ERP E Book PDF

MI 0038
Enterprise Resource Planning

Contents
Unit 1
Introduction to ERP 1
Unit 2
Enterprise – An Overview 20
Unit 3
ERP and Related Technologies 37
Unit 4
ERP Tools and Software and Selection Methodology 60
Unit 5
ERP Modules 84
Unit 6
ERP – A Manufacturing Perspective 116
Unit 7
ERP – A Purchasing and Sales Perspectives 152
Unit 8
ERP – An Inventory Control Perspective 173
Edition: Spring 2010
th
BKID – B1324 20 Nov. 2010
Unit 9
ERP – CRM Perspective 187
Unit 10
ERP – HR Perspective & Finance Perspective 208
Unit 11
ERP Implementation Lifecycle 229
Unit 12
Benefits of ERP 251
Unit 13
ERP Market 275
Unit 14
ERP Vendors, Consultants, and Users 320
Unit 15
Future Directions in ERP 338
Dean
Directorate of Distance Education
Sikkim Manipal University (SMU DDE)
Board of Studies
Chairman
HOD Management & Commerce Mr. Pankaj Khanna
SMU DDE Director, HR, Fidelity Mutual Fund
Additional Registrar Mr. Shankar Jagannathan
SMU DDE Former Group Treasurer
Controller of Examination Wipro Technologies Limited
SMU DDE Mr. Abraham Mathew
Dr. T.V. Narasimha Rao Chief Financial Officer
Adjunct Faculty & Advisor SMU DDE Infosys BPO, Bangalore
Prof. K.V. Varambally Ms. Sadhna Dash
Director, Manipal Institute of Ex Senior Manager HR
Management, Manipal Microsoft India Corporation (Pvt.) Ltd.
Content Preparation Team Content Review
Team Triumph, Mr.Manoj S G
Triumph India Software Services Pvt Ltd., Senior Lecturer
Bangalore – 56 0094 SMUDDE, First Floor, Manipal
Instructional Designing Towers, 14 – Airport Road,
Team Triumph, Bangalore – 560 008
Triumph India Software Services Pvt Ltd., Language Editing
Bangalore – 560 094 Ms. Neelam Singh
Curriculum Revised : Spring 2010

Printed : November 2010
This book is a distance education module comprising a collection of learning
materials for our students. All rights reserved. No part of this work may be
reproduced in any form by any means without permission in writing from Sikkim
Manipal University, Gangtok, Sikkim. Printed and Published on behalf of Sikkim
Manipal University, Gangtok, Sikkim by Mr. Rajkumar Mascreen, GM, Manipal
Universal Learning Pvt. Ltd. Manipal – 576 104. Printed at Manipal Press Limited,
Manipal.
SUBJECT INTRODUCTION
Enterprise Resource Planning (MI 0038)
Enterprise Resource Planning (ERP) system is an iterative system for
identifying, analysing, evaluating, testing, and monitoring the entire process
of an organisation or a company. In every Organisation, Enterprise
Resource Planning is recognised as, an essential contributor to business
and project success. Enterprise Resource Planning mainly focuses on
addressing business or project uncertainties, in a proactive manner in order
to minimise threats, maximise opportunities, and optimise achievement of
objectives. There is wide convergence and international consensus on the
necessary elements for an Enterprise Resource Planning system. This
course covers these aspects of Enterprise Resource Planning, along with
the various technologies it has, the various vendors in the market, the
various phases of implementation, and the benefits an organisation can
obtain from the system.
Analysis and handling of resource, is a very important aspect addressed by
the ERP system, these aspects are covered in detail, to give a complete
understanding of the process. The course also highlights the techniques,
commonly used by organisations in the ERP implementation. There are
some strategies that organisations need to adopt, to be able to succeed in
the effective implementation of ERP system. These guidelines are also
included in this course. It also speaks about the market condition, the major
vendors, and the future of ERP.
Unit 1: Introduction to ERP
This Unit explains the concept of ERP, gives brief history of evolution of
ERP, assesses the benefits of ERP, and analyses the reasons for failure of
ERP.
Unit 2: Enterprise – An Overview
This unit defines the role of Enterprise, assesses the need of an Enterprise,
evaluates the business modelling approaches, and the method to integrate
the management information to the enterprise
Unit 3: ERP and Related Technologies
This unit analyses the technologies that are related to ERP systems. It
explains how technologies like BPR, enables organisations to analyse their
business functions better, thereby facilitating a more efficient ERP
implementation. This unit analyses how predecessors of ERP like MIS,
DSS, and EIS will slowly phase out. It explains how new technologies and
concepts like data warehousing, data mining, OLAP, and Supply Chain
Management (SCM) help, to increase the power, usefulness, efficiency, and
effectiveness of ERP systems.
Unit 4: ERP Tools and Software and Selection Methodology
This unit analyses the methodology and criteria used in ERP selection. It
explains the ERP selection process, analyses the ERP tools available in the
market, identifies different ERP vendors, and also explains the ERP vendor
selection process.
Unit 5: ERP Modules
This unit evaluates different and popular modules of an ERP package like
finance, manufacturing, plant maintenance, materials management, and so
on. It describes subsystems or sub-modules of these models, and also
describes how these modules function together.
Unit 6: ERP – A Manufacturing Perspective
This unit analyses and introduces the various techniques and technologies
that are used in the manufacturing industry. It explains how ERP and other
concepts like MRP, MRP-II, CAD/CAM, PDM, and so on to improve the
competitiveness of a company, and assess the different types of
manufacturing operations like MTS, MTO, ETO, ATO, and CTO, and so on
Unit 7: ERP – A Purchasing and Sales Perspectives
This unit explains the functioning of purchase department in an organisation.
It elucidates the features and benefits of ERP – Purchase module, analyses
the importance of Sales and Distribution module, and describes the
functioning of various sub module of Sales and Distribution module.
Unit 8: ERP – An Inventory Control Perspective
This unit explains inventory management and its function, lists out the
features of inventory management, elucidates the benefits and drawbacks of
inventory management. It analyses how ERP inventory systems can be
installed and implemented, explains Web ERP and its benefits, illustrates
the types of inventory management, and the process of transactions in an
organisation, and also describes Inventory ERP software module.
Unit 9: ERP – CRM Perspective
This unit explains the concept of CRM, describes the types and sub
modules of CRM, lists out the benefits and challenges of CRM, and
elucidates the implementation of CRM.
Unit 10: ERP – HR Perspective & Finance Perspective
This unit explains the concept of Human Resources (HR), describes the
activities of Human Resource Management systems, lists out the benefits
and features of Human Resources Management module. It elucidates the
role of ERP in Human Resource Management systems, and explains the
role and workflow of ERP in the financial module of an organisation.
Unit 11: ERP Implementation Lifecycle
This unit describes the implementation lifecycle for an ERP package, assess
the various approaches for implementation of ERP, and select the right
methodology for ERP implementation.
Unit 12: Benefits of ERP
This unit compares the direct and indirect benefits of ERP implementation. It
explains how integration of information and automation of business
processes make improvements possible.
Unit 13: ERP Market
This unit describes the ERP market, explains the major player in it, and their
respective market share. It assesses the various market trends in ERP,
recognises the target market of ERP, analyses and tells how to potentially
use ERP in the market driven economy, and assess the seven major ERP
vendors – SAPAG, Baan, PeopleSoft, JD Edwards, Oracle, QAD and SSA.
Unit 14: ERP Vendors, Consultants, and Users
This unit evaluates the three major players in an ERP implementation and
their profiles. It describes the roles of each of these players, and elucidates
the reasons for success of an ERP implementation.
Unit 15: Future Directions in ERP
This unit describes the future direction of the ERP market and trends. It
elucidates how these trends will shape the future ERP products. It also
describes how ERP vendors, striving for more market share are making
their products more efficient and loaded with features by using new
technological innovations.
Objectives of studying the subject
After studying this subject, you should be able to:
 Explain the concept of ERP.
 Integrate the management information to the enterprise.
 Analyse and know the technologies that are related to ERP systems.
 Evaluate different and popular modules of an ERP package like finance,
manufacturing, plant maintenance, materials management and so on.
 Explain how ERP and other concepts like MRP, MRP-II, CAD/CAM,
PDM, etc. improve the competitiveness of a company.
 Elucidate the features and benefits of ERP – Purchase module.
 Illustrate the types of inventory management and the process of
transactions in an organisation.
 Explain the role and workflow of ERP in the financial module of an
organisation.
 Compare the direct and indirect benefits of ERP implementation.
 Assess the eight major ERP vendors – SAPAG, Baan, PeopleSoft, JD
Edwards, Oracle, QAD and SSA.
 Describe the future direction of the ERP market and trends.
Enterprise Resource Planning Unit 1
Unit 1 Introduction to ERP

Structure:
1.1 Introduction
Objectives
1.2 Evolution of ERP
1.3 What is ERP
1.4 Reasons for the Growth of the ERP Market
1.5 The Advantages of ERP
Business integration
Flexibility
Better analysis and planning capabilities
Use of latest technology
1.6 Why Do ERPs fail?
1.7 What is the ERP Packages Used Now?
1.8 Summary
1.9 Terminal Questions
1.10 Answers
1.11 Case Study
1.12 Glossary
1.1 Introduction
This unit familiarises you with Enterprise Resource Planning (ERP) and its
history. Information handling and sharing has become a vital process for
efficient and effective working of any organisation. The digital revolution has
given us the ability to treat information with mathematical precision, to
transmit it with very high accuracy, and to manipulate it at will. This
Information Technology (IT) has revolutionised the way we live and work. It
is changing all aspects of our life and lifestyle, and transforming the world
we live into one small global village. The amount of calculation power that is
available to us is increasing at an exponential rate. Communication and
computers are becoming integral parts of our lives.
However, we need to manage the future not just to survive but also to
succeed and to beat the competition in today's highly competitive world.
Managing the future means managing information. Organisations have to
Sikkim Manipal University Page No. 1

make IT an ally, harness its full potential, and use it in the best possible way
in order to:
 Manage information.
 Render high quality information to the decision-makers at the right time.
 Automate the method of data collection, collation, and refinement.
All organisations have certain objectives and goals to achieve. For any
organisation to succeed, all business units or departments should work
towards this common goal. However, in an organisation, each department or
business function has its own goals and procedures. The departmental
objectives can sometimes be conflicting. For example, the finance
department might want to cut down the advertising budget, whereas the
marketing department might want more money. Similarly the production-
planning department might want to reduce the stock level in stores, but the
production people might want to have more stocks. Here, information
becomes critical not only for resolving the conflicts but, also to make them
collectively work for the company as one unit, to meet the company’s
objectives and goals. Each department managing its activities efficiently is
not enough; it should also help other departments to manage their functions
efficiently. This can be achieved only if departments in an organisation stop
functioning as discrete units and working in isolation. Every employee
should know what the counterparts are doing and how their actions and
decisions affect other departments. This kind of information sharing was
difficult in the early days. Now with the advancements in IT, this is possible.
IT plays a crucial role, both at the organisational level and at the
departmental level. At the organisational level, IT assists in specifying
objectives and strategies of the organisation. IT also aids in developing and
supporting systems and procedures to achieve them. At the departmental
level, IT ensures a smooth flow of information across departments, and
guides organisations to adopt the most practical business practices. At this
level, IT ensures faultless flow of information across different departments
and develops and maintains an enterprise-wide database. This database
eliminates the need of the isolated data units that was limited to one
department earlier and now makes the organisation's data accessible
across the departmental boundaries. This enterprise-wide data sharing has

many benefits like automation of the procedures, availability of high quality

information for better decision making, faster response times, and so on.
Learning Objectives
After studying this unit, you will be able to:
 Explain the evolution of ERP.
 Explain the concept of ERP.
 Describe the need of ERP.
 Assess the benefits of ERP.
 Analyse the reasons for failure of ERP.
Self Assessment Questions
1. _______________ has become a vital process for efficient and effective
working of any organisation.
2. _________________ plays a crucial role, both at the organisational level
and at the departmental level.
1.2 Evolution of ERP

When companies were small and a single person managed all the different
managerial functions, the decisions were made keeping in mind the overall
company objectives. But as companies grew, managing the entire operation
became impossible for a single person. More and more people were brought
in, and different business functions were given to different individuals. When
the organisation became larger, each person hired people to assist him/her
and the various departments as we see now, evolved. The size of the
departments began to increase as more and more people were required to
do the job.
As the departments became large, they became closed and watertight.
Each department had its own set of procedures and hierarchy. People, at
most levels within a department, would just collect and pass information
upward. Thus information was shared between departments only at the top
level. This led to the fragmentation of information, information being
collected at one place and not available for other departments of the
organisation to easily access it. This information was not carefully and
efficiently handled at the top level of the organisation which led to confusion
and loss of information. Many a time’s faulty information was processed to
take decisions on some key issues. Some of the developers designed

software that provided solution for handling these fragments of information.

And IT had started its work in organisations for effective management of all
the information of the organisation.
Figure 1.1 shows a pre-ERP scenario.
Data Base
Figure 1.1: Isolated Information Systems – A Pre-ERP Scenario
Although IT provided the perfect answer, in the haste, most developers

ended up developing need-based, isolated, and piecemeal information
systems that were non-compatible. In the pre-ERP scenario as depicted in
the figure 1.1, the information or data regarding a particular department
remained with in the department’s own data base, and no other department
could access that information. Only the top level management of the
company was able to access this information. Any other department
requiring this information had to collect the information from the top
management. This led to a fragmented system, each working in isolation
without direct communication between each other. The developers
concentrated more on making the individual department’s information
organisation and maintenance more efficient instead of, integrating all the
departments of a company, which was a major draw back. And it is no

wonder that IT implementations automated only the existing applications

and not the business functions.
Most of this happened because IT was not integrated into the corporate
strategy. We have to devise a system with a complete insight of the
enterprise so that we can draw real benefits from a technology as powerful
as IT. Such a system has to work around the core activities of the
organisation, and should facilitate faultless flow of information across
departmental barriers. Such systems can optimally plan and manage all the
resources of the organisation, and hence, they can be called as Enterprise
Resource Planning (ERP) systems.
An Enterprise is a group of people with a common goal, which has certain
resources at its disposal to achieve that goal. The group has some key
functions to perform in order to achieve its goal. Resources included are
money, manpower, materials, and other things that are required to run the
enterprise. Planning is done to ensure that nothing goes wrong. Planning
means, putting necessary functions in place and more importantly, putting
them together. Therefore, Enterprise Resource Planning or ERP is a
method of effective planning of all the resources in an organisation.
We have many misconceptions about ERP. The first one is that ERP is a
computer system. Yes, computers and IT are integral parts of an ERP
system; but ERP is primarily an enterprise-wide system, which
encompasses corporate mission, objectives, attitudes, beliefs, values,
operating style, and people who make the organisation. The second
misconception is that ERP is for manufacturing organisations alone. This
assumption is basically due to the way ERP was historically developed from
the methods of Material Requirement Planning (MRP) and Manufacturing
Resource Planning (MRP-II), which are relevant to manufacturing
organisations. In the manufacturing industry, MRP became the fundamental
concept of production management and control in the mid 1970s. At this
time the prevailing trend in manufacturing industry was Bill of Materials
(BOM). BOM is a purchase order management system that utilises parts list
management and parts development management techniques. And this
concept unfolded from order inventory management of materials to plant.
MRP-II was carved out of MRP, consisted Human Resource planning and
distribution planning, in turn became MRP-II. This incorporated financial

accounting, human resource management functions, distribution

management functions, and management accounting functions. It came to
globally cover all areas of enterprise core business, and eventually, was
called ERP. But in reality, the concept of enterprise-wide planning of
resources is not limited to any particular segment of industry.
3. Some of the developers designed software that provided solution for
handling these __________________ of information.
4. MRP became the fundamental concept of _________________ in the
mid 1970s.
1.3 What is ERP ?

IT being the back bone, Enterprise Resource Planning (ERP) covers the
techniques and concepts employed for the integrated management of
businesses as a whole, from the viewpoint of the effective use of
management resources, and to improve the efficiency of an enterprise. ERP
packages are unified (covering all business functions) software packages
that support the above ERP concepts.
In the 90’s, ERP packages were targeted at the manufacturing industry, and
consisted mainly of functions for planning and managing core businesses
such as sales management, production management, accounting and
financial affairs, and so on. However, in the last decade, adaptation not only
to the manufacturing industry, but also to diverse types of industry has
become possible. With the ever developing and innovating IT techniques,
the expansion of implementation and use of ERP packages has been
progressing on a global level.
ERP software is intentionally designed to model and automate many of the
basic processes of a company. It established an effective link between the
various functions of a company from the top level to the bottom level of the
hierarchy, with the goal of integrating information across the company, for
example, a communication channel is established between the finance
department and the shop floor for information sharing,. This software helped
in eliminating complex and expensive links between computer systems that
were never meant to talk to each other. It also established a faultless and
continues flow of information within the company.

Figure 1.2 shows how information is integrated within an organisation using

an ERP system. This system is similar to the pre-ERP system but, in the
ERP system all the different departments of an organisation are linked to a
centralised system which stores all the information from various
departments. Any department at any time can gain access to any required
information from another department via ERP or from the ERP database
itself. The manufacturing department can access information form quality
management department via ERP system. This shows the flexibility of a
system, where independent departments are bonded together as a unit and
any two departments can establish communication at ease without
depending on any other departments.
Activity 1
Conduct a survey and gather information how ERP system can prove to
be effective in an unorganised sectors and in small scale industries.
Gather the reason why they prefer or don’t prefer an ERP system
Figure 1.2: Information Integration through ERP Systems

ERP software is a replica of the major business processes of an

organisation, such as customer order fulfilment and manufacturing. The
success of an ERP system depends on its ease for information access. A
constrained ERP system is not much better than the legacy system it
replaces. In lots of cases, it is worse, as the old code at least was written
specifically for the company and the task.
ERP systems are a set of generic processes, they are capable of producing
dramatic improvements, when used to connect parts of an organisation, and
integrate its various processes seamlessly. For example, when a warehouse
in Noida enters a customer order, for example, the data flows automatically
to others in the company who need to see it. Data flows to the finance
department at the company headquarters in Mumbai, and to the
manufacturing plant in Chennai. The attractive Information Integration
Techniques (IIT) of ERP was able to capture the attention of ERP vendor’s
primary targets the CEOs and CFOs of various organisations, and the sales
of ERP in the global market took of in early 1990’s.
5. ________________ is a replica of the major business processes of an
organization.
6. ERP systems are a set of generic ________________.
1.4 Reasons for the Growth of the ERP Market

There is no doubt that the market for Enterprise Resource Planning (ERP)
systems is in great demand. Industry analysts are figuring growth rates of
more than 30% for at least the next five years. Why are so many companies
replacing their key business systems? There are various reasons for the
same, such as:
 To enable improved business performance, which includes:
 Cycle time reduction.
 Increased business agility.
 Inventory reduction.
 Order fulfilment improvement.
 To support business growth requirements, which includes:
 New products/product lines, new customers.
 Global demands including multiple languages and currencies.

 To provide flexible, integrated, real-time decision support.

 Improve responsiveness across the organisation.
 To eliminate limitation in legacy systems, which includes:
 Century dating issues.
 Fragmentation of data and processing.
 Inflexibility to change.
 Insupportable technologies.
 To take advantage of the untapped mid-market (medium size
organisations), which includes:
 Increased functionality at a reasonable cost.
 Client server/open systems technology.
 Vertical market solutions.
These are some of the reasons for the unpredictable growth rate of the ERP
markets and the ERP vendors. As more and more companies are joining the
race, the ERP vendors are shifting their focus from big – Fortune 1000 –
companies to different market segments (medium size companies, small
companies, and so on.). The future will see fierce battle for market share,
and mergers and acquisitions for strategic and competitive advantage. The
ultimate winner in this race is the customer, who gets better products and
better service at affordable prices.
Activity 2
Conduct a study and collect the information on the growth of market in
various sectors of ERP for the last two decades and various sectors
available for ERP market in the coming days.
1.5 The Advantages of ERP

We need to know that setting up an ERP system has many advantages –
both direct and indirect. The direct benefits include improved efficiency,
information integration for better decision making, faster response time to
customer queries, and so on. The indirect benefits comprises better
corporate image, improved customer goodwill, customer satisfaction, and so
on. The following are some of the direct benefits of an ERP system:

 Business integration
 Flexibility
 Better analysis and planning capabilities
 Use of latest technology
1.5.1 Business Integration
The first and most important advantage lies in the promotion of integration.
The reason why ERP packages are considered to be 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 optimisation 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 many of the large organisations during
product manufacturing the system construction timing and guide lines
provide for manufacturing differs, this can also be seen even across its
departments and many a times they are not well connected to each other.
This turns out to be a biggest obstacle faced by most of the organisation
when they plan to shift for new product line and also in classification of the
business. With the help of ERP packages, when a transaction occurs the
related data of the business functions is updated automatically in the system.
For this reason, we are able to grasp business details in real time, and carry
out various types of management decisions in a timely manner, based on
that information.
1.5.2 Flexibility
The second advantage of ERP packages is their flexibility. Different
languages, currencies, accounting standards, and so on can be covered in
one system, and functions that systematically manage multiple locations of
a company can be packaged and implemented automatically. To cope with
company globalisation and system unification, this flexibility is essential, and
we can say that it has major advantages, not simply for development and
maintenance, but also in terms of management.
1.5.3 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 utilise many types of decision support

systems and simulation functions. Furthermore, since it becomes possible to

carry out, flexibly and in real time, the filing and analysis of data from a
variety of dimensions, we are able to give the decision-makers the
information they want; thus enabling them to make better and informed
decisions.
1.5.4 Use of Latest Technology
The fourth advantage is the utilisation of the latest developments in IT. The
ERP vendors were very quick to realise that, in order to grow, and to sustain
that growth, they had to embrace the latest developments in the field of IT.
Therefore, they quickly adapted their systems to take advantage of the
latest technologies like open systems, client/server technology,
Internet/Intranet, Computer-Aided Acquisition and Logistics Support (CALS),
electronic-commerce, and so on. It is this quick adaptation to the latest
changes in IT that makes the flexible adaptation to changes in future
business environments possible. This flexibility makes the incorporation of
the latest technology possible during system customisation, maintenance,
and expansion phases.
As stated above, ERP includes many of the functions that are necessary for
future systems. However, undertaking reforms to company structures and
business processes, so as to enable the full use of these major features, is
the greatest task for companies that use them. It is necessary to take note
that casually proceeding with the implementation of ERP, merely for
reasons of system reconstruction or without a long term objectives, is likely
to result in turning the above mentioned advantages into disadvantages.
7. The first and most important advantage lies in the _____________.
8. The second advantage of ERP packages is their _______________.
1.6 The Failure of Many ERP Implementations

A correct choice, judicious implementation and efficient utilisation of the
ERP packages, raises the productivity and profits of companies dramatically.
But many times companies fail in this because of a wrong product,
incompetent and haphazard implementation, and inefficient method or
ineffective usage of the system with out properly defining the requirements
for the need for the system.

To work successfully, the ERP solutions need to address a lot of factors.

There should be good people who know the business. The vendor should
be good, and his package should be one of the best suited for the,
company’s needs. The ERP consultants should be good. The system
developers should plan well and execute perfectly the implementation. The
end-user training should be done so that the user must be aware of the
system, and the effect of their efforts on the overall success of the program.
In case of any of the above mentioned factors are not addressed properly by
the company’s top management, the possibility of system failure is evident
during the implementation process of the ERP system.
A change in the job descriptions and functions of many employees is
imminent when ERP system is introduced in a company. Employees who
were earlier doing the work of recording information are transformed into
decision-makers. For example, in the past an order entry clerk's job was to
enter the orders that came to him. With the implementation of a good ERP
system, the order entry clerk becomes an action initiator. As soon as he
enters the order into the system, the information is passed on to the sales,
distribution, and finance modules. The distribution module checks whether
the item is in stock, and if available, the item is dispatched and the
information is sent to the finance module. If the items are not in stock, then
the manufacturing module is given the information, so that the production
can start. The customer is informed about the status of his order. If the items
are shipped, the finance module prepares the invoice and sends it to the
customer. All these actions take place automatically as soon as the order
entry clerk enters the information regarding the order into the system. Thus
the order entry clerk is transformed from a data entry operator to a decision-
maker whose actions can trigger a chain of actions.
Many employees find this transformation difficult to accept. If the employees
are not given proper training, well in advance, then the systems fails.
Another factor is the fear of unemployment. When procedures become
automated, the people who were doing those jobs become redundant. So it
is quite natural to have resistance from the employees. But the same
employees can be trained in the new system, and can work in more
challenging and stimulating environments. For this also, the employees
have to be told, in advance, as to what would be the result, and should be
given ample time and training to make the transformation. Without support
from the employees, even the best system is liable to fail. So it is very
important that the management should take the necessary steps, well in
advance, to ease the fears of, and provide necessary training to their
employees.
Activity 3
Contact an ERP vendor or a consultant and collect the details of the
structure of planning before providing a package for a company

9. The system developers should ____________ perfectly the
implementation.
10. Employees who were earlier doing the work of recording information are
transformed into____________________.
1.7 ERP Packages

With respect to the application packages, various products have been
produced so far and are selling well. So, how do conventional application
packages and ERP packages differ?
The first difference is that ERP packages can, not only handle individual
business function such as accounts and catalogue, but also the entire range
of business functions necessary for the company's operations.
The second difference is that ERP packages can be used from, simple and
small applications of small businesses houses to the large organisations,
with a highly flexible decentralised database, and a network linking a
number of information system.
The third difference is global adaptation, represented by ERP package’s are
multilingual and multi-currency capacity. In the present day, when
companies, irrespective of their size and market share, are manufacturing
and selling in various areas of the world, the globalisation of management
platforms is being hastened, along with the global adaptation of enterprise
information systems.

Once you have decided to implement the ERP system, you have to find a
package that is best suited for your company. In ERP implementation,
package selection is one of the most important phases, because the
package that you select will decide the success or failure of the
implementation process. Since implementation of these ERP systems
requires huge investment of money and time, it is a very difficult process to
switch over to another package after a package is purchased by an
organisation. So choosing a right package is of the highest priority in the
implementation process. The company might have to face disastrous
consequences by choosing a wrong package, often resulting in the shut
down of the company for an indefinite period of time.
In the market there are many ERP packages available from many vendors.
Before reaching to a conclusion, it is better to analyses a maximum five
packages, since it is always better to do a thorough and detailed evaluation
of a small number of packages, than to do a superficial analysis of dozens
of packages. A pre-evaluation screening has to be conducted by the
company to limit the number of packages that are to be evaluated by the
committee. The pre-evaluation process should eliminate those packages
that are not at all suitable for the company’s business processes. Looking at
the product literature of the vendors’ one can select the few best packages.
The company can get help from the external consultants and, can conduct a
survey and find out the packages use by the companies similar to their own.
Since, it will provide a better look around and find out how the different
packages are performing in environments similar to yours. You can call the
respective vendors for presentations/demos, once you select a few
packages after the screening.
Some of the key things that can be searched before choosing an ERP
package are:
 The package should come with multi-language and multi-currency
support.
 The package should be international and should have installations in
countries where the company have offices. The vendor should also have
a local presence in those countries.
 The package should have at least ‘A’ number of installations out of
which at least ‘B’ should be in your business sector.

 The cost of the package with all the necessary modules should be less
than ‘C’ Rupees.
 The package should provide the company the facility to buy the core
modules initially and then go in for the additional modules as and when
desired.
 The vendor should provide support during the implementation and also
post implementation.
 The vendor should give a commitment on training the company
employees on the package.
 The package should have the flexibility of interfacing with other systems
that the company is dealing with, for example: banks, suppliers,
customers, and so on.
 The package must be customisable and the customisation process
should be easily done and should be able achieve it in-house.
 The vendor’s policy and practices regarding updates, versions, and so
on, should be should be verified and it should be acceptable to your
company norms.
Since selection of the package is very crucial, the company’s committee
should sit together and analyse these issues and assign points to these
items and draw down the layout for the implementation process.
11. In ERP implementation and _____________is one of the most important
phases
12. The package should come with ____________________support.
Activity 4
Contact a manufacturing industry and find out the criteria they adopt
before purchasing an ERP package for their company.
1.8 Summary
Enterprise Resource Planning. (ERP) is one of the means to integrate the
data and processes of an organisation into one single system. Usually ERP
systems have many components including hardware and software. Most
ERP systems make use of a unified database to store data for various

functions found throughout the organisation in order to achieve integration

between the various components.
The term ERP originally referred to how a large organisation planned to use
organisational wide resources. In the past, ERP systems were used in large
scale industries. Though, the use of ERP has changed and is extremely
comprehensive, today the term can refer to any type of company, no matter
what industry it falls in. In reality, ERP systems are used in almost any type
of organisation - large or small.
In order for a software system to be considered as ERP, it must provide an
organisation with functionality for two or more systems. Although some ERP
packages exist that only cover two functions for an organisation (i.e. payroll
& accounting), a majority of ERP systems cover several functions.
Today's ERP systems cover a large range of functions, and integrate them
into one unified database. For example, functions like Human Resources,
Supply Chain Management, Customer Relations Management, Financials,
Manufacturing functions, and Warehouse Management functions were all
once stand alone software applications, usually housed with their own
database and network, today, they can all fit under one umbrella - the ERP
system.

1. What were the disadvantages of the pre-ERP information model — the
isolated islands model?
2. What are the advantages of ERP systems?
3. Explain how ERP systems can achieve business integration?
4. Why are ERP systems said to be flexible?
5. Why do many ERP implementations fail?
6. What are the reasons for the growth of the ERP market?
7. Write a note on ERP packages.
1.10 Answers
Answers to Self Assessment Questions
1. Information handling and sharing
2. Information Technology
3. Fragments

4. Production management and control

5. ERP software
6. Processes
7. Promotion of integration
8. Flexibility
9. Plan well and execute
10. Decision-makers
11. Package selection
12. Multi-language and multi-currency
Answers to Terminal Questions
1. Refer to 1.3
2. Refer to 1.5
3. Refer to 1.5
4. Refer to 1.6
5. Refer to 1.5
6. Refer to 1.5 and 1.7
7. Refer to 1.7
1.11 Case Study

The Cashe company was running on legacy systems, and with the
impending Y2K problems, it chose to replace those systems and shift to
client/server environment. In 1996, the Cashe company began
modernising hardware and software systems in the company. The
original plan was to switch over to the new ERP system by April 1999.
As per plan the company had started revamping its hardware and
software infrastructure in 1997. In 1999, the company faltered during the
final leg of the ERP implementation. The company had selected the
services of three vendors SAP AG (SAP), Siebel Systems (Siebel) and
Manugistics for the project, and some of the modules were implemented
as per the schedule by the company in January 1999.
The company usually receives huge orders for the coming Halloween
and Christmas seasons during the months of May and June. The
implementation which was planned to be ended by April 1999 was
delayed and was extend to July 1999. In order to over come this and to
get done with the implementation process the company management
switched to Big Bang implementation. To meet the time line the company
planned for simultaneous implementation of several modules. Due to lack
of time, some of the modules implemented were not tested properly.
Several problems related to order management and fulfilment resulted
due to this. Even though the Cashe company company had the finished
product stocked in its warehouses, it was not able to fulfil orders from
many of its retailers and distributors. The failure in the implementation of
ERP immediately resulted in an adverse affect. The company recorded
annual revenues for 1999 reduced; there was a drop of 12% when
compared to that in 1998.
In the third quarter of 2000, the company announced that its revenues
increased by 12% as compared to the revenues in the third quarter of
1999. During the same period, profits increased by 23%.
Questions:
1. Study the circumstances that led to ERP implementation failure at the
Cashe company.
2.Evaluate the role played by top management in ERP implementation.
3.Examine the factors that lead to success or failure of ERP projects.
1.12 Glossary
Term Description
Cluster A small group of people or things that are closely packed
together but not connected to each other
Collation The assembling of pieces of paper in the right order,
particularly the sections of a book prior to binding
Conceptions The process of arriving at an abstract idea or belief or the
moment at which such an idea starts to take shape or emerge
Imminent Some thing that is about to happen in the near or distant future
Legacy Associated with something that is outdated or discontinued
Scenario An imagined sequence of possible events, or an imagined set
of circumstances
Bill of materials It is a list of the raw materials, sub-assemblies, intermediate
assemblies, sub-components, components, and the quantities
of each item needed to manufacture an end item.

References
1. The Internet Encyclopedia by Bidgoli & Hossein.
2. Enterprise Resource Planning by Mary Sumner.
3. Maximising Your ERP system’ by Scott Hamilton.
4. Concepts in enterprise Resource Planning by Ellen F. Monk, Bret J.
Wagner.

Unit 2 Enterprise – An Overview

Structure:
2.1 Introduction
Objectives
2.2 Integrated Management of Information
2.3 Business Modelling
2.4 Integrated Data Model
2.5 Summary
2.7 Answers
2.8 Case Study
2.9 Glossary
2.1 Introduction
By now you must be familiar with the concept of Enterprise Resource
Planning (ERP) and the evolution of ERP systems. We have discussed the
advantages and the reasons for failure of ERP systems during the
implementation. The methods to over come this failure and the concept of
ERP packages are also discussed in the previous unit.
As you are familiar with the concept of ERP, let us now define an Enterprise.
The Enterprise is the term often used in general business conditions to
describe a corporate entity; you can call anything from a sidewalk coffee
shop to an organisation as large as TCS or Wipro as an Enterprise. Figure
2.1 is an example of an enterprise.

Figure 2.1: The Enterprise
A group of people working together for a common goal, with certain

resources at its disposal to achieve that goal, is called an enterprise
(Figure. 2.1). The enterprise acts as a single entity. This view of a company
or organisation is drastically different from the traditional approach. In the
traditional approach, the organisation is divided into different units based on
the functions they perform as shown in Figure 2.2. Hence, and Enterprise
consists of the manufacturing or production department, the production
planning department, the purchasing department, the sales and distribution
department, the finance department, the R&D department, and so on. Each
of these departments is compartmentalised and has its own goals and
objectives, which from their point of view are in line with the organisation's
objectives.

Figure 2.2: Organisation where there is no or little communication between

departments
Each of these departments has their own methods of data collection and
analysis, and functions in isolation. Various departments create or generate
information that, in most cases, are available only to the top management
(that too as summary reports) and not to the other departments. The result
is that instead of taking the organisation towards the common goal, the
various departments end up pulling it in different directions. This is because
no department has a clear idea of what other departments’ status was, and
obtaining this information was difficult. Also, sometimes the objectives of
each department may be conflicting. For example, the sales and marketing
people want more product variety to satisfy the varying needs of the
customers. But the production department want to limit the product variety to
cut down production costs. So unless all the departments know what the
others are doing and for what purpose, these kinds of conflicts arise, thus
disrupting the normal functioning of the organisation.
But when you look from enterprise point view, the entire organisation is
considered as a system and all the departments are its subsystems. The
information about all the aspects of the organisation is stored centrally and
is available to all departments as shown in Figure 2.3.

Figure 2.3: An enterprise where all departments know

what the others are doing.
As you can see, this transparency in information access ensures that all
departments work in cooperation which each other and no longer work in
isolation pursuing their own independent goals. Each department knows
what the others are doing, why they are doing it, and what should be done
to move the company towards achieving that goal. The ERP system helps in
achieving this task by integrating the information systems, enabling smooth
and seamless flow of information across departmental barriers, automating
business process and functions, and thus, helping the organisation to work,
and move forward as a single entity.
Learning Objectives
This unit familiarises you with the organisation structure function of an
Enterprise.
 Assess the need of an Enterprise.
 Explain the idea of integrated information management.
 Evaluate the business modelling approaches.

 Integrate the management information to the enterprise.
2.2 Integrated Management of Information

An information system is an open, and a purposive system that produces
information using the 'input-process-output' cycle. You can list the three
basic elements of information system as people, procedures, and data.
People follow the procedures to manipulate data to produce information.
The definition of information systems has undergone a slight change in
today’s computerised world. Today, an information system is an organised
combination of people, hardware, software, communication networks, and
data resources that collect, collate, transform, and disseminate in an
organisation.
Management Information Systems (MIS), also called information-reporting
systems, were the original type of management support systems, and they
still are a major category of information systems. MIS produce information
products that support many of the day-to-day decision making needs of the
management. Reports, charts, graphs, displays, and responses produced
by such systems provide information that managers have specified in
advance. Such pre-defined information satisfies the needs of managers at
the operational levels of the organisation who are faced with the structured
type of decision-making.
But the problem with these information systems is that they operate at a
departmental level, and they only give information that has been pre-defined.
So each department has its own database and information systems. These
systems produce different reports of varying detail that were specified when
the systems were built.
This method of information gathering has two major disadvantages. First,
people in one department do not have any information about what is
happening in the other departments. May be at the top management level
the summary reports are being circulated to other departments, but these
summary reports often fail in capturing the real picture. The second
drawback is that these systems give only the information that was designed
to produce at the time they were built. Suppose a manager wants some
information which is not in the reports, then these systems are of no help.

Various departments have their own system serving for their needs like an
accounting system for the finance department, a production planning system
for the manufacturing department, an inventory management system for the
stores department, and so on. Systems using this method lag behind to
obtain an integrated approach for all the departments. Systems working
based on these methods perform in isolation. In case, you want some
information which has to be obtained from any of the other two systems, you
have to get the necessary reports from both systems and then correlate and
combine the data before using it. This method leads to misinterpreting of the
information and some time incomplete and false information being circulated
for decision making.
When systems work in isolation, it becomes difficult for you to collect and
analyse the data needed for your department's functioning, since, getting
information about some aspect that is dependent on more than one
department can be tedious. No business executive or decision-maker can
take good decisions with the isolated data that received from each
department in the form of various reports. Even if you verify the data
produces the information that you require, you would have lost valuable time
that could have been better spent in decision-making.
In reality, an organisation cannot function as islands of different departments.
Every department needs information inputs form other departments for its
functioning like, the purchasing department requires production planning
data, the finance department requires purchasing details for some of its
process, and so on. The impact of integrating all the information islands,
which were functioning in isolation, into a single system would be dramatic.
For example, if the purchase department can see the production planning
details, it can make the purchasing schedule accordingly. If the finance
department is able to see the purchase details as soon as it is entered in the
system, they can plan for the cash flow that is necessary for the purchases.
In today’s competitive business environment information is one of the key
resource, the key resource of every organisation. If the organisation does
not have an efficient and effective mechanism that enables it to give the
decision-makers the right information at the right time, then the chances of
that organisation succeeding in the next millennium are very remote.

Information can be categorised into three fundamental characteristics:

accuracy, relevancy, and timeliness. The information has to be precise, it
must be relevant for the decision-maker and it must be available to the
decision-maker when required. Any organisation that has the mechanism to
collect, collate, analyse, and present high quality information to its
employees, thus enabling them to make better decisions, will always be one
step ahead of the competition. Today, the time available for an organisation
to react to the changing market trends is very short. To survive, the
organisation must always be on its toes, gathering and analysing the data
both internal and external. Any mechanism that automates this information
gathering and analysis process enhances the chances of the organisation to
beat the competition.
So, what is needed is a system that treats the organisation as a single entity,
and caters to the information needs of the whole organisation. If this is
possible, and if the information that is generated is accurate, timely, and
relevant, then these systems will go a long way in helping the organisation
in realising its goals.
1. The enterprise acts as a ____________________.
2. Each of these departments has their own methods of data
________________.
3. The ERP system helps to accomplish this task by integrating the
__________________ systems.
4. Management Information Systems (MIS), also called _______________.
5. When systems work in isolation, it will be a difficult task for you to
_________________ the data needed for your department's functioning.
6. The three fundamental characteristics of information are ____________.
Activity 1
Visit a departmental store near your place where more than four people
handle the business and study the techniques they use to manage the
entire activity without much of paper work. And how, each one of them is
very well aware of the places where each commodity is kept in the store
and their rates.

2.3 Business Modeling

Business modelling or creating a business model is one of the first activities
in any ERP project. As mentioned earlier, the ERP systems should be a
replica of the organisation’s business processes. A business model is not a
mathematical model, but it is a representation of the business as one large
system showing the interconnections and interdependencies of the various
subsystems and business processes as shown in Figure 2.4.
Figure 2.4: Real World and the Business Model
Based on the organisation's goals, objectives, and strategic plans, a

business model consisting of the business processes is developed. Different
individuals in the organisation (the people) control these business processes
to achieve common goals. Based on the business model the ERP system is
developed with the aim of providing the required information and necessary
assistance to the various individuals in an organisation. This helps them
perform their business processes more effectively and efficiently.
In business modelling, we model the business as an integrated system,
taking the processes managing its facilities and materials as resources.

Information is a very important resource and is very critical in managing all

the other resources.
Thus, the business model is a representation of the actual business, the
various business functions of the organisation, the relation that exists
between them, the manner in which they are interdependent, and so on, to
achieve a common goal or objective. The business model is usually
represented in the graphical form using flow charts and flow diagrams. The
data model of the system is created from the business model.
For example, in a small scale automation industry the order bagged by the
marketing is passed on to planning department. From here the actual
production starts and it has to be cautiously tracked by the planning
department. It is the responsibility of the planning department to request the
design department to release the drawings and the requirements for the
production department. Once the released documents reach the production
department, it has to ensure that it allocates man power and a time plan for
the manufacturing of the product. Planning has a time schedule of its own
for the manufacturing, which has to be planned in accordance to the
production department, and has to be informed to the marketing department.
Production has to check for the availability of the required items for
production from stores and if in case there is any shortage it has to be
informed both to the planning and purchase through a proper channel, so
that the requirements can be brought in as early as possible. Once the
product leaves from production to quality department and then to packing,
the information about the status of work and the product description should
be available to the planning department. Thus you can see how each
department has to work coordinating to each other and the essence of
communication between the departments.
As important as process planning, market planning is very crucial phase of
business modelling. Since, market planning also has an important role when
it comes to decision making in large organisation on market strategy. So
that it can enable the organisation to successful meet commercialisation
requirements according to changing market trend. Its main concern is how
decision taken on certain issues can change the company’s revenues and
its profit margins. Hence, planning is a crucial element of business model for
this to achieve an ERP system is suppose to be capable of handling

information not only about the process of various departments but it needs
to track the company’s market performance and the company’s product
competency compared to its competitors in the market and allow the
management to take decision quickly and effectively.
Activity 2
Conduct a survey in any manufacturing industry and study the different
departments and people both internal and external of an organisation
who are involved in process from order acquirement to the deliver of the
finished product to the customer.
2.4 Integrated Data Model

One of the most critical steps in the ERP implementation is the creation of
an Integrated Data Model. As we have seen earlier, one of the advantages
of having an ERP system is that all the employees from the different
departments get access to the integrated data. The company uses this
integrated data for its analysis and decision-making.
With the implementation of ERP systems erases the concept of the
departmental information systems and the departmental databases. There
can no longer be isolated databases, which cater to the needs of a particular
department. All the data has to be from the integrated database. This
approach reduces data redundancy and provides updated information about
the entire organisation to all employees.
For the integrated database to be effective, the system should:
 Clearly depict the organisation
 Reflect the day-to-day transactions
 Be updated continuously.
At any given time, the database should give a snapshot of the organisation
at that point in time. So if an order is entered, the sale is done, and the
goods are dispatched, then the database should reflect those changes. The
inventory should be reduced and the account receivables should be
increased. All these things have to happen instantaneously and
automatically. That is the challenge, and the advantage of the integrated
database and the integrated data model. The integrated data model is
derived from the business model as shown in Figure 2.5.

