc. The indirect benefits include better corporate
image, improved customer goodwill, customer satisfaction, and so on.

The following are some of the direct benefits of an ERP system:

1. Business Integration
2. Flexibility
3. Better Analysis and Planning Capabilities
4. Use of Latest Technology.

1. Business Integration:
The first and most important advantage lies in the promotion of integration. The reason
why ERP packages are considered to the integrated, is the automatic data updating
(automatic data exchange among applications) that is possible among the related business
components. Since conventional company information systems were aimed at the
optimization of independent business functions in business units, almost all were weak in
terms of the communication and integration of information that transcended the different
business functions.

In the case of large companies in particular, the timing of system construction and
directives differs for each product and department/ function and sometimes, they are
disconnected. For this reason, it has become an obstacle in the shift to new product
and business classification. In the case of ERP packages, the data of related business
functions is also automatically updated at the time a transaction occurs. For this reason,
one is able to grasp business details in real time, and carry out various types of
management decisions in a timely manner, based on that information.

2. Flexibility:
The second advantage of the ERP packages is their flexibility. Different languages,
currencies, accounting standards and so on can be covered in one system, and functions
that comprehensively manage multiple locations of a company can be packaged and
implemented automatically. To cope with company globalization and system unification,
this flexibility is essential and one can say that it has major advantages, not simply for
development and maintenance, but also in terms of management.

3. Better Analysis and planning Capabilities:

Yet another advantage is the boost to the planning functions. By enabling the
comprehensive and unified management of related business and its data, it becomes
possible to fully utilize many types of decision support systems and simulation functions.
Furthermore, since it becomes possible to carry out, flexible and in real time, the filing and
analysis of data from a variety of dimensions, one is able to give the decision-makers the
information they want; thus enabling them to make better and informed decisions.

4. Use of Latest Technology

The fourth advantage is the utilization of the latest development in information Technology
(IT). The ERP vendors were quick to realize that in order to grow and to sustain that
growth; they had to embrace the latest developments in the field of information technology.
Therefore, they quickly adapted their systems to take advantage of the latest technologies
like open systems, client/ server technology, Internet/Intranet, CALS (Computer- Aided
Acquisition and Logistics Support), electronic-commerce, etc. It is this quick adaptation to
the latest changes in the Information Technology that makes the flexible adaptation to
changes in future business environments possible. It is this flexibility that makes the
incorporation of the latest technology possible during system customization, maintenance
and expansion phases.
What is that ERP enables?
1. Systematic Look into your Systems & procedures
2. Optimizing the processes
3. Enables you to adapt yourself to new technologies
4. Discipline across the functions

Problems Taken Care of by the ERP:

1. Availability check at the time of Accepting Sales order
2. On-line Material Status & Shortages
3. Productivity Enhancements
4. Material Planning
5. Customer Service
6. Cash Management
7. Inventory
8. Quality

What drives ERP?

Business drives
1. Customer Satisfaction
2. Business Development - new areas, products, services
3. Ability to face competition
4. Efficient processes required to push the company to top gear

IT drives
1. Present Software does not meet business needs
2. Legacy systems difficult to maintain
3. Obsolete hardware/software difficult to maintain
Drivers the market for ERP however does not sound so depressing. Companies still
have growth avenues which include:
Less penetrated modules within the ERP suite, both horizontal and vertical. The new
horizontal areas include E-commerce, Customer relationship management, Supply chain
management, plant maintenance, field service, data warehousing, product data
management, service contract management, warehousing & distribution,, transportation
management etc. Among the vertical application are industries such as retail, utilities,
insurance, and government organizations.

The mid market segment presents immense opportunities. However, the margins from
SMEs will be far below that from the larger players. Another problem that the SMEs present
is the low transaction (order) size and the difficulty of reaching out to these players. Also
they are relatively less sophisticated on the technology side. Another major demand driver
will be the e-commerce wave. As more and more company move towards e-commerce it
becomes necessary to implement ERP solutions.

Inhibitors or hurdles for the growth of ERP market:

After posting significant gains for 3-4 years the ERP market may be heading towards as
lowdown. Except for SAP most other players have witnessed a slowdown in revenue
growth.

The main constraints to growth for the sector can be classified as:
1. Saturation of the certain horizontal applications including Finance and accounting,
MRP etc which accounted for nearly 45% of the ERP revenues during1998.
2. Saturation of large customers. Most of the Fortune 500 companies and companies
having revenues over $1bn have already implemented ERP.
 3. Though the medium enterprises provide a good opportunity for growth, pricing for
these companies will have to be highly competitive and margins may come under
pressure. Thus smaller players who have a cost advantage will have an edge over the
others.

ERP in India
Until recently Indian organizations were in a seller’s market and operating in a regulated
environment. They grew by managing the environment, rather than innovating and
improving internal efficiencies. The customer was taken for granted and quality was
available only at a premium. With globalization and gradual lifting of regulation, there isa
paradigm shift in running the business. Indian companies now need to increase customer
focus, improve speed of delivery, be cost competitive and provide value for money
(improved quality at lower price). Indian companies therefore need to implement ERP
systems for improving their business processes and becoming more competitive in the
global environment. Though ERP