Figure 2.5: Data Model and its Relationship with the Real World
When designing the data model for the ERP system, the most important
thing that should be kept in mind is the information integration, and the
process / procedure automation. The data model should reflect the entire
organisation, and it should successfully depict and integrate the data
structures of the entire organisation.
For example, when a customer needs to check the performance of the
company before he places an order, the marketing department has to be in
a position to provide the necessary information. It should not depend on the
finance department to provide the necessary information, but at the same
time the ERP must also help the marketing department to establish an easy
communication link between he finance and marketing for queries.
The data flow between the functions of an organisation has to be smooth
and faultless.
Importance has to be given not only for communication but also to data
management. The system has to be flexible in handling every, day to day

activity data and has to be updated to the database. Maintenance and

access to this data has to be planned well for being user friendly and
employees can be easily trained. The system should come with a self check
and alert mechanism to indicate the incomplete routine activity that was not
updated. It should also have the capability to point out any incomplete data
or information that has been left during a long process in the organisation.
Many a times the flexibility of the system depends not only on the ability of
the system to manage the data flow inside the organisation, but it is very
important to make the system work in real time considering the non-
organisational factors also.
Activity 3:
Visit a small scale manufacturing industry and examine the various
phases through which a product has to under go during its manufacturing
duration. And how each of these phases is tracked and monitored and
updated to various departments which need the status of the
manufacturing process.

7. ____________________ is one of the first activities in any ERP project
8. Based on the organisation's ______________________, a business
model consisting of the business processes is developed.
9. The business model is a representation of the ____________ business.
10. The business model is usually represented in the graphical form using
__________________________.
11. As important as process planning, _______________ is very crucial
phase of business modeling.
12. The implementation of ERP systems erases the concept of the
___________________________.
13. At any given time, the ________________ should give a snapshot of the
organisation at that point in time.
2.5 Summary
Integration is an extremely important part to Enterprises. Enterprise’s main
goal is to integrate data and processes from all areas of an organisation and
unify it for easy access and work flow. ERPs usually accomplish integration

by creating one single database that employs multiple software modules

providing different areas of an organisation with various business functions.
Although the ideal configuration would be one Enterprise system for an
entire organisation, many larger organisations usually create and systemise
and then build upon the system and external interface for other stand alone
systems which might be more powerful and perform better in fulfilling an
organisations needs. Usually this type of configuration can be time
consuming, and does require lots of labour hours. The process analysis and
market analysis are two crucial phases of planning in an organisation, which
has direct impact on the revenues of the company. ERPs usually are not
used for decision making but it plays a vital role in providing huge amount of
fragmented information to be collected and managed properly for the
organisation to access.
ERP system plays a very crucial role within and out side the organisation.
So the implementation of the system is very important. To achieve this
successful implementation one has to understand the functioning of the
organisation not as whole but from the grass root level. Every department
functioning has to be studied before any software development has to be
carried out. Management plays significant role in helping the developers to
create software that suits their company rather than some thing the
developers prefer. Hence, you must understand the activities the
organisation performs and the management has to address the
requirements that the company requires for a successful ERP
implementation.
ERP system has to establish a communication link flexible enough to handle
information flow inside the organisation and also, elements outside the
organisation, for effective data analysis by the management.

1. Why are integrated information systems important for the organisation's
success?
2. What is business modeling?
3. What is an integrated data model?

2.7 Answers
1. Single entity
2. Collection and analysis, and functions in isolation
3. Information
4. Information-reporting systems
5. Collect and analyse
6. Accuracy, relevancy, and timeliness.
7. Business modelling
8. Goals, objectives, and strategic plans
9. Actual
10. Flow charts and flow diagrams
11. Market planning
12. Departmental information systems and the departmental databases
13. Database
Terminal Questions
1. Refer to 2.2
2. Refer to 2.3 and Figure 2.4
3. Refer to 2.4
2.8 Case Study
Built in 1982, starting with steel castings as main products, Patel Alloy
Steel Pvt. Ltd.(PASL) has developed different grades of SGI castings
as per the market need and established itself as a leading manufacturer
of SGI casting parts on local and global market through consistent high
quality of work. The company was an early pioneer in development of
heavy weight castings for Plastic Injection Molding Machine and Wind
Turbine Generator Industry.
From its integrated works-sites spread over 42 acres of land and a
built-up area of over seven acres PASL has serviced both local needs
and worldwide markets.
PASL can supply castings in proof or final machined condition. They
deliver casting in painted condition to Paint-shop. In this highly
competitive industrial coatings market, success depends on IT systems

that drive internal efficiencies. However, at Patel Alloys a MS DOS

based accounting system was being used along with some applications
which were in isolation. Over time, the company found that the existing
legacy system was inadequate for growing information needs of the
organisation and it was lacking proper management controls.
The PASL management wanted a fully integrated solution that would
enable employees throughout the organisation to communicate more
effectively and enjoy access to timely, accurate, and comprehensive
information. Also, they wanted a solution that was based on widely
used technologies and thereby familiar to the people who would be
working with it.
After considering a number of options, PASL chose Microsoft Dynamics
NAV as the solution that would best meet its needs. They chose to
work together with Microsoft Certified Partner, Intech Systems Pvt. Ltd.
Intech Systems is a specialised management and software consulting
firm, which provides world class consulting and system implementation
for business problems in the areas of Information Technology,
Operations Management, Financial Management and Data Processing.
A team of functional and technical experts from Intech Systems Pvt.
Ltd. analysed the business requirements of PASL before
recommending the new solution. Managing Director of PASL opted for
a new IT solution based on Microsoft Dynamics NAV because it was
the best fit for their operations.
Using the new solution, PASL was able to manage and control an
unlimited number of activities running within a project, streamline
budgeting and resource management, and integrate the information
with financial data. Microsoft Dynamics NAV was chosen for its
performance in a number of key areas of functionality. This ERP
solution offers the company a powerful and cost-effective solution. It
adapts easily to an organisation, especially certain processes, such as
accounts receivable. Also, the solution's ability to grow with the
company's needs means it would not limit future development and
growth.

The directives were given by the managing director to implement

Dynamics NAV ERP from 1st April 2005 without doing any parallel run.
This was a unique case and with the help of both the teams from Patel
Alloys and Intech Systems it was implemented in a record time of three
months. However, in the first three months Accounts, Sales, Purchase,
Inventory and Payroll modules were operational. Following this the
production module was implemented in two months. Microsoft small
business server was installed along with Dynamics NAV and Microsoft
SQL Server version was added to improve the company's database
services.
1. What were the conditions that the management had to address
before they started searching for proper software?
2. What were the requirements that the management kept in mind
before choosing software?
3. Explain the collaboration that you can find between the
management of the company and the developers.
4. Explain the reasons behind the successful implementation of the
software.
2.9 Glossary
Term Description
Cater To provide what is wanted or needed in a particular
situation or by a particular group of people in an
organisation or a company.
Compartmentalises To divide something into separate areas, categories, or
compartments for functioning with respect to the kind of
work or task the group performs in an organisation
Entity Something that exists as or is perceived as a single
separate unit or department which functions alone not
frequently depending on other departments
redundancy Something that is not or no longer needed or wanted by
any department or organisation usage
Quires A set of questions related to a particular issue or a topic
required by a department or by the management of an
organisation.

References
1. Emerging Trends and Challenges in Information Technology
Management by Khosrow-Puor, Mehdi.
2. Concepts in Enterprise Resource Planning by Monk, Ellen and Wagner.
3. Ensuring ERP implementation success by King. W.

Unit 3 ERP and Related Technologies

Structure:
3.1 Introduction
Objectives
3.2 Business Process Re-engineering
3.3 Management Information systems
3.4 Decision Support Systems
3.5 Executive Information Systems
Advantages of EIS
Disadvantages of EIS
3.6 Data Warehousing
3.7 Data Mining
3.8 On-Line Analytical Processing
3.9 Supply Chain Management
3.10 Summary
3.12 Answers
3.13 Case Study
3.14 Glossary
3.1 Introduction
By now you must be familiar with the Concept of enterprise and importance
of decision making during the implementation of an Enterprise Resource
Planning (ERP) system. ERP is commonly defined as the technique and
concept for the integrated management of businesses as a whole, and the
effective use of management resources, to improve the efficiency of an
enterprise are known as ERP.
In an organisation, ERP systems serve an important function by integrating
separate business functions like materials management, product planning,
sales, distribution, finance and accounting; and others into a single
application. However, ERP systems do have certain limitations as listed
below:
 To generate custom reports or queries, managers have to depend on a
programmer. This inhibits them from obtaining information quickly, which
is very important for maintaining a competitive advantage.

 More often, managers need to look past the current status to find trends
and patterns that help them to make better decisions. But ERP systems
provide current status only, such as open orders, limiting the resources
for managers
 There are no applications in ERP systems that integrate the data with
other enterprise or division systems. They also fail to provide external
intelligence support.
Many technologies are developed which help to overcome these limitations.
These technologies help in overcoming the limitations of a standalone ERP
system, when used in conjunction with the ERP package, and thus, help the
employees to make better decisions.
Some of these technologies are:
 Business Process Reengineering (BPR)
 Management Information System (MIS)
 Decision Support Systems (DSS)
 Executive Information Systems (EIS)
 Data Warehousing
 Data Mining
 On-line Analytical Processing (OLAP)
 Supply Chain Management
Out of the above technologies MIS, DSS, and EIS are forerunners of the
ERP systems. Once the ERP system and the other technologies (like Data
Warehousing, Data Mining, OLAP, and so on.) are integrated, the MIS or
DSS become redundant, as the new systems take care of their functions,
and are slowly phased out from the scene.
To cope up with the increased competition in the current ERP market, the
ERP vendors are searching for ways to penetrate into new market segments,
and expand the existing ones. Tomorrow’s ERP systems will have most of
these technologies integrated into them when compared to the existing ones.
In this unit we will see how each of these technologies is related to ERP
systems.
This unit familiarises you with the old and current technologies of ERP
systems, their drawbacks and advantages, and development on new
technologies.

Learning Objectives
After studying this unit you will be able to:
 Analyse and know the technologies that are related to ERP systems
 Explain how technologies like BPR enables organisations to analyse
their business functions better, thereby facilitating a more efficient ERP
implementation
 Analyse how predecessors of ERP like MIS, DSS and EIS will slowly
phase out
 Explain how new technologies and concepts like data warehousing, data
mining, OLAP and supply chain management help increase the power,
usefulness, efficiency, and effectiveness of ERP systems.
3.2 Business Process Reengineering (BPR)

BPR has been around for quite some time and a lot has been written about
it in both, the practitioner trade press and the academic research journals.
However, the controversy still remains about whether there is any accurate
description of BPR, or BPR is just a trend. Some even say that it is an
appealing label to tag on to whatever your company is doing is of latest and
greatest work which is up to the current market trend. But if re-engineering
is to continue in the long run, then it must do more than advertise its
considerable successes to date. It must become more proactive and
inclusive with regard to human, organisational, and motivational change
issues.
Dr Michael Hammer defines BPR 1 as ".the fundamental rethinking and
radical redesign of business processes to achieve dramatic improvements in
critical and contemporary measures of performance such as cost, quality,
service, and speed." One of the main tools for making this change is the
Information Technology (IT). Any BPR effort that fails to recognise the
importance of IT, and goes through the pre-BPR analysis and planning
phases without considering the various IT options available, is a wrong way
in proceeding for implementation. The effect of this kind of proposed IT
solutions on the employees and the organisation, is bound to crash during
takeoff.
1
Article In Harvard Business Review

We have seen that the ERP systems help in integrating the various
business processes of the organisation with the help of modern
developments in IT. With a good ERP package, the organisation will have
the capability of achieving dramatic improvements in critical areas such as
cost, quality, speed, and so on. Many BPR initiatives end up in the ERP
implementation.
Initially, the concept of BPR was started as a technique in private sector to
help their organisations to re-think, how they do their work in order to
improve customer service, cut operational cost, and to stay ahead of their
competitors. Later some of the big companies adopted this to redesign their
business processes, rather than re-adjusting current ways of doing work.
In the concept of reengineering, Information Technology (IT) plays an
important role. Some experts consider BPR as a major enabler for new
forms of working and collaboration within their organisation, and across
organisational borders. It has enabled in increasing organisational efficiency.
With the experience and lessons learned from the early adopters, some
BPR practitioners advocated a change from IT-centric and emphasis to a
customer-centric approach. This enables the developer, to develop
technology keeping in mind the customer and the organisation norms rather
than the technology and the organisation requirements. These processes
are characterised by process ownership, customer focus, value adding, and
cross-functionality.
Most of the time reengineering has not lived up to its expectation, the main
reasons are:
 Reengineering process is carried out with a view point that the
organisation’s processes ineffectiveness is the limiting factor for its
performance. However, most of the time this may or may not be true.
 Most of the developers adopt the principle that, the reengineering
processes of performance improvement needs to be started with
complete removal or revamping of the previous system, which is also not
an effective method.
 Many experts do believe that, the process of reengineering does not
provide an effective way to focus improvement efforts on the
organisation’s constraint.

Activity 1
Conduct a survey and list out the various support technology for ERP
systems designed by various companies and their application in various
sectors.

1. More often managers need to look past the current status to find
___________________ which help them in better decision making.
2. BRP must become more proactive and inclusive with regard to
__________________ issues.
3. Reengineering process is carried out with a view point that the
________________ processes
3.3 Management Information Systems (MIS)

In the past, most payroll systems were data processing systems that did
little more than process time sheets, print payroll checks, and keep totals of
annual wages and deductions. Most other departmental information systems
did the same data processing and never monitored the actual process of the
departments. The data processing systems evolved into management
information systems, as managers began to demand more and better
information about the working of the organisation,. For example, a human
resource MIS system is capable of predicating the average number of
worker sick days, the amount that must be given as bonus, the overtime
allowances, and so on.
MIS is a computer-based system that optimises the collection, collation,
transfer, and presentation of information throughout an organisation. MIS
accomplished this through an integrated structure of databases and
information flow with in the organisation.
Data Processing System(DPS) is a system which processes data which has
been captured and encoded in a format recognisable by the data processing
system or has been created and stored by another unit of an information
processing system.

The major differences between a Management Information System (MIS)

and Data Processing System (DPS) are:
 When compared to DPS, the integrated database of the MIS enables
greater flexibility in meeting the information needs of the management.
 The MIS integrates the information flow between functional areas like
accounting, marketing, manufacturing, and so on, whereas, data
processing systems tend to support a single functional area.
 MIS caters to the information needs of all levels of management
whereas data processing systems focus on departmental-level support.
 Management's information needs are supported on a timelier basis with
the MIS (with its on-line query capability) than with a data processing
system.
The main characteristics of the MIS are the ability to:
 Support the data processing operation of transaction handling and
record keeping.
 Support a variety of functional areas in an organisation using integrated
database.
 Provide operational, tactical,, and strategic levels of the organisation, but
does not provide ad-hoc query facility for most part of the structured
information.
Any successful MIS must support a business five year plan or its equivalent.
It must be flexible enough to provide reports based up on performance
analysis in specific areas critical to that plan. The reports include feedback
loops that allow for titivation of every aspect of the business, including
recruitment and training regimens. MIS must not only point out how things
are carried out, but why they are not able to perform as planned. These
reports also include performance related to cost centres and projects that
drive profit or loss. This must be done in such a way that it identifies
individual accountability in virtual real-time.
Professor Allen S. Lee states that2 "research in the information systems field
examines more than the technological system, or just the social system, or
2
MIS Quarterly journal

even the two side by side; in addition, it investigates the phenomena that
emerge when the two interact."
The MIS is so flexible that it can adapt very well to the changing needs of an
organisation.
3.4 Decision Support System (DSS)

Before making a decision managers spend a lot of time and effort in
gathering and analysing information. Decision Support Systems (DSSs)
were created to assist managers in the task of data gathering and analysing.
DSS is an interactive information system that relies on an integrated set of
user-friendly software and hardware tools. With the help of these tools you
can produce and present information targeted to support management in the
decision-making process. In many occasions, depending on their previous
experience knowledge, decision-makers can make quality decisions.
However, decision-makers, especially at the top management levels, are
often confronted with complex decisions. The analysis of such complex
decisions involves many factors that may be difficult for a human being to
handle. The need for complex information analysis and reduction of human
interference in some crucial decision making process demanded for a
decision making system, and led to the evolution of Decision Support
Systems (DSSs).
A DSS can help to close the information gap and allow managers to improve
the quality of their decisions. This requires the DSS hardware and software
to be embedded with the latest technological innovations, planning and
forecasting models, fourth generation languages, and even artificial
intelligence. In many cases, DSS facilitates the decision-making process,
helping the decision-makers to choose between alternatives. Some decision
support systems can automatically rank the alternatives, based on the
decision-maker criteria. DSS also helps in removing the monotony and
boredom of gathering and analysing data.
Management Information Systems (MIS) are best at supporting decisions
that involve structured problems such as, when to reorder the raw materials,
how much to order, and so on. In contrast, DSS are designed to support
decision-making processes involving semi-structured and unstructured
problems. Here, the role of the DSS is to help managers in getting the

information they want, in the way they want. For example, if a manager
wants to reduce cycle time. He might look at various facts like, the
availability of raw materials, skilled personnel, the average machine down
time, and so on. So there is no way the system can anticipate what the
manager wants. But DSS is capable of helping the managers in making
such decisions.
The main characteristics of a DSS, are:
 It is designed to address semi-structured and unstructured problems.
 It mainly supports decision-making at the top management level.
 It is interactive, user-friendly, and the decision-maker can use it with little
or no assistance from a computer professional.
 It makes general-purpose models, simulation capabilities and other
analytical tools available to the decision-maker.
A DSS does not replace the MIS; instead supplements the MIS. There are
distinct differences between them. MIS emphasises on planned reports on a
variety of subjects; DSS focuses on decision-making. MIS is standard,
scheduled, structured, and routine; DSS is quite unstructured, and is
available on request. The organisational system constrains the MIS; DSS is
immediate and user-friendly.
There are several ways to classify DSS applications. However, not all DSS
will fit neatly into one category, but a mix of two or more architecture in one
will neatly fit into the category.
Based on the kind of supports provided by DSS, it can be classified into
three distinct, interrelated categories like the Personal Support, Group
Support, and Organisational Support.
DSS components may be classified as:
 Inputs: It includes factors, numbers, and characteristics to analyse.
 User Knowledge and Expertise: It covers the area where there is a
requirement of a user for manual analysis of the inputs.
 Outputs: It helps in transforming data from which DSS "decisions" are
generated.
 Decisions: These are the results produced by the DSS based on user
criteria.

DSS which perform selected and related decision-making functions and are
based on artificial intelligence or intelligent agents’ technologies are called
Intelligent Decision Support Systems (IDSS).
DSS is extensively used in business and management like the executive
dashboard, business performance software, and so on. It allows faster
decision making, identification of negative trends, and better allocation of
business resources. For example, the software might obtain information
from the local operating system in a computer, from one or more
applications that may be running. Information is also obtained from one or
more remote sites on the Web and is presented as though it all came from
the same source.
Activity 2
Visit a manufacturing industry and analyse the training methods adopted
by the management to get their employees work in the new technological
environment and the strategies developed by the company to enhance
the efficiency of their system with the new technology.

4. MIS is a computer-based system that optimises the collection, collation,
transfer, and _______________ of information throughout an
organisation.
5. The MIS supports the data processing functions of ________________
and _______________.
6. DSS is designed to address ___________ and ______________
problems.
3.5 Executive Information Systems (EIS)

The line dividing DSS and EIS is very thin. EIS can be considered as a
better and sophisticated DSS. Top-level executives and decision-makers
have to face many problems and face enormous work related pressures. In
spite of that, they have to make the right decisions, at the right time, to
resolve the problems and take the company forward keeping the profit
margins high. In today's competitive world, reaction times are shrinking, and
time to make decisions is very less. EIS is a decision support system
especially made for senior-level executives. The main concern of an EIS is
how decisions can affect the entire organisation.
An EIS takes the following into consideration:

 The overall vision and mission of the company, and the company’s goals
 Strategic planning and objectives
 Organisational structure
 Crisis management/Contingency planning
 Strategic control and monitoring of overall operations
The user interface is very important as an EIS needs to be efficient to get
back the relevant data for decision makers. Several types of interfaces are
available for the EIS structure, such as scheduled reports, questions/
answers, menu driven, command language, natural language, and input/
output. The most important aspect is that the interface must fit the decision
maker’s decision-making style. If the executive is not comfortable with the
final information style, the EIS will not be fully utilised. It is considered that
an ideal interface for an EIS would be the one that’s:
 Simple to use
 Highly flexible
 Provides consistent performance
 Reflects the executive’s world
 Contains help information
Many a times executive decision-making also requires access to outside
information from competitors, governmental regulations, trade groups, news
gathering agencies, and so on. So most executive decision involves a high
degree of uncertainty and a future course for the organisation. Successful
EIS are easy to use, flexible and customisable, and use the latest
3.5.1 Advantages of EIS
Some of the advantages of EIS are:
 Easy for top management to use as extensive computer experience is
not required in operations
 Provides timely delivery of company summary information
 Information that is provided is understood better
 Filters data for management
 Improves to tracking information
 Offers efficiency to decision makers

3.5.2 Disadvantages of EIS

Some of the disadvantages of EIS are:
 It is system dependent
 It has limited functionality, with respect to design
 Its information overload for some managers
 Its benefits are hard to quantify
 It has high implementation costs
 Its system may become slow, large, and hard to manage
 It needs good internal processes for data management
 It may lead to less reliable and less secure data
In future mainframe computer systems and the executive info systems will
not be bonded together. This methodology will help executives escape from
learning different computer operating systems and substantially decreases
the implementation costs for companies. However, utilising existing software
applications lies in this new kind of technology. Executives can also
eliminate the need to learn a new or special language for the EIS package.
Future executive information systems are concentrated only on providing a
system that supports senior executives, but also contain the information
needs for middle managers. Since, future EIS are equipped with the power
of integrating potential new applications and technology into the systems,
the future executive information systems will become diverse. For example,
consider incorporating artificial intelligence (AI), integrating multimedia
characteristics and ISDN technology into an EIS. This enhances the
capability of the EIS system by making them timely, efficient and effective in
supporting the decision making process.
3.6 Data Warehousing

A lot of problems are created when the operational data is kept in the
databases of the ERP system. Over a period of time, the amount of data will
increase and this will affect the performance of the ERP system. Therefore it
is better to archive the operational data once its use is over. When I say 'the
use is over', it does not mean that the archived data is useless, of course, it
is one of the most valuable resources of the organisation. However, once
the operational use of the data is over, it must be removed from the
operational databases. For example, once the financial year is over, the

daily transactional data can be archived. Figure 3.1 shows what happens if
the data is not archived.
Figure 3.1: Operational Data vs. Archive Data
As you can see from the Figure 3.1, it is evident that even though the
operational data volume is nearly the same each year, the data is not
archived. The total amount of data that is stored in the operational database
will go on increasing. Figure 3.2 shows the effect of keeping this huge
amount of data in the operational database.
It is clear from the above graph that, as the volume of the data in the
database increases, the performance of the database and the related appli-
cations decreases. Since the data that has to be processed by the system is
more and increases every year, resulting in the decrease in the performance
of the ERP system.
Figure 3.2: Data Volume vs. Performance

From the above discussions, it is evident that we must separate the

operational data from the non-operational data. Here the term archive data
is not used, because if the non-operational data is archived, there is little or
no use for it. But this data is a very valuable resource, and is too precious to
be kept in some archive. It is in this situation that a data warehouse comes
in handy.
Data warehousing has become an essential module in every ERP package.
In order to track the performance of the company and to plan for the future,
the current data and the data from the previous years are very essential for
the managers. They come in handy for managing the non operational data
and help in reducing the large and growing data base of an organisation.
The basic principle of data warehousing system is that, the data stored for
business analysis can be accessed most effectively by separating it from the
data in operational systems. The potential performance degradation on the
operational system can result during the analysis processes. To overcome
this business analysis and the operational data are stored separately High
performance and quick response time is very essential feature for
operational systems. The reason for separating the operational data from
the analysis data has no significant changes with the evolution of the data
warehousing systems. Except that now they are considered more formally
during the data warehouse building process. The advancement in
technologies and changes in the nature of business have made many of the
business analysis processes much more complex and sophisticated. The
latest technologies in data warehousing systems support very sophisticated
online analysis, including multi-dimensional analysis in addition to producing
standard reports.
Activity 3
Visit a departmental store and write down the steps how you can
implement an ERP package. Also analyse how you can enhance the
efficiency of the stores inventory management using Data Warehousing.

7. EIS is a ___________ system especially made for senior-level
executives.

8. If the data is not archived the total amount of data that is stored in the
__________________ will go on increasing.
9. _________________ has become an essential module in every ERP
package.
3.7 Data Mining

In today’s information age that we live, many organisations widely recognise
the importance of collecting data that reflects our business, or activities that
achieve competitive advantage. In most organisations powerful systems are
available for collecting data and managing it in large databases. However,
the major bottleneck of converting this data into effective information is, the
difficulty faced in extracting knowledge about the relevant issue from the
data collected from the system’s data base. Modelling the investigated
system and discovering relations that connect variables in a database are
the subjects of data mining.
Data mining is the process of identifying valid, new, potentially useful, and
ultimately clear information from databases. This information is used to
make crucial business decisions. Modern data mining systems, self learn
from the previous history of the investigated system, formulating and testing
hypotheses about the rules, which the system obeys. When a brief and
valuable knowledge about the system of interest has been discovered, it can
and must be incorporated into some decision support system. This helps the
manager make wise and informed business decisions.
The main reason for needing automated computer systems for intelligent
data analysis is the enormous volume of existing and newly appearing data
that require processing. The amount of data collected each day by various
businesses, scientific, and governmental organisations around the world is
daunting. Research organisations, academic institutions, and commercial
organisations create and store huge amounts of data each day. It is very
difficult for human analysts to cope with such overwhelming amounts of data.
Two other problems that human analysts suffer while processing the data
are:
 The inadequacy of the human brain when searching for complex multi-
factorial dependencies in the data
 The lack of objectiveness in analysing the data

The major cause of concern with a human expert is that, most of the results
he draws are always with the help of the previous experience of
investigating other systems. However, this may or may not help sometimes
under certain new conditions, but it is almost impossible to get rid of this
reality.
One additional benefit that you can find using automated data mining
systems is that, this process has a much lower cost than hiring an army of
highly trained and paid professional statisticians. However, data mining will
not completely eliminate the human participation in solving the task but it
significantly simplifies the job. This system allows an analyst, who is not a
professional in statistics and programming, to manage the process of
extracting knowledge from data stored in the data base.
Data mining commonly involves four classes of tasks:
 Classification: Arranges the data into predefined groups. For example,
consider an email program that attempts to classify an email as
legitimate or spam. Some of the common algorithms are decision tree
learning, nearest neighbor, naive Bayesian classification, and neural
networks.
 Clustering: Is a process of classification of data but the groups are not
predefined, so the algorithm will try to group similar items together. For
example, when we search for data from a particular year, all the data
containing the key words of the entered search statement will be listed.
But it will not be grouped; instead all the relevant data will be made
available.
 Regression: This task tries to find the function which models the data
with the least error.
 Association rule learning: This task performs the search for relationships
between variables. For example, consider a supermarket that gathers
data on their customer purchasing habits. With the help of association
rule learning task, the supermarket can determine which products are
frequently bought together and use this information for marketing
purposes. This is sometimes referred to as market basket analysis.
The verification of the patterns produced by the data mining algorithms that
occur from wide data set is the last leg of knowledge discovery from data. In

most case the patterns that data mining algorithms find may not be true and
valid. It is usual for the data mining algorithms to find patterns in the training
set which are not present in the general data set, this is called over fitting.
This can be overcome if the evaluation uses a set of test data, which the
data mining algorithm was not trained on. The patterns obtained are applied
to this test set and the resulting output is compared to the desired output.
For example, a data mining algorithm trying to separate spam from valid
emails would be trained on a training set of sample emails. Once trained,
the patterns obtained would be applied to the test set of emails which it had
not been trained on. The correctness of these patterns can then be
measured from how many emails they correctly classify.
3.8 On-Line Analytical Processing (OLAP)

According to Business Intelligence Ltd3, OLAP can be defined in five words
– Fast Analysis of Shared Multidimensional Information.
FAST means that the system has the ability to deliver most of its responses
to users within about five seconds, with the simplest analysis taking no more
than one second and very few taking more than 20 seconds.
ANALYSIS means that the ability of the system to cope with any business
logic and statistical analysis that is relevant for the application and the user,
and keep it easy enough for the target user.
SHARED means that the system is well equipped to meet all the security
requirements for confidentiality (possibly down to cell level). If multiple write
access is needed; it provides concurrent update locking at an appropriate
level.
MULTIDIMENSIONAL means, that the system must provide a
multidimensional conceptual view of the data, including full support for
hierarchies and multiple hierarchies. INFORMATION is refined data that is
accurate, timely, and relevant to the user.
Simply put, OLAP describes a class of technologies that are designed for
live ad-hoc data access and analysis. While transaction processing (OLTP)
generally relies solely on relational databases, OLAP has become
synonymous with multidimensional views of business data. Multidimensional
3
http://www.OLAPReport.com

database technology supports these multidimensional views, and provides

the technical basis for calculations and analysis required by Business
Intelligence applications.
For a very wide range of applications OLAP technology is preferred as a
right choice for a company. The most common applications are budgeting
and planning; sales and marketing analysis; financial reporting and
consolidation. In past few years OLAP is extensively being used for
applications such as product profitability and pricing analysis; activity based
costing; manpower planning; and quality analysis. Any management system
that requires a flexible, top down view of an organisation use OLAP.
3.9 Supply Chain Management

A supply chain can be defined as a network of facilities and distribution
options that performs the function of procurement of materials,
transformation of these materials into intermediate and finished products,
and the distribution of these finished products to customers. Both in service
and manufacturing organisations supply chains system exist. However, the
complexity of the chain may vary greatly from industry to industry and firm to
firm.
Traditionally, the departments like the marketing, distribution, planning,
manufacturing, and purchasing of an organisation operated independently
along the supply chain. This kind of traditional organisation’s each
departments had their own objectives, which often conflict with other
department’s objectives. For example, Marketing's objective of high
customer service and maximum sales revenue conflicts with manufacturing
and distribution goals. Many manufacturing operations are designed to
maximise throughput and lower costs, but very little concern was given for
the impact of this on inventory levels and distribution capabilities. With the
very little information and based on the historical buying patterns purchasing
contracts were often negotiated. This resulted in chaos and there was not a
single, integrated plan for the organisation there were plans as many as
services the company offered. This clearly demanded a need for a
mechanism through which these different functions can be integrated
together. Supply chain management is a strategy through which such
integration can be achieved.

If the SCM has to be successful their must be a change from managing

individual functions to integrating activities into key supply chain processes.
For example, the purchasing department places orders as requirements
become known. In case of marketing department, it has to respond to
customer demand, communicate with several distributors and retailers as it
attempts to determine ways to satisfy this demand. Information shared
between supply chain’s partners can only be fully leveraged through
process integration.
The integration process of Supply chain business process involves
collaborative work between buyers and suppliers, joint product development,
common systems, and shared information. But one has to understand that
continues information flow is required to operate an integrated supply chain.
Top management of many companies have reached the conclusion that
optimising the product flows cannot be accomplished without implementing
a process approach to the business.
An organisation’s supply chain or logistics network is affected because of
supply chain sustainability. This is a major business issue and is frequently
quantified by comparison with SECH ratings like social, ethical, cultural and
health records. Today consumers have become aware of the environmental
impact of their purchases and company’s SECH ratings. Along with this non-
governmental organisations ([NGO]s), are setting the agendas for focusing
on transitions to organically-grown foods, anti-sweatshop labor codes, and
locally-produced goods that will support independent and small business
groups. Because supply chains frequently account for over 75% of a
company’s carbon footprint many organisations are exploring how they can
reduce this and thus improve their SECH rating.
Companies can improve their overall competencies with the help of supply
chain specialisation, in the same way that outsourced manufacturing and
distribution has done. It allows them to focus on their core competencies
and assemble networks of specific, best-in-class partners to contribute to
the overall value chain itself, thereby increasing overall performance and
efficiency. The leading reason why supply chain specialisation is gaining
popularity is just because of the company’s ability to quickly obtain and
deploy this domain-specific supply chain expertise without developing and
maintaining an entirely unique and complex competency in house.

Activity 4
Conduct a survey in a manufacturing industry, to know how much time
and the training was required for the company to bring their employees to
work with the new technology being implemented in their existing ERP
package.

10. Data mining is the process of identifying Valid, new, potentially useful,
and ultimately clear ______________ from databases.
11. INFORMATION is refined data that is _________, timely, and relevant
to the user
12. __________________ is a strategy through which such integration can
be achieved.
3.10 Summary
Before ERP systems, each department in an organisation would most likely
have their own computer system, data, and database. Unfortunately, many
of these systems would not be able to communicate with one another or
need to store or rewrite data to make it possible for cross computer system
communication. For instance, the financials of a company were on a
separate computer system than the HR system, making it more intensive
and complicated to process certain functions.
Once an ERP system is in place, usually all aspects of an organisation can
work in harmony, instead of every single system needing to be compatible
with each other. For large organisations, increased productivity, and less
types of software are a result.
Implementation of an ERP System
Implementing an ERP system is not an easy task to achieve, in fact it takes
lots of planning, consulting and in most cases 3 months to 1 year. Moreover
ERP systems are extraordinary wide in scope and for many larger
organisations can be extremely complex. Implementing an ERP system will
ultimately require significant changes on staff and work practices. While it
may seem reasonable for an in house IT staff to head the project, it is widely
advised that ERP implementation consultants be used, as consultants are

usually more cost effective and are specifically trained in implementing

these types of systems.
One of the most important traits that an organisation should have when
implementing an ERP system is ownership of the project. Due to the various
changes that takes place in an organisation and its effect on almost every
individual in the organisation, it is important to make sure that everyone is
on board and help making the project and using the new ERP system a
success.
Usually organisations use ERP vendors or consulting companies to
implement their customised ERP system. There are three types of
professional services that are provided when implementing an ERP system,
they are Consulting, Customisation, and Support.
Consulting Services – usually consulting services are responsible for the
initial stages of ERP implementation, they help an organisation go live with
their new system, with product training, workflow, improve ERPs use in the
specific organisation, and so on.
Customisation Services – Customisation services work by extending the use
of the new ERP system or changing its use by creating customised
interfaces and/or underlying application code. While ERP systems are made
for many core routines, there are still some needs that need to be built or
customised for an organisation.
Support Services- Support services include both support and maintenance
of ERP systems. For instance, trouble shooting and assistance with ERP
issues.

1. What is EIS?
2. What is data warehousing?
3. What is data mining?
4. What do you mean by OLAP?
5. Explain the concept of supply chain management?

3.12 Answers
1. Trends and patterns
2. Human, organisational, and motivational change
3. Organisation’s
4. Presentation
5. Transaction handling and record keeping.
6. Semi-structured and unstructured
7. Decision support
8. Operational database
9. Data warehousing
10. Information
11. Accurate
12. Supply chain management
Terminal Questions
1. Refer 3.5
2. Refer 3.6
3. Refer 3.7
4. Refer 3.8
5. Refer 3.9
3.13 Case Study
Gold Rush Corporation a company which manufacture’s gold watches

and sells them to watch stores and jewellery shops across the country.
The methodology adopted by the management of the company to predict
future demand for the high quality gold watches and different styles
depended heavily on its sales trends report that sales department
collected through various sources like the distributors, vendors, news
paper articles and so on. Their were occasion in the past, where the
production managers received the sales information report from the sales
departments which would be a week old, sometimes the report of the
vendors and distributors order for most popular watch styles would reach
the managers a month later.

Most of the production estimates for the next production plan was taken
based on these reports. Even though the production managers were
grateful for the information they received from the sales department. The
delay had a sever effect on the efficiency of the production planning.
However, the production managers could avoid costly production
overruns and also shortages in product, if information was readily
available for them during their production planning meetings.
For over coming this and improving the efficiency in the system, Gold
Rush Corporation decided to implement an Executive Information System
(EIS). This system possessed information regarding real time sales and
orders of Gold Rush’s products. The system was designed so that it was
available to all senior level managers of the company, including the
production managers. With the help of this new system production
managers were able to estimate more accurately the inventory levels
they must realise in order to meet the market demand. Since the
Executive Information System provides managers with valuable and
accurate real time information that help production managers to cut down
on holding costs, if they move to real time inventory model with the help
of EIS.
As you can analyse in this case study how efficiency of an organisation
can be enhanced with this king of open distribution of information method
with the help of executive information system designed for a company’s
specific needs. Every company should realises that bottom line should
improve for achieving better efficiency levels. Many of the large
organisations find it difficult when it comes in handling widespread
distribution of information. However, with implementation of and
Executive Information System can help in over coming some of the
problems that these large organisation face when it come to information
management.
Questions:
1. Discuss the reasons why the managers of Gold Rush Company
where not able to plan efficiently the production output for the coming
production period.
2. Explain how Executive Information System (EIS) helped in resolving
the problems faced by the managers.
3. Do you think the companies can carry out the production planning
efficiently with the help of EIS? Discuss.

3.14 Glossary
Term Description
Archive A collection of documents such as letters, official papers,
photographs, or recorded material, kept for their historical
interest
Caters To provide what is wanted or needed in a particular
situation or by a particular group of people
Conjunction The act of joining or combining two or more things or
departments
Constraint A lack of warmth and spontaneity in somebody's manner
or in the atmosphere on a particular occasion
Contingency An event that might occur in the future, especially a
problem, emergency, or expense that might arise
unexpectedly and therefore must be prepared for
Forerunners Somebody or some organisation that goes ahead of
others in the competition that they face in the market.
Inhibits To stop something from continuing or developing further
in an organisation by the forces inside or out side an
organisation
References
1. Data Mining: Concepts, Models, Methods, and Algorithms by Kantardzic,
Mehmed (2003).
2. WareHouse Information Prototype at Stanford (WHIPS) by Yang & Jun.
3. Supply Chain Management: More Than a New Name for Logistics by
Cooper. M.C., Lambert. D.M. & Pagh. J.

Unit 4 ERP Tools / Software and

Selection Methodology
Structure:
4.1 Introduction
Objectives
4.2 ERP Tools and Software
ERP Tools
4.3 ERP Selection Methods and Criteria
ERP Software Selection Criteria
Improper ERP system selection
Proper ERP system selection methodology
4.4 ERP Selection Process
Features and functionalities of ERP solution
4.5 ERP Vendor Selection
Vendor Selection
4.6 ERP Implementation
4.7 Summary
4.9 Answers
4.10 Case study
4.11 Glossary
4.1 Introduction
By now you must be familiar with the concept of ERP related techniques
and the need for ERP in an organisation. This unit familiarises you with ERP
tools / software and the selection methodology followed for selecting an
ERP tool.
Enterprise Resource Planning (ERP) software is a common phrase in
business. Many small and big companies have already implemented ERP
software. Yet many other companies are on a fast-track to implement ERP
software in order to effectively meet business challenges. In the past,
companies used paper-based processes or separate software packages to
manage multiple functions of their business, such as Accounting, HR,
Quality, Customer Service, Order Entry, and so on. ERP, on the other hand,
integrates all functions of a company into a single software package.

There are dozens of ERP software providers in the market. They range from
globally reputed vendors to small, industry-specific vendors. Some of the
well-known providers include SAP, Oracle, Microsoft, NetSuite and Epicor.
There are several business reasons for the shift from fragmented systems to
an integrated ERP. Some of them include:
 Easier and faster to train employees on a single ERP software package
than on multiple systems.
 Provides business executives with more transparency of their business
operations since all business information is stored at one location.
 Enables managers perform business functions and processes in a
standard way.
It is important to realise that there is no “perfect ERP tool / software” for any
organisation. Each company has its own business-specific needs.
To identify the right ERP tool / software, it is of prime importance to
understand the associated applications. Much of the software that is used
with ERP is multi-module. It can assist companies integrate various
processes. The most important areas for ERP applications are Finance,
Human Resources, and Manufacturing. When a vendor sells Finance
related ERP module to a company, the module is capable of combining a
number of different tasks. For example, some modules may deal with charts
related to accounts and balances, while it can also be used to maintain
expenses that are connected to the organisation.
One of the most impressive features of ERP tools is that they can be used
to monitor the depreciation and appreciation of company assets. This tool
can also be useful for the maintenance of receivables and payables.
Learning Objectives:
 Analyse the methodology and criteria used in ERP selection.
 Explain the ERP selection process.
 Analyse the ERP tools available in the market.
 Identify different ERP vendors.
 Explain the ERP vendor selection process.

4.2 ERP Tools and Software

Before the evolution of ERP model, each department in an enterprise had its
own isolated software application that did not interface with any other
system. Such isolated framework could not synchronise the inter-
department processes and hence hampered the overall productivity, speed,
and performance of the organisation. This situation led to issues such as
incompatible market standards, lack of synchronisation, incomplete
understanding of the complete enterprise functioning, unproductive
decisions and so on. For example, the finance department could not
coordinate with the procurement team to plan out purchases as per the
availability of money.
Hence, deploying a comprehensive ERP system across an organisation
leads to performance increase, workflow synchronisation, standardised
information exchange within departments, complete overview of the
enterprise functioning, global decision optimisation, speed enhancement
and so on.
ERP system is built on a centralised database utilising a common computing
platform. It consolidates all business operations into a uniform enterprise
wide system environment. An ERP system can either reside on a
centralised server or be distributed across modular hardware and software
units that provide "services" and communicate on a local area network. The
distributed design allows a business to assemble modules from different
vendors without the need for the placement of multiple copies of complex
and expensive computer systems in areas which will not use their full
capacity.
ERP systems integrate all the departments and functions across a company
onto a single computer system that can serve all the departments needs.
There are two types of ERP software packages. Open Source ERP software
and Commercial ERP software. Some of the differences between the two
software are as follows. Table 4.1 shows the differences between
commercial and open source ERP.

Table 4.1: Differences between Commercial and Open Source ERPs
Commercial ERP Open Source ERP

 Expensive  Free of cost
 Always backed by well known  Usually not backed by well
brands known brands
 Assured training and after  Training and after sales support
sales support is not guaranteed
 Suitable only for bigger  Suitable for small companies
corporations and bigger corporations
 Non flexible  Can be modified as licenses are
 Usage modalities are rarely available along with the source
liberal and cause troubles code
when they are modified  Companies can do the
 Deployment is costly and necessary modifications in code
inconvenient rather than changing their
 Companies might have to business policies
change their business  Does not interfere with the
process to adapt to this ERP regular schedule of the
 Enhancements in the product company during implementation
is intimated to its customers  Enhancements in the product is
 Consumes a lot of time during not known
implementation  Implementation time is very less
 Lots of training is required for  Procedures for training
the employees. It calls for lots employees are very easy does
of investments in terms of not require much training as
time and money source code is more than a
 Less secure training manual
 More secure and indicate
whenever something goes
wrong
The differences between commercial and open source ERP applications

show the edge open source ERP players enjoy. However, the fact remains
that open source ERPs are not received well in the market due to fear of
failure.

ERP software has been traditionally used by large corporations to integrate

and automate diverse departments across the enterprise. For a long time,
smaller companies purchased individual accounting and payroll packages
and then migrated to expensive ERP solutions as they grew. They did not
have many options as ERP solutions were costlier and required business
magnitude and use by many employees to justify the investment.
But now with many open source ERP software available, it is now possible
for small companies to go in for ERPs at an earlier stage. There are several
open source software in the market including Compiere, ERP5, and Fisterra.
Compiere is suitable for small and medium sized ERP enterprises,
especially in the business and service sector. It is designed to follow
changes as business evolves. The hallmark of this software is that the
customer companies, and even their production personnel, can modify the
information structure at any given point of time. This software also provides
multiple views of business information based on the detail of the actual
transactions.
Microsoft Dynamics AX from Microsoft Business Division is one of
Microsoft’s flagship ERP systems. It is a commercial business solutions
software. Its primary strengths are ease of use, customisation,
internationalisation, and cutting edge technology. Microsoft Dynamics NAV
is an ERP computer program from Microsoft Corporation. It is intended to
assist with Finance, Manufacturing, Customer Relationship Management
(CRM), Supply Chains, Analytics, and Electronic Commerce in Small and
Medium-sized Enterprises.
mySAP ERP is yet another commercial ERP software. It is produced by
SAP AG and was formerly known as SAP R/3. This is a client/server-based
application that uses a 3-tier model. The first layer is the presentation or
client layer, which interfaces with the user. The second layer is the
application layer which houses all the business-specific logic. The third layer
is the database layer which records and stores all the information about the
system, including transactional and configuration data.
The success of any ERP package depends on its ease of customisation and
implementation process.

4.2.1 ERP Tools

There are several ERP software manufacturers. Prominent manufacturers of
ERP software are SAP, Oracle Corporation, PeopleSoft, JD Edwards,
Lawson, etc. SAP has the major share in the ERP market and next comes
the Oracle Corporation. Oracle has acquired JD Edwards, People Soft, and
more recently Siebel and competes with SAP in the ERP market. Table 4.2
lists the popular ERP Tools and their respective vendors.
Table 4.2: ERP Tools and respective vendors
Tool Name Company Name
SAP R/3 SAP
Oracle e-Business Suite Oracle Corporation
JD Edwards EnterpriseOne & JD Oracle Corporation
Edwards World
PeopleSoft Oracle Corporation
MicroSoft Dynamics MicroSoft Corporation
Lawson Financials Lawson Software
Sage MAS 500 Sage Group
NetERP NetSuite
Visual Enterprise Infor Global Solutions
Agresso Business World Unit 4 Agresso
Epicor Enterprise Epicor
IFS Applications Industrial and Financial Systems
MFG/PRO QAD
Ramco e.Applications Ramco Systems

1. Name the two types of ERP software packages.
2. What are the reasons for companies to shift from fragmented systems to
ERP system?
3. Name few leading ERP software manufactures.
Activity 1
List out the ERP tools and their respective vendors available in the
market

4.3 ERP Selection Methods and Criteria

ERP is a very expensive investment and has a long and complicated
implementation process. As such, it is important to make a proper selection
of the ERP. ERP selection process involves identifying criteria and their
relative weights, and evaluating the alternatives.
An ERP system is the information backbone of an organisation and extends
to all areas of the business. Thus, long-term business strategy of the
organisation forms the basis of the ERP selection criteria. As mentioned
earlier, ERP systems are costly to implement. When choosing an ERP
system, it is important to take time to select the right ERP system or set of
modules for your business. In order to do this in an efficient manner, it is
important to have a plan of action.
The selection of the appropriate solution is a problem because only a part of
it can be handled by a definite or accepted procedure such as standard
investment calculations. On the other hand, the decision maker needs to
judge and evaluate all relevant business impact aspects. There is no
agreed-upon and formal procedure for this important task 1. The modules
that an ERP offers are the most important selection reasons; and can vary
according to the needs of the organisation.
When you consider an ERP system, it is important to weigh all available
options carefully. This is because of the time, money, and training that can
be consumed in implementing such a system. There are three criteria that
are generally used when evaluating an ERP solution:
 Financial Considerations : When an ERP solution is considered, it
must make money to be acceptable. As such, there are several
measurements that the finance department may make in order to
determine whether or not an ERP solution is feasible.
o Net Present Value (NPV) is generally the most accepted method of
valuing an ERP. It takes into account the time value of money and
cash flows generated. The cash flow and discount rate selection
process is the most important part of an NPV calculation.
Determining an average cost of capital for your firm and the
1
Laudon and Laudon, 1998; Hecht, 1997

predicted cash flows help you get an accurate result from the NPV
calculation.
o Budgetary constraint is the most used method when considering IT
projects. The Internal Rate of Return (IRR) and payback period
methods are also very popular for many firms dealing with IT
implementations.
 Management Considerations : On the management side, there are
more variables to consider than simply money. For example, managers
may differentiate between implicit and explicit business needs,
competitive pressures, legal needs, and environmental concerns. This
can make the management side of valuation very difficult to quantify.
Generally, companies take a few factors and try to create a scoring
system that can be objectively applied across the options. Sometimes
probability of achieving the intended benefits is included in this part of
the calculations else it is included in the financial part of the process.
However, the probability of achieving the benefits instead of simply
succeeding in implementation takes on a different look. This sort of
probability may be more directly tied with a softer science such as
management.
 Development Considerations: Development is usually the least
important decision factor in these processes. One of the most important
factors is the probability that a project finishes on time. This simply does
not happen very often, so it is important to determine what sort of
adverse effects this could have on business operations.
4.3.1 ERP Software Selection Criteria
When reviewing potential software suppliers, you tend to focus only on the
potential product’s functionality and cost. Although these elements are
important, this methodology neglects other areas of importance. A supplier’s
ability to deliver product services goes well beyond price and feature options.
The key selection criteria include making few questions. Such questions
help you simplify making an ERP software purchase decision. Some of the
questions include:
 For Product Functionality
○ Does this package meet the overall requirements listing?
○ Is the menu structure easy to follow and understand?

○ Are the help files easily assessable and easy for users to
understand?
○ Can you customise help to meet the needs of the organisation?
○ Is the product too complex?
○ Are there standard reports available, and are they useful?
 For Product Cost
○ Are the license costs justified given the functionality offering?
○ Is the required database affordable?
○ Are annual maintenance charges reasonable and in line with the
industry average?
○ Are payments for annual maintenance charges in line with industry
norms?
○ What is the true implementation services-to-software ratio for
implementations with comparably-sized companies?
○ How quickly can payback be received?
 For Corporate Vision
○ What major organisational changes has the supplier made in recent
years?
○ What major product changes have occurred in recent years?
○ What major product changes does the company foresee or have
planned in the coming years?
○ What level of involvement does the executive staff have in the
company’s daily operations? Is the executive staff knowledgeable of
industry trends and developing technology?
 For Service and Support
○ Was the team comfortable with the sales process and
representative?
○ Were the team’s questions answered in an open and honest forum?
○ Can the supplier provide a complete turn-key solution?
○ What type of training is available?
○ What is the average technical support person’s experience level and
tenure with the company?
○ How quickly are the non-critical software bugs fixed?
○ Is 24/7 support available?
○ Does the supplier offer business process re-engineering as part of
the implementation process?
○ Does the supplier have experience in similar industries?

 For Technology and System Architecture
○ Is the technology robust enough to handle current and future
transactions load? Is it scalable?
○ Is the system’s speed acceptable for daily usage?
○ Is source code provided for customisations or modifications without
hefty charges?
○ Do customisations hamper upgrading to future software releases?
○ Is the software Open Database Connectivity (ODBC) compliant?
○ Does the software support eCommerce, Radio Frequency (RF) and
bar coding, and Electronic Data Interchange (EDI) transactions?
○ Does the software support multi-company, multi-division, and multi-
currency environments? Are there any restrictions to this type of
environment?
 For Supplier Longevity
○ How many years has the company been actively engaged in this
software industry?
○ When was the product’s first release? What is the current release
version being quoted?
○ Has the company been consistently profitable?
○ Has there been recent turnover in the management staff?
○ Has the supplier increased or reduced overall headcount over the
last year?
○ Are customer references available? Can you visit a customer
reference site prior to contract signing?
4.3.2 Improper ERP system selection
Not often companies adopt a fully objective system selection methodology
when choosing an ERP System. Some of the common mistakes that
companies resort to are:
 Incomplete set of requirements - Wallace & Kremzar states that "it
requires people to do their job differently" 2 when a new ERP is
implemented in an enterprise. Therefore, it is very important to
understand the requirements of each user for current processes and for
future processes.
2
Thomas F. Wallace and Michael H. Kremzar, ERP: Making it Happen.

 Reliance on vendor demos – Vendor demonstrations tend to focus on

very simple processes. A typical demonstration shows an ideal order to
cash process where a customer orders a quantity of product that is in
stock. In most businesses, customers have varying and complicated
commercial arrangements. In reality, products are not always in stock.
 Over-emphasis on system cost – According to Finlay and Servant
“The differential in purchase price between packages is unlikely to be
the dominant factor"3. While the cost of an ERP system is very important
for a company, the companies do not focus on the other important
decision criteria such as functionality, future proofing, underlying
infrastructure [network and database], and e-commerce capability
among others.
 Selection bias – It is not unusual that the ERP system purchase
decision is made by one individual or by one department within the
company. In such situations, an ERP system that may be excellent at
one function but weak at other may be imposed on the entire enterprise
with serious business repercussions.
 Failure to use objective professional services – One of the main
reasons for failure in system selection is the lack of knowledge within the
company. Taking the services of experienced consultants can prove
beneficial. They provide excellent information on all the packages
available in the market, the latest functionality, most importantly, can
assist the you in deciding whether a specific requirement would provide
added value to your business.
4.3.3 Proper ERP system selection methodology
It is important to apply key principles to the process to address common
mistakes that lead to an improper ERP system selection, they include:
 Structured approach – The first step in selection of a new system is to
adopt a structured approach to the process. The set of practices are
presented to all the stakeholders within the enterprise before the system
selection process begins. Everyone needs to understand the method of
gathering requirements, invitation to tender, how potential vendors are
selected, the format of demonstrations, and the process for selecting the
vendor.
3
Paul N. Finlay and Terence Servant, Financial Packaging Systems, 1987.

 Focused demonstrations – Demonstrations by potential vendors must

be relevant to the business. However, it is important to understand that
there is considerable amount of preparation required by vendors to
perform demonstrations that are specific to a business. Therefore, it is
imperative that vendors are treated equally in requests for
demonstrations. It is incumbent on the company to identify sufficient
demonstrations that allow a proper decision to be made and also
ensures that vendors do not opt out of the selection process due to the
extent of preparation required.
 Objective decision process – "Choosing which ERP to use is a
complex decision that has significant economic consequences, thus it
requires a multi-criterion approach."4 There are two key points to note
when the selection criteria used in evaluating potential vendors. First,
the criteria and the scoring system must be agreed prior to viewing any
potential systems. Secondly, in no circumstance should people with
affiliations to one or more systems be allowed to advise in this regard.
 Full involvement by all personnel – The stakeholders within the
enterprise must decide on the system. "It requires top management
leadership and participation… it involves virtually every department
within the company"5. Representatives should:
○ Be involved in the project initiation phase
○ Assist in the gathering of requirements
○ Attend the Vendor Demonstrations
○ Have a significant participation in the short-listing and final selection
of a vendor.
4. An ERP system is the ________________ of an organisation and
extends to all areas of the business.
5. List the selection criteria for ERP software.
6. What are the criteria that a company fails to focus on while selecting an
ERP system, other than the cost?
7. The _________ that an ERP offers, are the most important selection
reasons.
4
Oyku Alanbay, 'ERP Selection using Expert Choice Software', ISAHP 2005, Honolulu, Hawaii
5
Thomas F. Wallace and Michael H. Kremzar, ERP: Making it Happen

4.4 ERP Selection Process

The ERP selection process is an important step for the future growth of any
manufacturing or distribution organisation. ERP selection process has
helped numerous manufacturers and distributors to find the software
provider and solution that best meets their organisation’s unique business
software requirements.
The actual process of evaluating and selecting an ERP System is never the
same for any two companies. However some common steps and exercises
that a company and its evaluation team should take to evaluate the
company’s requirements are:
1. Selecting and empowering a cross-functional Evaluation Team that
includes the best and the brightest individuals from each functional area
of the company. They need to understand the importance of information
sharing and integration, and champion positive change. The individual
representing a functional unit can fairly and accurately represent and
communicate the needs of his functional unit regarding the need of a
new enterprise system.
2. The members of the team need to learn the business reasons and
conditions that exist within the company. Additionally, each member of
the team needs to educate other members about the functional area of
the company he/she represents.
3. The company’s resources need to be identified and assessed. In
addition to those areas that may be unique to business, the following
also need to be assessed:
○ Personnel – determining how the company presently uses its
personnel; define the organisation’s strengths and key areas that
need improvement.
○ Technology – understanding the business’s current information
management infrastructure.
○ Workflow – analysing the critical processes and workflow issues
within the company. Consideration to be given to not only how these
processes actually work today, but also how they should work as the
company grows.
○ Performance Measurements – defining a business model for
success needs along with the metrics that are used to measure
business performance.

4. The elements required to meet the company’s goals, and in turn the
company’s success, have to be defined. These requirements are then
used as the guideline for selecting an ERP solutions provider. The steps
involved in this process include:
○ Identifying the limitations with the current business approach
○ Identifying the organisation’s core competencies – factors that give
the organisation a competitive edge over competitors.
○ Identifying the requirements for a solutions partner regarding
implementation, features, functionality, service, tools, ongoing
customer care and support.
5. Identifying the most important system functionality when selecting the
right enterprise solution for the organisation.
6. Some of the additional questions that need to be pondered over when
evaluating potential ERP solutions are:
○ Is the vendor’s product scaleable to accommodate rapid or
unexpected growth?
○ Are the solutions that are under consideration configurable to meet
existing specific needs and business processes as well as new ones
that may arise in future?
○ Is the solution flexible enough to operate on a variety of IT
platforms?
○ Are the product functions and features available now? If not, when
will they be available and how important is it to have that function?
Following and executing these steps of the ERP selection process provides
the organisation the necessary information to make a well-informed,
quantitative ERP software selection.
4.4.1 Features and functionalities of ERP solution
The ERP evaluation team must also check on the following features and
functionalities of the ERP system before selecting an ERP solution:
 Customisation – Since different organisations need different software
based on specific needs, customisations should not cause difficulties in
updating to future releases.
 Implementation – Different ERPs have different implementation
requirements. Thus, it is important to choose an ERP that serves the
organisation best and easy to implement.

 Maintenance – The software should support multi-company, multi-

division, and multi-currency environments.
 Real-Time Changes – The modules should work in real time with online
and batch-processing capabilities. So that no errors would occur
because of the system being not up-to-date and information available to
a department would not be different from the information available to
other departments.
 Flexibility – As the business requirements of the organisation are
dynamic, the ERP system should be flexible to modifications.
 User-Friendliness – Most of the time, the end-users of an ERP system
are not computer experts. Hence, the product should not be too complex.
 Cost – Cost is an important issue since the implementing organisation
may be a small or medium sized enterprise that may not be financially
comfortable as a large, multi-national organisation.
 Systems Requirements – It is important to choose an ERP that is
independent of hardware, operating system, and database systems.
 After-Sales Support and Training – As ERPs are fairly complex
applications for learning by oneself, the vendor should provide the
training as well as the after-sales support.
 Back-up System – The back-up unit of the system should be more than
reliable. Besides, the back-up unit should also offer a solution for
restoring the system within the shortest possible time.
 Reporting and Analysis Features – Besides standard reports,
management team should be able to implement their own reporting and
analysis tools and dump them into the system for after use.
 Vendor Credentials – Vendor’s market share, reputation, number of
consultants, number of installations performed, support infrastructure,
and demonstration of previous implementations are some of the critical
factors showing the commitment of the vendor.
 Integration with other Software/Applications – The modules should
integrate and provide seamless data flow among the other modules.
 Internet Integration – The software should support e-business,
e-commerce, and EDI transactions either as built-in module or as an
add-on module.
You have now identified the unique needs of the organisation and the critical
functional requirements necessary in a new enterprise solution. The next
step is to define the process to be followed in evaluating and finally selecting
the right ERP software package for the company. By defining the path to
follow, you can avoid extended and potentially costly delays in the
evaluation process. These steps should include:
1. Reviewing potential ERP software products that suite your organisation
2. Eliminating packages that do not meet the specific needs and
requirements
3. Creating a manageable list of vendors for final review – typically three to
five
4. Scheduling detailed product demonstrations
5. Checking your vendor’s references
6. Visiting a “like” customer site of the final short-listed vendors
Activity 2
Consider that you own a small company with around 50 employees.
Develop an ERP selection process to select an ERP solution for your
company.
4.5 ERP Vendor Selection

The vendor selection process starts with understanding of Critical Success
Factors (CSFs). CSFs are things that you must do well in order to be
successful. You can use CSFs as a way to determine whether a
requirement is really critical.
4.5.1 Vendor Selection
Typically ERP vendors can be categorised into three groups:
 Generic/Horizontal
 Vertical
 Custom
Each group of vendors has its own advantages; some of these are specified
in the table 4.3:

Table 4.3: Vendor categories

Type Advantage
Generic/Horizontal Typically have more customers and more resellers that
imply more access to support.
Vertical Additional functionality for the specific industry and
more knowledge of best practices for that specific
industry.
Custom Start with a base product and build exactly what you
want.
There is typically more risk associated with Vertical and Custom vendors.
However, the benefits could outweigh the potential risks. To obtain lists of
potential vendors, you can:
 Contact consultants
 Use internet searches
 Contact industry associations
 Look at trade journals for articles and advertisements
 Contact colleagues
 Attend trade shows
Once you obtain the list of potential vendors that serve your requirement,
perform the following process to select one from the list of potential vendors:
 Find a good reseller – The reseller or Value Added Reseller (VAR)/
implementer can make a big difference. Often, companies selecting new
systems spend a lot of time analysing the product and the vendor, but
not enough time analysing the capabilities of the VAR.
 Issue a Request for Proposal (RFP) – An RFP is a good tool to
communicate your needs uniformly to vendors and to create a short list
of vendors.
 Attend demonstrations –- You should attend no more than 4
demonstrations, and limit the time to 2-3 hours. Ask each attendee to
identify major strengths and weaknesses, rate how well they score for
each topic on the agenda, as well as indicate its relative importance.
 Call references –- Make sure that you are talking to a company in the
same or similar industry. Have a checklist of questions to ask so that you
don’t forget anything.

 Know the Total Cost of Ownership (TCO) – You need to understand

all the costs including license fees, implementation, support, hardware,
networks, and communications before making a decision. There should
be no surprises later.
 Carry out a Boardroom Pilot – You need to work with the system to
understand it better. Use the boardroom pilot as a way for the vendor to
understand your requirements and for you to better understand the
system purchasing the software.
4.6 ERP Implementation

Implementing ERP solution is typically too complex for "in-house" skill, so it
is advised to hire consultants who are professionally trained to implement
these systems. Companies often seek the help of an ERP vendor or third-
party consulting companies to implement. These firms typically provide
three areas of professional services: consulting, customisation, and support.
The time taken to implement an ERP system depends on the:
 Size of the business
 Number of modules in the ERP
 Extent of customisation
 Scope of change
 Willingness of the customer to take ownership for the project
Typically, a small project (e.g., a company of less than 100 staff) can be
planned and delivered within 3–9 months. However, a large, multi-site or
multi-country implementation can take years. Unfortunately, data migration
is the last activity before the production phase of an ERP implementation.
Therefore, it receives minimal attention due to time constraints. The
following are steps of a data migration strategy that can facilitate the
success of an ERP implementation:
1. Identifying the data to be migrated
2. Determining the timing of data migration
3. Generating the data templates
4. Freezing the tools for data migration
5. Deciding on migration related setups
6. Deciding on data archiving

ERP implementation is considerably more difficult in organisations

structured into nearly independent business units, each responsible for their
own profit and loss. As each unit has different processes, business rules,
data semantics, authorisation hierarchies, and decision centres it becomes
all the more difficult. A disadvantage usually attributed to ERP is that
business process redesign to fit the standardised ERP modules can lead to
a loss of competitive advantage.
ERP vendors usually design their systems around standard business
processes, based upon best business practices. Different vendor(s) have
different types of processes but they are all of a standard, modular nature.
Hence, firms that want to implement ERP systems are consequently forced
to adapt their organisations to standardised processes and not adapting the
ERP package to the existing processes. Neglecting to map current business
processes before starting ERP implementation is a main reason for failure of
ERP projects. It is, therefore, crucial that organisations perform a thorough
business process analysis before selecting an ERP vendor and setting off
on the implementation track.
8. Name the vendor categories.
9. What are areas of services offered by ERP vendor or of third-party
consulting companies?
10. ERP vendors design their systems based upon _________________
11. What are the steps followed to select a vendor for a list of potential
vendors?
12. Why should the cross-functional team evaluating the ERP solution
includes the best and the brightest individuals from each functional area
of the company?
4.7 Summary
In today’s increasingly competitive business environment, many companies
are driven to seek various ways to increase their effectiveness and ability to
have a competitive advantage. This situation drives many companies to
invest in a new ERP system as a step toward this goal.
Irrespective of whether the company is a multi-national, multi-million dollar
organisation or a small company, the goal of system selection is to source a

system that can provide functionality for all its business processes. The
system should also get complete user acceptance; management approval
and, most importantly, provide significant return on investment for the
shareholders.
It is not uncommon for companies to choose an ERP system that is not the
best fit for the business and this normally leads to a more expensive
implementation. Thus, it is understandable that "ERP Costs can run as high
as two or three percent of revenues" 6 . A proper ERP System Selection
Methodology delivers, within time and budget, an ERP system that is best fit
for the business processes and the user in an enterprise.
The implementation of an ERP system takes a significantly longer time and
level of resource than the selection process. However, the extent of the
implementation is profoundly influenced by the level of resource and
objectivity within the selection. Companies that use a proper System
Selection Methodology reap the benefit not only during the implementation
phase but also during the life of the ERP System.

1. Difference between Open Source and Commercial ERP.
2. Explain the three criteria that are generally used when evaluating an
ERP solution.
3. Briefly explain the key principles to a proper ERP system selection
process.
4. Briefly explain the features and functionalities that you look for before
selecting an ERP solution for your company.
5. Explain ERP implementation.
4.9 Answers
Answers to Self Assessment Questions
1. Open Source ERP software and Commercial ERP software
2. The reasons for companies to the shift from fragmented systems to ERP
are:
 It is easier and faster to train employees on a single ERP software
package than on multiple systems
6
C. Escalle, M. Cotteleer, and R. Austin, Enterprise Resource Planning (ERP), Report No 9-699-020,
Harvard Business School, Cambridge, MA, USA, 1999

 It provides business executives with more transparency of their

business operations since all business information is stored in a
single place
 It enables managers perform business functions and processes in a
standard way.
3. SAP, Oracle Corporation, PeopleSoft, JD Edwards and Lawson
4. Information backbone
5. The selection criteria for ERP software are:
 Product Functionality
 Product Cost
 Corporate Vision
 Service and Support
 Technology and System Architecture
 Supplier Longevity
6. The company fails to focus on decision criteria such as functionality;
future proofing; underlying infrastructure [network & database]; and
e-commerce capability among others.
7. Modules
8. ERP vendors can be categorised into three groups: Generic/Horizontal,
Vertical and Custom.
9. The ERP vendor or of third-party consulting companies services in
consulting, customisation and support.
10. Standard business processes
11. The steps followed to select a vendor for a list of potential vendors are:
 Find a good reseller
 Issue a Request for Proposal (RFP)
 Attend demonstrations
 Call references
 Know the Total Cost of Ownership (TCO)
 Carry out a Boardroom Pilot
12. This will help individuals to fairly and accurately represent and
communicate the needs of the functional unit regarding a new enterprise
system. They also need to understand the importance of information
sharing and integration, as well as embrace and champion positive
change.

Answers to Terminal Questions

1. Refer section 4.2
3. Refer section 4.3.3
4.10 Case study

Escorts Limited's Agri Machinery Group (EL-AMG), manufactures
agricultural machinery, and has four manufacturing plants and an R&D
center in Faridabad. It manufactures three lines of tractors, imports and
sells various other farm equipment, and consequently accounts for
around two-third of Escort's revenues. Using an ERP thus plays a
significant role in the business operations of this manufacturing company.
EL-AMG had already deployed ERP systems from Avalon, but was
plagued with a number of challenges. The company was unable to draw
a future roadmap and upgrade its technology. The company could not
leverage the benefits of the Internet, e-commerce and other Web
initiatives since the Avalon ERP is not Web-enabled. And to make
matters worse, the ERP vendor, Avalon had shut shop in India.
EL-AMG also had to deal with the problems of software bugs, which
could not be resolved due to lack of proper documentation. The company
feels that the bugs appeared due to over-customisation of the product.
The central systems department, which took charge of applications
maintenance, spent most of its time tackling these bugs. The system was
not very user-friendly. The users were not able to run queries on their
own. The responsibility of running the large amounts of queries and
reports was delegated to the central systems department. This created a
huge backlog of work. This prompted EL-AMG to look for an alternative
enterprise applications solution for its business. As a solution, the
company deployed a range of tools from the Oracle 11i suite like Oracle
Financials, Oracle Discrete Manufacturing, Oracle Purchasing, Oracle
Order Management, Oracle Workflow and Alerts, and Financial Analyzer
(OFA) keeping in mind the organisation's functional and technical
requirements.

A lot of time was spent in planning and deciding upon the right software.
And the entire proceedings were conducted in an elaborate and phased
manner to ensure efficiency. The company laid down three ground rules
for vendors willing to participate. They were:
 The vendor had to conduct a three-month Business Process Re-
engineering (BPR) exercise at EI-AMG.
 The ERP vendor would be the technology implementation partner
and handle the sole responsibility of the project.
 The ERP systems had to integrate seamlessly with the company's
legacy software systems.
An important highlight in the selection process was the involvement of
end users. A team of around 70 members was created during evaluation.
Almost 80 percent of the members belonged to functional areas. The rest
were from the IT department.
This was a key learning from the earlier ERP implementation, which was
largely IT-driven. Each member of the team gave ratings to the vendor.
The evaluation was finally done on the following criteria:
 Functionality
 The ability to integrate third party software
 Type of feedback from existing user base (through visits to other
company's ERP sites)
 Presence in India
 Localisation of modules
 Cost
 Time taken to implement.
A significant benefit of the new Oracle-based systems was the resolution
of the problems with present in the earlier Avalon ERP. Due to the bugs,
the company could not use its database (Oracle) for generating any
meaningful MIS. So, the MIS for the top management was generated
through Excel sheets instead of being generated directly through the
system. With Oracle 11i, the MIS is generated through the system and
standard reports are created.

With the help of the new tools, the company was able to perform better
workflow processes, easier generation of MIS reports, bug-free
performance of systems, and timely closing of accounting cycles.
Questions
1. What do you think were the drawbacks of Avalon ERP?
2. Explain the selection process adapted by EL-AMG to select the new
ERP vendor/product
4.11 Glossary
Term Description
Application layer In the Open Systems Interconnection (OSI) communications
model, the application layer provides services for an
application program. This layer also ensures there is
effective communication with another application program in
a network.
Client layer It is where the user accesses the application. The client
library is designed to be used by any applications.
Database layer It is an application programming interface which unifies the
communication between a computer application and
databases.
MySAP ERP It is a smaller, less expensive version of mySAP Business
Suite that offers customers full NetWeaver capabilities.
3-tier model It uses the client/server computing architecture. Here the
database and application functions are separated. This is a
typical feature in large production ERP deployments. It is an
application program that is organised into three parts such
as the workstation, the business logic and the database
programming.
References
1. http://www.exforsys.com/tutorials/erp/erp-application-tools.html
2. Issues in Global Business and Management Research: Proceedings of
the 2008. By Mehran Nejati, Azadeh Shafaei, Mostafa Nejati
3. Enterprise Resource Planning by Alexis Leon
4. http://www.implement-erp.com/erp-vendor-selection.html

Unit 5 ERP Modules

Structure:
5.1 Introduction
Objective
5.2 Finance
5.3 Sales and Distribution
5.4 Manufacturing and Production Planning
Material and Capacity Planning
Shop Floor Control
Quality Management
JIT/Repetitive Manufacturing
Cost Management
Engineering Data Management
Engineering Change Control
Configuration Management
Serialisation / Lot Control
Tooling
5.5 Human Resources
5.6 Plant Maintenance
Preventive Maintenance Control
Equipment Tracking
Component Tracking
Plant Maintenance Calibration Tracking
Plant Maintenance Warranty Claims Tracking
5.7 Quality Management
CAQ and CIQ
Quality Management Module–Functions
5.8 Materials Management
Pre-purchasing Activities
Purchasing
Vendor Evaluation
Inventory Management
Invoice Verification and Material Inspection
5.9 Summary
5.11 Answers
5.12 Case Study

5.13 Glossary
5.1 Introduction
This unit gives a brief description about the ERP Modules. All ERP
packages contain many modules. The features and number of the modules
vary with the ERP package. In this chapter, we will see some of the most
common modules available in almost all packages.
 Finance: It provides solution in handling the financial activities of an
organisation. It helps to maintain all the financial records starting form
the product manufactured cost to the employee’s financial details.
 Manufacturing and Production Planning: It provides solution to
production and the planning functions of an organisation to efficiently
maintain share and utilise the data generated during the processes and
assist the management.
 Sales and Distribution: It provides solution in handling the most vital
reports sales and distribution function produces and maintained very
systematically and efficiently
 Plant Maintenance: It provides solution for an organisation helping it to
establish an effective communication link with in the various functions of
the organisation. It acts as a network helps to maintain the information
flow across the organisation’s functions.
 Quality Management: It provides solution to maintain the required quality
demanded by the customer, ISO, and the company standards. It helps
the organisation to handle the test reports in a very efficient manner and
helps to assist the management to identify the potential pit fall in quality.
 Materials Management: It provides solution it handling the inventory of
an organisation. It helps to track and maintain records of every item that
comes in and goes out of the organisation. It also maintains a detailed
record of the quantity, quality and dates of every item in the inventory
and items borrowed and utilised by the other function of the organisation.
This is by no means a comprehensive list. Some packages will have the
subset of this, and some will have more modules and/or features. For
detailed information, you will have to consult the product literature of the
specific ERP system.

There are many packages that are developed depending on the requirement
of an organisation requirement. These packages help not only in
maintaining the data but also effectively handle the data as per the
requirement of the various needs that arise in the organisation. Since these
packages are fool proof, and provide high security for data it is able to
penetrate not only the large scale industries but also most of the small scale
industries.
After studying this chapter one will be able to learn
 Evaluate different and popular modules of an ERP package like finance,
manufacturing, plant maintenance, materials management and so on.
 Describe subsystems or sub-modules of these models.
 Describe how these modules function together.
5.2 Finance
The entire concept of Information Technology (IT) is based on the principle
that provides the right information, at the right time, to the right people.
Since, it plays a crucial role in an organisation’s decision making. Financial
data provides much of this key information, but simply having the financial
data is not enough. You need a set of processes and views of your data that
provides up to date information, in exactly the form you need it to make that
critical difference. This will help in formulating a crucial decision. From each
area of your organisation accounting software needs access for information;
for example, the software should be able to access information from R&D
and market research through manufacturing, distribution and sales. Your
financial solution must provide the top management with information that
can be leveraged for strategic decisions, in order to achieve competitive
advantage.
You need to know that in today’s market environment, your financial
decisions are based on today's data, not numbers from records closed a
month ago, or even a week ago. And this today's data must represent every
segment of your organisation's activities, whether your enterprise stretches
across a room or around the globe. This is essential, to plan for the future
growth of your enterprise, which is possible only if you know exactly where it
is today. The ERP solutions financial application components work hand-in-

hand to improve the result, no matter what financial goals are drawn in your
organisation. This is true because, across all business areas and all
geographic areas the financial functionality is tightly integrated. This rigid
integration includes all the other different modules, from materials
management, to human resources to logistics. The ERP system
automatically links related areas, eliminating the need to repeat procedures.
You enter your data only once. Within the ERP system, all areas work in
concert, creating a new level of efficiency in handling your financial data.
In many countries across the globe the finance modules of most ERP
systems provide financial functionality and analysis support to thousands of
businesses. These ERP systems include not only the components of
financial application, but also Human Resources, Logistics, and Business
Workflow. It also links this to the Internet and hundreds of business
processes covered in these systems.

In today's global business environment, new competition pushes
organisation to achieve higher levels of service. At the same time, evolving
technology compresses product life cycles and forces companies to adopt
new technologies or risk losing market share. In this continuously changing
environment, keeping a competitive edge means being able to anticipate
and respond quickly to changing business conditions. Companies need an
integrated and flexible ERP system. It should support all aspects of their
business with high-tech functionality, to keep pace with these rapid changes.
This new solution must upgrade effortlessly and interface easily with other
applications. It must also possess the ability to incorporate existing systems,
while extending its reach to the Internet and e-commerce.
Companies are increasingly being forced to streamline business processes
looking at today's business environment. Due to the characteristics like the
growing competition, shrinking cycle times, and the accelerating pace of
technological innovation in today’s market. Today, it is no longer enough to
simply have the best product. So the organisations are focusing on core
competencies and closer partnerships over the whole supply chain. For
improving both profit margins and customer service, and to retain a
competitive edge, the companies need to increase efficiency of its sales and

distribution function. The sales and distribution modules of many ERP

vendors, offer a comprehensive set of best of its kind components for both
order and logistics management. Many of these systems are tightly
integrated with the Distribution Requirements Planning (DRP) engine of the
for ‘Just-in-Time' (JIT) deliveries. This integration enables to improve the
efficiency of supply chain of single-site or multi-site organisations. It also
upgrades the relationships in a company's internal supply chains. By
developing a precise logistic planning and, using defined warehouse
requirements, the system can generate replenishment orders for just-in-time
deliveries.
Depending on how your system is configured, the functions may be
completely automated or may also require some manual processing. The
data that results from these basic functions, for example, shipping dates,
confirmed quantities, prices, and discounts is stored in the system where it
can be displayed. However, in some cases it is changed manually during
subsequent processing. For delivery and billing the sales and distribution
module can very actively interact with the Material Management and
Financial Accounting modules.
1. The entire concept of ____________________is based on the premise
that provides the right information, to the right people, at the right time.
2. In today’s market environment, your financial decisions are based on
_____________ data
3. These orgnisation’s are focusing on core competencies and closer
partnerships over the whole ____________.
4. Depending on how particular system is configured, these functions may
be completely____________.
Activity 1
Conduct a survey and collect the information on how companies utilise the
ERP finance software for an effective maintenance and monitoring of their
financial data.
5.4 Manufacturing and Production Planning

A good manufacturing system should provide multi-mode manufacturing
applications that include full integration of resource management. These

manufacturing applications must allow an easier exchange of information

throughout the entire global enterprise, or at a single site within a company.
Regardless of how big or small an enterprise is, these applications should
provide a wealth of feature/function, broad scope of coverage, operational
stability, and a platform-independent architecture. These capabilities
empower an enterprise to achieve productivity gains, adopt forward-thinking
technologies, and implement process re-engineering. As a company's
internal processes become more sophisticated or as market forces change,
these solutions must be capable of meeting the challenge. The
manufacturing system must be integrated with the other modules of the
package.
A robust system of manufacturing planning business process and execution
must satisfy a variety of business practices and production methods. These
business practices and production methods place stringent demands on the
manufacturer. Regardless of how manufacturers view their internal
operations, to the customer, it boils down to quick response to customer
demand in two fundamental ways. Manufacturers either make products to
stock, prior to receipt of a customer order, or they make and ship the
products upon receipt of a customer order. Manufacturers must accomplish
this task quickly, efficiently, and cost effectively to remain profitable and
competitive. These two fundamental ways of responding to customer
demand are as shown in Figure 5.1.
Figure 5.1: Manufacturing Process

Today, companies must be able to deliver customer-specific products with

the lead-time of standard, off-the-shelf products. To help manage product
and market shifts, the Manufacturing module provides the freedom to
change manufacturing and planning methods, as and when they need a
change. The Manufacturing modules of most ERP vendors, do not limit
businesses to a single manufacturing method, such as make-to-stock or
make-to-order (Figure 5.2). Instead, many manufacturing and planning
methods can be combined within the same operation, with unlimited
flexibility to choose the best method or combination of methods for each
product, at each stage throughout its life cycle.
Control and execution can be performed at strategic, tactical, and
operational levels within the business. These require effective planning to
support contract commitments throughout the supply chain. They also gain
control over intermediate range planning horizons and time fences, and
execution over the short range of frozen scheduling, required by the shop
floor. Whether a single-site implementation, several sites within one country,
or hundreds covering the globe. The manufacturing system should provide
the foundation for creating concurrent business processes across the supply
chain and achieving Return on Assets (ROA) improvement.
Figure 5.2: Make-to-order and Make-to-stock

Manufacturers must respond quickly and effectively to customer demands

while agility is desirable. Since, agility without an effective enterprise
manufacturing system results in speed without purpose. The very heart of
an enterprise manufacturing system centres on its integrated planning,
business process and execution capabilities. Traditional Closed Loop MRP
concepts have long heralded the importance of effective planning, business
process analysis, and timely execution. Strategically, effective-planning
results in improved inventory turns, increased productivity, and improved
return-on-assets. Tactically, effective business processes provide improved
customer satisfaction, reduced time to market, and improved market share.
Effective execution provides short cycle time, quality assurance, continuous
improvement, and quick response to process variability. All three elements
contribute to management's decision to install an enterprise-wide
manufacturing management system. Some of the major subsystems of this
module are:
 Material and Capacity Planning
 Shop Floor Control
 Quality Management
 JIT/Repetitive Manufacturing
 Cost Management
 Engineering Data Management
 Engineering Change Control
 Configuration Management
 Serialisation / Lot Control
 Tooling
5.4.1 Material and Capacity Planning
Today's customer-focused business environment makes it more critical than
ever for manufacturers to have an effective production plan for managing
material and capacity. Customers want accurate shipment dates. Sometime
to the hour-even when there are schedule and product changes. The
Planning systems of ERP packages are designed to provide the
responsiveness your company needs to meet those customer requirements.
With these systems, the management can simulate alternative plans;
gaining the information they need to determine which parts and assemblies
to make, which to buy, and when to manufacture or purchase.

For analysis, planners can create an unlimited number of simulations. The

simulation process is shown in Figure 5.3. The company can customise
planning processes because; input is described by system parameters that
are easily changed. To accelerate communication across the supply chain
and reduce effort, planned orders can be confirmed and converted
automatically or manually into production and purchase orders. In addition,
graphical reporting makes potential material and capacity problems easy to
identify.
Figure 5.3: The Simulation Process
Meeting your business goals requires effective execution control and

detailed production planning. The ERP packages give your company full
control with flexible scheduling, and sophisticated shop floor functionality.
They also offer extensive freedom for defining production processes in the
most appropriate way. Depending on the requirements of the company's
product and processes, production can be scheduled using work orders or
repetitive build schedules. With the repetitive planning feature, companies
can implement Just-in-Time techniques to streamline material issue and
production reporting. Using the shop floor control facility, the company has

the visibility, necessary for managing lead-times and for carefully controlling
the amount of work in process, and the timely release of production orders.
5.4.2 Shop Floor Control
With increasing emphasis being placed upon reducing manufacturing time,
and reduce product’s time-to-market. The manufacturers have turned
greater attention in evaluating their shop floor activities. Process
reengineering efforts and the elimination of waste are greatly dependent
upon powerful, user-friendly and flexible shop floor planning, and control
over this system. Management needs accurate information, timely and the
ability to manage the shop floor by exception. Cost information must be
flexible as well. Factories are being realigned to reduce material travel time
through a facility, adding burden upon the supporting systems due to
realignment of places. Managers must often experiment with trial and error
approach, the never-ending search for process improvement. Shop floor
control systems must be flexible and adaptable to changing needs.
A shop order can be reprinted at any time with user selection of whether to
reallocate material. This reprinting gives a shop foreman flexibility to print a
duplicate copy when an order is split between operators. This feature also
gives the shop scheduler, the ability to reprint the shop packet and to reflect
new material allocations that correct previous shortages. Every shop order
can be maintained throughout its life. All systems provide a full function
shop order maintenance capability. This allows the user to evaluate and
adjust operation steps and components. Orders can be rescheduled either
backward or forward. For example, an operation's start date can be
overridden to reflect changed events and then, the order can be forward
scheduled to reflect the impact upon future operations.
5.4.3 Quality Management
With product quality under the microscope in all industries today, every
company strives for superior quality in its products and services. All
manufacturing modules track quality control activities across the enterprise,
from intermediate producers to finished goods. These systems allow a wide
variety of characteristics and parameters to be specified in test and
inspection operations. They also maintain an extensive history of data, to
improve product quality and identify recurring problems.

Material Inspection subsystem offers a wide range of capabilities for process

supervision and control. These capabilities are fully integrated with the other
modules like purchasing, inventory management, and shop floor control
functions, to ensure that the right quality control procedures are followed. It
also includes various other functions like on-line maintenance of product
specification by production method and customer, event driven sample
requests, sample log-in, entry of test results, quality performance analysis,
and equipment calibration support. Product quality metrics are collected and
archived in a manner that offers full support for statistical process control
techniques.
Material Disposition is another feature available in many systems. It offers
advanced disposition functions and material review that ensure the right
quality control decisions are made. It must also provide an audit trail of
decisions for compliance purposes. It include features like automated
material review and approval, automated material disposition, sub-lot control,
optional automatic second disposition, optional automatic repeat testing,
grading, re-designation, and implementation of user-defined policies and
procedures for authorisation and control.
5.4.4 JIT/Repetitive Manufacturing
The past decade has seen a surge of interest in the adaptation of Just-in-
Time (JIT) manufacturing techniques. Many companies have embraced the
concepts of waste elimination, product factory layout, manufacturing cells,
and Kanban signalling. But, many implementations have struggled due to
lack of software tools to effectively support the transition. Many systems, not
only provide high volume repetitive manufacturing functionality, but also
provide for the transition to rate-based production. This allows the use of
repetitive scheduling, even for products that are not based on rate. This
allows a production facility to, shift products from discrete manufacture into
a JIT/ Repetitive focus. For example, when the demand pattern for an item
begins to stabilise and shows a repeatable/predictable pattern, then a
production schedule can be initiated even though the item may not be
designated as rate-based. Over time, as the item's demand pattern grows,
the item can be switched to full rate-based production scheduling. This
capability for transition enables production facilities to adopt process
reengineering, setup reduction programs, single minute exchange of die
programs, employee empowerment work teams, and so on. JIT/Repetitive
comes with strong analytic capabilities. A JIT work list compares the
production plan to the capacity plan for rate-based items. This tool quickly
identifies discrepancies based upon actual performance, so that production
rates and/or daily output goals can be adjusted proactively and monitored
on a timely basis. Reports covering employee efficiency and detailed cost by
item are also provided together with lot tracing status for lot controlled items.
5.4.5 Cost Management
With market competition increasing the pressure on margins, a business
needs accurate and detailed manufacturing cost reporting for effective
business management. ERP packages provide extensive cost information at
several levels that helps businesses identify cost drivers and reduce product
costs. They support multiple inventory valuation methods, so that you can
choose the costing method that best reflects your company's business. You
can choose standard, LIFO (Last in First Out), FIFO (First in First Out),
moving average unit, or lot costing method and these costing methods can
be assigned by item. To reduce administrative overhead, prevent input
errors, and provide faster and more accurate information for planning, these
systems provide detailed records of time and materials data on the shop
floor. For example, many systems have features that let your company
compare, estimates and production costs for different work centres,
machines, employees, and order quantities while monitoring overtime,
indirect hours, subcontracted jobs, and other costs. Moreover, to provide
even more accurate production and inventory planning, these systems can
track material usage for each job. And, if the activity is associated with a
project, project information is automatically updated. Many vendors also
support Activity Based Costing (ABC) with activity, visibility by cost object as
well as costs for user-defined groupings, such as departments. There will be
provisions that allow employees to report non production activities such as
maintenance, holidays, and illnesses. Manufacturing system provides
extensive information about production costs at several levels that gives you
the visibility that you need to identify cost drivers and reduce product costs.
5. __________ and _____________ can be performed at strategic,
tactical, .and operational levels within the business.
6. _____________ reporting makes potential material and capacity
problems easy to identify.
7. _____________ techniques streamline material issue and production

reporting.
8. JIT work list compares the production plan to the capacity plan for
________________ items.
5.4.6 Engineering Data Management
The first step to shorter product development cycles is increased efficiency
in design and development activities. Engineering Data Management is
designed to help your organisation to trim data transfer time, reduce errors,
and increase design productivity. The Engineering Data Management
achieves this by providing an automated link, between engineering and
production information. Most packages allow a smooth integration, with
popular Computer Aided Design (CAD) packages, to simplify the exchange
of information about drawings, items, Bill of Materials and routings.
5.4.7 Engineering Change Control
By using Engineering Change Control, businesses can gain effective control
over engineering change orders. Your company can define the authorisation
steps for approving and implementing an Engineering Change Order. When
these steps are completed, the system automatically implements the
change in the production database.
5.4.8 Configuration Management
The Configuration Management dramatically reduces order cycle time. This
is achieved by eliminating the lengthy engineering review, typically
associated with determining feasibility and the costs associated with the
configured end item. This reduction is achieved by, creating a flexible user-
defined knowledge base that is accessed by a powerful analytic engine.
The knowledge base contains the sales and engineering expertise of the
organisation. Product attributes and variables, such as height, width, or
cubic pounds of pressure, are entered in the knowledge base in the form of
an option matrix. The knowledge in the option matrix structure can also be
augmented by user-defined calculations, such as Height x Width = Area and
by Boolean rules. Boolean rules allow definition of complex product
relationships. For example, 'If refrigeration and insulation are chosen under
trailer options and the total area is greater than 120 feet, then double axle
must be chosen under axle options'. The analytic engine interprets the
knowledge base, in conjunction with user selections, to ensure that the

customer-specified product can be built and sold. As a result, the order entry
process is a dynamic conversation between the order taker and the
customer, who culminates with a fully priced product on the sales order. And
also the related manufacturing detail necessary to move the order directly
into production.
The process starts with an attribute master containing configuration related
questions and answers. Attributes are the building blocks of a configuration
structure. The configuration structure categorises and sequences attributes
to create a flow of questions and possible answers, during the entry of sales
orders for configured products.
5.4.9 Serialisation/Lot Control
Many systems will provide the facility for the designation of raw material lots
and the serialisation of component parts made from those lots. This
serialisation is applicable to commercial aviation, defence industry suppliers,
and capital equipment manufacturers, who provide service over the life of
their products on an individual unit by unit basis. Examples include heavy
machinery, off road equipment, and highway tractor/trailers. Manufacturers,
who use lot control often, must allocate production prior to its completion.
The lot control system provides for the pre-allocation of lot numbers. This
feature is available throughout the product offering and includes MRP, shop
floor control, order processing, and JIT. Many systems allow production
orders to be pre-assigned with lot numbers for the parent item. When the
shop order is released, the lot master record will be created and allocations
to higher level parents will be permitted. The manual pre-allocation of pre
assigned lots is possible, for both customer orders and shop orders with
visibility to planned and actual production, as well as existing inventory.
5.4.10 Tooling
For many manufacturers, ensuring that proper tooling is available is just a
critical to production schedules, as the availability of material. The ERP
system extends capacity and inventory management to include these
valuable resources. These systems help to ensure that tools and materials
are together at scheduled operations, by storing tools in inventory, planning,
and allocating the required tools as part of the production order. They
always provide visibility of tool use. Calculate the remaining useful life of a
tool and automatically route tools for maintenance, based on usage.


9. The first step to shorter product development cycles is increased
efficiency in _____________ and ____________ activities.
10. ______________ allow definition of complex product relationships.
11. The lot control system provides for the ____________ of lot numbers.
Activity 2:
Visit a manufacturing plant of an automobile industry and study how ERP
is assisting the manufacturing process at every step of the process, and
assess the need of individual sub system for the entire manufacturing
process.
5.5 Human Resources

Human Resources (HR) management is an essential factor of any
successful business. The competitive atmosphere in the next millennium,
with its economic and technological challenges, will affect the HR
department in the same way as all the other areas of your enterprise.
Therefore HR managers must continuously review and optimise their
business processes. The HR modules of most ERP systems have a set of
rich features, and will integrate seamlessly with the other modules and are
thus, invaluable aids in improving productivity. They provide company wide
solutions for HR departments and make it possible for other departments to
access specific employee data.
A HR management system has to be adaptable to company-specific
requirements, and must constantly grow with increasing HR requirements. It
must cover the entire functional requirement in business practice. It should
be flexible enough to allow you to optimise your business processes by
tailoring the ERP solution to suit your organisation's needs. Today, many
businesses cross boundaries. The system should meet the organisation's
international needs with, country-specific versions of the HR components.
Apart from languages, currencies and legal requirements, accounting
systems often vary according to needs from one country to another. This
flexible structure enables quick and easy customisation of the system to suit
your requirements. This feature’s adaptability and flexibility to individual
needs has made it a very important and has great demand across
organisation of the world.

5.6 Plant Maintenance

The achievement of outstanding performance demands delivery of quality
products expeditiously and economically. Organisations simply cannot
achieve excellence with unreliable equipment. The approach towards
maintenance management has changed as a result of quick response
manufacturing. Just-in-Time (JIT) reduction of work in process inventory and
the elimination of wasteful manufacturing practices. Before breakdown in
machine and idle time for repair was once an accepted practice. Times have
changed. Today, when there is a break down in a machine, it can shut down
the production line and the customer's entire plant. The Preventive
Maintenance (PM) module provides an integrated solution for supporting the
operational needs of an enterprise-wide system. The Plant Maintenance
module includes an entire family of product; covering all aspects of
plant/equipment maintenance. It becomes vital to the achievement of
process improvement. The major subsystems of a Plant Maintenance
module are:
 Preventive Maintenance Control
 Equipment Tracking
 Component Tracking
 Plant Maintenance Calibration Tracking
 Plant Maintenance Warranty Claims Tracking
5.6.1 Preventive Maintenance Control
Preventive Maintenance Control (PMC) provides planning, scheduling, and
control of facilities and equipment. Equipment lubrication, component
replacement and safety inspection can be planned, scheduled, and
monitored. Maintenance tasks can be tracked for each piece of equipment
or machine, by two user-defined modes, as well as calendar day frequency.
These modes include tracking by hours of operation, units of production
produced, gallons of fuel consumed, or the number of days in operation
since the last service interval. Preventive Maintenance Control enables
organisations to lower repair costs by avoiding downtime, machine
breakage, and process variability. Companies achieve higher machine
utilisation and improved machine reliability and tolerance control, along with
higher production yields.

5.6.2 Equipment Tracking

Equipments are an asset that needs to be protected and monitored. In many
situations, costs of equipment maintenance constitute the single largest
controllable expenditure of an organisation. All facets of plant location
history and utilisation history are described and tracked. This history
includes acquisition of disposition information and associations between
different pieces of equipment to pinpoint operational dependencies. Running
totals for operation units to date (miles, hours, days, units of production, and
so on.) are also provided. Each piece of equipment is defined by, a serial
number and model. User-defined data sheets are developed, which allow for
the grouping of user data into formats that can be linked to equipment
records. All of this information can be used to create equipment stipulation,
which provide detailed information for technical specialists working in
equipment operations, maintenance, and transportation control.
5.6.3 Component Tracking
Components are subsets of larger equipment and deserve the same amount
of cost controlling scrutiny. Component Tracking helps equipment managers
to; identify components with chronic repair problems. They can determine if
either repair or replacement must be covered by warranty. Planning
component replacements, rather than waiting for component failures to
occur, reduces unscheduled equipment downtime. Component tracking
includes repair/exchange history and component service life.
5.6.4 Plant Maintenance Calibration Tracking
Plant Maintenance Calibration Tracking (PMCT) allows organisations to
leverage their investment in the Plant Maintenance module by, providing for
the tracking of equipment calibration in support of ISO 9000 requirements.
5.6.5 Plant Maintenance Warranty Claims Tracking
Plant Maintenance Warranty Claims Tracking (PMWCT) is an administrative
system designed to, provide control of all items covered by manufacturer
and vendor warranties. It helps plant management to recover all of the
warranty; reimbursements to which they are entitled but have not been able
to recover in the past. Features include the ability to establish the length and
type of warranty. For example, elapsed day, months, operating units,, or
mileage stipulation. A complete history review is performed for each item

covered by the warranty and complete information regarding the warranty

service provider is generated.
5.7 Quality Management

The ISO 9000 series of standards defines the elements of a quality
management system and the functions of quality management. The
functions in the Quality Management (QM) module support the essential
elements of such a system. The other integrated modules in the QM system
complement this functionality. The ISO standards require that QM systems
must be an essential part in all processes within an organisation. According
to the quality looping method, it is not only during the production or
manufacturing (implementation phase) but also during production planning
and product development (planning phase) quality control must be carried
out. Quality must be monitored starting from procurement of materials to
sale and distribution of the finished product, and it must be monitored in the
entire usage phases of an organisation. In the areas of production, quality
assurance is no longer viewed in terms of inspections that are the
elimination of defects alone. Instead, the production process itself becomes
the focus of attention.
5.7.1 CAQ and CIQ
Just as the requirements for quality management systems have changed a
result of the ISO 9000 standards, the term Computer-Aided Quality
Management (CAQ) must also be redefined. Computer-Integrated Quality
Management (CIQ) is a more appropriate term because; an isolated CAQ
system cannot carry out the comprehensive tasks of a quality management
system. Takings this into consideration, ERP system integrates the quality
management functions into the affected applications themselves. For
example, instead of making separate CAQ system holding responsibility of
various functions likes procurement of materials, warehouse management,
production, and sales/distribution, they all can be integrated into a single
CAQ system As a result of this, the processes described in the quality
manual can be implemented and automated in the electronic data
processing (EDP) system.
The representation of the elements of a quality management system within
the ERP system is not only the responsibility of the Quality Management

module. Instead, the ERP system must be considered as a whole, in which

all integrated modules contribute their part. Within the framework of the
system, for example, the Human Resources module handles personnel-
related matters, the Controlling module handles the management of quality-
related costs, and the Plant Maintenance module handles the monitoring of
test equipment. As a part of the Logistics application, the Quality
Management (QM) module handles the traditional tasks of quality planning,
quality inspection, and quality control. For example, it supports quality
management in procurement, product verification, quality documentation,
and in the processing of problems.
The Quality Management (QM) module's internal functions do not directly
interact with the data or processes of other modules.
5.7.2 Quality Management Module – Functions
 The Quality Management module fulfils the following functions:
 Quality Planning: Its main objective is to provide a insight on the
effectiveness of the process planning at every stage of the process It
involves the various process responsibilities like Management of basic
data for quality planning, Material specifications, Inspection planning and
so on. For example, as an order is placed from the marketing
department to the planning, it decides the way and the time schedule for
the process to start and obtain the final product. To execute the
schedule planned the planning department has to make sure that it will
not interfere with the other production activity in progress. It should
make sure all the required items necessary for production is available
and other very essential things that might hurt the production has to be
addressed. For this to happen, information is very essential. This is were
Quality planning steps in and help planning to execute its decision it to
result
 Quality Inspection: Its main objective is to continuously monitor the
process and record every activity for verification. The verification can be
daily basis, weekly, monthly or yearly basis depending up on the
process requirement and management decision. It involves various
activities like It can be achieved using trigger inspections, Inspection
processing with inspection plan selection and sample calculation, Print
shop papers for sampling and inspection, Record results and defects,

Make the usage decision and trigger follow-up actions. For example,
during the production of a television it will be necessary to check each
and every circuit board and the test results has to be maintained, not
only before it is assembled in side but also after it is assembled in side
the setup. Every test result along with failure result has to be recorded
for future inspection of the default items.
 Quality Control: Its main objective is to look for the desired quality in the
finished product. The product has to meet the certain defined quality
requirements. This has to be checked before the product is despatched
out to the customer. This can be achieved using Quality Control use
using various tools and procedure like dynamic sample determination on
the basis of the quality level history, Application of statistical process
control techniques using quality control charts, Quality scores for
inspection lots, Quality notifications for processing internal or external
problems and initiating corrective action to correct the problems,
Inspection lot processing and problem processing, Quality Management
Information System for inspections and inspection results and quality
notifications. For example, once a product reaches the quality control
department, a series of tests have to be conducted to ensure that the
product is meeting the required or demanded quality standards. Every
test that is carried out has to be recorded, and even report on failure has
to be kept for analysing the cause of the failure and address the issue.
This is possible only if the information is tracked and monitored carefully.
To achieve this Quality Control proves very effective.
12. A Human Resource management system has to be adaptable to
____________________ requirements
13. Just-in-Time helps in reduction of work in process inventory and the
elimination of wasteful ___________________ practices.
14. Preventive Maintenance Control enables organisations to lower repair
costs by avoiding _____________.
15. _______________ are an asset that needs to be monitored and
protected.
16. The __________ standards require that Quality Management systems
penetrate all processes within an organisation

17. The Quality Management (QM) module's ________________ functions

do not directly interact with the data or processes of other modules.
Activity 3
Visit an electronics appliances manufacturing company using an ERP
system for tracking its components chain. Discuss the need for a flexible
ERP system and how are they able to benefit form the current system in
tracking each and every component required for production.
5.8 Materials Management

The Materials Management module optimises all purchasing processes with
workflow-driven processing functions. It also enables automated supplier
evaluation, lowers procurement and warehousing costs with accurate
inventory and warehouse management, and integrates invoice verification.
The main modules of the Materials Management module are:
 Pre-purchasing Activities
 Purchasing
 Vendor Evaluation
 Inventory Management
 Invoice Verification and Material Inspection
5.8.1 Pre-purchasing Activities
This system supports the entire cycle of bid invitation, award of contra, and
acceptance of services. The pre-purchasing activities comprises of
maintaining a service master database, in which the descriptions of all
services that are to be procured can be stored. The system also keeps a
separate set of service stipulation. This can be formed for every concrete
procurement project or proposed procurement in the purchasing document.
Sets of service stipulation may include both, items with services and items
with materials. When creating such stipulation, the user does not have to list
individual services manually. Instead, the data is simply copied from the
master data. In this technique the data only has to be entered once. The
manual entry effort is reduced to a minimum.
There are two ways of entering service stipulation planned and unplanned.
Planned service stipulations means that service whose precise nature and
intended scope is already known, at the beginning of a procurement project.
At the time services are requested, they are either entered with the aid of a
service master record, or set out in service stipulation as short or long texts.
Prices and quantities are stipulated in both cases. A procurement project
may constitute or include a number of individual services, which you initially
cannot or do not wish to specify in detail (for example, the construction of an
office building). Such initial undefined services stipulations are termed
'unplanned service stipulation' and thus, have no descriptions.
They are entered in the form of money value limits. Service stipulation may
be specified in terms of an upper limit. This allows you to exercise a degree
of cost control in such situations. You can set a value limit at the uppermost
level, for example, Rs 5 crores for the construction of the office building.
In addition, you can set limits for individual contracts within the project, for
example, Rs 100,000 for masonry works and Rs 150,000 rupees for
electrical installations and so on. The system checks adherence to both
these sub-limits and the overall limit. When the services have been
performed, they are recorded in entry sheets and then accepted.
Figure 5.4: The pre-purchasing activities module
The accepted service entry sheet constitutes the basis for subsequent
invoice verification in the case of services. The pre-purchasing activities are
shown in Figure 5.4 above.

5.8.2 Purchasing
Purchasing is a very important component of the Materials Management
module. The Materials Management module is fully integrated with other
modules in the system. It supports all phases of materials management like
planning, control, purchasing/receiving goods inventory management, and
invoice verification is also performed. Good communication between all
players in the procurement process is necessary, for purchasing to function
smoothly. Purchasing also communicates with other modules in the system,
to ensure a constant flow of information. For example, it works along with
the following modules:
 Cost Accounting System Orders (CASO) for materials and services
consumed directly. As CASO can be assigned to a cost centre directly, it
illustrates the interface to the cost accounting system.
 Financial Accounting Purchasing and Accounting (FAPA) both maintain
information on vendors. In vendor master record, information on each
vendor is stored that contains both accounting and purchasing
information. The vendor master record represents the vendor account in
financial accounting. Through Purchase Order account assignment,
Purchasing can also specify which General Ledger accounts are to be
changed in the financial accounting system.
 Sales and Distribution (SD) with in the framework of material
requirements planning (MRP). However, customer requirements from
Sales can be passed on to Purchasing. Besides, when creating a
requisition, you can assign it to a sales order.
 Purchasing system executes tasks like procurement of materials and
services, determination of possible sources of supply for a requirement
identified by the materials planning and control system or arising directly
within a user department, monitoring of deliveries and payments to
vendors, and so on.
5.8.3 Vendor Evaluation
The Vendor Evaluation System supports the optimisation of the processes
of procurement in the case of both materials and services. In the case of
procurement of materials, Sources of supply can be selected with the help
of this system. It also facilitates the continuous monitoring of existing supply
relationships. It provides accurate information on prices, and terms of
payment and delivery. Evaluation of vendors can improve your enterprise's

competitiveness. You can quickly determine and resolve any problems

regarding procurement that may arise on the basis of detailed information
and in collaboration with the relevant vendors. In the case of procurement of
services, you can check the consistency of the vendors from which you
procure services on a plant by plant basis. You can find out whether the
vendors deliver the services within the specified timeframes and appraise
the quality of the work carried out.
Most of the vendor evaluation systems offer you a point-based evaluation
system, based on certain selection criteria. Most systems have their own
predefined set of criteria, but will allow the user-defined criteria also. Using
these criteria, the performance of the vendors is measured and points are
given. You can determine and compare the performance of the vendors by
reference to their overall scores. The main criteria that are usually used are
price, quality, delivery, service and support, replacement of returns, lead-
times, and so on. The Vendor Evaluation System assures that evaluation of
vendors is objective, since all vendors are assessed according to uniform
criteria and the scores are computed automatically.
5.8.4 Inventory Management
Inventory Management (IM) system allows you to manage your stocks on a
quantity and value basis, plan, enter and check any goods movements and
carry out physical inventory. In IM system, the physical stocks show all
transactions resulting in a change in stock and thus, in updated inventory
levels. The user can easily get an overview of the current stocks of any
given material. For each material, it is not only the warehouse stocks are
shown, but also the stocks ordered, not yet delivered, reserved for
production or for a customer, and the stocks in quality inspection can be
monitored. If a further subdivision in the form of lots is required for a material,
one batch per lot is possible. These batches are then managed individually
in the stock. Special stocks from the customer or from the vendor (for
example, consignment stocks) are managed separately from the company's
own stock.
Both the value and quality are updated automatically when entering a goods
movement. Movement of goods include both 'external' movements, that is,
goods receipts from external procurement, goods issues for sales orders.
And 'internal' movements, that is, goods receipts from production,

withdrawals of material for internal purposes, stock transfers and transfer

postings. For movement of each goods, a document is created which is
used by the system to update quantities and values and serves as a proof of
goods movements. Receipt/issue slips of goods are printed, to facilitate
physical movements and the monitoring of the individual stocks in the
warehouse. The modification in the physical stocks and the book inventories
can be carried out automatically.
Most Inventory Management (IM) systems support inventory methods like
Periodic inventory, Continuous inventory, Inventory sampling, and Cycle
counting. In a Periodic inventory, all the company’s stocks are physically
counted on the balance sheet key date. In this case, every material must be
counted. During counting, the entire warehouse is usually blocked for
material movements. With the continuous inventory procedure, during the
entire fiscal year, the system continuously counts the stock. In this case, it is
important to ensure that every material is physically counted, at least once
during the year. In inventory sampling, stocks of the company are randomly
selected and counted manually on the balance sheet key date. If the
variances between the result of the count and the book inventory balance
are small enough, it is presumed that the book inventory balances for the
other stocks are correct. Cycle counting is a branch of physical inventory
where, inventory is counted at regular intervals within a fiscal year. These
cycles depend on the cycle counting indicator set for the materials. For
example, cycle counting allows fast-moving items to be counted more
frequently than slow moving items.
5.8.5 Invoice Verification and Material Inspection
The Invoice Verification (IV) component is part of the Materials Management
(MM) system. It establishes link between the MM component and the
Financial Accounting, Controlling, and Asset Accounting components. IV in
MM serves the following purposes:
 It completes the process of materials procurement, which starts with the
purchase requisition, continues with purchasing and goods receipt and
ends with the invoice receipt
 It allows invoices that do not generated during materials procurement to
be processed. For example, services, expenses, course costs, and so
on.

 It permits credit memos to be processed, either as invoice cancellations

or discounts.
Each invoice contains various items of information. You must enter this
information into the system, to post an invoice. If it refers to a transaction
that exists, then certain items of information will already be available in the
system. The system presents this information as default data so that, you
only need to compare it and, if necessary, correct any possible variances.
Consider an invoice refers to a purchase order, for example, you only need
to enter the number of the purchase order. The system selects the correct
transaction and proposes data from the purchase order, including the
vendor, material, quantity ordered, terms of delivery, and terms of payment.
You can, of course, rewrite this default data if there are variances. You can
display the history of the purchase order, for example, which quantities have
been delivered and how much has already been invoiced. If there are
variances between the goods receipt or purchase order and the invoice, the
system will issue a warning on the screen. If the variances are within the
preset acceptance limits, the system will allow the invoice to be posted but
will automatically block it for payment. The invoice must then be released in
a separate step. If the variances are not within the acceptance limit, the
system will not allow the invoice to be posted.
When you enter an invoice, the system also finds the relevant account.
Automatic postings for price variances, cash discount clearing and sales tax
are also generated and the posting records displayed. If a balance is
generated, the user is required to make corrections, as an invoice can only
be posted if the balance equals zero. Once the invoice is posted, some data,
such as the average price of the material ordered and the purchase order
history is updated in the system. The invoice posting completes Invoice
Verification. The data required for the invoice to be paid is now contained in
the system. The department of accounts can retrieve the data and make the
appropriate payments with the aid of the Financial Accounting component.
18. The _____________ activities comprises of maintaining a service
master database
19. Communication between all players in the ________________ process
is necessary for purchasing to function smoothly.

20. Most of the vendor evaluation systems offer you a _________

evaluation system.
21. When you enter an invoice, the system also finds the ______________.
Activity 4
Check out the planning, procedure and technique used in a company for
purchasing activities. Also study the requirement of an ERP system in
making these activities more efficient and fool proof.
5.9 Summary
ERP software is made up of many software modules. Each ERP software
module mimics, a major functional area of an organisation. General ERP
modules include modules for product planning, parts and material
purchasing, inventory control, product distribution, order tracking, finance,
accounting, marketing, and HR. Organisations often selectively implement
the ERP modules that are both economically and technically feasible.
ERP Production Planning Module
From Manufacturing Requirements Planning (MRP) II into ERP evolution
process, vendors have developed more robust software for production
planning. And consulting firms have collected and stored vast knowledge on
implementing production planning module. It also optimises the utilisation of
manufacturing capacity, parts, components and material resources using
historical production data, and sales forecasting.
ERP Purchasing Module
Purchase module contours procurement of required raw materials. It
automates the processes of negotiating price, awarding purchase order to
the supplier, identifying potential suppliers, and billing processes. It is
closely integrated with the inventory control and production planning
modules. It is often integrated with Supply Chain Management (SCM)
software.
ERP Inventory Control Module
Inventory module helps processes of maintaining the appropriate level of
stock in a warehouse. The activities of inventory control comprises of
identifying inventory requirements, setting targets, providing replenishment
techniques and options, monitoring item usages, reconciling the inventory

balances, and reporting inventory status. Integration of inventory control

module with finance, sales, and purchase modules allows ERP systems to
generate vigilant executive level reports.
ERP Sales Module
Revenues from sales are live blood for commercial organisations. Sales
module comprises of functions like order placement, order scheduling,
shipping, and invoicing. Sales module is closely integrated with
organisations' ecommerce websites. Many vendors of ERP offer online
storefront as part of the sales module.
ERP Market in Module
Marketing module of ERP supports lead generation, direct mailing campaign
and more. The market needs has to be understood and addressed very
quickly and effectively. If a company fails to understand this and react it has
to loose the profit that it could have made. Market in module must ensure
that it will assist the management in addressing the trends the market show
case and update the management for quick decision making.
ERP Financial Module
Both for-profit organisations and non-profit organisations benefit from the
implementation of ERP financial module. The core of many ERP software
systems is the financial module. It can collect financial data from various
departments, and generates valuable financial reports such balance sheet,
general ledger, trail balance, and quarterly financial statements.
ERP HR Module
Human Resources (HR) is another widely implemented ERP module. HR
module streamlines human resources and human capitals management. HR
modules regularly maintain, a complete employee database including
contact information, salary details, attendance, performance evaluation, and
promotion of all employees. Advanced Human Resources module is
integrated with knowledge management systems to optimally utilise the
expertise of all employees.

1. Explain the major functions of the Manufacturing and Production
Planning module.
2. Write a note on the need for MRP II in MRP module.
3. How does the plant maintenance module help in achieving

competitiveness?
4. Write a note of Quality Management.
5. What are the major functions of the materials management module?
6. How much essential is the vendor evaluation process in meeting the
quality requirements of the organisation?
5.11 Answers
1. Information Technology (IT)
2. Today's
3. Supply chain
4. Automated.
5. Control, execution
6. Graphical
7. Just-in-Time
8. Rate-based
9. Design, development
10. Boolean rules
11. Pre-allocation
12. Company-specific
13. Manufacturing
14. Downtime
15. Equipments
16. ISO
17. Internal
18. Pre-purchasing
19. Procurement
20. Point-based
21. Relevant account
Terminal Questions
1. Refer to 5.4
2. Refer to 5.4
3. Refer to 5.6
4. Refer to 5.7
5. Refer to 5.8
6. Refer to 5.8
5.12 Case Study

In 2002 a major chemical company of India had completed a year of
supply chain reengineering and decided upon a number of best practices
that must be implemented. During the process of reengineering, the
company decided to create a shared service function at their
headquarters, which rationalised the purchasing and accounts functions
of seven separate businesses already located at the site. The company
estimated to produce a cost saving of 10%, or Rs 20 million, of their
purchasing budget each year with the creation of the shared services
function. The problem that they faced was overwhelming. With the same
company, seven companies had overlapping vendors, items, numerous
contracts with different pricing structures, and a variety of payment terms.
The company organised a team to develop and implement a plan to
develop the shared services function. At the same site, all the seven
business functions were located, but were distinctly separate. Their own
technology strategies were implemented for each business functions
starting form; systems, hardware, and vendors. If the shared services
function was to use the new ERP system of the company, there had to be
a data cleansing and conversion process devised for each of the seven
business functions. The software developing team reviewed the data
from the businesses, it was decided that a separate teams would be
required to complete the following:
 Rationalise vendors across businesses.
 Update or delete existing data.
 Negotiate new contracts and pricing with existing vendors.
The team found that, there was a major overlap of items that were
purchased across businesses and that the company was not using the
purchasing power, it had to gain the best prices from vendors. As further
enquiries were made into common items that were purchased across the
company, it was found that greater savings could be achieved by limiting
the number of vendors for specific groups of items, such as lab supplies
and computer equipment. The seven businesses contracted nine lab
supply companies, offering a larger volume of items to be purchased by
only one or two lab supply vendors, the savings could be as much as
60%.

Once this level of saving reached the ears of top management, more
focus was put on rationalising vendors. In a number of cases, single
sourcing was found to be appropriate when, one vendor offered even
more significant levels of saving. The shared services function, operated
on their ERP system fifteen months after the start of the task force. The
combined seven businesses had minimised their total number of vendors
from 34,000 to around 900. The number of items they purchased was
reduced to 15,000 from 110,000. A team was allotted to monitor and
approve new items and new vendors as they were required. Although the
company estimated they would save 10% in the first and subsequent
years, the estimate was raised to 23% for the first year and 15% for
subsequent years based on the results of the task force.
The company came to conclusions that after making such large savings,
they would continue implementing best practices in the purchasing
function. They had a plan for adopting procurement cards and introducing
evaluated receipt settlement, where they would pay vendors based on
goods received, to gain vendor discounts for prompt payment.
Questions:
1. Explain how the company prepared it self for the implementation of
the new system.
2. How was the software development team assisted by the company
management?
3. Explain why the implementation process was a success.
5.13 Glossary
Term Description
Premise A proposition that forms the basis of an argument or from
which a conclusion is drawn in an organisation.
Leverage Power over other people, especially something that gives
an advantage but is not referred to openly in an
organisation.
Procurement To obtain something, especially by effort or to acquire
some thing that is required for an objective. Generally
used in industries for obtaining spares or components for
manufacturing.
Vigilant Watchful and alert, especially to guard against danger,

difficulties, or errors that occur during the process in an

organisation or an industry.
Stipulation A detailed description, especially one providing
information needed to make, build, or produce something
Reference
1. Production Planning by Mixed Integer Programming by Wolsey and
Laurence.
2. Concepts in Enterprise Resource Planning by Monk, E. and Wagner, B.
3. World-class Warehousing and Material Handling by Frazelle, E.

Unit 6 ERP – A Manufacturing Perspective

Structure
6.1 Introduction
Objectives
6.2 Enterprise Resource Planning (ERP)
6.3 Computer Aid Design/Computer Aid Manufacturing (CAD/CAM)
6.4 Materials Requirement Planning (MRP)
Master Production Schedule (MPS)
Bill of Material (BOM)
Inventory Records
Closed Loop MRP
Manufacturing Resource Planning (MRP-II)
6.5 Distribution Requirements Planning (DRP)
6.6 Just-in-Time(JIT) & KANBAN
Kanban
Benefits of JIT
Potential Pitfalls of JIT
6.7 Product Data Management (PDM)
Data Management
Process Management
Process Management
Process Management
Benefits of PDM
6.8 Manufacturing Operations
Make-to-Order (MTO) and Make-to-Stock (MTS)
Assemble-to-Order (ATO)
Engineer-to-Order (ETO)
Configure-to-Order (CTO)
6.9 Summary
6.11 Answers
6.12 Case Study
6.13 Glossary

6.1 Introduction
By now you must be familiar with the ERP Modules. This unit familiarises
you with the various methods and techniques used in the industry. This unit
gives an overview of ERP in manufacturing perspective.
The manufacturing segment accounts for nearly 25% of the total Information
Technology (IT) spending in the country, which makes it the largest segment.
The process and discrete manufacturing segments spent a total of Rs 2,605
crore on IT in the year 1997-98. Discrete manufacturing accounted for
nearly 11.3% of the total segment spending and the rest came in from
process manufacturing.
The process manufacturing sector traditionally spends more on Information
Technology (IT). This is because the larger population of companies is
engaged in this activity as well as their scale of operations is also increasing.
In general, the business and IT priorities of both process and discrete
manufacturing are the same. It consists of controlling inventory, production
costs, marketing costs, and improving supplier and delivery channel
relationships on the business front.
It also helps in improving IT infrastructure, automating internal and external
processes, and better decision-making. At the same time, there are
differences in the emphasis given to the various aspects of IT usage. In this
analysis, we take the segments together when discussing the areas where
they exhibit similarity. However, when areas show dissimilarities between
each other we discuss them separately.
IT investments by large manufacturing organisations were on the decline in
1998. Since, many industries like automobiles, steel, cement, and others
were facing a downturn in their business. Overall, many of the smaller
manufacturing organisations, which have been traditionally poor in IT usage,
turned towards IT. Traditional large buyers like TISCO, Ashok Leyland, and,
Bajaj Auto to name a few did not have any major IT project underway.
Public sector steel companies slowed down the IT investments. However,
their counterparts in the private sector spent on ERP and plant automation.
In the industry of Pharmaceuticals, the WTO agreement on patents has
forced companies to get patents on their formulations. A very data-intensive
area the clinical trials, are fast emerging as an application in the
pharmaceutical industry.
Some of major investment areas for manufacturing companies are:

 Infrastructure like systems, network components, messaging systems,
and so on.
 Software design and application development.
 Software packages like word processors, spreadsheets, databases, and
so on.
 Enterprise Resource Planning (ERP) packages.
 Packaged application implementation services.
 Consulting services.
 External connectivity – connecting to dealers and suppliers (supply
chain).
 Data warehousing.
 E-commerce.
 Analyse and know the various techniques and technologies that are
used in the manufacturing industry.
 Explain how ERP and other concepts like MRP, MRP-II, CAD/CAM,
PDM, can improve the competitiveness of a company.
 Assess the different types of manufacturing operations like MTS, MTO,
ETO, ATO, and CTO, and so on.
6.2 Enterprise Resource Planning (ERP)

Enterprise Resource Planning (ERP) is the slogan in the manufacturing
industry and more and more companies are turning to ERP solutions. With
almost all the international players present in the country, the stage is set for
the launch of the Indian manufacturing sector into the age of integrated
applications.
ERP is a high impact area because it leads to a bottom-up change in the
organisation. That is, it is by no means an incremental technology. But many
companies do not even realise the full implications of using an ERP. They
are nevertheless enchanted by the concept of integrated applications. But a
mad rush into ERP, without the required business process discipline, will
lead to more flops than hits.

The move to ERP is a high-investment proposition. It comprises of

investments in hardware, connectivity, and implementation services, apart
from a lot of invisible costs involved in process change, change
management, and training. There are more than 130 ERP implementations
underway in the country presently. SAP is one of the largest ERP vendors.
In the country it has around 75 customers, out of which 52 are in the
manufacturing segment, with dominance by the discrete manufacturing
companies. Most of these are first-generation ERP, which address the area
of integration of financials with logistics. These companies are at the first leg
of integrating financials with logistics using a packaged application.
The next phase taken up is either sales and distribution or production,
depending upon the priority of the company. Demand-driven industries like
automotive sector, consumer goods, processed foods and the like would
take up sales and distribution.
There are presently around 40 companies, which are in the process of
implementing solutions in this area. Possibly, an equal number of
companies are looking actively at production as the next application to be
integrated. But, recent studies show that companies are willing to take up
both the phases together right in the beginning. This is due to the fact that
there is a lower perceived risk in implementation. Since, code-less
implementation is becoming the order of the day, leading to better
implementation maturity. Another reason is that there are enough process
models available now in the country itself. Taken together, the total time
taken for rollout is shortened.
The process industry concentrates on integrating business applications with
the plant floor. The major areas under consideration are finance, materials,
and sales and distribution. Since production in the case of process industry
is plant-oriented, it falls within the realm of distributed digital control systems.
The most vital area after this is the maintenance function. Selection of the
right ERP package is based solely on the business needs and the fit that the
product offers. For example, L&T, which uses two ERP solutions from SAP
and Baan for two of its divisions. The Unit Equipment Division of L&T uses
ERP solution from Baan with the finance, manufacturing, distribution, shop
floor scheduling, and budgeting modules. This helps the company gain
competitiveness in global deals.

ERP, currently, is restricted to being a transaction-oriented operations

system in the country. As of now, there are few examples of strategic
information systems built around an ERP solution in the country. There are
quite a few areas that need ERP refinement are being actively looked at by
some of the progressive companies. Called as extended ERP, it seeks to
encompass the suppliers and delivery channel partners into the
organisation's enterprise information system. Constraint-based planning
tools for supply-chain planning and demand-chain planning are being
actively looked at by companies that operate in specific markets.
6.3 Computer Aid Design/Computer Aid Manufacturing

Computer Aid Design/Computer Aid Manufacturing (CAD / CAM) are the
other major focus area for the manufacturing sector. Traditionally, the
automotive and aerospace industries are the largest consumers of
CAD/CAM.
With the automotive sector in the depression, vendors were not able to meet
their expectations from this industry. On the other hand, the farm auto sector
did better in comparison.
Mahindra & Mahindra (Tractor Division) has grown considerably in the last
three years and their manufacturing capacity has doubled. This is
accompanied with significant improvement in design capacity. Increasing
design capacity is also a competitive edge for a company. For example,
Tata Johnson Controls, which makes seating systems, started off by
designing seats solely for Ford. With increased design capacity using
advanced CAD/CAM, they went on to supply seating systems to many other
auto majors. The major focus area in CAD/CAM is on design analysis,
development, and manufacturing. Styling and ergonomics are the
refinement areas to achieve design excellence. There were only marginal
investments in modelling. There is also a trend developing for reverse
engineering, especially in the engineering and appliances industry.
Manufacturing, companies in the BPL Group have taken up reverse
engineering.
Product data management (PDM) is another leading edge of the CAD/CAM
philosophy. TELCO and Mahindra Ford have integrated many of their
suppliers. For the supplier, it means enhanced competence and improved

competitiveness. Many of these suppliers, with their improved design

capacity and integration with OEMs, have also started exporting. Brakes
India is supplying brakes to many of the European auto manufacturers.
Another reason, which forces a company to make design an imperative, is
the improved alignment that many manufacturing organisations have
acquired. This is because of business process reengineering. An important
thing is the integration of tier 1 and tier 2 suppliers with OEMs, for standard
product information.
Many companies in heavy engineering sector have signed up multi year
contracts with global majors like SDRC and PTC. BHEL has a CAD/CAM
contract across all units with SDRC for a term of five-year. Similarly Lakshmi
Machine, L&T and Siemens works are investing in CAD/CAM to beef up
their research capability.
1. The _______________ sector traditionally spends more on Information
Technology (IT).
2. Increasing _______________ capacity is also a competitive edge for a
company.
3. The process industry focus is on integrating _____________
applications with the plant floor.
4. The move to __________ is a high-investment proposition.
Activity 1
Visit a manufacturing industry and analyse the reason why the
organisation should move towards restructuring their business in an ERP
environment.
6.4 Materials Requirement Planning (MRP)

Initially, manufacturing industries viewed Materials Requirement Planning
MRP as a better method for ordering components than the independent
demand inventory models they had been using during the 1950s and 1960s.
However, it has evolved into a comprehensive priority planning system.
MRP provides a method that helps keep order due dates valid, even after
the orders have been released to the shop floor or outside vendor. MRP
systems can detect when is the order due date, the date the order is

scheduled to arrive, is out of alignment with its need date, and the date the
order is actually required.
During the 80s, techniques for helping to plan capacity requirements were
tied up with MRP. Tools were developed to assist the planning of aggregate
production levels and the development of anticipated production schedules.
Systems to aid in executing the plans were incorporated in shop floor control
for the ‘in-house factory’ and vendor scheduling for the ‘outside factories’.
The expanded MRP system became known as closed loop MRP. Since, it
provided feedback from the execution function to the planning functions, so
manufacturers could change plans when necessary. Expanded-closed-loop
MRP was practiced to provide the ability to translate the operating plan
expressed in manufacturing terms of units (kilograms) into financial terms
(rupees). They even have the potential to simulate the effects of various
plans in terms of both units and rupees. The new system, which was called
Manufacturing Resource Planning (MRP-II), was a comprehensive approach
for the effective planning of all the resources of a manufacturing
organisation.
Materials and production planning is critical to the success of a
manufacturing company. A company can have the best and the newest
manufacturing facilities, product design, the latest equipment.
Along with all the latest production technologies like CAD/CAM, robotics,
automated guided vehicles (AGVs), and so on but the company was not the
ability to compete. MRP has proved to be an effective production and
inventory planning system in a wide variety of environments.
For a successful MRP system three types of information are very essential
and they are:
 Master Production Schedule (MPS)
 Bill of Material (BOM)
 Inventory Records (IR)
6.4.1 Master Production Schedule (MPS)
The MPS is a detailed production schedule for end items or finished goods
that provides the major input to the materials requirement planning process.
Associated with each finished product is a BOM It describes the dependent
demand relationships that exist among the various components, raw

materials, parts, subassemblies, and so on. The entire set of BOMs for the
company's finished products is called the BOM file. Inventory records
provide inventory status data for each product or component such as stock-
on-hand, stock-on-order, and so on. It also contains planning factors like
lead-time, safety stock, re-order level, and so on.
MRP logic uses the MPS, the BOM file and the inventory records to
determine the following for all components:
 Planned order quantities
 Planned order release dates (to shop floor/suppliers)
 Planned order due dates
The MRP system calculates the due dates and release dates taking into
consideration the lead-times required to produce or procure the components.
It also recognises the order in which they are assembled into the finished
product. If the MRP process is carried out in conjunction with capacity
planning, the production facility must have the capacity to complete the
orders on time.
6.4.2 Bill of Material (BOM)
A BOM defines the relationship of components to end items. The BOM
identifies all components used in the production of an end item, the quantity
required, and the order in which the components are assembled.
For example, consider an office chair. The chair is composed of a seat
cushion, back cushion, adjuster mechanism, base unit, wheels, and
fasteners. To manufacture the chair the wheels, base unit, and adjuster
mechanism are assembled into a chair frame, to which the base cushion
and back cushion are attached. All the fasteners are identical and there are
11 of them for this chair.
Figure 6.1 shows a BOM for an office chair. To simplify the discussion, this
BOM does not show all purchased raw materials (paint, steel tubing and so
on). This form of the BOM is frequently called a product structure diagram.
All items appearing below the final product in a BOM are referred to as
components, whether they are raw materials or component parts or
subassemblies. In the above figure, all items with the exception of the
'Office chair‟ are components. The term- parent component describes a
component at one level in the BOM that is composed of components from

the next lower level in the BOM. The lower level components are called child
components.
Figure 6.1: Bill of material for the office chair
The key to MRP is time-phasing of requirements for components are based

upon the structure of the BOM. If the time required either manufacturing or
purchasing components (lead-time) is known, we can determine when
orders must be released to the shop floor or outside suppliers. This is to
ensure that the required components will be available when needed.
6.4.3 Inventory Records
It is a process for keeping track of objects or materials. In general, the term
may also refer to just the software components. Modern Inventory Control
(IC) systems depend upon barcodes, and potentially Radio Frequency
Identification (RFID) tags. These systems provide automatic identification of
inventory objects. For example, in an academic study performed at Wal-
Mart, RFID reduced Out of Stocks by 30 percent for products selling
between 0.1 and 15 units a day. Inventory objects could include any kind of
physical asset: fixed assets, circulating tools, library books, merchandise,

consumables, or capital equipment. The system uses a RFID or barcode

scanner reader to automatically identify the inventory object. Then it collects
additional information from the operators via fixed terminals (workstations),
or mobile computers to record an inventory transaction.
An IC system may be used to automate a sales order fulfillment process.
Such a system contains a list of order to be filled, and then prompts workers
to pick the necessary items. Also it provides them with packaging and
shipping information.
6.4.4 Closed Loop MRP
For an MRP system to be effective, the production system must be able to
complete component orders on time. Closed loop MRP uses feedback and
capacity planning to improve the ability of the production system to complete
work as planned. Capacity planning tools allow the operations manager to
adjust the MPS and/or planned order release dates, or obtain additional
capacity. So that shop orders can be completed by their due dates.
MRP planners use a number of planning factors (capacity planning factors,
lead-time estimates, safety stocks, safety lead-time, and so on.) and tools
(capacity planning, frozen time horizons, firm planned orders, and so on.) to
improve the quality of the materials schedules generated by the MRP
system. To determine how well the planning factors and tools are working.
MRP planners need feedback from the purchasing department and the shop
floor. With effective feedback, the MRP planner can revise the planning
factors and techniques, so that better materials schedules can be developed
in the future.
Feedback is also important when the shop floor or suppliers cannot meet
order due dates. Timely feedback to MRP planners allows them to develop
alternatives, or at least minimise the effect of the problem.
For example, batch of a component production may not be completed on
time. However, enough components may be available in safety stock and
on-hand inventory. This allows the production of a smaller quantity of the
parent item to satisfy the MPS, until production of the component is
completed.

6.4.5 Manufacturing Resource Planning (MRP-II)

Originally MRP was developed as a computer system that was limited to
materials planning. As MRP systems developed and computer technology, it
became clear that MRP systems maintain extensive information that can be
used for other company functions. For example, MRP systems maintain
accurate inventory information. Combining this information with cost data,
allows accounting personnel to have accurate inventory information, in
meaningful financial terms. Rather than having separate production and
accounting systems, a company can expand MRP to meet the requirements
of both the systems.
MRP-II is an expansion of closed loop MRP for managing an entire
manufacturing company. MRP-II systems provide information that is useful
to all functional areas and encourage cross-functional interaction. It also
supports sales and marketing by providing an order-promising capability.
Order promising is a method of tying customers' orders to finished goods in
the MPS. This allows sales personnel to have accurate information on
product availability and gives them the ability to give customers accurate
delivery dates. MRP-II supports financial planning by converting materials
schedules into capital requirements. A company can use MRP-II to simulate
the effects of different master production schedules on material usage,
labour, and capital requirements. MRP-II provides the purchasing
department with more than just purchase requisitions. The long-range
planned order release schedules can be used to provide the purchasing
department with information for developing long-range buying plans. It is
now common for suppliers to directly access MRP-II system of a customer
to receive up-to-date information on the customer's planned material needs.
Information in the MRP-II system is used to provide accounting with
information on material receipts to determine accounts payable. Shop floor
control information is used to track workers' hours for payroll purposes.
Manufacturing is the vital function in a manufacturing company. The
information required to successfully planning and schedule production is
valuable to the other (supporting) functions in the company. MRP-II systems
enhance a company's efficiency by providing a central source of
management information.


5. _____________ and ___________ planning is critical to the success of
a manufacturing company.
6. The key to MRP is time-phasing of requirements for components are,
based upon the structure of the ______________.
7. ___________ is an expansion of closed loop MRP for managing an
entire manufacturing company.
8. _______________ is also important when suppliers or the shop floor
cannot meet order due dates
Activity 2
Visit an industry and study how the organisation has benefited with the
ERP system in handling the material starting form procurement of
material to distributing the material with in the company based on the
needs of the various departments.
6.5 Distribution Requirements Planning (DRP)

Distribution Requirements Planning (DRP) extends the technique of MRP
into the physical distribution system. It provides a mechanism for integrating
the physical distribution system with the production planning and scheduling
system. DRP assists companies that maintain distribution inventories in
distribution centers, field-warehouses, and so forth. This is achieved by
improving the linkage between marketplace requirements and
manufacturing activities.
A DRP system helps management to anticipate future requirements in the
field. At the same time helps to closely match the supply of products to the
demand for them and effectively deploy inventories to satisfy customer
requirements. They also rapidly adjust to changes in the marketplace. A
DRP system creates significant logistics saving through improved planning
of transportation capacity needs, vehicle loading, vehicle dispatching and
warehouse receipt planning.
DRP plays a central coordinator role in the physical distribution system
similar to MRPs role in coordinating materials in the manufacturing system.
DRP provides the necessary data for matching customer demand with the
supply of products at various stages in the physical distribution system and
with products being produced by manufacturing. The DRP record is similarly
to MRP record. For example, for a distribution centre, forecasts

requirements for a product replace gross requirements and are used in
conjunction with information concerning inventory on-hand at the distribution
centre inventory in transit to the distribution centre (analogous to scheduled
receipts in MRP), transportation lead-time, safety stock requirements, and
standard shipping quantities to determine time-phased planned shipments
to the distribution centre (analogous to time-phased planned orders in MRP).
In addition to estimating the time-phased planned shipment quantities, DRP
provides a company with access to all the detailed local information for
managing physical distribution and for coordinating with manufacturing.
Since, demand from the customer is independent, each distribution centre,
for example, needs detailed forecasts of the item in demand. Careful
attention to actual customer demand patterns may allow forecasts,
generated by a standard forecasting method. This will be tailored to local
conditions, resulting in improved accuracy and inventory savings. As actual
field demands vary around the forecasts, adjustments to plans are made by
DRP. DRP makes continuous adjustments, sending inventories from the
central warehouse or manufacturing facility to those distribution centres
where they are most needed. In case when the total inventory is insufficient
to satisfy requirements, DRP provides the basis for accurately stating when
delivery can be expected for deciding allocations, such as favouring the best
customers or providing inventory to last the same amount of time at each
distribution centre. Therefore, DRP is a critical link between the marketplace,
demand forecasting and master production scheduling.
6.6 Just-in-Time (JIT) and Kanban

Just-in-Time (JIT) means to produce goods and services when needed, not
too early and not too late. It is time dependent and often has quality and
efficiency targets. JIT is a production philosophy and not a technology. This
is due the fact that it monitors the whole of the production system, and goes
far into inventory control. The JIT system has been called many names,
from zero defects and synchronous production to stockless production at
Hewlett Packard. The JIT system also uses the pull method of scheduling
material flow (Kanban). A JIT system aims to make goods available just in
time and these can be parts, products or subassemblies.

JIT helps organisation to achieve some of the following benefits:

 Increased flexibility
 Parts reduction
 Increased quality
 Simplicity of system
The enhanced flexibility allows a company the ability to react to changing
events, i.e. change in customer orders, or design modifications. Increased
productivity means that the shortest time and minimum of resources are
needed to make a product. The overall objective of JIT is to produce parts in
lot sizes of one, but this is not economically feasible due to the set-up cost
being higher as compared to the carrying cost.
At the heart of JIT, is a set of tools and techniques. To achieve the aims of
JIT a disciplined approach is needed which incorporates three principles
applied to the organisation:
 Elimination of Waste
 Total Quality Management (TQM)
 Total Employee Involvement
 Elimination of Waste: Waste elimination is basically removal of any
activity that is not value-added, but first it has to be identified. These
activities don't increase product value and are costly to the company.
Examples of non-value-adding activities include traditional production
methods, i.e. inspection of parts, holding stock, inventories, time, and so
on. Waste is eliminated from these activities by removal of defects and
by not over producing hence, make-to-order.
 Total Quality Management: TQM eliminates waste by eliminating
defects. In a JIT environment, the aim is to prevent defects from
occurring, and this is achieved by detecting problems at their source.
The whole organisation is involved in the process, right from the stages
of manufacturing, product development and purchasing. Manufacturing
uses statistical process control (SPC) and in-process testing (to allow
detection at source), while product development ensures that new
products can be manufactured to specification. Purchasing makes sure
that; the parts that are bought are of the required quality.
 Total Employee Involvement: Total employee involvement has
management providing the leadership which results in employees

wanting to be involved in the processes. Opportunity provided through

education and training, and work teams.
6.6.1 Kanban
Most companies in manufacturing sector view the making of a product as
continuous from design, manufacture, and distribution to sales and
customer service. For many companies, the soul of this process is the
Kanban, a Japanese term for Visual record', which directly or indirectly
drives much of the manufacturing organisation. It was originally developed
at Toyota in 1950s as a way of managing material flow on the assembly line.
Over the past three decades the Kanban process, which is a highly efficient
and effective factory production system, has developed into an optimum
manufacturing environment leading to global competitiveness.
The Kanban process of production is sometimes incorrectly described as
simple just-in-time management technique, a concept that attempts to
maintain minimum inventory. The Kanban process involves more than fine
tuning of production and supplier scheduling systems. Supplying the
components only when needed in production it minimises the inventories,
and monitors the work progress. It also allows industrial reengineering such
as a 'module and cellular production' system and group production
techniques. This is where team members are responsible for specific work
element and employees are encouraged to effectively participate
continuously in proving the Kanban processes for continuous improvement.
The Japanese refer to Kanban as a simple parts-movement system it
depends on cards and boxes/containers to take parts from one work station
to another on a production line. Kanban stands for Kan-card, Ban-signal.
The fundamental of the Kanban concept is that a supplier or the warehouse
must or deliver components to the production line as and when they are
needed, so that there is no storage in the production area. Within this
system, workstation located along production lines only produce/deliver
desired components when they receive a card and an empty container,
indicating that more parts is needed in production. Each work station will
only produce enough components to fill the container and then stop in case
of line interruptions. In addition, it limits the amount of inventory in the
process by acting as an authorisation to produce more inventories. Since
Kanban is a chain process system in which orders flow from one process to

another, the production or delivery of components is pulled to the production

line. In contrast to the conventional forecast oriented method where parts
are pushed to the line.
The advantages of Kanban over the traditional push system are:
 A simple and understandable process
 Provides quick and precise information
 Low costs associated with the transfer of information
 Provides quick response to changes
 Limit of over-capacity in processes
 Avoids overproduction
 Minimises waste
 Maintains control
 Delegates responsibility to line workers
6.6.2 Benefits of JIT
JIT is continuously monitoring to reduce inventory levels of work in process
(WIP), raw-materials and finished goods. Therefore, space is required is
less with lower inventories so there is less chance of the product becoming
damaged, spoiled or obsolete. Material handling of lots can be automated,
and operations can be placed closer together, enhancing communication
and teamwork. The following are some of the benefits of a properly
implemented JIT system:
 Increased flexibility: This can be done through small batch sizes, which
achieves faster throughput. Flexibility is a prerequisite, if small batch
sizes are to be kept. A flexible workforce means that the operators must
be multi-skilled which is done through training. Increases the freedom of
worker to move from low demand to high demand areas.
 Parts reduction: JIT constantly seeks to reduce inventory levels of raw
materials, work in process and finished goods. Lower inventory means
less space and less chance of the product being obsolete, damaged or
spoiled. Work in process inventories are reduced as a firm implements
the 'pull system'. Raw material reduction is the important part of the JIT
system and requires a sound relationship with the supplier. Inventories
can be reduced if products are produced, purchased, delivered in small
lots. To avoid unnecessary production delays, materials must arrive just

before they are needed. It must be the correct material and must satisfy
the quality specifications.
 Increased quality: When operating a JIT system, disruption has a
minimum impact. Therefore, quality problems need to be eliminated.
Benchmark: Quality Function Deployment and service design can be
used for device operations. Service employees need to learn the value
of providing defect free services.
 Simplicity of system: Product mix or volume changes as planned by
Master Production Schedule (MPS), can be accomplished by adjusting
the number of cards in the system. Production orders are prioritised by
the cards on a post. Production orders for parts that are running low are
moved in front of parts that have more supply.
6.6.3 Potential Pitfalls of JIT
Many companies fail to realise what JIT is and what it can mean to their
business. Since, they fail to implement it properly. Most importantly, they
need to aware of the tasks, resources, time scale and costs. For this, the
systems need the full backing of the top management. The JIT system will
also fail if an adequate education programme is not provided. If careful
planning process and control improvements are not strictly followed, they
will result JIT not being realised. The planning stage will require dedication
and t: and may also require the assistance of an external consultant(s). All
above must be integrated with moves towards purchasing JIT, or again, JIT
will not be achieved. The JIT system must not be viewed as a one scheme
but as an ongoing continuous process.
9. DRP plays a has a central ______________ role in the physical
distribution system
10. ____________ eliminates waste by eliminating defects.
11. The Kanban process of production is sometimes incorrectly described
as simple ________________ technique
12. JIT continuously seeks to reduce _____________ levels of raw
materials, work in process and finished goods.
13. When operating a JIT system, ___________ has a minimum impact.

Activity 3
Find out the process in the assembly chain of an automobile
manufacturing industry and asses the kind of planning they could do
using an ERP system to handle the inflow of material and components
for manufacturing.
6.7 Product Data Management (PDM)

One of the major manufacturing challenges is to maximise the time-to-
market benefits of concurrent engineering. At the same time, maintaining of
data, control on the flow of data. The system must also distribute the data
automatically to the people who need it, when they need it. The way PDM
systems cope with this challenge is that the master data is held only once in
a secure 'vault', where its integrity can be assured and all changes to it
monitored, controlled and recorded.
Duplicate reference copies of the master data, can be distributed freely. It is
used in various departments for analysis, design, and approval. The new
data is then released back into the vault. When a 'change' is made to the
data, a modified copy of the data, signed and dated, is stored in the vault
alongside the old data which remains in its original form as a permanent
record.
This is the principle behind more advanced PDM systems. To analyse it
more fully, let us look separately at how these systems control raw product
data (Data Management and Process Management).
6.7.1 Data Management
Manufacturing companies are usually good at recording systematically the
component and assembly drawings. But often do not keep complete records
of attributes such as 'size', 'weight', 'where used', and so on. As a result,
engineer; often have problems accessing the information they need. This
leaves a gap in their ability to manage their product data effectively. Data
management systems must be able to manage attribute and documentary
product data, and also relationships between them, through a relational
database system. With so much data being generated, a technique to
organise this information easily and quickly needs to be established.
Classification must be a basic capability of a PDM system. Information
regarding similar types of components must be capable of being grouped
together in named classes. More detailed classification is possible by using

'attributes' to explain the essential characteristics of each component in a
given class.
 Classification of Components
Components will be entered in the database under different types of classes,
which suit individual business needs. Classes themselves can be grouped
together under suitable broad headings. This allows all the company's
working stock of components to be organised in an easily traceable,
hierarchical network structure. Each part can be given its own set of
attributes.
Additionally, some systems have the capability of registering that certain
components are available with specific 'optional' attributes. This can be
invaluable in controlling Bills of Materials (BOMs) for made-to-order
variations of the standard items or customised items.
 Classification of Documents
Documents relating to assemblies and components can be similarly
classified; for example, classes might be 'drawings', '3D models', Technical
publications', 'Spreadsheet files', and so on. Each document can have its set
of attributes, like part, number, author, dates entered and so on. And, at the
same time relationships between documents and the components
themselves can be maintained. So, for example, a dossier for a specific
'bearing assembly' could be extracted, containing 2D drawings, solid models,
and FEA files. PDM systems differ greatly in their classification capability.
Some have none. Others encourage the ability to define a classification only
at the time when the database is implemented. More recent PDM systems
have been provided with a capability that can be defined and modified at will,
as the demands of the organisation change.
 Product Structure
Product structure is the third way from which product data can be accessed.
For any selected product, the relationship between its component
assemblies and between the parts that make up these assemblies must be
maintained. This would mean that one could open a complete Bill of
Materials, including documents and parts, either for the entire product or for
the selected assemblies. One distinct advantage is the ability to compare
not just the physical relationships between parts in an assembly, but also
other kinds of structures; for instance, manufacturing, financial, maintenance
or document relationships. So, it is possible for specialist members of the

team to see the product structured from their point of view.
 Querying the Data
As you can imagine, one needs to be able to 'get at' the components and
assembly data by a variety of routes. One could move up and down a
classification tree; pick one's way through a product structure; simply call-up
the data one wants by searching for it by name or part number, or search for
groups of data by specifying an attribute or combination of attributes. For
example, you could ask to see all stainless steel rivets with anodised shanks
less than 10 mm long.
6.7.2 Process Management
So far we have dealt only with organising data so that it is easy to access
and, refer to and for cross-reference; basically passive procedures. Process
Management (PM), on the other hand, is about controlling the way people
create and modify data – active procedures. This may sound like a new
name for 'project management'. It is not. PM concerns itself only with the
delegation of tasks; process management addresses the impact of tasks on
data. Process management systems normally have three broad functions:
 Work Management: They manage what happens to the data when
someone works on it.
 Workflow Management: They manage the flow of data between people.
 Work History Management: They keep track of all the events and
movements that happen in functions 1 and 2 during the history of a
project.
PDM systems vary widely in how they perform these functions. The
following is a broad overview:
6.7.2.1 Work Management
Engineers create and change data for a living. The act of designing
something is exactly that. A solid model, for example, may go through
hundreds of design changes during the course of development, each
involving far-reaching modifications to the underlying engineering data.
Frequently the engineer will wish simply to explore a particular approach,
later abandoning it in favour of a previous version.
A PDM system offers a solution by acting as the working environment for
engineers. It meticulously captures all new and changed data as it is

generated. It maintains a record of which version it is, recalling it on demand

and effectively keeping track of every move of the engineer.
Naturally, when an engineer is asked to carry out a design modification, he
or she will normally require more than just the original design and the
Engineering Change Order (ECO). Many, forms, files, and documents may
need to be referred to and other members of the design team may be
involved, too. In a traditional design environment, a project folder or dossier
would be compiled which the team could refer to as and when it is needed.
Today‟s PDM systems cope with this requirement with varying degrees of
success. One approach is using „user packets‟ instead of paper-based
processes. The packet allows the engineer to manage and modify several
different master documents simultaneously as well as provide various
supporting documents for reference. This approach also supports the
concurrent engineering principle. For example, even though only one user
can be working on a 'master' design, colleagues working on the same
project can be instantly notified that there is an updated master design, and
reference copies of it will be made available to them in their own packets. A
given packet can be worked on only by the user to whom it is logged out,
but its contents can be looked at and copied by everybody with the
necessary access permissions.
6.7.2.2 Workflow Management
Packets have the advantage of making it easy for team members to share
meaningful groups of documents, but they are useful for another reason
also. They make it possible to move work around from department to
department, or from individual to individual in logically organised bundles.
Engineers may need to design thousands of parts during the development
of a product. For each part that is designed, files need to be created,
modified, viewed, checked, and approved by many different people, some
times several times over. Each part will call for different development
techniques and different types of data – solid models for some, circuit
diagrams, and FEA (Functional Economic Analysis) data for others.
Work on any of these master files will have a potential impact on other
related files. So there needs to be continuous cross checking, modification,
rechecking and re-submission. With all these changes overlapping, it is all
too easy for an engineer in one discipline to be investing considerable time

and effort in pursuing a design, which has already been invalidated by the
work someone else has done in another part of the project. Bringing order to
this highly complex workflow is what product data management systems do
best. In particular, they keep track of the thousands of individual decisions
that determine who does what next.
Most PDM systems permit the project leader to control the progress of the
project via 'states' using pre-determined 'triggers'. It also provides a routing
list which may vary according to what type of organisation or development
project is involved. The way systems differ is in how much flexibility they
allow within the framework discipline. The most rigid systems are based on
procedures. Every individual or group of individuals is made to represent a
state in a procedure – 'Initiated', 'Submitted', 'Checked', 'Approved', and
'Released'; a file or record can't move from one individual or group to the
next without changing states. Some systems make it possible to give an
identity of its own to the task, separate from the people working on it.
For example, consider an engineer working on a design wants to confer with
colleagues as to the best way to approach the design. As long as the master
model and all the associated reference files are contained in and controlled
by a packet, it is simple to pass the entire job across to any number of other
people without triggering a change of state. The formal workflow procedure
is not compromised by this informal rerouting because the authority to
change the file's state doesn't move around with the packet. It remains with
the designated individual.
Communication within the development team is enhanced too. When
packets of data and files are passed around, they can be accompanied by
instructions, notes and comments. Some systems have 'redlining' capability;
others even have provision for informally annotating files with the electronic
equivalent of 'post-it' notes.
In other words, a Process Management (PM) system could be seen as a
way of: 'loosening up' the working environment, instead of constraining it.
The challenge is how far you can allow informal teamwork and cross-
fertilisation to carry on, and still keep overall management control of project
costs and deadlines. Most systems allow the current status of the entire task,
with all supporting data, to be tracked and viewed by authorised individuals
at al times.

A packet symbolises one task in a product development project, which may

consist of many thousands. Each packet has its own route to follow through
the system but the relationship between packets also needs to be controlled.
You need to be able to define the interdependence of tasks so as to match
the way your individual project is structured to coordinate this complex
workflow effectively. Not all systems are easy to customise in this way. The
ones that can be customised have the ability to create a hierarchical
relationship between files. For example, one could instruct the system to
prevent an engineer from signing off an assembly for release until all its
parts have been individually released.
6.7.2.3 Work History Management
As we have seen, Product Data Management (PDM) systems must not just
keep comprehensive database records of the current state of the project.
They must also record the states the project has been through. This means
that they are a potentially useful source of audit trial data. The ability to
perform regular process audits is a fundamental requirement for
conformance to international quality management standards such as
ISO9000, EN29000 and BS5750. But project history management is also
important to allow you to 'back-track' to specific points in a project's
development – to a point from where a problem arose, as one can start a
new line of development from it.
What specific development milestones the system records are important.
Some systems record only the changes in ownership of documents.
Therefore only the ownership of the document can be traced at a specific
point in time, but not the modification made to it. Others have the capacity to
record changes, but may do so as a series of 'snapshots' taken only when a
file changes 'state'. This can leave large gaps in workflow history as a user
may have been making modifications to a design for several weeks, without
any change to its state. Some systems provide an historic record in the form
of a 'moving picture', by allowing you to record changes to any system-
defined level you choose, for example, every time a modified file is saved.
This level of historical tracking, provides comprehensive auditing, also
permits the active monitoring of individual performance which is invaluable
during time-critical projects.


14. Manufacturing companies are usually good at recording systematically
the ______________ and ______________.
15. Most systems allow the current status of the entire task, with all
supporting data, to be tracked and viewed by
_____________individuals at all times.
16. The way systems differ is in how much flexibility they permit allow
within the________________ discipline.
17. The challenge is how far you can allow _____________and cross-
fertilisation to carry on
6.7.3 Benefits of PDM
The following section covers some of the benefits of the PDM system:
 Reduced Time-to-Market
This is the major benefit of a PDM system. Three factors limits the speed
with which you can bring a product to market. One is the time it takes to
perform tasks, such as engineering design and tooling. Another is the waste
of time between tasks, as when a released design sits in a production
engineer's in-tray waiting its turn to be dealt with. And the third is time lost in
rework. A PDM system can do much to overcome all these time limitations.
 It can speed up the tasks by making data instantly available, as it is
needed.
 It supports concurrent task management.
 It allows authorised team members access to all relevant data, all the
time, with the assurance that it is always the latest version.
 Improved Design Productivity
Product Data Management systems, when driving the appropriate tools, car
significantly increase the productivity of your engineers. With a PDM system
providing them with the correct tools to access this data efficiently, the
design process itself can be dramatically shortened.
Another important factor is that designers must spend more time actually
designing. Historically, a design engineer would spend as much as 25-30%
of his time simply handling information; looking for it, retrieving it, waiting for:
copies of drawings, archiving new data. PDM removes this dead time almost
entirely. The designer no longer requires knowing where to look for release
designs or other data.

A third major time saver is the elimination of the 'reinvented wheel'

syndrome. The amount of time designers spend solving problems that have
probably been solved before, is notorious. It is often considered quicker to d
it again than to track down design elements that could be re-used. With
PDM system, the identification, re-use and modification of existing similar
designs must become routine.
 Improved Design and Manufacturing Accuracy
An important advantage of PDM systems is that everyone involved in a
project is operating on the same set of data, which is always up-to-date.
When working on a master file you will know it is the only one. If you are
viewing reference copy, you know it is a replica of the latest master.
Therefore, overlapping or inconsistent designs are eliminated even though,
people operate on it concurrently. Naturally this leads to far fewer instances
of design problems that only emerge at manufacturing or QA, fewer
Engineering Change Orders (ECOs), more right-the-first-time designs and,
once again, a faster path to the marketplace.
 Better use of Creative Team Skills
Designers are often cautious in their approach to problem solving for no
reason other than the high time penalties for exploring alternative solutions.
The risks of spending excessive time on a radically new design approach,
which may not work, would be unacceptable. PDM opens up the creative
process in three important ways.
First, it keeps track of all the test results and documents relating to a given
product change, minimising design rework and potential design mistakes.
Second, it reduces the risk of failure by sharing the risk with others and by
making the data available to the right people fast. Third, it encourages team
problem solving by allowing individuals to bounce ideas off each other using
the packet-transfer facility, knowing that all of them are looking at the same
problem.
 Comfortable to Use
PDM systems differ widely in their levels of user-friendliness. But, most set
out to operate within the existing organisational structure of a product
engineering operation, without major disruption. In fact, the system must
make familiar tasks much more user-oriented than before. When users wish
to view information on a PDM system, the application is loaded
automatically, and then the document is loaded. In a conventional working
environment, the users would either have to be much more skilled at

accessing the information, or be prepared to accept it in a much less flexible
form.
The concept of single central vault ensures that, while data is immediately
accessible to those who need it, all master documents and records of
historical change remain absolutely accurate and secure.
 Better Control of Projects
The product development projects are almost invariably late is not because
they are badly planned in the first place, but because they routinely go out of
control. This is because of the immense volume of data the project
generates, rapidly snowballs beyond the scope of traditional project
management techniques. As the competitive time pressure increases, so
does the scope for inconsistency, and likelihood of rework. PDM systems
also enable you to retain control of the project by ensuring that the data, on
which it is based, is firmly controlled.
Product structure, change management, configuration control and trace-
ability are key benefits. Automatic data release and electronic sign-off
procedures can enhance the control As a result, it is impossible for;
scheduled task to be ignored, buried or forgotten.
 Better Management of Engineering Change
A PDM system allows you to create and maintain multiple revisions and
versions of any design in the database. This means that iterations on design
can be created without the worry that previous versions will be lost or
accidentally erased. Every version and revision has to be 'signed' and
'dated', removing any ambiguity about current designs and providing a
complete audit trail of changes.
A Major Step toward Total Quality Management is acquired by introducing a
coherent set of audited processes to the product development cycle. A PDM
system goes a long way towards establishing an environment for ISO9000
compliance and Total Quality Management (TQM). The fundamental
principal of TQM, the 'empowerment of the individual to identify and solve
problems‟, are inherent in the PDM structure. The form controls, checks,
change management processes and defined responsibility also ensure that
the PDM system you select, contributes to the organisation conformance
with international quality standards.
6.8 Manufacturing Operations

The manufacturing operations can be classified based on the amount of
processing the product requires, after the company receives an order from
customer. They are broadly classified as:
 Make-to-Order (MTO) and Make-to-Stock (MTS)
 Assemble-to-Order (ATO)
 Engineer-to-Order (ETO)
 Configure-to-Order (CTO)
6.8.1 Make-to-Order (MTO) and Make-to-Stock (MTS)
At one end of the processing spectrum is the make-to-order (MTO)
company. This company does not begin processing the material for the
component or product until it has received an order from the customer. In
some cases, the company may not even procure the material and
components until after it receives the order. This type of manufacturing
operations is followed when the company competes on the basis of product
customisation and serves its customer base by providing unique and highly
specialised items. The MTO company‟s production planning is based also
on firm customer orders.
At the other end of the spectrum is the Make-to-Stock (MTS) company,
which manufactures products and places them in inventory before it
receives customers' orders. Either the customer purchases the products
directly from the inventory at a retail outlet, or the company ships the
product 'off-the-shelf from the finished goods inventory at the factory or at a
distribution centre. MTS companies depend heavily on market analysis and
demand forecasting in planning the production of their products with respect
to the product mix and volume.
Figure 6.2 shows the relation between the output variety (degree of
customisation) and the type of manufacturing operation. As it is evident from
the graph, that the output variety is highest when the company is operating
in the make-to-order mode, since the companies can serve each and every
individual customer in the way he/she wants. But the cycle time will be more
and the cost of the product will also be more. But in the case of a MTS
company, the products are already made and kept in the inventory for the
customer to pick up. Here, the customer won't get any individual attention or
customisation; he can buy what is available with the company. The MTS

company will be making products in lots and the cost of the products will be
less as the economies of scale will be at work and there will not be any
waiting period for the customer after placing the order.
6.8.2 Assemble-to-Order (ATO)
Assemble-to-Order (ATO) company is another variation of the
manufacturing operations. The ATO company manufactures standardised,
option modules according to the forecasts it has made and then assembles
a specific combination, or package of modules, after receiving the
customer's order. The classic example is the automobile manufacturer. After
receiving orders from a host of dealers, the manufacturer specifies the exact
production schedule for the automobiles.
The schedule is based on the options order by the customers, like automatic
transmission or manual transmission, air-conditioning, standard or digital
control panel, leather, cloth or vinyl seating, and so on. Many components
for assembling the automobiles would have be ordered or started into
production before receiving the customer's order based upon demand
forecasts. Thus, the major processing that remains when the orders come in
is assembly. This approach shortens the time between placement of the
order and delivery of the product – cycle time.
6.8.3 Engineer-to-Order (ETO)
Yet another variant in the manufacturing operations is the Engineer-to-Order
(ETO) company. The ETO Company is the ultimate in product variety,
product customisation and flexibility. In this mode of operation, as per
customer order the company manufactures any thing, but at a higher price.
The expensive clothing of the 'bold and beautiful' is an example of this kind
of production. Products are made for each customer and even the minute
details, for example, the feel of the cloth and the texture, the colour of the
threads, the size of the collar and so on will differ from one customer to
another, depending upon the customer's preferences. So the manufacturer
cannot keep anything in inventory, he will have to order only once the
customer has given his/her specifications. Obviously, the cost of production
will be highest in this mode of production.
6.8.4 Configure-to-Order (CTO)
MTO manufacturers traditionally had to choose between ATO and ETO.
ATO suppliers face the need to extend product lines, add features, and

increase flexibility to meet customer demands. ETO manufacturers feel a

pressure to standardise at least some of their product lines to reduce costs
and remain competitive. Today, the environment of CTO has emerged in
response to customers' demands for individualised products with shortened
lead-times, improved quality and competitive prices. Virtually any
manufacturer that uses options, features, or variable dimensions is a
candidate for entering the CTO environment.
The key component of a configuration is the blueprint of valid combinations
of features and options.
Figure 6.2 shows the relation between the output variety (degree of
customisation) and the type of manufacturing operation. As you can see
from the graph, the output variety is highest when the company is operation
in the make-to-order mode as the companies can serve each and every
individual customer in the way he/she wants. However, since the cycle time
will be more the cost of the product also will increase. In the case of an MTS
company, the products are already made and kept in the inventory for the
customer to pick up. Here the customer will not get any individual attention
or customisation. He can buy what is available with the company.
This model, make use of traditional bill of material model with parent and
component relationships. Rules and calculations then ensure that the final
configuration can be built by defining the way to build it and also establish a
selling price. The flexibility of establishing this CTO model is clearly an
important aspect of selecting the best configuration software for your
business. Few functional areas are free from the impact of transitioning to a
new way of entering sales orders. They automatically generate new part
numbers, bills and routings; for building and shipping products; and record
the financial results of doing business.

Figure 6.2: Relation between output variety and the type of manufacturing
process
Input from sales and marketing, manufacturing, product data management,

and finance is required to develop a CTO model that supports the integrated
environment. It is important to understand how the configuration generates
the "appropriate" bill of material and routing because they are at the core of
the planning process. Typically, a CTO model represents a translation of
product engineering rules that define relationships among product options,
materials and manufacturing processes. Multiple models CTO differentiate
different sets of valid relationships and required processes.
The CTO model provides valid options within a model, and applies rules or
calculations based on selections. For example, a CTO model of a Personal
Computer (PC) would have a set of component options such as case styles,
CPUs (66 or 100 MHz), hard drives (520MB or 1.2GB), and monitors (VGA
or SVGA). Structured under the options would be the real item part numbers.

This is very use full for identification and verification process during
manufacturing and quality control.
Key considerations for production and material planners are the modularity
of the real bills of material that will be combined in the configured end item,
and the level at which sales analysis records will be stored. Many times, the
structure (if bills and routings exist at all) needs to be re-examined in light of
how it will support the CTO model.
The ability of the configuration to automatically create new part numbers,
generate bills and routings, and assign prices has greatly reduced the
process of product introduction. However, unless the manufacturing bills
have been reviewed and contoured to a CTO model, the result is often
inaccurate/inadequate information, faster!
With the architecture of the CTO, and the ability to capture sales analysis
information at the option level, planners have a tool to improve their
planning models. The ability to capture sales analysis records on the options
provides the ability to accrue data for use in forecasting software. For
example, within the option accessories, each occurrence of a mouse,
modem NIC, sound card and CD-ROM selection is captured as a sales
analysis record. This information is available for summarisation at a month
or year end. The data, can be reviewed and massaged, then input to the
forecasting algorithms. Automatically information is monitored and
maintained at the detail level, instead of forecasting it at the accessory level
with the use of percentage Bills of Material (BOM),.
The configuration software also provides features to quickly develop
accurate part, bill, and routing information. In addition to maintaining sales
analysis information at the configured item level, detail information by option
is also available. This provides a powerful database for the dissection of
market data. It also becomes the foundation for improving forecasting and
planning capabilities.
18. Historically, a design engineer would spend as much as 25-30% of his;
time simply_____________________.
19. The __________no longer needs to know where to look for release
designs or other data, since it is all there on demand.

20. The single _____________concept ensures that, while data is

immediately accessible to those who need it
21. The ________________company‟s production planning is based also
on firm customer orders.
22. MTO manufacturers traditionally have had to choose between
____________and _______________.
Activity 4
Visit a manufacturing industry process on internet and study the need for
various manufacturing operations and their significance in making the
production more efficient and flexible. Make a list of the reasons why they
should switch over to an ERP.
6.9 Summary
The manufacturing sector always faces troubles in allocating raw materials
and deciding the outputs. The ERPs forefathers namely material resource
planning and manufacturing resource planning have solved these problems.
They were designed with tools that helped to provide the calculations in an
accurate manner. This has helped a lot through retail ERP.
However these applications were not able to tackle similar problems in other
departments like finance and human resources. ERP however helped in
overcoming that trouble also by using software programs that calculated
more than billion permutations and combinations in a millisecond. Turnkey‟s
ERP manufacturing is like providing total solutions to the sector as the first
word in the phrase will indicate. German ERP solutions are very famous.
The CAD/CAM systems assist engineers in designing, examining, and
upgrading drawings required for manufacturing. Being a part of Product
Data Management it enables high degree of precision in both during design
phase and the actual manufacturing phase. It also enhances the capacity of
the company by reducing the time consumed in converting the drawings into
actual working models.
Materials and production planning is critical to the success of a
manufacturing company. Material Resource Planning (MRP) provides a
method that helps keep order due dates valid, even after the orders have
been released to the shop floor or outside vendor. It provides a complete

and comprehensive view about all the activities like the master pproduction
schedule (MPS), Bill of Material (BOM), Inventory Records (IR). This system
provides a complete view about the flow of materials, with in the company. It
also monitors all the materials that come in and moves out of the company.
Distribution Requirement Planning (DRP) provides a mechanism for
integrating the physical distribution system with the production planning and
scheduling system. DRP records are is similar to MRP records. DRP plays a
central coordinator role in the physical distribution system similar to MRPs
role in coordinating materials in the manufacturing system. DRP system also
creates significant logistics saving through improved planning of
transportation capacity needs, vehicle loading, vehicle dispatching and
warehouse receipt planning. DRP acts as a critical link between the
marketplace, demand forecasting and master production scheduling.
Just-in-Time (JIT) means to produce goods and services when needed, not
too early and not too late. JIT system aims to make goods available just in
time and these can be parts, products or subassemblies. It ensures to
eliminate the things that are not required for production from the site. It also
takes care of the quality of the product. At the same time it makes sure that
all the employees are involved in the work yielding the complete benefit from
the companies‟ work force. Kanban concept makes sure that unnecessary
items that are not meant for production will not be a part of production line.
This process can be described as simple JIT. Kanban is a chain process
system in which orders flow from one process to another, the production or
delivery of components is pulled to the production line. This pulling of
components takes place only when requirement arises. Hence preventing
the excess usage or wasting the materials.
Product Data Management (PDM) has to maintain the data. Check the flow
of data between the various departments of the organisation. It must ensure
that the data is made available to the people who need the data in time.
Process management systems normally have three broad functions work
management, workflow management and work history management. This
method enabled proper classification of data according to the function, time
and the requirements. This system has given high flexibility in handling and
maintaining the huge data an organisation generates every day.


1. What are MTS and MTO?
2. Explain Just-in-Time (JIT) & KANBAN. Mention the benefits of JIT.
3. What is ATO and how is it different from ETO?
4. What is CAD/CAM and what are its advantages?
5. What is PDM and how does it improve the competitiveness of a
company?
6. Explain the concept of MRP II
6.11 Answers
1. Process manufacturing
2. Design
3. Business
4. Enterprise Resource Planning
5. Materials, production
6. Bill of Material
7. MRP-II
8. Feedback
9. Coordinating
10. Total Quality Management
11. Just-in-Time management
12. Inventory
13. Disruption
14. Component, assembly drawings
15. Authorised
16. Framework
17. Informal teamwork
18. Handling information
19. Designer
20. Central vault
21. Make to Order
22. Assemble to Order, Engineer-to-Order
Terminal Questions

6.12 Case Study

Analyse some of the major problems faced by XYZ company while
making an order for components for fabrication of dumper body are listed
below,
 High manufacturing lead time.
 Inventory levels not balanced leading to excess and short inventory.
 Several manual registers and recording methodology.
 Several non value adding processes affecting costs and creating
waste.
 Manual compilation of reports and MIS affecting accuracy and
completeness.
To over come these problems the XYZ company planned to implement a
ERP based MRP system in their organization, and the following are the
out come of the implementation of the ERP system in the organisation.
 Automated MRP based on sale orders and delivery schedules given
by customers
 Bill of material defined for all products.
 Better planning lead to better availability of material and also better
purchase price for raw materials.
 Process and data integration lead to better inter-process control
resulting in purchase optimisation, inventory optimisation. Wasteful
exercises like manual registers writing, manual verification of certain
details are eliminated by pushing the business rules into the software.
 Automatic generation of documents like Purchase Order, Invoice etc.
leading to time saving and accuracy.
 Generation of MIS reports using real time data enabling the
management take the right decision at the right time for running the
business more profitably.
Questions
1. Analyse the problems faced by the company that forced it to get an
ERP implementation.
2. Explain what how the company benefited form the new system.
3. Give your own perspective of how ERP helped in achieving the
above mentioned results

6.13 Glossary
Term Description
Deploy Putting something to use in an organisation like a new
machinery or a tool or even a software implementation like the
ERP system
Enchanted To captivate somebody or something or to cast a spell on
somebody or something like an ERP system captivating the
imagination of many organisation.
Inventories Accounting a record of a business's current assets, including
property owned, merchandise on hand, and the value of work in
progress and work completed but not sold
Realm A defined area of interest or study, scope of something in an
area or domain of an industry
Solely Or nothing other than or to the exclusion of all else or others in
an organisation and particularly for a group of people or
managers
References
1. ”Manufacturing & Service Operations Management” by WJ Hopp, ML
Spearman.
2. "The Kanban Evolution" by Drickhamer, David.
3. “A Relational Model of Data for Large Shared Data Banks" by Codd, E.F.

Unit 7 ERP – Purchase and Sales Perspective

Structure:
7.1 Introduction
Objectives
7.2 Overview of Purchase Department
7.3 Purchase module
Features of Purchase Module
Benefits of ERP Purchase Module
7.4 Functioning of ERP Purchase System
Purchasing process
7.6 Sub Modules of Sales and Distribution
Master Data Management
Order Management
Warehouse Management
Shipping & Transportation
Billing & Sales Support
Foreign Trade
7.7 Summary
7.9 Answers
7.10 Case Study
7.11 Glossary
7.1 Introduction
By now you must be familiar with the concept of ERP and a few modules of
ERP. This unit familiarises you with ERP – Purchase and Sales Perspective.
Purchase
Purchase involves procurement of all sorts of items or products required by
the company. Purchase refers to a business or an organisation attempting
to acquire goods or services to accomplish the goals of the enterprise. The
purchase department of an organisation provides items required by all the
departments, keeps track of the quantity of the different items, and deals
with the suppliers in an endeavour to procure new stock. In a manufacturing
company, purchase also plays a very important role.

A well planned procurement process ensures that materials with correct

quality specifications are available at right prices and at the right time.
Though there are several organisations attempting to set standards in the
purchasing process, processes can vary greatly between organisations.
With ever increasing competitive and cost pressures, ERP based
comprehensive purchasing tools are necessary for any organisation to
enhance profit margins and to accelerate business processes.
Sales
Sales, an essential function for an organisation, reflects a company's
position in the market. Sales include all the activities for domestic and export
sales of an organisation. In order to satisfy the requirements of today's fast
moving markets, sales must be flexible and must react quickly. With better
regularisation of sales activities, companies can meet sales targets in the
most profitable way. Some of these targets are:
 Productivity
 Product quality
 Prices
 Meeting deadlines
 Customer services
In today‟s growing competitive business environment, increased efficiency in
sales and distribution is a key factor that ensures companies retain a
business competitive edge as well as improve profit margins and customer
service. The sales and distribution module of ERP offers a comprehensive
set of best-of-breed components for both order and logistics management.
 Explain the functioning of purchase department in an organisation
 Elucidate the features and benefits of ERP – Purchase module
 Analyse the importance of Sales and Distribution module
 Describe the functioning of various sub module of Sales and Distribution
module
7.2 Overview of Purchase Department

Purchasing is the largest expenditure for manufacturers and represents 50-
70% of total manufacturing costs. The purchase department of the
organization is responsible for purchasing materials required for

manufacturing products in the right quantities, of the right quality, and at the
right time. In any company, the process of purchase begins with the material
requirement. The requirement is as per demand by a department. These
requirements are routed through the stores. The purchase department
raises the purchase order to initiate the purchase process. Purchase orders
are created when there is shortage of materials for production of products.
The vendor supplies goods based on the purchase order. All purchase
orders are treated as pending purchase orders till the time the material is
received from the vendors.
On receiving of goods, a receipt note is raised and stock accounts are
updated. After the receipt note is created, purchase invoice is created based
on which the finance department makes the payment. The stock ledger and
the stock registers reflect the updated stock details. The balance sheet,
Profit/Loss (P/L) statement, and general ledger reflect the updated general
ledger account details.
Materials can be obtained from different vendors. Companies purchasing
material from different vendors and in varying quantities require a good ERP
purchase module. An ERP purchase module streamlines the functioning of
procurement and purchase of raw materials, placing orders to suppliers and
billing.
A good ERP Purchasing module allows tracking of each Purchase Order
(PO). The PO is tracked right from the stage when the purchase order and
receipt of materials relating these orders are created to purchase invoices
and unfulfilled requirements if any.
1. Purchase refers to a business or organisation attempting to acquire
__________or _________ to accomplish the goals of the enterprise.
2. Sales, an essential function for an organisation reflects a ____________
in the market.
3. How does the purchase department initiate the purchase process?
7.3 Purchase module

The effects of globalisation, intense business competition, and adverse
economic conditions have emphasised the need for efficient purchase
management. Previously, emphasis was on getting generous amounts of

materials and intermediate goods to warehouses in a timely manner, with
only shipping and storage costs to worry about. Now, materials must meet
ever increasing quality specifications, must be procured in-time, and must
be delivered even faster.
ERP Purchase module automates the processes of identifying potential
suppliers, negotiating price, placing purchase order to the supplier and
billing. It streamlines procurement of required raw materials. It records all
the details pertaining to a vendor and these details form the master data for
vendors who supply goods to the company. It provides complete purchasing
control to generate and track purchase orders from Purchase Order (PO)
issue to receipts. It provides controls for the complete procurement process,
from vendor quoting through receiving, inspection, costing accrual and
vendor payment.
Emphasis on purchase process is to ensure that materials with correct
quality specifications are available at right prices at right time for the smooth
functioning of the organisation. Purchase module is firmly integrated with the
inventory control and production planning modules. Hence, an ERP
purchase module should deliver all the sophisticated features required by
contemporary markets. It must cover the entire range of purchasing
activities including conventional purchasing methods, automated order
organisation, monitoring of order processing, control of materials received,
and account verification.
Since this module is used to manage vendors (often referred as suppliers), it
is also referred to as Supply Chain Management (SCM) module. Various
factors such as stiff competition, changing technology, and short product life
cycles demand that a company does not order material in excess. The SCM
module is designed to meet all these challenges. Suppliers and the
company can work in tandem using the SCM module. The suppliers can
optimise their resources while the company can optimise its resources and
also allow the suppliers to do the same. A supply chain consists of the raw
material which is supplied to the manufacturer, who in turn supplies these
goods to the wholesalers who distribute these goods to the retailers. The
SCM module is designed to handle the entire chain of suppliers. The ability
to effectively manage purchasing is a sustainable advantage for both large

and small organisations. This module provides tools that any organisation
can use to reduce costs, increase profitability, and improve competitiveness.
7.3.1 Features of Purchase Module
The Purchase module helps to improve your purchasing function. This
module controls the inventory purchasing side of your business. You can
track purchase orders, supplier prices, and quantities on order. With the
usage of Purchase module you can increase your inventory efficiency and
eliminate costly shortages. Features of the purchase module include:
 Streamlining purchase and process cycles
 Capturing materials requirement
 Creating quotations from various suppliers
 Providing a detailed Supplier/Subcontractor/Service Provider database
 Recording Payment terms in PO
 Allowing order cancellation and order closing
 Enabling multiple delivery schedules, Quotation validity and multiple
indents for multiple items in a single PO
 Enabling quality inspection of goods
 Containing complete import functionality with handling of custom details
- Purchase Bill for import, excise consideration in imports
 Providing Order tracking reports for complete control on procurement
cycle
 Providing Management Information System (MIS) for vendor evaluation
based on quality, price and delivery time
Efficient purchase management processes provide buyers with advanced
tools for analysing supplier patterns in terms of price and delivery terms.
This also enables them to adopt adequate measures once unfavourable
circumstances are encountered. It assists in taking informed decisions and
maintaining control throughout the procurement cycle. This module can
handle all purchasing and subcontracting activities such as inviting
quotations, supplier evaluation, placing purchase order, order scheduling,
and billing.
7.3.2 Benefits of ERP Purchase Module

The ERP Purchase module provides a complete purchasing control to
generate and track purchase orders from PO issue to receipts. It provides

control for the complete procurement process, from vendor quoting through
receiving, inspection, costing accrual and vendor payment.
Vendor quotes are collected against items with multiple vendor price
comparisons. The purchase module system recommends vendor for each
purchase order. Requisitions can be generated automatically from M.R.P. or
can be entered by users. Once approved, requisitions can be automatically
converted to Pos. The ERP Purchase module is beneficial in many ways to
your organization. Some of the major benefits include:
 Streamlining purchase processes: It takes control of your purchase
process, improves accuracy, and increases employee productivity by
automating routine purchasing tasks. It implements a workflow approval
process for existing purchase orders over designated purchasing limits.
 Reducing operational costs: It reduces repetitive data entry and helps
eliminate costly mistakes by moving your requisition process online.
 Accessing mission-critical information: It provides instant answers to
questions and maintains complete purchasing audit control with detailed
information and tracking and management capabilities. It tracks and
analyses purchase activity with a comprehensive selection of reports.
 Establishing long-term contracts with vendors: It uses blanket
purchase orders to record and track extended purchases, giving you
greater negotiating power with your vendors and simplifying contract
purchase processes.
 Monitoring landed costs more effectively: It maintains tight tracking
control over costs associated with inventory items and modify costs on a
purchase order as items are received.
Other benefits include:
 Easy management of Purchase and Sales order details
 Efficient management of customers, vendors, and company Pos
database
 Preparation of accurate sales, purchase and item transaction reports
 Tracking purchase and sale order number and payment details in the
easiest way
 Elimination of manual purchasing process and stock outs
 Reduced material and inventory costs
 Automated reordering of stock inventory

 Assessment of vendor performance for meeting delivery dates and

quality
 Minimised cost per transaction of issuing a PO and receiving the
products
4. The Purchase module is also referred to as _____________________.
5. ERP Purchase module ________________ procurement of required raw
materials
6. What does the purchase process emphasises on?
7.4 Functioning of ERP Purchase System

ERP Purchase module handles all of the Purchase Requisitions, Purchase
Orders, Receiving and Vouchering of Invoices for raw materials, MRP
purchases, Maintenance and other MRO purchases, and one-time
purchases. These and other terms related to purchase module are briefly
explained below.
 Purchase Requisitions: You can create purchase requisitions in a
variety of ways. This is efficient and saves time as you can create
purchase requisition:
 Directly from a maintenance requirement
 Easily by copying an existing requisition, using the “same as/except”
capability
 Automatically from MRP for suggested raw material purchases
 Easily by entering multiple items or lines on a single requisition
After you have created the Purchase Requisition, it is submitted for approval,
with approval limits by amount. Your Approver can either approve and
forward to Purchasing, or reject and return to the requestor.
 Purchase Orders: You can initiate a purchase order in multiple ways.
You can:
 Enter necessary information to create a new PO from a manual
requisition.
 Copy a prior PO and change it as needed
 Convert an approved purchase requisition to a purchase order, with
the ability to split the requisition to multiple suppliers or combine
multiple requisitions into one purchase order for the same supplier.

 Make a release against a blanket purchase order.

You can enter multiple items on one purchase order and each item can
have multiple deliveries with separate quantity for each delivery.
 Receiving: You can combine the functions of recording the receipt of
material and then verifying quantity into one transaction, or splitting them
into multiple steps if they are performed by different users or at a
different time.
 Supplier Returns: You can return a receipt to the supplier either during
the receiving process or after the receipt has been made. The Supplier
return can only be done prior to vouchering of the invoice for the related
purchase order or receipt.
 Vouchering Invoices: You can create vouchers with a three-way
matching of invoices between the purchase order with the price, receipt
quantity, and invoice (with price and quantity) from the supplier.
 Supplier file: The Purchase module contains a supplier file for
accounting and purchasing. The Supplier file includes information such
as payment terms, purchasing information, addresses and tolerance for
receiving and invoicing.
7.4.1 Purchasing process
The standard purchasing flow in any organisation is as follows:
 Determination of requirements: Materials requirements are identified
either in the user departments or via materials planning and control. This
is done either manually or automatically using the materials planning
and control system.
 Source determinations: The purchasing components identify potential
sources of supply based on past orders and existing longer-term
purchase agreements. This initiates the process of creating Requests
For Quotation (RFQs), which are sent to vendors electronically.
 Vendor selection and comparison or quotations: The Purchase
module system is capable of simulating pricing scenarios. It allows one
to compare a number of different quotations. Rejection letter is sent
automatically.
 Purchase order processing: The Purchase module system adopts
information from the requisition and the quotation in creating a purchase
order. These POs are automatically generated or manually created.

 Purchase order follow-up: The system checks the reminder period one
has specified. It also provides one with an up-to-date status of all
purchase requisitions, quotations and POs.
 Goods receiving and inventory management: Goods receiving
personnel confirm the receipt of goods simply by entering the PO
number. By specifying permissible tolerances, buyers limit over and
under-deliveries of ordered goods.
 Invoice verification: The system supports the checking and matching
of invoices. This facilitates the process and auditing and clearing
invoices for payment.
7. The Purchase module contains a __________ for accounting and
purchasing.
8. How is a purchase order created?
9. What are the different ways of creating purchase requisition?
Activity 1:
Contact a nearby departmental store and find out the purchase process
followed at the departmental store.

In today's global business environment, one thing that companies can be
sure of is rapid change. This change opens new opportunities and throws
new challenges. In this ever-changing environment, keeping a competitive
business edge means being able to anticipate and respond quickly to
changing business conditions. To keep pace with these rapid changes,
companies need an integrated and flexible enterprise system that supports
all aspects of their business.
With today's business environment characterised by growing competition,
companies are being forced to streamline business processes. It is no
longer enough to simply have the best product. Companies are focusing on
core competencies and closer partnerships over the whole supply chain.
The following are the typical sales related business transactions in any
organisation:
 Sales queries such as inquiries and quotations
 Sales orders
 Outline agreements such as contracts and scheduling agreements

 Delivery/Shipment
 Issue invoice/bill
 After sales support
Sales order processing involves the following:
 Inquiry handling
 Quotation preparation and processing
 Price and tax calculation
 Create invoice/bill
 Create printed or electronically transmitted documents
 Sales transactions monitoring
 Delivery scheduling
 Contract management
Depending on your system configuration, these functions may be completely
automated or may also require some manual processing. Figure 7.1 shows
sales and distribution module which actively interacts with the Material
Management and Financial Accounting modules for delivery and billing.
Figure 7.1: The sales and distribution module

7.6 Sub Modules of Sales and Distribution

Typically, Sales and Distribution module contains the following subsystems:
 Master Data Management
 Order Management
 Warehouse Management
 Shipping & Transportation
 Billing & Sales Support
 Foreign Trade
7.6.1 Master Data Management
Each company has its own products and customers. It also has the
suppliers to supply required raw materials. The task of the Master Data
management module is to keep information about all these entities, so that
this information is available to the decision-makers and also for the
automatic generation of reports, contracts and invoices.
7.6.2 Order Management
This module usually includes Sales Order Management and Purchase Order
Management. This module supports the entire sales and purchase
processes from start to finish. Order Management combines the provision of
efficient management solutions with the likelihood of anticipating and
responding quickly to changes in global business conditions.
Sales Order Management
Sales order management is a company's most important point of contact
with its customers. The sales order applications help companies manage
sales operations quickly and efficiently. They also provide comprehensive
solutions for the management of quotes, orders, contracts, prices and
customer discounts. The sales order management system streamlines order
entry procedures to manage products and requirements of both an
individual business and its customers. The system also supports the
following features:
 Intelligent pricing and discount strategies: Provides simulation
capabilities to support „what-if scenarios‟
 Product availability: Identifies where and when that product is available
 Contract and relation management system: Evaluates whether or not
customer contract agreement are being met. It also incorporates

multilevel customer credit reviews and substantial order blocking

functionality.
 Sales performance evaluation: Retrieves both current and past
information that concern orders, cancellations, budgets and revenue
rebate.
 Commission control: Facilitates calculation of employee and supplier
commissions to take note of achieved targets and reward suitably.
 Electronic Data Interchange (EDI): Streamlines communication
throughout a company's supply-chain, from customer to supplier.
Purchase Order Management
Purchase order management is increasingly essential in today's ever
changing competitive business environment. It enables a company to make
the correct purchase decisions about quality and price. Purchase order
management includes online requisitioning, centralised contract
management, Just In Time (JIT) schedules and vendor management.
Purchase order management enables purchase quotation to be sent to
multiple suppliers. The purchase contract information is made available to
the people in the purchasing department.
Figure 7.2 shows the purchase flow. Purchase requisition is a function used
in the purchase process. Purchase requisitions allow companies to enter
requirements for various types of items. Requisitioning can be linked to
workflow authorisation purposes and to approve suppliers. Schedules can
be used instead of orders, to provide detailed purchase and delivery
information.

Figure 7.2: Purchase flow
These schedules are generated in contracts in JIT environments in which

customer service, in-time delivery, and cost reduction are important. The
schedules can be sent through the supply chain by means of EDI commu-
nication. In addition, schedules are fully linked with other modules of the
system.
Sophisticated vendor management tools allow companies to check the
reliability and performance of vendors. The vendor rating system can handle
both objective and subjective criteria. Objective criteria are tracked and
traced automatically by the system and subjective criteria are determined by
the user. Together, these criteria enable companies to make the right
purchase decisions with regard to quality, price, and delivery. Purchase
Order Analysis enables historical as well as statistical data to be used to
assist in the analysis of purchase activities.
7.6.3 Warehouse Management
This module provides real-time information about inventory levels across the
enterprise and tools to manage the daily operational needs of warehouses.
Coordination of an organisation's warehouse network is one of today's most
important business needs and requires an understanding of the relationship

between the different organisation units such as warehouses, production

facilities, sales offices, and purchase offices.
Various components of a good Warehouse Management application is
designed to meet a wide range of warehousing needs, such as the mapping
of internal goods flow within warehouses and the monitoring of warehouse
inventory transactions. Components of a good Warehouse Management
application include:
 Inventory Planning: This comprises of all planned inventory
movements, which enable the accurate forecasting of trends and the
consequent adjustment of reordering points, safety stock, lead-times for
orders, and service levels.
 Inventory Handling: This allows monitoring of all warehouse order
scenarios such as the receipt and issue and transfer of inventory. To
ensure fast communication with suppliers and customer, advanced
shipping notifications can be received or sent by means of EDI which
enables shipments to be received and allocated ahead of time.
 Inventory Reporting: This function permits full visibility of inventory at
single or multiple sites and provides a company with the tools to give
customers accurate delivery dates.
 Inventory Analysis: This function enables the analysis of information
that result from warehousing activities and the use of feedback in
process optimisation. In addition, inventory analysis supports inventory
forecasting and inventory valuation.
7.6.4 Shipping & Transportation
Shipping
The shipping module supports the following functions:
 Monitoring dates of orders due for delivery
 Creating and processing deliveries
 Planning and monitoring work lists for shipping activities
 Monitoring material availability and processing outstanding orders
 Picking & Packing deliveries
 Supporting transportation planning
 Supporting foreign trade requirements
 Printing and sending shipping output
 Updating data related to goods

Figure 7.3 shows shipping process. The 'Delivery note' is the central
shipping document. When is a delivery created (at the shipping point),
shipping activities such as picking and delivery scheduling are initiated and
monitored, and the data generated during shipping processing is recorded.
A delivery note can refer to a sales order or to a transportation order for
stock transfer. Depending on the requirements, you can manually create
deliveries and automatically using work lists. You can make agreements
with your customers for complete or partial deliveries and for order
combinations.
Figure 7.3: Shipping process
Transportation
Transportation is an essential element of the logistics chain. It effects both
inward and outward movement of goods. Effective transportation planning is
required to ensure that shipments are dispatched without delay and that
they arrive on schedule.
Costs of transportation play a considerable role in determining the price of a
product. It is important that these transportation costs are kept to a minimum
in order to keep the price of a product competitive. The aim of the
transportation element is to provide basic functions for transportation such
as transportation planning and processing, freight calculation, freight

settlement, customer freight calculation, and customer freight invoicing as

well as functions for service agent selection.
Activity 2
Contact a manufacturing industry and find out how they manage their
purchase and sales orders.
7.6.5 Billing & Sales Support
Billing
A Sales and Distribution business transaction is completed once it has been
billed. The ERP systems support billing functions such as issuing of invoices
on the basis of goods and services, issuing of credit and debit memos,
cancelling billing transactions, giving rebates, transferring billing data to
Financial Accounting, and Purchasing and so on. The billing system is
integrated with the other modules like Financial Accounting, so that the
documents are automatically generated.
Sales Support
The Sales Support component helps the sales and marketing department to
support existing customers and, at the same time, to develop new business.
The Sales Support component functions both as a source of information for
all other areas of Sales and Distribution and as an initiating force for
acquiring business.
10. Name the sales related business transactions?
11. ______________ module supports the entire sales and purchase
processes from start to finish.
12. The billing system is integrated with the other modules like
_________________.
13. _____________ is an essential element of the logistics chain.
7.6.6 Foreign Trade

In domestic, and increasingly, in international trade, you are required by the
authorities to adhere strictly to the laws and regulations of the land. The
growing tendency towards the formation of trade areas is a challenge to a
company operating on a worldwide basis.

As markets become increasingly more global and business structures more

complex, the need for accuracy in handling the foreign trade needs of a
business is gaining rapidly in importance.
The entire logistics chain, from the import of raw materials, finished and
unfinished goods, to the sale of goods, and the transfer of data to materials
management and financial accounts, is significantly influenced by foreign
trade activities. These tasks in foreign trade processing can be carried out
using the foreign trade system. Foreign trade system helps you meet the
rapidly changing foreign trade requirements of your business. This module
helps in:
 Managing import and export processes and then integrating them
efficiently into the supply chain
 Identifying licensing requirements for importing and exporting goods
based on current regulations
 Simplifying reporting with automatic procedures for creating, printing and
submitting declarations
 Determining which products qualify for preference handling
 Updating data in all relevant foreign trade documents at any time prior to
the final goods issue.
7.7 Summary
ERP Purchase module streamlines procurement of required raw materials. It
automates the processes of identifying potential suppliers, negotiating price,
placing purchase order to the supplier, and billing processes. This module
manages vendors (often referred as suppliers) and hence this module is
also referred to as Supply Chain Management (SCM) module. The
Purchase module helps to improve your purchasing function. ERP Purchase
module handles all of the Purchase Requisitions, Purchase Orders,
Receiving and Vouchering of Invoices for raw materials, MRP purchases,
Maintenance and other MRO purchases and one-time purchases
Increased efficiency in sales and distribution is a key factor to ensure that
companies retain a competitive edge and improve both profit margins and
customer service. Sales order management is a company's most important
point of contact with its customers. To keep pace with rapid changes,
companies need an integrated and flexible enterprise system that supports

all aspects of their business. The sales order applications help companies
manage sales operations quickly and efficiently.
1. Explain the benefits of ERP – Purchase module.
2. Briefly explain the features of ERP – Purchase module.
3. Briefly explain the functioning of ERP Purchase system.
4. Explain the functioning of Order Management module.
5. Name the sub modules of Sales and Distribution module.
6. Briefly explain the need for Sales and Distribution module.
7. Briefly explain the working of Warehouse Management.
8. Briefly explain the working of the purchase department.
7.9 Answers
1. Goods, services
2. Company's position
3. The purchase department raises the purchase order to initiate the
purchase process.
4. Supply Chain Management
5. Streamlines
6. The purchase process emphasises to ensure that materials with correct
quality specifications are available at right prices at right time.
7. Supplier file
8. The Purchasing system adopts information from the requisition and the
quotation to create a purchase order.
9. Different ways of creating purchase requisition are:
 Directly from a maintenance requirement
 Easily by copying an existing requisition, using the “same as/except”
capability
 Automatically from MRP for suggested raw material purchases
 Easily by entering multiple items or lines on a single requisition
10. The sales related business transactions are:
 Sales queries, such as inquiries and quotations
 Sales orders
 Outline agreements, such as contracts and scheduling agreements

 Delivery/Shipment
 Issue invoice/bill
 After sales support
11. Order management
12. Financial Accounting
13. Transportation
Terminal Questions
7.10 Case Study

A business products distributor was manually processing over 300,000
customer orders each year. Heavy order flow prior to shipping cut-off
timeframes and a highly variable daily volume created staffing challenges
and inconsistent order turnaround times.
Despite an effort to process customer orders via EDI, the company
continued to receive over 20,000 orders per month via fax and email
requiring manual data entry. Customer Service Associates in three different
centres manually entered the orders into the order management system
with the added pressure of meeting a shipping deadline. As any manual
single-pass data entry process there were many errors, especially during
peak processing cycles.
Due to a complex product catalogue, variety of order types received from
customers, and the large customer base, finding and training data entry
specialists was a challenge. Fluctuating daily order volumes made
maintaining appropriate staffing levels very difficult. During peak demand
periods order processing lags would greatly decrease customer
satisfaction levels.

To solve all these problems the company implemented an outsourced

automatic data entry solution with sophisticated “free-form” data extraction
for their fax and email orders. The solution was able to recognise and
capture data from any customer order format with 99.5% accuracy. Order
input no longer requires the participation of the company‟s order entry staff,
which has reduced labour costs. The solution also receives fax and email
orders on behalf of the company directly from customers and converts the
hardcopy order to an EDI electronic purchase order for the order
management systems.
The solution includes a customised web-based portal to support exception
processing and a secure web tool for archiving and storing images of all of
the original order documents. The solution is completely accessible on
demand from any of the company‟s workstations. The solution was fully
operational within 90 days and required zero capital investments in
hardware, software or labour on the part of the company.
Questions:
1. What are the challenges that the company faced before the installation
of the Data Entry solution?
2. What are the benefits of the Automatic Data Entry solution?
7.11 Glossary
Term Description
Freight Transporting goods commercially. It is a shipment used for

regular transactions of any resources. The goods are
transported by a large vehicle. The freight rate is usually not
very expensive.
Logistics Management of the supplies and transport required for an
operation. It manages the flow of goods, information and other
resources between the point of origin and consumption. It
involves the integration of information, transportation,
inventory, warehousing and material handling.
Requisitions An official form on which a request in made. A formal request
is made for providing official services. It is an internal
document that an organisation sends to the purchasing
department containing details of materials required and the
stock available

Streamlining Contour economically or efficiently. It is reforming the any

tasks to make it simpler or easier to ensure that the extent of
complexity is reduced.
Voucher A document that serves as an evidence of some expenditure.
It is a receipt that ifs usually used as an evidence of a
declaration that a service had been provided and expenditure
has been made.
References
1. http://www.simplesoftindia.com/projects_erp_purchasemodule.htm
2. Master data management by David Loshin
3. Warehouse management by Michael Hompel, Thorsten Schmidt
4. ERP systems and organisational change by Grabot, Anne Mayere,
Isabelle Bazet

Unit 8 ERP Inventory Control

Structure:
8.1 Introduction
Objectives
8.2 ERP Inventory Management
Features of ERP Inventory Management
Benefits and Limitations of ERP Inventory Management
Installing ERP Inventory Systems
8.3 Web ERP
Benefits of Web ERP
8.4 Sub Modules of ERP Inventory Management
8.5 Inventory ERP Software Module
8.6 Summary
8.8 Answers
8.9 Case Study
8.10 Glossary
8.1 Introduction
By now you must be familiar with ERP modules like purchasing and sales.
This unit familiarises you with how inventory is processed in a warehouse.
In large organisations, information is often extended across various
departments, resulting in declined performance due to lack of integration.
Also considerable cost is involved in maintaining these systems. For
example, Boeing depends on many suppliers to supply the components
required to build an airplane. The manufacturing process involves fixing the
right parts in the right order at right time. This process was managed using
400 separate systems, which were integrated but were not synchronised
properly. This resulted in various miscommunications such as parts that
were ordered were not delivered on time, forcing Boeing to run into a huge
business loss. Later Boeing replaced these primitive systems with integrated
Enterprise Resource Planning (ERP) systems.
With the need to centralise multiple sources of information, systems that
deploy ERP management has emerged as the preferred solution in
business organisations.

Inventory is the largest asset of any organisation. It is a stock of items

stored to meet any demands in the future. The reasons for which inventories
have to be maintained or kept in stock are:
 Time: Whenever an order is placed by a customer, it takes minimum
amount of time for the supplier to supply the committed stock. In order to
facilitate the process of production in the time lag between order and
supply, inventory should always be available as stock.
 Uncertainty: Buffer (temporary stock) is maintained to facilitate uncertain
and unexpected crises in demand, supply and transportation of inventory.
Customers usually expect high quality service from organisations. Hence,
inventory must be adequate to meet customers expectations. Therefore,
inventory management becomes a necessary part of a successful business.
Inventories typically consist of goods, resources, and finished products. This
method helps transporting inventory at appropriate time.
Inventory management is not limited to delivery of raw materials; it is also
the management of these materials as they go through the various stages.
However, Inventory control is not the in all the organisations. Organisations
need to react quickly to the consumers demand and make cost effective
planning in order to remain viable. Efficient inventory management helps the
organisation to meet customers’ demands and at the same time it increases
the net income.
It enables a business to have instant and specific access to the inventory at
any time to meet consumer demand. ERP inventory management takes
control of a business’s inventory such as purchasing, delivery, and
advertising. It mainly helps in eliminating most of the business problems
such as inventory shortages, customer service and financial management.
 Explain inventory management and its features.
 List out the benefits and drawbacks of inventory management.
 Describe how ERP inventory systems can be installed.
 Explain Web ERP.
 List out the benefits of Web ERP.

 Explain the types of inventory management.

 Describe inventory ERP software module.
8.2 ERP Inventory Management

ERP is a computer system that maintains information database which can
be accessed through out the organisation. i.e. the system is centralised.
Systems that deploy ERP inventory management allows information sharing
across various departments of the organisation and also across
geographical locations. It allows employees to view information in reliable
and consistent fashion. The systems that deploy ERP procedures maintain
only one software system and are dependent on networks.
Consider for illustration how the order execution process is managed by
SAP. Figure 8.1 shows the execution of a process.
3 1 4
Customer Customer Materials and

Information Inquiry Capacity Availability
Quote
5
6 7
Sales Order Delivery Billing document
Figure 8.1: Order Execution Process
From the figure 8.1 you can make out that, whenever a customer makes an
enquiry about the inventory (1). A quote is prepared by SAP along with the
finance information and date of delivery (2). The quote takes into report
what it already knows about the consumer (3). A check is performed to
determine the amount of stock or inventory that is available for maintenance
(4), and thus resulting in an instant and automatic update of information in

the database. Once the quote is prepared by the supplier, it is presented to

the customer. If the customer accepts the quote, SAP issues a sales order
(5) by quoting their prices for each item. The order is then processed as per
the requirements by sending the necessary information to various
departments of the organisation and delivery is automatically scheduled (6).
The cost issues of customer billing are also automatically processed (7).
Thus the SAP tool manages the entire ERP cycle.
ERP Inventory module is a simple yet dominant inventory tracking module
that facilitates the process of tracking and controlling the inventory and also
provides the flexibility of customisation. Earlier, paper based systems were
used to process information from various departments of an organisation
and it consumed time.
ERP inventory management system reduces time lag and makes the entire
process efficient, by maintaining the appropriate level of stock in the
warehouse. It helps in maintaining the suitable level of stock in the
warehouse. The activities of inventory control involve:
 Identifying inventory requirements
 Setting targets
 Providing techniques and options
 Monitoring item usages
 Integrating inventory balances
 Reporting Inventory
Changes in inventory are automatically updated. This enables inventory
management employees to see if an item is currently in stock. Since the
database is centralised, the ERP inventory system allows flexibility in
customisation and configuration with various applications from different
departments of an organisation. However, the systems that deploy ERP
management are dependent on networks.
8.2.1 Features of ERP Inventory Management
ERP inventory management has many features .Some of them include:
 Quality control based on QC Parameters
 Analysis which help in maintaining best possible stock level
 Extensive verification of stock

 Online status of item quantity in terms of on-hand, on –hand available,

reserved, ordered, to order, rejected, defective and rework-able
quantities
 High degree of flexibility for managing complex storage needs and
automatic update of warehouse
ERP management uses bar codes to maintain inventory items. A bar code is
a small image that has bars (lines) and spaces fixed on the store items and
used as an identification mark of a particular product. This makes tracking
stock much easier. Once the items are bar-coded, they get scanned and
their product information is entered into the ERP inventory management
system.
Introducing bar code labels on stock helps companies save money as it
keeps the list of stock updated. Employees can easily see when certain
quantities are low and need to re-stock. Customers also benefits from this
as customers can see what products are currently in stock.
The main purpose and benefit that the organisation can derive from ERP
management system is that the ERP system is company-wide and has a
single software system, where as organisations that do not employ ERP
management will have dissimilar and diverse software applications that may
not be compatible with one another.
8.2.2 Benefits and Limitations of ERP Inventory Management
ERP inventory management system has many benefits. Some of them
include:
 Tracking of orders from the point the order is received to its release.
 Facilitating appropriate communication between different areas.
 Reducing the threat of loss of information.
 Providing a ‘top down’ summary of the mechanism of a company.
 Setting up an outline of security to protect against theft from external or
within a company.
 Replacing old and primitive paper based systems that improves
efficiency.
Limitations of ERP Inventory Management
ERP inventory management helps an organisation in many ways. However,
it also has some limitations. They are:

 Limited customisation
 Expensive
 Not friendly with every type of business like small organisations.
 Harder to fix responsibility as it is a company-wide system that connects
all areas
 When all departments in a company are not willing to share information,
maintenance of sensitive data can disturb the work flow
8.2.3 Installing ERP Inventory System
ERP Inventory systems are expensive, and are complex to install. Usually a
third party contractor is hired to install the software and hardware, and these
vendors who provide installation also suggest consultation and customise
the system to the business needs.
However, installation is a tedious task and consumes time depending on the
size of the organisation and the requirements of the company. Typically,
installing ERP Inventory system takes more than a few months, and larger
organisations can take up to a year to install ERP Inventory system.
There are many consulting vendors or firms available in the market to install
ERP Inventory system; besides installing the system, they also train the
employees to use the installed system.
An ideal installed inventory system should always be able to have answers
to the most anticipated questions such as:
 What and how much stock is available in the warehouse?
 What is sold and to which organisation?
 What are the financial issues related to price and margin?
 What orders that are placed, but remains undelivered?
Installation of ERP Inventory systems is complex and not a simple job.
However, deploying web based Inventory management ERP is simple and
consumes less time for installation.
Failure of ERP Inventory installation
Many times, when installation of ERP software fails, ERP software vendors
are held responsible. However installation failure can occur due to the
following factors:
 Operating strategy did not suit organisation design and operation.
 The implementation and completion took longer than anticipated.
 Pre-implementation actions were not well planned.

 People were not well ready to learn and operate the new ERP system.
 Cost related issues leads to difficulties in implementing and using ERP
Inventory systems.
8.3 Web ERP

Web ERP has become a necessity for businessmen to be aware of their
stock and inventory from anywhere, at anytime. Web ERP is an absolute
web-based ERP system that requires only a web browser and PDF reader.
It has now become an open source application and is offered as a free
download.
Web ERP systems are gaining popularity than ever. It allows businessmen
to update their systems in large organisations without the need of installing
updates at any remote locations, almost immediately. It provides real time
information about finance, inventory, employee management, etc by
providing advanced levels of service to consumers and suppliers
8.3.1 Benefits of Web ERP
 Web ERP Inventory system has many benefits. Some of them include:
 It processes data on the server side. Therefore, no installation is
required on the client machines.
 It provides Multilanguage support; users can view the interface in their
preferred language.
 It provides Multi-theme support; users can view the interface in their
preferred graphical theme.
 It runs on any web server and suitable for both high speed and low
speed internet connections.
 It can be installed on any device that has internet access.
Web ERP is developed using PHP as a web development language. These
scripts are developed with stability and ease so that the application
becomes readable with a minimum knowledge of scripting in PHP and the
structure of ERP.
The logic is made as clear and simple as possible in order to remove any
generalisation from the code, and to make it readable for all kinds of

employees. It can also be configured easily on any operating system and

the processing constraints required are also economical.
Web ERP has many features that make it suitable for maintaining
organisations of different sizes. It provides an easy structure of processing
by supporting features such as multiple inventory locations and multiple
currencies. .Web ERP maintains all records that provide information like,
amount of inventory stock available, amount of inventory ordered, amount of
inventory sold, and amount of inventory that is defective.
Activity 1
Visit a small organisation that deploys Web ERP. Find out how
transactions are processed online.

1. How are changes in inventory updated?
2. What is a bar code?
3. ERP Inventory management provides a ‘top down’ summary of the
mechanism of a company, State True or False.
4. Moving inventory from a warehouse is called _________________.
5. What is minimum inventory requirement?
8.4 Sub Modules of ERP Inventory Management

ERP Inventory management module takes care of transactional workflow in
an organisation in sequential order. ERP Inventory module is subdivided
into different modules such as:
 Inventory requisition: The function of inventory requisition is to take
the inventory constraints from various departments of an organisation.
This is achieved when various departments fill the inventory requisition
form. On filling the form, the head of the department fills up the
quantity/quality of the inventory required, considering the minimum
inventory required, maximum inventory required, and the current
inventory available.
 Inventory order assessment: Once the form is filled, inputs are taken
from the form and processed. The inventory wanted by the various
departments is compared with the minimum inventory required. Once

the comparison is done, the final requirement for various departments is

fixed and a list of suppliers for the inventory is then formulated.
 Inventory placing: Once the supplier is chosen, an order is placed by
filling the order form. The order form has the following information:
○ Order date
○ Quality wanted
○ Transportation mode
○ Mode of payment
○ Supplier ID
○ Department ID
○ Price per item
On filling up this information, an order is placed to the supplier.
 Supplier Performa: In this sub module, the supplier provides quotation
for further transactions, by filling up the proposal form in which the
supplier needs to fill-up the following information such as:
○ Quantity and quality of goods they can provide
○ Time required to supply the order
○ Price they charge for each item
○ Modes of payment.
With this information provided by the supplier, further transactions can be
carried on.
 Order received: In this sub module, a comparison between order
placed and order received is recorded i.e. a comparison is done
between Date of placing order with Date of receiving order, and Quality
with Quantity of order placed. Once the comparison is done, the amount
to be paid to the supplier and the mode of payment is decided.
 Quality checks: It is necessary to check if the deliverables have met
the expected outcome. Therefore, quality check becomes an important
phase where Research and Development(R &D) department performs a
check and the department head acknowledges it by filling up a quality
assessment form.
 Inventory bills and challans: In order to ensure safe payment, bills and
challans are chosen to represent the amount paid, payment mode along
with the ID of supplier and Receipt ID.

 Minimum inventory assessment: Minimum inventory assessment aims

at assessing minimum inventory inputs or requirements from various
departments of an organisation. The assessment is done by preparing a
Performa which is circulated to various departments and they are
expected to fill up their minimum inventory requirements. This
assessment is done, considering various factors such as costumers
order received, inventory in hand and scrap.
 Minimum inventory requirement: Minimum inventory requirement is
the amount of inventory less than which employees cannot work i.e. it is
that minimum amount of inventory required to perform any task.
 Maximum inventory assessment: In this sub module an assessment is
done for maximum amount of requirements. This information is gathered
from various departments to guarantee that no wastage happens. The
assessment is done by considering factors such as customers order
received, inventory in hand, etc.
 Maximum inventory requirement: It is the amount of inventory which is
sufficient to perform any task.
Activity 2
Visit an organisation that deploys ERP system for managing inventory
and find out how are the ERP suppliers chosen, how an order is
placed ,how is the quality of the inventory maintained, and what are their
modes of payment?
8.5 ERP Inventory Software Module

Managing inventory is essential for an organisation to regulate the planned
production and avoid problems such as running short of inventory or stock.
The primary objective of managing inventories is to maintain a balance
between the need for product required and product available.
ERP Inventory software module maintains reports of warehouse supplies
and keeps track of the transactions that happen to/from the warehouse. It
maintains the warehouse taking into account various constraints such as:
 Material request management: An request for materials is made from
various departments
 Material Issue: Materials are issued as asked for
 Material Receipt: A receipt is issued from the seller
 Inter warehouse/Location transfers: The materials are moved from

the warehouse or within the warehouse
 Stock Valuation: Stock is verified mechanically
6. _________________ Module assures safe payment mode.
7. Moving of inventory within the warehouse is called
_________________.
8. ERP Inventory systems are economical. State True or False.
9. _________________ requests for materials from various units of the
organisation.
10. The systems that deploy ERP systems support cross functional suite
for transactions. State True or False.
8.6 Summary
Inventory or stock is an important asset of a successful business. Therefore,
managing inventory becomes a crucial part for carrying out error free
transactions.
ERP Inventory management allows various methods and modules to
maintain the required amount of stock in a warehouse. One of the major
benefits of it is that changes are automatically updated in the inventory.
Thus, by deploying ERP Inventory systems in organisations, companies are
able to integrate information from various units, there by increasing the
order issues and providing faster sales and hence proving better customer
service by making the systems standardised and centralised.
Thus systems that deploy ERP Inventory management provide a cross
functional suite that supports various kinds of transactions, increasing
quality and efficiency of supply with decreased costs.

1. List out the different activities of inventory control.
2. How does ERP inventory module maintain inventory items?
3. List out some merits/demerits of inventory management control
4. What is web ERP? What are its benefits?
5. List out the different modules under ERP Inventory management.

8.8 Answers
1. Automatically/mechanically
2. Image to identify a product number
3. True
4. Location transfers
5. Minimum amount of stock required to work
6. Inventory Bills and Challans
7. Inter-warehouse transfer
8. False
9. Material request management
10. True
Terminal Questions
8.9 Case study

ERP Inventory management implementation
Organisation: Cruise Coffee and Tea
Before, Cruise Coffee and Tea implemented ERP, they encompassed
strict customisation and older systems. This led to various problems
such as, increasing lack of ability to keep up with the demands or orders
placed on them and lack of visibility across the supply chain without any
central inventory management in place. This finally pushed the business
to send out a Request for Proposal (RFP) to ERP system vendors.
One objective of choosing ERP system mainly was to avoid
customisation or to keep the level of customisation as minimum as
possible. This is the key to any ERP implementation because more
customisation means a longer timeline, more testing, more costs and
more probability that the project will fail.

But ERP systems managed inventory in a top down approach and in

one transactional workflow. Placing orders and handling every move of
inventory in the warehouse was just automated and consistent.
Originally, financials were made first, then order fulfilment and then
manufacturing these separate releases resulted in a lot of extra
customisation.
Then, when ERP was implemented, one system handled order tracking,
financial systems were also made centralised as well. Earlier, financial
information had to be gathered from various departments and systems
and processed manually. But from the time Cruise Coffee and tea threw
light on ERP system implementation, they now handle orders from its
195 retail stores, 8,300 grocery stores and other partners helping with
the business expansion.
Questions:
1. What role did ERP management play in the organisation?
2. What were the reasons for the organisation to avoid excessive
customisation?
8.10 Glossary
Term Description
Inventory Stock/supply in the business. It is a list for goods and materials that
are held available in stock by an organisation. They are the raw
materials, work in process goods and finished goods that are
essential for the business of the organisation.
Warehouse Stock room, room where stock is deposited. It is a commercial
building for storing the goods. They are used by manufacturers,
importers, exporters, wholesalers, transport businesses, customs
etc.
Web ERP Deploying inventory management online. It is a complete web based
ERP system that requires only a web browser and a PDF reader to
use. It is developed as an open source application and is also
available as a free download to use.
Bar code A bar code is the small image of lines (bars) and spaces that is
affixed to retail store items, to identify a particular product number. It
is an optical machine readable representation of information. It
shows certain data on certain products.

References
1. ERP: Tools, techniques, and applications for integrating the supply chain
by Carol A. Ptak, Eli Schragenheim
2. http://www.nickmutt.com/web-based-erp.htm
3. Enterprise resource planning (ERP): The dynamics of operations
management by Avraham Shtub

Unit 9 ERP – A CRM Perspective

Structure:
9.1 Introduction
Objectives
9.2 Customer Relationship Management (CRM)
Components of CRM System
Features of CRM
9.3 Types of CRM
Sub Modules in CRM
Variations in CRM
9.4 Implementation of CRM
Choosing a CRM system
Implementation Issues
CRM Adoption Issues
9.5 Benefits of CRM
Business Benefits of CRM
9.6 Challenges of CRM
9.7 Summary
9.9 Answers
9.10 Case Study
9.11 Glossary
9.1 Introduction
By now you must be familiar with the concept of ERP and a few modules of
ERP such as purchase, sales, quality management and so on. This unit
familiarises you with ERP - CRM module.
Organisations continuously strive for increased sales performance, superior
customer service and enhanced customer relationship management. In
order to accomplish these objectives, organisations need solutions that
provide rapid access to centralised customer and prospect information. Also,
to ensure competitive advantage, an analysis of customer oriented
processes and data as well as strategies for improving them are required.

Efficient communication with customers and partners is vital for any

organisation. In today‟s fast moving and competitive business environment,
it is important to provide customers with timely support when problems arise.
Customer problems may be ones that can be resolved with a known or
researched solution, though some problems involving design of the product
or software need to be dealt in a different way. Many companies today use
Defect Tracking Systems to track and manage these issues. These systems
can also help manage feature and enhancement requests, help plan and
document product releases.
Usually, the Customer Support system and the Defect Tracking System are
separate software entities. When a problem arises, the support agent
provides technical support and then documents the problem. Then, the
engineering department enters this data into the Defect Tracking System.
The Engineering department may not have access to all the information
collected by the customer support department, and may have to retrace to
steps already taken by the Support Agent. As these two functions are
handled by two separate systems, processing the problems is delayed.
Maintaining two different systems has many costs and issues. This may also
not be in the interest of the customer.
Hence, integrating these two systems into a single comprehensive system
enhances the ability to detect and resolve problems. This keeps the
customers happy, and costs less to use and operate. This can be achieved
by implementing a Customer Relationship Management (CRM) that can
perform both the functions. The following sections provide a detailed view of
CRM and its implementation.
 Explain the concept of CRM.
 Describe the types and sub modules of CRM.
 List out the benefits and challenges of CRM.
 Elucidate the implementation of CRM.
9.2 Customer Relationship Management (CRM)

CRM software supports front office operations and the customer service,
sales, and marketing functions. CRM software is available as stand-alone

software package also. In recent years, it has become a primary component

of ERP software solutions.
CRM was earlier just a label for a category of software tools but today it
generally denotes a company-wide business strategy. It embraces all
customer-facing departments and extends even beyond. It is a business
system that consists of business strategies, business processes, and
enterprise information systems. CRM software system automates customer-
related business tasks. This software includes many features such as
activities, history, related contacts, addresses of your customers, and their
relations with your competitors.
ERP CRM module helps you know your customer better. It attempts to
enhance the relationship with customers. CRM is a broadly recognised,
widely-implemented strategy for managing a company‟s interactions with
customers and sales prospects. It involves using technology to organise,
automate, and synchronise business processes. The business processes
include sales related activities, marketing, customer service, and technical
support.
Goals of CRM system is to learn more about customers' needs and
behaviours in order to develop stronger relationships with them, and to
facilitate acquiring, enhancing and retaining customers. You can use the
CRM system to:
 Develop, maintain or improve customer relationships
 Capture customer interactions information and provide your customer-
support teams a single integrated information of your customer
 Become customer-driven and therefore be successful
 Increase revenues and profits while lowering the costs of marketing,
selling, and servicing your customers
CRM in its broadest sense simply means managing all customer
interactions. In practice, this requires using information about your
customers and prospects. It helps you interact more effectively with your
customers in all stages of your relationship with them. These stages are
known as customer life cycle. The customer life cycle has three stages:
1. Acquiring customers
2. Increasing the value of the customer
3. Retaining good customers
One of the primary functions of CRM software is to collect information about

customers. As such, a company must consider the desire for customer
privacy and data security as well as the legislative and cultural norms. Some
customers prefer assurances that their data will not be shared with third
parties without their prior consent and that safeguards are in place to
prevent illegal access by third parties.
9.2.1 Components of CRM System
The CRM system basically consists of four components, they are:
 CRM Software: The core of a CRM system is module-based CRM
software application. Each software module automates business
activities pertaining to one functional area of the CRM. Common
modules in CRM software system include customer contact
management, direct marketing, sales automation, call centre
applications and helpdesk module.
 Business Processes: Business processes within an organisation are
grouped into three levels – strategic planning, management control and
operational control. While ERP has been promoted as solution for
supporting or streamlining business processes at all levels, CRM
systems are clearly designed to enhance management control and
operational control in the chain of customer relationship.
 Users: The primary users of CRM systems are workers that perform
management control and operational control. In an extended enterprise
environment, the CRM users may include customers and business
partners.
 Hardware and Operating Systems: UNIX is the most common
operating system for running CRM software. Larger CRM systems are
usually UNIX based. Windows NT and Linux are other popular operating
systems to run CRM software.
9.2.2 Features of CRM
CRM is all about managing your customers, partners, vendors and other
stakeholders efficiently. The CRM module provides a platform for enhanced
customer service and customer satisfaction. All features from order
acceptance, execution, delivery, and invoice issue to after-sales service can
be routed through the CRM module. There are certain features that you

should look for when you select an ERP CRM module for your organisation.
The CRM should be:
 A centralised communication platform
 Either a standalone or integrated module
 User-friendly
 Platform-independent
 Remotely accessible
 Capable of seamlessly integrating with other ERP modules
 Integrated with the service and sales management
To further enhance the service delivery proposition, the CRM module can be
integrated with mobile devices (smart phones and Personal Digital
Assistants (PDAs)), enabling field personnel to access, administer and enter
data directly into the system.
CRM is not merely a technology; it is in fact the move towards serving your
customers better and more efficiently. The top management should utilise
CRM's complete potential to maximise the benefits for their organisation.
Self Assessment Question
1. CRM software system automates _______________ business tasks.
2. Name the components of a CRM system.
3. The CRM module provides a platform for enhanced ______________
and _____________________.
Activity 1
A Customer Product Call Centre wants to add a short customer survey at
the end of each customer call. Create a questionnaire for the customer
based on the business processes.

9.3 Types of CRM

Figure 9.1 shows the different types of CRMs. There are three main types of
CRMs. They are Operational CRM, Collaborative CRM and Analytical CRM.
Figure 9.1: Types of CRM
 Operational CRM: This CRM deals with providing complete front office
support to sales, marketing and similar services. Each customer
interaction is recorded and added to customer's history. This can be
easily retrieved from database for future reference. The benefit of
maintaining this customer interaction history is that the customers can
easily communicate with the service personnel without having to repeat
any of the earlier communication or information. This CRM is mainly
useful in automating customer-centric processes and providing
appropriate support to sales and marketing services. Hence, this CRM
software is used popularly in call centres or Business Process
Outsourcing (BPO) companies for supporting the call centre staff.
 Collaborative CRM: This CRM directly communicates with customers
without the involvement of any sales or service representatives. This
direct communication can be carried out through a variety of channels
such as email, phone, SMS etc. Collaborative CRM includes:
○ Providing efficient communication with customers across a variety of
communications channels
○ Providing online services to reduce customer service costs

○ Providing access to customer information while interacting with

customers
This Collaborative CRM reduces the company costs and improves the
services provided.
 Analytical CRM: This CRM analyses data (gathered as part of
Operational CRM, or from other sources) in an attempt to identify means
to enhance a company's relationship with its customers. The results of
this analysis can be used to design targeted marketing campaigns, for
example:
○ Acquisition: Cross-selling, up-selling
○ Retention: Retaining existing customers
○ Information: Providing timely and regular information to customers
Other examples of the applications of analyses include:
○ Contact optimisation
○ Evaluating and improving customer satisfaction
○ Optimising sales coverage
○ Fraud detection
○ Financial forecasts
○ Price optimisation
○ Product development
○ Program evaluation
○ Risk assessment and management
○ Strategic marketing
○ Operational marketing
Data collection and analysis is a continuous and iterative process. Ideally,
business decisions are refined over time, based on feedback from earlier
analyses and decisions. Most analytical CRM projects use a data
warehouse to manage data.
Analytical CRM is used in management decisions, predicting future trends,
analysing customer behaviour, planning and executing marketing
campaigns and so on.
9.3.1 Sub Modules in CRM
We already know that CRM is the process of managing relationships with
customers by capturing, analyzing, and storing customer information. The

functionality of a CRM system can be studied under three sub modules.

They are Marketing, Service and Sales. All these modules are Operational,
Collaborative and Analytical.
Marketing module
The functionalities of marketing module of CRM comprises short term
execution of marketing related activities and long term planning within a
company. It also helps in activities like campaign management, lead
management, and planning. Marketing module enables your company to run
marketing campaigns using different communication channels. This targets
potential buyers using a product or a group of products as a message. It
generates sales related opportunities which then can be converted into
sales.
Service Module
The service module of CRM focuses on managing planned and unplanned
customer service. This module helps in activities such as Service Order
Management, Service Contract Management, Planned Services
management, Warranty Management, Installed Base (Equipment)
Management, Service-Level Agreement Management, Resource Planning
and Scheduling and Knowledge Management
Sales Module
The sales module of CRM focuses on managing and executing the pre-
sales process of the company by making it more organised. The sales
teams in most companies are responsible for capturing opportunities and
customer interaction. The CRM helps the sales team in processing this data
and following-up it in the future. The CRM also helps in organising all
relevant data received and captured for a deal, into one place. Some of the
captured data can include expected budget, total spending, prospective
customers, key players, products interested in, important dates and
expected closing dates of a deal.
Each of these modules can be stand alone applications depending on
organisational need. It is important that the right software is selected and
implemented correctly. Then only any CRM can be effective.

9.3.2 Variations in CRM

CRM module can be customised for specific business process. The
following modules are a few variations in Operational CRM:
Sales Force Automation (SFA)
As the name implies, SFA system provides an array of capabilities to
streamline all phases of the sales process, minimising the time spent on
manual data entry and administration. This enables companies to
successfully follow more customers in a shorter span of time. The heart of
SFA is a contact management system for tracking and recording every
stage in the sales process for each prospective customer.
SFA automates a company's critical sales and sales force management
tasks, such as forecasting, sales administration, tracking customer
preferences, performance management, lead management, account
management, contact management, and quote management.
Enterprise Marketing Automation (EMA)
The EMA systems for marketing help the enterprise identify and target its
best customers and generate qualified leads for the sales team. A key
marketing capability is managing and measuring multi channel campaigns
including email, search, social media and direct mail. EMA also
encompasses capabilities for managing customer loyalty, lists, collateral,
and internal marketing resources. EMA provides information about the
business environment, including information on competitors, industry trends,
and macro environmental variables. EMA applications are used to improve
marketing efficiency.
Customer Service and Support (CSS)
CSS automates certain service requests, complaints, product returns and
enquiries. Organisations have recognised that customer service is an
important differentiator. They are, therefore, increasingly turning to
technology platforms to improve upon their customer relationship. A 2009
study revealed that only 39% of corporate executives believe their
employees have the right tools and authority to solve customer problems.1
1
InsideCRM (2007) Get It Together with Collaborative CRM

In fact, today‟s surplus customer service channels have prompted many

companies to deploy integrated support applications that deliver knowledge-
enabled solutions across all customer service channels.
4. Name the three types of CRMs
5. _____________ CRM is used in management decisions
6. What is the need for maintaining a customer interaction history?
7. _________________ CRM reduces the company costs and improves
the services provided.
8. _________________ system provides an array of capabilities to
streamline all phases of the sales process.
9.4 Implementing CRM

Many enterprises have derived great benefits from CRM. Some of them
include dramatic increases in revenue, higher rates of customer satisfaction
and significant savings in operating costs. However, choosing and
implementing a system is a major task. The process of building CRM
system can be divided into two phases: CRM selection and CRM
implementation.
9.4.1 Choosing a CRM System
Although CRM is powerful software, many companies find that choosing the
right CRM is a difficult task. Many companies realise that providing a high
level of service to their partners and customers is an important factor of
being successful in the market.
Many small business owners have realised the importance of CRM for a
long time, even if they were not familiar with the actual term and the extend
of difference it can make to their businesses. Most small business owners
realise that customers are the lifeline of their business, and hence they work
hard to provide customers with the best service possible service.
CRM is more important to large companies compared to smaller businesses.
This is because large companies being so large that it is difficult for them to
maintain a strong relationship with their customers. In many cases, both the
employees and customers of large company often complain that the
company "treats them like numbers." Smaller companies do not have this

problem because their customers often interact with them on an individual

basis.
To choose a right and powerful CRM solution, a company must know what
to look for. Following is a list of points to be considered:
 Understand the company’s strategies and goals: This assists in
picking a CRM solution that will help in becoming successful.
 Consider web based CRM: Internet has become a global tool and
being used by more and more people everyday, companies that do not
use it to their advantage are left behind.
 Check for product cost: Companies must purchase a CRM solution
that is within their price range. It is not advisable to spend too much than
what is actually required.
 Check for scalability: The CRM solution should be capable of adapting
to changes and compliant to emerging technologies.
 Implementation time: The best CRM solutions are those which can be
deployed within a short period of time. The sooner the system is
implemented, the faster the company can improve both its quality and
profits.
 Check for usability: The CRM solution should be user-friendly.
Employees must be able to learn its usage within a short period of time.
For all sizes of enterprises, a complete and detailed plan is required to
obtain the funding, resources, and company-wide support. This can make
the initiative successful. Benefits must be defined, risks assessed, and cost
quantified in three general areas:
 Processes: Though CRM has many technological components,
business processes is always its core. CRM is a more customer-centric
way of doing business. This way of business is enabled by technology
that consolidates and intelligently distributes pertinent information about
customers, sales, marketing effectiveness, responsiveness, and market
trends. Therefore, before choosing a technology platform, you need to
analyse its business workflows and processes. Moreover, planners need
to determine the types of customer information that are most relevant,
and how best to employ them.

 People: For an initiative to be effective, you must convince your staff

that change is good and that the new technology and workflows will
benefit them as well as customers. Collaboration, teamwork, and two-
way communication should be encouraged across hierarchical
boundaries, especially with respect to process improvement.
 Technology: In evaluating technology, key factors include:
○ Alignment with your company‟s business process strategy and goals
○ The ability to deliver the right data to the right employees
○ Ease of usage
A chosen group of executives who understand the business processes to be
automated as well as associated software issues must select the platform
for CRM software. Selecting appropriate application can take a long time
depending upon the size of the company and the volume of data.
9.4.2 Implementation Issues
The CRM technology should be implemented only in the context of careful
strategic and operational planning. Implementations invariably fall short
when one or more of the following aspects are ignored:
 Planning: Initiatives can easily fail when efforts are made only to
choose and deploy software, without an accompanying rationale,
context, and support for the workforce. In other instances, enterprises
simply automate flawed customer-facing processes rather than redesign
them according to the best practices.
 Working toward a solution: Organisations should overcome lack of
communication and common goals among departments. Experts advise
organisations to recognise the immense value of integrating their
customer-facing operations. In this view, internally-focused, department-
centric views should be discarded. This favours the reorienting
processes toward information-sharing across marketing, sales, and
service. For example, sales representatives need to know about current
service issues and relevant marketing promotions before attempting to
cross-sell to a specific customer. Marketing managers should be able to
leverage customer information from sales and service to better target
campaigns and offers.
 Integration: For many companies, CRM is a form of initiative that
addresses a glaring need like improving a particular customer-facing
process (via simple contact management or sales planning) or

automating a favoured sales or customer support channel. Such “point
solutions” offer little or no integration or no alignment with a company‟s
overall strategy. This can result in customer dissatisfaction. Hence a
seamless integration of these point solutions along with alignment to the
company‟s business strategy is necessary for successful CRM
implementation.
9.4.3 CRM Adoption Issues
Historically, reports revealed that more money was spent on CRM software
that was not used. A contemporaneous AMR Research study found that out
of 80 large customers surveyed, 47% had difficulty with end-user adoption,
leading to abandoned projects or unused software modules.
In many big organisations that have installed the ERP – CRM system, the
biggest challenge is getting their staff to use the CRM systems they had
installed. The staff either did not use more than half the functionality of the
existing system or used functionalities that were easy to use. Data
synchronisation was one of the major issues that the staff faced. Hence,
specialists recommend the following for boosting adoptions rates and
coaxing users to blend these tools into their daily workflow:
 Choose a system that is easy to use: All CRM solutions are not
created equal. Some vendors offer more user-friendly applications than
others. However, while choosing a system, simplicity must be an
important decision factor as much as functionality.
 Choose the right capabilities: Employees need to know that time
invested in learning and using the CRM yields work advantage and
improves personal work efficiencies. Else, they tend to find workarounds
or ignore the system.
 Provide training: Changing the way people work is not a simple task.
Even with today‟s more usable CRM systems, many staffers still need
assistance with learning and adoption. Provide consistent support.
Prompt, expert, easily-accessible and round the clock technical support
goes a long way in encouraging the staffers to use new system willingly
and confidently.

9.5 Benefits of CRM

An excellent CRM is the heart of every business success. With CRM, you
can easily understand customer requirements, meet those needs effectively,
predict market trends and enhance your business bottom line.
A properly implemented CRM system can bring significant benefits to your
organisations. System means, the complete consortium of 3 P's, People
(employees, culture), Procedures (way of doing business), and Programs
(supporting applications and not just an application running on a computer).
The advantages that a CRM can bring are:
 Shared or distributed data: Customer relationships are happening at
many levels and not just through customer service or a web presence.
They start to understand the need for sharing all available data
throughout the organisation. A CRM system is an enabler for making
decisions and follow-up at levels.
 Better customer service: All data concerning interactions with
customers is centralised. The customer service department can greatly
benefit from this because they have all the information they need. And
through the use of push-technology, customer service representatives
can lead the customer towards the information they need. The customer
experience is greatly enhanced.
 Increased customer satisfaction: The customer feels that he is more
"part of the team" instead of just a subject for sales and marketing.
Customer service is better and the needs of the customer are
anticipated and addressed. Many companies believe that more satisfied
customers means a good predictor for repeat business.
 Better customer retention: If a CRM system can help to fascinate
customers, it increases customer loyalty. Customers keep coming back
to buy again and again. Hence, higher customer retention is assured
 More business: If you are delivering the ultimate customer experience,
this seeds the word-of-mouth buzz, which brings in more new business.
 More profit: More business at lower cost equals more profit.
Customer relationship management tools have also been of great help to
companies in attaining their business objectives.

The CRM systems help in collecting data that help in enhanced customer
satisfaction. The types of data CRM systems can collect are:
 Responses to campaigns
 Shipping and fulfilment dates
 Sales and purchase data
 Account information
 Web registration data
 Service and support records
 Demographic data
 Web sales data
9.5.1 Business Benefits of CRM
Implementing a CRM solution might involve considerable time and expense.
However, there are many potential benefits. A major benefit can be the
development of better relations with your existing customers. This can result
in:
 Increased sales through better timing by anticipating needs based on
historic trends
 Identifying needs more effectively by understanding specific customer
requirements
 Cross-selling of other products by highlighting and suggesting
alternatives or enhancements
 Identifying profitable customer companies
This in turn can lead to better marketing of your products or services by
focusing on:
 Effective targeted marketing communications aimed specifically at
customer needs
 A more personal approach and the development of new or improved
products and services in order to win more business in the future
Ultimately this could lead to:
 Enhanced customer satisfaction and retention, ensuring that your good
reputation in the marketplace continues to grow
 Increased value from your existing customers and reduced costs
associated with supporting and servicing them. This increases your
overall efficiency and reduces total cost of sales

 Improved profitability by focusing on the most profitable customers and

 Dealing with the unprofitable in more cost effective ways
Once your business starts to look after its existing customers effectively,
efforts can be concentrated on finding new customers and expanding your
market. The more you know about your customers, the easier it is to identify
new prospects and expand your customer base.
Customer needs change over time, and technology can make it easier to
find out more about customers and ensure that everyone in an organisation
can exploit this information.
Activity 2
A Television marketing company intends to implement a CRM to have
better customer relationship. How do you go about the implementation
process with respect to the marketing company? Also, list the benefits of
the new proposed CRM.
9. ________________ is the core of a CRM
10. What are the aspects that result in failure of CRM system?
9.6 Challenges of CRM

Customer-centricity is the key to success in any business today. Building
lasting customer relationship is a strategic advantage. Many companies
around the world have leveraged CRM strategies to gain competitive
advantage. As more and more companies rush to implement CRM,
precautions must be taken to do it right. It is approximated that 50-70%
CRM implementations fail. Hence, it is essential to identify the key
challenges, and address them to build a strategy that can make your CRM
successful. The key challenges that companies face are:
 Understanding CRM: CRM is not a software. It is a business strategy
and is implemented using a software solution. The solution typically
encompasses all customer facing departments like sales, marketing,
customer service etc, of a company. Hence, CRM is a term collectively
used to refer to a combination of business strategy and associated
software.

 Getting clarity on objectives: What are the set of objectives the

company wishes to achieve with CRM? Ensure that these objectives are
listed.
 No core CRM team: Unlike other software implementations, IT team
alone should not be expected to roll out a CRM system; it is very critical
for companies to form a core CRM team which in addition to IT must
draw participation from Top Management, Senior Executives of Sales,
Marketing and Customer Service departments and finally the end-users.
 The costing: It is not unusual for CRM implementations to overrun costs
and timelines. When assessing the costing, always calculate the Total
Cost of Ownership (TCO). There are two ways of getting CRM, the
license model or the ASP (hosted) model. In the licensing model,
licenses typically represent 9 - 18% of the TCO. The actual TCO needs
to include the cost of hardware, software, engineering, operations, and
AMC‟s etc. On the other hand, in the ASP model, a subscription fee
represents the true TCO. Since ASP models offer a fully managed and a
continuously evolving system, it also saves implementation time,
upgrade costs and ownership hassles.
 Product evaluation metrics: In most companies, investment in IT is
need-based. While short-listing CRM products, it is essential to analyse
overall capabilities of the product. As the company matures in its CRM
initiative, the expectation from its CRM system multiplies.
 Getting user adoption: User Adoption is the key for success of any
CRM. It is important to design effective training programs. This provides
enough skills and understanding to employees to be able to effectively
use the system. Ensure that the user interface is kept simple.
Consultants often underestimate or miss the motivation user friendly
interface can create.
 Managing the application: Once the CRM has been rolled-out, it is
important to re-align the working culture of teams around it.
 Define process: Clearly defined processes and their implementation
and control are critical to the success of any CRM rollout. It is advisable
to create a central depositary, accessible to all, which stores all the
process definitions. Some key processes that need to be defined are
Change Management process, Feature re-evaluation process, Success
evaluation process, Business flows etc.

9.7 Summary
In today‟s world, ERP – CRM can bring numerous business advantages to
an organisation. Though the model is not entirely without risks, with a well-
planned strategy and implementation framework companies can implement
CRM successfully. This results in better productivity and customer
satisfaction.
CRM helps businesses use technology and human resources to gain insight
into the behaviour of customers and the value of those customers. CRM
begins with knowing your customer.
The CRM module provides the perfect platform for enhanced customer
service and customer satisfaction. All features, from order acceptance,
execution, delivery, and invoice issue to after-sales service can be routed
through the CRM module. To further enhance the service delivery
proposition, the CRM module can be integrated with mobile devices (smart
phones and PDAs), enabling field personnel to access, administer and enter
data directly into the system while on the move.
One of the primary functions of CRM software is to collect information about
customers. As such, a company must consider the desire for customer
privacy and data security as well as the legislative and cultural norms. Some
customers prefer assurances that their data will not be shared with third
parties without their prior consent and that safeguards are in place to
prevent illegal access by third parties.
The boundary of a CRM system is the boundary of extended enterprise that
implements the CRM system.

1. What are the goals of CRM?
2. What are the benefits of CRM systems?
3. What are the CRM implementation issues?
4. Explain the three types of CRM
5. Briefly explain the functionalities of CRM sub modules

9.9 Answers
1. Customer-related
2. The components of a CRM system are: CRM Software, Business
Processes, Users and Hardware and Operating Systems
3. Customer service, customer satisfaction.
4. The three types of CRMs are: Operational CRM, Collaborative CRM
and Analytical CRM
5. Analytical
6. The customers can easily contact with the service personnel without
having to repeat any of the earlier communication or information.
7. Collaborative
8. Sales Force Automation
9. Business processes
10. The aspects that result in failure of CRM system are: Poor planning,
Not working toward a solution and Poor integration
Terminal Questions

9.10 Case Study

In the early 1990‟s Midwest Community Hospital (MCH) recognised that
managed „care plans‟ dictated where patients went for their first
hospitalisation. However, it was the quality of caring during their patient
experience that determined whether or not individuals and families
would choose MCH for their next healthcare need or move elsewhere
to have their „care plan‟ managed. So, a “Guest Relations” program
was launched to increase patient satisfaction and loyalty. It involves all
patient contact areas, from the security personnel who patrolled the
parking ramp, to the nurses and aides, to the facilities management
team, to the kitchen and cafeteria staff. It forgot finance. Accounting
staff, accustomed to dealing with impersonal policies and government-
regulated payment guidelines, took a clinical and impersonal approach
to billing and collections. MCH found that all the goodwill created during
the patient stay could be, and often was, undone when a patient or
family member had an encounter with the finance group. MCH learned
the hard way that managing the customer relationships extends beyond
traditional caregivers and that CRM must involve all areas.
Question
1. What do you think that the MCH management missed out that led
to customer dissatisfaction?
Glossary
Term Description
Acquisition The act of contracting, assuming or acquiring possession
of something. It is the acquiring control of an organisation,
called a target by stock purchase or exchange.
Automation The act of implementing the control of equipment with
advanced technology; usually involving electronic
hardware
Collaborative To work together. It is a recursive process where two or
more organisations work together in an intersection of
common goals. It is an joint effort of multiple individuals or
work groups to accomplish a task
Contemporaneous Occurring in the same period of time. It refers to the tasks
that occur simultaneously

Demographic A statistic characterising human populations. They

describe the characteristics of a population such as age,
gender, marital status, family size, education, geographic
location, and occupation.
References
1. Inside CRM (2007) Get It Together with Collaborative CRM.
2. Customer relationship management by Kristin Anderson, Carol Kerr.
3. CRM in real time: Empowering customer relationships by Barton J.
Goldenberg.
4. Management of a sales force by Spiro.

Unit 10 ERP HR Perspective and Finance Perspective

Structure:
10.1 Introduction
Objectives
10.2 Human Resource management Module
Activities of Human Resource management system
Benefits of Human Resource management system
Features of Human Resource management system
10.3 Role of ERP in Human Resources
Advantages of deploying ERP systems in Human Resources
10.4 Workflow of ERP Human Resource management
10.5 ERP financial module
Features of ERP Financial module
Benefits of ERP financial module
10.6 Summary
10.8 Answers
10.9 Case study
10.10 Glossary
10.1 Introduction
By now you must be familiar with the concept of ERP systems and a few
modules of ERP. This unit familiarises you with Human Resources and
Finance modules.
Human Resource is an essential part of every successful organisation. It is
responsible for managing human assets. It deals with how employees are
managed in an organisation. Traditionally, it derived from economics, where
it was called ‘labour’. Human resources are mainly concerned with
recruitment, training, payroll, attendance and any other personal issues of
employees in an organisation. The managing of human asset in an
organisation is termed as ‘Human Resource Management’.
The financial module in ERP provides financial functionality and analyses
reports for different departments and cost centres. Both profit and non-profit
organisations benefit from the implementation of ERP Financial module.

This module gathers financial data from various functional departments, and
generates valuable financial reports.
Learning Objectives
 Explain the concept of Human Resources
 Describe the activities of Human Resource Management systems
 List out the benefits and features of Human Resources Management
module
 Elucidate the role of ERP in Human Resource Management systems
 Explain the role and workflow of ERP in the Financial module of an
organisation.
 List out the benefits and features of Financial module
10.2 Human Resource Management Module

Human Resource (HR) technology bridges the gap between Human
Resource1 Management (HRM) and information technology. The activities of
human resources are generally specific to company’s norms and policies
and vary from one organisation to the other. The function of HR can vary
from keeping track of employees’ skills, achievements and salary. To reduce
the burden of manually managing activities of the organisation, electronic
automated process has become necessary.
The HRM systems mainly have two objectives. They are:
 To make the workflow cost effective and less time consuming.
 To provide self service benefits to the employees of an organisation. To
provide flexibility to the employees to change their policies taken, update
their contact information anytime, etc.
10.2.1 Activities of HRM System
The various activities that HRM systems encompass are:
 Payroll: This system provides automatic and instant updates of
employee information such as employee attendance, and employee
arrival and departure time. It also triggers activities of various deductions
and tax to be paid by the employee. It bridges the gap between
1
Nadler L Ed., 1984, The Handbook of Human resources Development, John Wiley and Sons, New York.

employee related activities and the organisation’s financial management

system.
 Work time: This system performs cost analysis and maintains an
efficiency metrics up to date.
 Administration: Every organisation provides certain schemes and
policies for the benefits of the employees. The HRM system keeps track
of the employee’s usage of the benefit programs such as insurance
plans, compensation benefits, and retirement policies.
 HR management information system: This system maintains records
such as address data, training and development and other correlated
activities such as recruitment, placement and maintains employees
personnel records.
 Recruitment: Recruiting employees that best suits an organisation’s
criteria is very necessary. Online recruiting has become one of the major
ways to employ the right and potential candidates for the positions listed
in an organisation. This can be achieved by online job portals,
consultancies or recruiting sites.
 Training: This system is also called as learning management systems.
This system keeps track of employee skills and training to be provided. It
also decides the type of training course required, and other learning
materials such books and CD’s required for the training. The HRM
system also keeps track of calendar of training classes, performance
and appraisal metric of employees.
 Performance Record: This system maintains performance updates of
employees
 Employee self service: This system helps employees to interact with
the HR regarding any queries and wants in an organisation related to
benefits, policies and concerns.
 Organisational development: This system helps in analysing various
modules of an organisation which helps in retaining the deserving
candidates.
 Shared talent: This system ensures that every employee in the
organisation has access to necessary information and ensures
cooperation to make shared decisions regarding an aspect. This creates
a positive work environment.

10.2.2 Benefits of HRM System

The HRM system has many benefits2. This system has many portals that
help the HR department to work faster and efficiently. Some of them include:
 HR employee portal: This portal maintains information such as
attendance, leave records and other employee related activities.
 Employee self service portal: This portal helps employees to avail or
claim for travel expenses and other benefits of an organisation.
 Security portal: This portal maintains security of an organisation by
keeping track of the visitors visiting the organisation.
 Candidate portal: This portal maintains information of candidates
applying for jobs advertised by the HR department.
10.2.3 Features of HRM system
The various features of HRM systems are as listed below:
 It defines enterprise planning for work and job roles with respect to
specific language.
 It defines staff selection and decides various phases of the project
according the policies of the company.
 It facilitates recruitment process by making it easier to conduct interview
with the candidates and send mass mails to all the suitable candidates.
 It deploys effective search engine to easily find and sort out the profiles
that is filtered with respect to the company’s criteria.
 It facilitates instant and automatic updates of more than one employee
at a single instance.
 It provides training management which facilitates to outline the assets
developed by the employee once the training is finished.
 It maintains a report which includes summaries of information such as
loans taken, appraisal with respect to performance, deductions, and
other legal issues.
2
McLean, G. N., Osman-Gani, A. M.,& Cho, E. (Eds.). Human resource development as national policy.
Advances in Developing Human Resources, August (2004). 6 (3). Monk, Ellen and Wagner,
Brett."Concepts in Enterprise Resource Planning" 3rd.ed.Course Technology Cengage Learning.Boston,
Massachusetts.2009

Activity 1
Visit a small organisation and find out the activities performed by the
Human Resources Department. Analyse the process of recruiting the
candidates to the organisation.
10.3 Role of ERP in Human Resources

Human Resource maintains huge volumes of information of employees and
becomes complicated and difficult for management. Therefore, Enterprise
Resource Planning (ERP) that maintains a centralised database is a
powerful tool that can be deployed to maintain an efficient processing.
ERP 3 maintains a database which includes employee details such as
contact information, salary details, attendance, promotion details, and
performance details of all employees.
Deploying ERP in Human Resources department reduces processing time
and cost issues. ERP system also helps in decision making and controlling
reports. Communication within the departments of an organisation is very
necessary. ERP systems also maintain policies and standards, suggestion
box, opinion surveys, business calendar, recruitment letters, news, forum
and other related features of the organisation.
10.3.1 Advantages of Deploying ERP in Human Resources
The various advantages that the Human Resources derive from deploying
ERP system are listed below:
 Automates the processes which requires minimum customisation
 Allows the user to access computing support for different departments of
an organisation
 Provides security of information as database is made centralised
 Facilitates users to authorise accommodating processes between
various departments of an organisation and external agents
 Allows instant updates of information in the database
 Provides access to every employee to browse information such as
personnel development, and personal costs.
3
Khosrow-Puor, Mehdi. (2006). Emerging Trends and Challenges in Information Technology
Management. Idea Group, Inc. p. 865.


1. Human Resources department is responsible for recruiting employees
for an organisation. (True / False)
2. _________________ bridges a gap between employee related
activities with the organisations financial management systems.
3. _________________ module helps the employees to interact with the
HR regarding any queries.
4. ERP systems also maintain policy information of an organisation.
(True / False)
5. How is security of information maintained by deploying ERP Human
Resources?
10.4 Workflow of ERP HRM

ERP system maintains a centralised database giving lesser importance to
customisation. Figure 10.1 shows workflow of HRM that deploys ERP
systems can be understood by analysing the various sub modules under HR
module that ERP offers.

Human
Resource Recruitment Employees Training
Planning
Employees
Appraisal
Self Service
Travel Over Plan Leave Shift Plan Discipline
MRP
Attendance
Claims Resignation
FRM Payroll
Figure 10.1: HRM Workflow
 Personnel Management: Personnel management module

encompasses various software components. This module deals with
responsibilities of human resources quickly, precisely and proficiently.
These components are also used as stand-alone systems being a part
of the ERP solution which is company wide.
 Personnel Administration: Earlier data was very specific to the
concerned departments of an organisation. However, information is now
no longer specific to departments, but it is widely shared by various units
across an organisation. This reduces the possibility of duplicate entries,
and protects the information from errors and improves data accuracy.

 Employee Master Data: This module maintains a database which is

centralised for processing employee information. It encompasses
various tools for transactions. It also facilitates storing of required
information of employees. It also provides graphical information such as
standard as well as custom defined charts and employee data of the
organisation.
 Recruitment Management: This module facilitate in recruiting the right
candidates with skills required, to meet the organisation requirements.
Recruiting process should also ensure that the process is cost effective
and less time consuming. This process is achieved by making the entire
process of recruitment automatic and instantaneous.
The various functions of HR manager are: posting the vacancies in
various job portals, newspapers and other job sites, filtering the profiles
of candidates who best suit the criteria of the organisation, screening
and shortlisting the candidates based on their performance, selecting
and hiring. The same process holds good both for internal as well as
external job postings, where advertisements are posted in newspapers,
magazines, colleges or recruitment firms.
 Travel Management: This module facilitates the process of maintaining
the operating cost readily .It supports multiple currencies and formats.
Travel management keeps track of the process from start to finish. It
keeps track of the process right from the point when the request was
made to the point when it is posted to the accounting sections. The
information regarding travel plans are required to be registered by the
person travelling, or by the concerned department of an organisation.
When an employee raises a request, the system automatically
generates a workflow that reduces the burden of the administrator.
The travel management module instantly calculates the necessary tax
and transactions for a particular trip. The receipt that is issued by the
administrator can be filled up in any currency format. The costs incurred
during the travel trip can be reimbursed through payroll accounting or
any data medium exchange.
 Benefits Administration: The module allows adding any new programs
at any time using a hierarchical structure. It facilitates flexibility to
manage various types of benefits and plans for employees of an

organisation. Based on the demographics of an employee various

benefits groups can be established.
Benefits administration module allows the employee to enter information
at any time with the concept of real time processing. The module also
manages various savings plans of employees. The module provides the
flexibility to employees to access their individual employee benefits
directly. This helps in reducing the burden of the Human Resource staff
by eliminating queries that Human Resource staff has to address.
The module provides standard reports that deploys from quick querying
and reporting features that facilitates in monitoring the process. This
module helps in responding to requests fast and precisely.
 Salary Administration: The module keeps track of the employees’ date
of join, and calculates the pay based on the company’s norms and
policies. It keeps track of the employees’ performance and decides the
appraisal of the employee. It keeps track of the account security of the
employee, and performs a salary review process.
 Organisational Management: This module describes the design
structure and hierarchy of an organisation and employee schedules
along with their job roles. This module familiarises employees of any
changes in the structure of the organisation such as new additions,
updates or any changes in employee positions.
 Payroll Accounting: This module describes any legal issues of the
organisation, attendance management required for calculating the pay.
The module maintains a master file that encompasses information of all
the employees of the organisation. It supports various versions of payroll
accounting, multiple languages and multiple currency formats.
 Time Management: This module keeps track of the working hours of
employees of an organisation. Time management module is responsible
for fixing shifts to employees, keeping track of number of leaves
available and number of leaves availed. This module manages
schedules of responsibilities efficiently by automating the process.
The module also keeps track of employees’ overtime and other time
related data. Time management module calculates and validates
working hours and wages of the employee by keeping a store of rules

and regulations of the organisation automatically. The result of the

process is depicted on a time sheet.
 Shift Planning: This module facilitates planning and fixing shifts for
employees. The module takes the decision by keeping various
constraints under consideration such as leave taken or employee
requests for time off. The major benefits that shift planning provide is
that it allows assigning an employee to other unit of an organisation on a
temporary basis when require.
 Personnel Development: This module allows recruiting suitable
candidates for the vacant positions. The module encompasses various
advanced tools to automate the process of recruiting the right
candidates instantly.
The qualifications and the profiles of the candidates are compared which
makes recruiting the right candidates easier. Personnel development
module bridges the gap between goals of the organisation and the goals
of the employee. The module facilitates performance of the employees,
potential of the employees and quality of recruitment with respect to the
organisations standards and policies.
 Training and Event Management: This module keeps track of planning,
managing and analysing seminars, various courses, and other events
related to training. The module maintains a database comprising of
complete information of procedures and schedules. Training and event
management module also decides appraisals for training instructors,
and trainees.
The module maintains a record of prices, locations and other budget and
billing information. The module automatically and instantly decides
various constraint requirements such as training courses.
Activity 2
Visit an organisation that deploys ERP system for managing Human
Resources activities. Compare the process of workflow of processing
activities with and without ERP systems. Illustrate how ERP systems
automate the process.

10.5 ERP Financial Module

The Financial module is the core of ERP software systems of an
organisation. Figure 10.2 shows ERP financial module which maintains
financial information from various units of an organisation to prepare
financial records such as balance sheets, creditors balance etc. This module
is suitable for all sizes of organisation both small and big companies.
Consumption
Finance
Suppliers Manufacturers Distributors
Logistics
Consumption
Figure 10.2: ERP Finance Module
Deploying ERP systems for finance module eliminates the need to repeat
procedures. Data can be entered only once. Within the ERP systems, all
areas work in concert, creating a new level of efficiency in handling financial
data.
ERP Financial module keeps track of finance accounts and their utilisation.
It decides the budget and the total expenditure required .Based on this
information, the management of the organisation takes the final decision on

budgeting .This stored information helps the organisation to keep track of

the financial position of the company any time.
The primary function of ERP Financial module is creating accounts.
Departments like marketing or purchase is responsible for creating accounts.
This module presents the financial figures to all other units of an
organisation. This module generates credentials like receivable and payable
constraints.
The ERP Financial module bridges gap between sales and the procurement
modules. Procurement is defined as sourcing and purchasing of goods and
services for business use. ERP Financial module reduces the threat of loss
of confidential information as only authorised employees are given access to
financial information.
This module provides an overview of the financial solutions in most of the
ERP packages. It provides financial functionality and analysis support to
various businesses in various countries across the globe.
The finance modules of most ERP systems have the following sub modules:
 Financial Accounting: This module facilitates provides integration of
financial information that is vital for any decision making. It provides
ability to centrally track financial accounting data within a framework of
various organisations, multiple languages, and multiple currencies.
 General Ledger 4: This is defined as the company’s accounting records.
It contains all financial accounts and statements related to a business.
The module supports functions and features that are essential for an
accounting system.
It facilitates document parking, posting and reporting of activities in the
stipulated time. Document parking is defined as a term that is used to
enter and store (park) documents that are incomplete without performing
excessive entry checks. The incomplete documents can be checked and
completed later at any time.
The major benefit of document parking is that information in the
documents can be evaluated online.
4
Meigs and Meigs. Financial Accounting, Fourth Edition. McGraw-Hill, 1983. pp.19-20.

A typical general ledger is shown in Figure 10.3. General Ledger module

allows processing of information in detail at user defined level. Planning,
allocation, distribution and reporting of information can be generated by
creating combinations of entered data.
Figure 10.3: Typical General Ledger
General Ledger also allows employees to create own database tables and
define non-standard fields, that suits accounting and reporting requirements.
Typical ERP systems also facilities feature such as grouping information
selectively.
 Accounts Receivable and Payable: This module uses standard
business rules for data entry, reporting, processing payments and bank
transactions. Receivable and payable transactions are performed
automatically, when related processes take place in other modules.

The functions of accounts receivable and payable functions include

internet integration, document management, flexible reporting using
customer and vendor information systems.
 Asset Accounting: This module maintains fixed assets of the
organisation. Asset accounting acts as a sub-ledger to the general
ledger. It provides information about any asset related transactions in
detail. Asset accounting also manages plant maintenance for
maintaining equipments. Plant maintenance is defined as the process
which takes care of inspections, to ensure a safe working environment.
It encompasses various safety measures such as protection against fire
and radiation protection.
 Legal Consolidation: This consolidation is related to the financial
accounting system. Legal consolidation module allows creating multiple
views. The legal entities of the organisation can be created with these
views. It allows transferring of information from individual statements into
the report that has to be consolidated. This reduces the burden of the
administrative staff facilitating reduced data entry errors.
 Controlling: This module encompasses various features and functions
for maintaining cost effective accounting. It facilitates creating custom
reports to meet the standards of the organisation. It also maintains
reports and performs analysis for frequently anticipated queries.
 Overhead Cost Controlling: Overhead cost is defined as the expenses
related to the business costs that must be paid even if no services are
offered or no products sold. It is that cost of maintaining property of the
organisation that has to be maintained. Overhead cost controlling
module ensures optimisation in unexpected expenses. The module
mainly focuses on monitoring and managing of overheads as defined.
 Cost Centre Accounting: This module, analyses where overheads
occur within the organisation. The system offers various methods for
allocating posted amounts and quantities.
 Overhead Orders: This module collects and analyses costs, based on
individual internal measures. This system monitors and automatically
checks budget assigned to individual measure.
 Activity Based Costing: This module instantly determines the use of
the processes by customers, products and other cost based objects. It
ensures that the goals of the organisation is vital than the goals of
individual units of an organisation. Activity based costing reduces the
burden required to maintain the organisations units as a separate
system.
 Product Cost Controlling: This module keeps track of the expenses
that arise from manufacturing a product or by providing a service. The
module also determines the lowest price limit for which the product can
be profitable.
 Cost Object Controlling: This module facilitates monitoring orders that
has to be manufactured. It maintains automatic and instant update of
information on the actual cost of the objects that has to be serviced. It is
responsible for analysing the variances between actual manufacturing
costs and the planned costs.
 Profitability Analysis: This module maintains a database to take
decisions such as determining the prices of the product, selecting
customers and choosing various channels of distribution.
 Investment Management: This module maintains information such as
funds available, costs planned and actual costs. The system also keeps
employees updated on information related to the costs. Constant
monitoring of the system reduces the error of budget overruns. The
module encompasses tools that support to plan and maintain expenses
from the earlier stage.
 Treasury: This module keeps track of the liquidity and manages risk
effectively. Liquidity is defined as the ability of an asset that can be sold
without causing a noticeable change in the price and with minimum loss
of value of the product. The process of exchanging lower liquid asset
with higher liquid asset is called liquidation. Thus, Treasury module
maintains liquidation processes effectively.
 Cash Management: This module maintains and manages transactions
related to finance for a given stipulated time. The module identifies and
maintains records for future developments. The transactions of the
organisation are grouped into cash holdings, cash inflows and cash
outflows. Cash flow management ensures effective liquidity so as to
meet the obligations of payment when they are due. The module
monitors and manages payments both inflow and outflow. Cash

management provides necessary information to ensure that effective

decisions are taken by the cash management for analysis of liquidity.
 Market Risk Management: This system monitors and manages
integrated and risk control stations. Information about current cash flows,
future cash flows and the financial aspects processed are to be acceded
and monitored on a regular basis. The financial transactions that the
treasury management manages are evaluated along with the cash flows
that are generated by the cash management system. The system
measures and calculates rate of interest and risks related to the financial
deals.
 Funds Management: This module monitors and maintains expenses,
activities, resources and revenues of an organisation. The hierarchical
structure of the funds provided, forms a base for top-down budgeting.
Funds management also provides a feature to keep a check on the
budget available and the budget utilised. The module keeps employees
updated with the funds and budget information at any time.
 Enterprise Controlling: This module comprises of those functions that
optimise shareholder value, while meeting internal objectives for growth
and investment. These modules usually include executive Information
System, Business Planning and Budgeting, Consolidation and Profit
Centre Accounting.
 Executive Information: The Executive Information module maintains
information that is vital to maintain the organisation workflow. The
system collates information from ERP components as well non ERP
data sources both inside and outside the organisation.
The system encompasses drill down reporting to evaluate the required
data. Drill down reporting is defined as a process that facilitates
evaluating the data gathered in the application. Drill down reporting
provides features and functions for navigating through the data. It also
supports features such as sorting and ranking.
 Business Planning and Budgeting: This module supports central
investment planning, budget release and tracking. This module
automatically transfers data about investment requirements from
transaction applications, and provides extensive analysis functions for
budget monitoring.

 Profit Centre Accounting: The profit of the internal centres of the

organisation is analysed by this module. An organisations design and
structure are represented as a profit centre hierarchy. Profit centre
accounting module takes automatic care of financial accounting,
materials management and asset management.
Profit centre related postings can be analysed through the system's
standard reports and facility, to create custom reports for special
analyses. The system also allows providing profitable information to all
the concerned units of an organisation. There is also a provision to
provide profitability information to appropriate management and
controlling departments.
10.5.1 Features of ERP Financial Module
The various features of ERP Financial module are as listed below:
 Automates and manages end-to-end general accounting: It monitors
and manages procedures such as accounts that have to be paid,
accounts that have to be received and other purchases.
 Supports worldwide financial processes: It facilitates Multilanguage
support. It supports multiple currencies and multi national processing
and transactions. It adheres to the laws of the specific country.
 Support planning and forecasting: It supports planning to ensure safe
financial activities for the future. It plans expenses and income for the
future. It also helps in forecasting the available market condition and the
market condition in the future.
 Tracks cash flow management: It manages the cash flow of an
organisation. It keeps track of how the income is spent and is distributed
across various units in the company.
 Provides advanced reporting and analysis: Balance sheets and other
financial reports of an organisation are maintained to provide efficient
and reliable transactions.
10.5.2 Benefits of ERP Financial Module
ERP Financial model has many features, some of them are:
 It allows more than one user to work on different activities
simultaneously

 It supports multiple currencies and also allows conversions to multiple

currencies
 It supports both verification balance and entry balance reports
 It allows connecting to different databases through one single page
 It provides an option of filtering the details of the employees based on
the date of entry
 It maintains online information related to accounts of several years
 It keeps track of when changes were made in the database and by
whom
6. What is ERP financial module?
7. _________________ creates multiple views of legal entities of an
organisation.
8. Balance sheets and financial reports of an organisation are maintained
by _________________ .
9. Cash management systems keep track of liquidity of an organisation.
(True / False)
10. What is a General Ledger?
10.6 Summary
Man power is the biggest asset of any organisation. However, managing of
human assets becomes a crucial part to ensure positive workflow in an
organisation.
Every organisation tends to attract, motivate and retain the most suited and
qualified employees in the company. Human resource is the department
which acts like a thread that links the employees to the organisation. The
human resources thus encompass effective recruitment and training strictly
adhering to organisations policies.
However, manual processing of all the transactions and workflow is tedious
and increases the burden and frustration of the Human Resources team.
Therefore, deploying ERP systems serves a great deal by making the
process automatic and instantaneous.
ERP Financial management software packages are powerful and provide
feature-rich solutions that provide a broad range of functionality. With

financial management software, organisations have the tools they need to

improve operations on a global scale, while facilitating full regulatory
compliance.

1. Explain the need of Human Resources in an organisation.
2. What are the activities of Human Resources management systems?
3. List out the benefits of Human Resource management systems.
4. Analyse the work flow of Human Resource management systems.
5. Illustrate the role of ERP systems in Human Resources.
6. Explain the functions of various subsystems of ERP financial module.
7. List out the benefits of ERP financial module.
10.9 Answers
1. True
2. Payroll activities
3. Employee self service
4. True
5. By maintaining an automatic centralised database
6. The system that maintains the financial information from various units
of an organisation.
7. Legal Consolidation
8. Advanced reporting and analysis
9. False
10. Organisations accounting records.
Terminal Questions

10.10 Case Study

The Human resources unit of Cruise Software Services Pvt Ltd
maintained a manual system to collect applications from eligible
candidates.
They maintained a ledger for every employee separately to keep track of
their records. The process was time consuming and vulnerable to high
probability for data dispensaries. Thus, Cruise Software Services Pvt Ltd
deployed ERP systems. The major objective of deploying ERP systems
was to facilitate automatic and instant processing of payroll, attendance,
leave and recruiting processes. The ERP systems facilitated various
functions such as leave management, performance appraisal, attendance
tracking system, recruitment management and other admin related
functions for the employees automatically without much customisation or
manual intervention. This reduced the manual burden of the Human
Resource unit. This resulted in effective and increased workflow of Cruise
Software Services Pvt Limited, thereby, meeting the all the targets of the
organisation in a stipulated time.
Questions:
1. What is the role of Human Resources in an organisation?
2. What role did ERP systems play in increasing the productivity of the
organisation?
10.7 Glossary
Term Description
Demographics Personnel information of an employee such as age, gender,
marital status, education, and geographic location.
General Ledger Company’s accounting records. It is used to maintain all

financial accounts and statements related to a business.
Document parking Ability of an asset that can be sold without causing a

noticeable change in the price and with the minimum loss of
value of the product.
Drill down reporting Process that facilitates evaluating the data gathered in the
application. Drill down reporting provides features for
navigating through the data.

References
1. en.wikipedia.org/wiki/Human_resource_management_system
2. www.scribd.com/doc/23722870/Human-Resources-Management -
3. en.allexperts.com › Human Resources –
4. www.istegy.com/PDF%20Files/IST_Human_Resources.pdf
5. www.sysoptima.com/erp/erp_modules.php
6. The NEW SAP Blue Book – Michael Doane

Unit 11 ERP Implementation Lifecycle

Structure:
11.1 Introduction
Objectives
11.2 Steps in ERP Implementation
Pre-evaluation Screening
Package Evaluation
Project Planning Phase
Gap Analysis
Reengineering
Configuration
Implementation Team Training
Testing
Going Live
End-user Training
Post-implementation
11.3 Summary
11.5 Answers
11.6 Case Study
11.7 Glossary
11.1 Introduction
By now you must be familiar with the concepts of HR Perspective & Finance
Perspective. This unit familiarises you with the implementation lifecycle of
ERP.
Businesses have a wide range of applications and processes throughout
their functional units. ERP software system is usually complex, and imposes
significant changes on employee work practices. Implementing ERP
software is too complex for "in-house" skill. So it is necessary and highly
advised to hire outside consultants, who are professionally trained to
implement these systems. This is typically the most cost effective way.
The types of services that may be employed during implementation are
Consulting, Customisation, and Support.

The time required to implement an ERP system depends on the size of the
business, the number of modules, and the extent of customisation. One
more important factor governing the time is the scope of the change and the
compliance of the customer to take ownership for the project. ERP systems
are in the form of modules, so there is no need to carry out the
implementation at once.
It can be divided into various phases or stages. The normal project is about
14 months and requires around 150 consultants. A small project, for
example, an enterprise of less than 100 staff, can be planned and delivered
within three to nine months. However, implementation process in a large,
multi-site or multi-country can take years. Most of the time the length of the
implementations is closely bonded to the amount of customisation the
organisation demands.
The organisation has to choose a package from a wide range of ERP
packages available in the market, depending on their strategies.
The ERP package which the organisations select should:
 Meet the organisation standards.
 Provide industry functionality the organisation demands.
 Support constantly changing business environment.
 Easily integrate with other information systems that already exist in the
organisations.
 Provide vendor implementation support both during and after the
implementation.
 Assist the organisation with implementation support system such as
training materials, user procedures, help text, process models and so on.
 Provide good support after implementation in case of trouble shooting.
A lot of ERP implementations fail, because the companies opt for ERP
solutions thinking that ERP implementation is a technological and not
management issue. This statement is completely a wrong perception, since
the management must actively and completely get itself involved in every
process of the implementation of the ERP system. At the same time the
management must monitor and supervise the implementation closely and
personally.

Managers have the responsibility to make fast and effective decisions. They
have the responsibility of resolving the conflicts and bring everyone to the
same thinking to promote company-wide acceptance of the project. It is also
crucial for them to build co-operation among the diverse groups in the
organisation for achieving effective implementation.
This unit gives an idea about the ERP Implementation methodology and
process. Like any other project, the ERP implementation project also has to
go through different phases. There are no clear separating lines between
these phases and in many cases, one phase will start before the previous
one is completed. But the logical order is followed. Also, all the phases that
we are discussing in this session may not be applicable in all cases. For
example, in some cases, the organisation might have already identified a
particular package; then the pre-selection screening and package evaluation
phases are not done.
Learning Objectives
 Describe the implementation lifecycle for an ERP package.
 Assess the various approaches for implementation of ERP.
 Select the right methodology for ERP implementation.
11.2 Steps in ERP Implementation

PeopleSoft country head Mr Thiru Vengadam says1 “Phased implementation
is the right way as the risks are controllable. It is a good management
practice to build a roadmap for the overall project, but break them into
logical phases. Take one logical phase at a time, give it the right focus and
ensure the success of that phase before taking up on the next. It is also
critical to have a high level of design of the overall system is done upfront,
such that even when the project is driven in phases, there is a frame of
reference ensuring an integrated system at the end of the overall project,”.
The different phases of the ERP implementation are given below:
 Pre-evaluation Screening
 Package Evaluation
 Project Planning Phase
1
www.expressindia.com
 Gap Analysis
 Reengineering
 Configuration
 Implementation Team Training
 Testing
 Going Live
 End-user Training
 Post-implementation
As shown in Figure 11.1, these phases seem very linear and distinct from
each other. But in reality, throughout an actual implementation process, the
phases are in fact quite flexible. In many cases, companies go through
many implementations in different modules, business units, or
manufacturing locations. So at any given time, more than one of the phases
may be operational. Some companies choose for the one and only 'Big
Bang' i.e. implement in one stretch and change the entire system, while
other companies favour sequential rollouts i.e. implement in phased
approach module after module. This is because each company has different
needs of its own. But whether it is the 'Big Bang' method or sequential
rollout, the lifecycle phases are the same.

Figure 11.1: ERP Implementation Life Cycle–Different Phases
A phased approach focuses on a key or critical area, stabilisation of the

system usage and quicker visible benefits in an organisation. Of course, the
investment outflow for implementation is also phased. The Big Bang
implementation approach on the other hand demands for realignment of
processes. It also requires greater commitment from the developers and the
management in terms of resources and time. However, the benefit will be a
full solution encompassing all processes, which is anyway the benefit of a
fully integrated ERP system affecting all areas and processes.
Activity 1:
Consider that you are a manager in a manufacturing industry going for an
ERP implementation. Prepare a check list that you need to take care
before the actual implementation process starts.


1. Implementing ERP software is too complex for ________________ skill.
2. The ERP package which the organisations select must fit
__________________standards.
3. The ______________ implementation approach demands for
realignment of processes.
4. ________________ implementation is the right way as the risks are
controllable.
11.2.1 Pre-Evaluation Screening
Once the company has decided to go in for the ERP system; the search for
the perfect package starts. But there are hundreds of ERP vendors of all
shapes and sizes, all claiming to have the solution that is ideal. Analysing all
the packages before reaching a decision is not a viable solution. It is also a
very time consuming process. So it is a better practise to limit the number of
packages that are evaluated to less than five.
It is always better to do a thorough and detailed evaluation of a small
number of packages, than doing a superficial analysis of dozens of
packages. Hence, the company must do a pre-evaluation screening to limit
the number of packages that are to be evaluated by the committee. Not all
packages can deliver 100% what the company requires or demands. Each
one of them has its own strengths and weaknesses. The pre-evaluation
process must eliminate those packages that are not at all suitable for the
company's business processes. One can zero in on the few best packages,
by looking at the product literature of the vendors, getting help from external
consultants.
The most important action to be performed is to find out what package is
used by companies which are similar to your organisation. It is always better
to find out how the different packages are performing in environments
similar to yours.
You can conduct a study on the history of the ERP packages and try to find
out how each package evolved. It soon becomes evident that every
package of ERP grew out of the experience or opportunity a group of people
saw. This group of people who where working in a specific business,
created systems that could deal with certain business segments. Generally
it is accepted world wide that most ERP packages are stronger in certain

areas than in others, and each one is intensely trying hard to add
functionality in areas where they have been lacking. For example,
PeopleSoft is strong in HR and less in manufacturing. Baan, on the other
hand, is historically stronger in manufacturing than in finance and so on.
As the companies grew over time the ERP packages evolved. The
experience gained from previous implementation, the feedback by the users,
the need to enter into new markets and the pressure from competitors has
forced most ERP vendors to redefine their strategies. They are also trying
hard on expanding the scope of the activities and functionality of their
products. To achieve this, design concepts of the software is expanded.
Along with this new functions are introduced, and good ideas were copied
from others to meet the new challenges in today‟s market environment. But
still, each package has a history (or origin) that determines in which type of
business it is best suited for.
While making the analysis it would be a good idea to investigate the origins
of the different packages. Now, most packages cater to almost all business
and service sectors. It would be incorrect to say that a system that was
developed initially for manufacturing is now not capable of catering to the
needs of another business sector, for example, software development.
The system would have been thoroughly revamped and redesigned to cater
to the needs of the diverse business sectors that it is catering to. But it must
be kept in mind that many ERP packages are still very good in some areas,
even though they are capable of catering to the needs of other sectors. After
the screening process you select a few packages and then you can start the
detailed evaluation process.
11.2.2 Package Evaluation
The evaluation/selection process is one of the most important phases of the
ERP implementation. Since, the package that you select will decide the
success or failure of the project. ERP systems involve huge investments,
once a package is purchased, it is not an easy task to switch to another one.
So it is a 'do it right the first time' proposition. There is little room or no room
for error.
The most important factor that must be kept in mind when analysing the
different packages is that none of them are perfect. The idea that there is no

package that is available in the market that is perfect. This has to be

realised by everyone in the decision-making team. The selection process
objective is not to identify a package that covers each and every
requirement (a perfect fit). The objective of the evaluation process is to find
a package that is flexible enough to meet the company's needs, or in other
words, software that could be customised to obtain a 'good fit'.
Once the packages to be examined are identified, the company needs to
develop a selection criterion. This criterion has to permit the evaluation of all
the available packages on the same scale. To choose the best system, the
company must identify the system that meets the business needs, that
matches the business profile and that which identifies with the business
practices of the company. It is impossible to get a system that will perform,
exactly similar to the business the company does. However, the aim must
be to get the system that has the least number of differences.
According to S Shankarnarayana2, Senior Consultant with Baan Infosystems
India Pvt Ltd, some important points to be kept in mind while evaluating
ERP software are,
 Functional fit with the company's business processes.
 Amount of integration between the various components of the ERP
system.
 Flexibility and scalability.
 Complexity.
 User friendliness.
 Quick implementation.
 Ability to support multi-site planning and control.
 Technology–database independence, security, and client/server
capabilities.
 Availability of regular upgrades.
 Amount of customisation required.
 Local support infrastructure.
 Availability of reference sites.
 Total costs, including cost of license, training, implementation, main
tenancy, customisation and hardware requirements.
2
www.ialgroup.com/pdf/Synergy

It is always better to form a selection or evaluation committee that will do the

evaluation process. This committee must comprise of people from the
various departments (the functional experts), the top management
(preferably the CIO or COO) and consultants (package experts). The
selection committee must be entrusted with the task of choosing a package
for the company. Since all business functions are represented, and the
management is involved, the package that is selected will have company-
wide acceptance. The package experts or the consultants can act as
mediators, or play the role of explaining the pros and cons of each package.
Activity 2:
As a manager analyse the need for the active participation of the vendors
or consultants for choosing the right package for your company and list
down the most crucial points that you could discuss with them for a
successful implementation.

5. Analysing all the packages before reaching a decision is not a
_____________ solution.
6. The ___________ process must eliminate those packages that are not
at all suitable for the company's business processes.
7. While making the analysis it would be a good idea to investigate the
___________ of the different packages.
8. The _____________ that you select will decide the success or failure
of the project.
9. Once the packages to be examined are identified, the company needs
to develop a ____________ criterion.
11.2.3 Project Planning Phase
This is the phase that designs the process of ERP implementation. In this
phase the particulars of how to go about the implementation process are
decided. The time schedules, deadlines, and so on for the project are
formulated. The project plan is developed. Roles are identified and
responsibilities are assigned. The organisational resources that will be used
for the implementation effort are decided. At the same time the people who
are supposed to head the implementation are also identified. The
implementation team members are selected and task allocation is done.

This phase will decide when to begin the project, how to do it and when the
project is supposed to be completed. This is the phase which will plan the
„what to do' in case of contingencies. It includes how to monitor the progress
of the implementation, what control measures must be installed and what
corrective actions must be taken when things get out of control. The project
planning is usually done by a committee constituted by the team leaders of
each implementation group. The committee will be headed by the ERP in-
charge (For example, the CIO or COO). The committee will meet
periodically (during the entire implementation lifecycle) to review the
progress and chart the future course of actions.
11.2.4 Gap Analysis
This is the most crucial phase for the success of the ERP implementation.
This is the process through which organisations create a complete model of
where they are now, and in which direction they want to head in the future.
The trick is to design a model which both anticipates and covers any
functional gaps. It has been estimated that even the best ERP package,
custom tailored to a company's needs, meets only 80% of the company's
functional requirements.
The remaining 20% of these requirements present a problematic issue for
the company's BPR (business process re-engineering). One of the most
affordable, albeit painful, solutions entails altering the business to fit the
ERP package. Of course, a company can simply agree to live without a
particular function (the cheap but annoying solution).
Other solutions include:
 Pinning your hopes on an upgrade (low cost but risky).
 Identifying a third-party product that might fill the gap (hopefully it also
partners with the ERP packages, keeping interfacing to a minimum).
 Designing a custom program.
 Altering the ERP source code, (the most expensive alternative; usually
reserved for mission-critical installations).
11.2.5 Reengineering
It is in this phase that the human factors are taken into account. In ERP
implementation settings, reengineering has two different connotations.
The first connotation is the controversial one, involving the use of ERP to aid
in downsizing efforts. There have been occasions where high-level
executives have invoked the reengineering slogan, and purchased an ERP

package with the aim of reducing significant numbers of employees.
Every implementation is going to involve some change in job responsibilities.
As processes become more automated and efficient, it is best to treat ERP
as an investment as well as a cost-cutting measure. Rather than considering
it as a downsizing tool for an organisation. 'Downsizing' is a business
practice that may have its place, but it must not be cloaked within the
glossier slogan of 'reengineering', or justified by the purchase of an ERP
package. ERP must stimulate business change, but must not endanger the
jobs of thousands of employees.
The second use of the word reengineering in the ERP field [or business
process reengineering (BPR) as it is usually called], refers to an ERP
implementation model. Initially it was designed and used with much success
by the 'Big Six' consulting firms.
The BPR approach to an ERP implementation implies that they are really
two separate processes. However, they closely linked implementations
carried out on an ERP site, for example, a technical implementation and a
business process implementation.
The BPR approach emphasises the human element of necessary change
within organisations. This approach is generally more time consuming, and
has received its share of criticism for creating bloated budgets and extended
projects. But adherents of the BPR approach to ERP would argue that there
is no way that you can ignore the human element in an implementation that
involves significant changes in responsibilities. As the ERP market shifts to
a mid-market focus, and as all implementations are becoming more cost-
sensitive, the BPR approach has come under some real scrutiny.
10. The organisational resources that will be used for the implementation
effort are decided during ____________________ phase.
11. The project planning is usually done by a committee constituted by the
________________ of each implementation group.
12. _______________ is arguable the most crucial phase for the success
of the ERP implementation.
13. ERP must stimulate ____________ change.

11.2.6 Configuration
This is the main functional area of the ERP implementation. There is a bit of
mystique around the configuration process. For good reason, the unwritten
rule of ERP implementation is synchronising existing company practices
with the ERP package. Instead of, changing the source code and
customising it to suit the company‟s demand. In order to do so, you have to
analyse and map the business processes. This has to be done in such a
way that the arrived solutions must match up with the overall goals of the
company. But, companies can't just shut down their operations while the
mapping processes takes place. Hence the prototype, for example a
simulation of the actual business processes of the company must be used.
The prototype allows for thorough testing of the "to be" model in a controlled
environment. As the consultants of ERP configure and test the prototype,
they attempt to solve any logistical problems inherent in the BPR before the
actual go-live implementation.
Configuring a company's system reveals not only the strengths of a
company's business process and most importantly its weaknesses. It is vital
to the health of the company and to the success of the ERP implementation
that those configuring the system are able to explain what will not fit into the
package. They must also explain where the gaps in functionality occur and
possible solution.
For example, a company might have an accounting practice that cannot be
configured into the system or some shipping process that won't conform to
the package. The company obviously needs to know which processes have
to change in the process of implementation. Finding out what will work and
what won't, requires knowledge of the business process itself, and an ability
to work with people throughout the company. So, people with such skills
must be assigned to these tasks.
As a rule, in most large implementations, the functional configurations are
split between the different areas within the company, so some will attend to
HR; some will be involved in financials and so forth.
ERP vendors are constantly striving to lower configuration costs. Strategies
currently being pursued include automation and pre-configuration. Baan for
instance, has developed Orgware, an automated configuration tool, while

SAP has pre-configured industry-specific templates that can be tweaked for

each individual company (Accelerated SAP Solutions).
The current ERP industry push towards developing the mid-range market in
turn creates an added incentive to reduce costs. This encourages the much
sought-after mid-range companies to feel they can afford to implement a
top-of the line ERP package. By creating a custom pre-configured ERP
module for a particular industry, for example, a shoe software-manufacturing
prototype created for a shoe manufacturer, the need for hands-on custom
configuration is reduced, thereby keeping the costs down. It is hoped that a
kind of "question and answer" format can be used to find out the kinds of
business process information. It can be addressed through the hands-on
configuration process. In theory, these pre-configured tools must save time
and money, but every business is unique and at least some configuration is
unique to each project.
11.2.7 Implementation Team Training
Around the same time that the configuration is taking place, the
implementation team is being trained, not so much how to use the system,
but how to implement it. This is the phase where the company trains its
workforce to implement and later, run the system. The ERP vendors and the
hired consultants will leave after the implementation is over. But for the
company to be self-contained in running the ERP system, it must have a
good in-house team that can handle the various situations. Thus, it is very
vital that the company recognises the importance of this phase. The
company has to selects those employees who have the right attitude –
people who are willing to change, learn new things, and are not afraid of
technology – and good functional knowledge.
14. Companies can't just shut down their operations while the
_______________ processes takes place.
15. The _____________ obviously needs to know which processes have to
change in the process of implementation.
16. The current ERP industry push towards developing the mid-range
market in turn creates an added incentive to__________________.

11.2.8 Testing
This is the phase where you try to break the system. You have reached a
point where you are testing real case scenarios. Once the system is
configured, you must come up with extreme-case scenarios for example,
system overloads, multiple users logging on at the same time with the same
query, users entering invalid data, hackers trying to access restricted areas
and so on. The test cases must be designed specifically to detect the weak
links in the system and these bugs must be fixed before going live.
11.2.9 Going Live
On the technical side, the work is almost complete. The process of data
conversion is done, databases are up and running. The prototype‟s
functional side is fully configured and tested, and ready to go operational.
The system is officially proclaimed operational. Even though the team for
implementation must have been testing it and running it successfully for
some time. But once the system goes 'live', the old system is removed, and
the new system is used for doing business.
11.2.10 End-User Training
This is the phase where the actual users of the system will be given training
on how to use the system. This phase starts much before the system goes
live. The employees who are going to use the new system are identified.
Their current skills are noted and based on the current skill levels, they are
divided into groups. Then each group is given training on the new system.
This training is very important as the success of the ERP system is in the
hands of the end-users. So these training sessions must give the
participants an overall view of the system and how individual actions would
affect the entire system.
In addition to these general topics, each employee is trained on the job or
task that he/she is supposed to perform once the system goes live. It is
human nature to resist change. Also many people are afraid of computers
and other new technologies. So there will be resistance to change.
Another factor is that not all people will be successful in making the
changeover. The company management must address these concerns and
take necessary actions to avoid failure. The end-user training is much more
important and much more difficult (since most end-users are not thrilled at
having to change) than the implementation team training. Companies are

beginning to take this phase seriously, as there is statistical evidence now.

This evidence shows that most implementations fail because of a lack of
end-user training.
11.2.11 Post-Implementation (Maintenance Mode)
One important factor that must be realised is that the post-implementation
phase is very critical. Once the implementation is over, the vendors and the
hired consultants will go. To reap the full benefits of the ERP system, it is
very important that the system must get enterprise-wide acceptance. There
must be enough employees who are trained to handle the problems that
might crop-up. There must be people, within the company, who have the
technical prowess to make the necessary enhancements to the system as
and when required. The system must be upgraded as and when new
versions or new technologies are introduced. Here the organisation must
think in terms of the incremental benefits of the new enhancements. Since
with any up gradation or enhancements, there will be a lot of other aspects
like user training that have to be considered. So instead of going in for up
gradation when vendor announces a new version, the organisation must first
analyse the costs and benefits of he new version.
After finishing the entire phases of the ERP implementation the organisation
will need a different set of roles and skills than those with less integrated
kinds of systems. It must be made sure that every individual who uses these
systems needs to be trained on how they work, how they relate to the
business process and how a transaction ripples through the entire company
whenever they press a key. The training will never end. It is an ongoing
process. New people will always be coming in, and new functionality will
always be entering the organisation.
We need to know that, the conditions and measures that have to be adopted
during the implementation process are unique. The same cannot be applied
by the management of the company after the implementation. Different set
of guidelines and measures have to be adopted for successful functioning of
the system after the implementation. Projects on the ERP system
implementation get a lot of resources and attention. However, an
organisation can only get the maximum value of these inputs if it
successfully adopts and effectively uses the system.

Activity 3
Consider you own a departmental store with the ERP system monitoring
various activities of the store. Develop a training procedure for your new
employee so that he can familiarise with the system and work with out
having much difficulty.

17. The test cases must be designed specifically to detect the __________
in the system and these _________ must be fixed before going live.
18. The ___________training is much more important and much more
difficult than the implementation team training.
19. The organisation must think in terms of the incremental benefits of the
new_________________.
20. Projects on the ERP system implementation get a lot of
_____________and______________.
11.3 Summary
The process of ERP implementation is referred as “ERP Implementation
Life Cycle”.
The following are the steps involved in completing the lifecycle:
Shortlist on the Basis of Observation
Selecting an ERP package for the company can be compared with the
process of "Selecting the right Person for the Right Job". This process will
involve choosing few applications suitable for the company from the whole
many.
Assessing the Chosen Packages
A team of Experts with specialised knowledge in their respective field will be
asked to make the study on the basis of various parameters. Each expert
will test and certify if the package is appropriate for the range of application
in their field. They also confirm the level of coordination that the software will
help to achieve in working with other departments. They will verify if the
synergy of the various departments in simple terms due to the advent of
ERP will lead to an increased output. A choice is to be made from ERP
implementation models.

Preparing for the Venture

This stage is meant to define the implementation of ERP in all measures. It
will lay down the stipulations and criterion‟s to be met. A team will take care
of this, who will report to the person of the top hierarchy in the organisation.
Gap Analysis
This stage helps the company to find the gaps that has to be bridged, so
that the company‟s practice becomes akin to ERP environment. This
procedure has been reported as an expensive but it is inevitable. The
company will decide to restructure the business or make any other
alterations as suggested by gap analysis in order to make ERP user friendly.
Click here for a detailed study on gap analysis. A choice is to be made from
ERP implementation models.
Business Process Reengineering
Modification in employee rolls, business process and technical details find
place in this phase of restructuring most popularly referred as business
process engineering.
Designing the System
This step requires very careful planning and deliberate action. This step
assists the company to decide and conclude the areas where restructuring
have to be carried on. A choice is to be made from ERP implementation
models.
In-House Guidance
This is regarded as a vital step in ERP implementation. The employees in
the company are trained to tackle crisis and make minor corrections as well
because the company can neither be at liberty nor afford the bounty to avail
the services of an ERP vendor at all times.
Checking
This stage observes and tests the authenticity of the use. The system is
subjected to the extreme tests possible so that it ensures proper usage and
justifies the costs incurred. This is seen as a test for ERP implementation.
The Real Test
At this stage the replacement takes place through the new mechanism of
operation and administration takes over the older one.

Preparing the Employees to use ERP

The employees in the organisation will be taught to make use of the system
in the day to day and regular basis. This makes sure that it becomes a part
of the system in the organisation.
Post Implementation
The process of implementation will be significant only when there is regular
follow up and proper instruction flow thereafter and through the lifetime of
ERP. This consists of all the efforts and steps taken to update and attain
better benefits once the system is implemented. Hence an organisation has
to perform ERP implementation safely and correctly.

1. Explain the significance of Pre evaluation screening and package
evaluation.
2. What is the purpose of gap analysis and how are the gaps fixed?
3. Why is end-user training said to be critical for the success of the ERP
implementation?
4. Describe how you would go about the different phases of the ERP
implementation lifecycle, if it were being done in your company.
11.5 Answers
Self Assessment Question
1. In-house
2. Organisation
3. Big Bang
4. Phased
5. Viable
6. Pre-evaluation
7. Origins
8. Package
9. Selection
10. Project planning
11. Team leaders
12. Gap analysis
13. Business
14. Mapping

15. Company
16. Reduce costs
17. Weak links, bugs
18. End-user
19. Enhancements
20. Resources, attention
Terminal Questions
1. Refer section 11.2.1 & 11.2.2
11.6 Case Study

An Indian company is a well know specialty chemicals enterprise and the
core of the chemical industry was focusing on premium businesses. The
company employs an expert workforce with a mass of different skills
worldwide. The company‟s operations have a long history, rich with a
tradition of research and discovery.
In the recent years with the changing market environment and
competition, the company had to face tough challenges. For upgrading
their system they wanted to take the support of Information Technology.
The business challenge the company was facing for this new system
implementation are,
 To ensure that the new system enabled all the new business
processes
 To carry out validation required for ensuring proper functioning of all
the business processes
 To define the adequate set of business test cases which ensure
coverage and completeness of testing
 To create awareness in the users who were not used to work with
new system‟s tools and hence a lot of training was required to take
care of the same.

They wanted the migration of the existing ERP system to a new ERP
system from Microsoft called Microsoft Axapta. There was a need to
check the viability of the implementation against existing business
processes. The ERP was a client server based system based on Morphx
technology.
The large challenge was in terms of defining the adequate set of
business test cases which ensure coverage and completeness of testing.
The end users were not used to work with new system software tools and
hence a lot of training was required to take care of the same.
A test case generator was created to prepare test cases permutation and
combinations from various parameters that influence the business
process. A testing process was defined to document the viable
permutations and combinations. So that Business Users can execute the
test cases for the final run. OpenSource freeware tool Bugzilla was
installed for defect tracking and a comprehensive training was conducted
for management and business users.
The implementation was tested for various business processes during
appropriate phase of the release. This was done in comparison with an
established process for Regression Testing and Retesting wherever
applicable.
Periodic metrics were circulated to the key stakeholders and the project
steering committee to enable project management decisions. The final
decision was enabled via informed decision making of the management
and the developer. This was derived from metrics published at the end of
the overall activity.
The ERP has been working stably for functionality for the last two years.
The implementation is being extended to more offices outside India after
implementation of localisation parameters were a grand success.
Some of the business benefits that the company could reap were
 Key defects in major business processes identified before the system
was made live.
 Enabled a team of business users with proper testing processes and
tools.

 Key insight provided to upper management by publishing meaningful

metrics on periodic basis.
 Influenced final decision for the enterprise wide software
implementation.
Questions:
1. What were the factors that lead the company to switch for an ERP
system implementation?
2. Explain in brief how the entire implementation process was carried
and tested.
3. What makes you think that the implementation was a success,
explain.
11.7 Glossary
Term Description
Bloated Exclusively large in size. Usually when some huge
investment is being made by the organisation or allocating
huge sum of money for some activity.
Catering To provide what is wanted or needed in a particular
situation or by a particular group of people in a group or
organisation.
Contingencies An event that might occur in the future, especially a
problem, emergency, or expense that might arise
unexpectedly and therefore must be prepared for during
the implementation.
In-house Some thing that is carried out or that exist within a
company or an organisation.
Synergy The working together of two or more people,
organisations, or things, especially when the result is
greater than the sum of their individual effects or
capabilities.
Tweaked To make a slight adjustment or change to something,
especially in order to improve it or fix it, especially during
or after the implementation process.
Big Six The top six leading companies (SAP, BAAN, Oracle,
PeopleSoft, JD Edwards, and SSA Inc.) in the consulting
industry of ERP market.

References
1. “Management of ERP solutions” by Samo Bobek & Simona Sternad.
2. “Information Systems Management” by King. W.
3. “Concepts in Enterprise Resource Planning” by Monk, Ellen, & Wagner
Brett.
4. “The Internet Encyclopedia” by Bidgoli & Hossein.

Unit 12 Benefits of ERP

Structure:
12.1 Introduction
Objectives
12.2 Benefits of ERP System
Reduction of lead-time
On-time shipment
Reduction in cycle time
Better customer satisfaction
Improved supplier performance
Increased flexibility
Reduction in quality costs
Improved resource utility
Improved information accuracy and decision-making capability
12.3 Summary
12.5 Answers
12.6 Case Study
12.7 Glossary
12.1 Introduction
By now you must be familiar with the concept of an enterprise and its wide
variety of its application. Now let us study the benefits you can get by going
for a suitable ERP implementation required by your company.
An ERP system helps your company to streamline your business processes.
In order to have a successful implementation of your ERP system, you need
to make sure you have your information in line to help make the process
swift. It doesn’t matter what product your company manufactures, ERP
provides your company with the right system and performance that you
need.
ERP can help your company decrease the operating cost and it is a benefit
when running company analytics. It improves the coordination of your
company’s process into one streamlined process where everything can be
accessed through one enterprise wide information network. It helps to
reduce additionally operating costs. This is achieved by controlling inventory

costs, lowering production costs, and marketing costs. ERP system also
helps to reduce the requirement of help desk support. ERP systems can
also benefit the company by facilitating day-to-day management activities. It
encourages the establishment of backbone data warehouses and allows
employees to access the information in real time. This helps with research,
decision making, and managerial control. It tracks actual cost of the daily
activities and can perform activity based costing functions.
ERP systems with real time capabilities and the ability to see what is going
on with your company as it happens. ERP systems are handy when you
deal with high volume of information. With an ERP system, your company
will never have shortages in inventory or wasted time spent transferring files.
You can test out an ERP system before buying it and see how it will work
with your business.
Installing an ERP system has many advantages, both direct and indirect.
The direct advantages include improved efficiency, information integration
better decision-making, faster response time to customer queries, and so on.
Indirect benefits include better corporate image, improved customer goody
customer satisfaction, and so on. In this chapter we will see some of
benefits of the ERP systems.
 Compare the direct and indirect benefits of ERP implementation.
 Know how integration of information and automation of business
processes makes improvements possible.
12.2 Benefits of ERP System
Benefits determination of an ERP system is essential for planning a
successful ERP System purchase and its implementation. If you consider
purchasing an ERP system, you will probably have to justify the purchase.
Here are some of the ERP Benefits that can be expected. The major areas
of benefit in a company are consolidation of multiple systems into one and
the improved visibility across the company.
Some of the benefits that you can find in an organisation with ERP
implementation are:

 Reduction of lead-time
 On-time shipment
 Reduction in cycle time
 Better customer satisfaction
 Improved supplier performance
 Increased flexibility
 Reduction in quality costs
 Improved resource utility
 Improved accuracy of information and decision-making capability
12.2.1 Reduction of Lead-Time
The time elapsed between placing an order and receiving it is known as
lead-time. It plays a significant role in purchasing and inventory cost. Most
purchasing departments use the managers to anticipate material demands
well ahead of actual need.
All inventory systems must have safety mechanisms like safety stock, re-
order level, and so on, built into them. This will help the organisation to
avoid a situation where the material is out of stock. The consequences of
the non-availability of an item that is required for production can result in a
lot of problems.
Some of these problems are missing the delivery schedules, losing the
customer goodwill due to delayed delivery or even losing the customer to
the competition. One can avoid this situation by requesting for the materials
well in advance rather than when they are actually needed (early requests).
You can also over come this by keeping a large buffer stock, or else by
maintaining a very high re-order level. But this entire means that larger
inventories must be kept, which blocks the money.
Also, the practical consequence of allowing longer times for delivery seems
to be that the present lead-times just grow to take up whatever stock is
allowed. Perhaps this is due to the 'squeaky wheel principle' that is, buyers
who expect the shortest lead-times complain the loudest when deliveries are
late. Hence receive the most attention from suppliers. So the company must
find out the minimum lead-time. Company must attempt to correct supplier's
delivery delays instead of automatically increasing existing lead-times.

In order to reduce the lead-times, the organisation must have an efficient

inventory management system. This system must be integrated to the
purchasing, production planning and production departments. In this era of
just-in-time manufacturing, the knowledge of the exact lead-times for each
and every item is of paramount importance for uninterrupted production. For
example consider a company dealing with hundreds and thousands of raw
materials, and components. Monitoring and keeping track of the lead-times
for each and every individual item manually, is practically an impossible task.
The ERP systems help in automating this task and thus, make the inventory
management more efficient and effective. Also, since the ERP system is
integrated with the materials management module. This module is
integrated with other modules like purchasing, sales, marketing,
manufacturing, and production planning. With the help of this kind of
integration the demand for a particular item can be known as early as an
order is received.
For example, consider that an order is received for supplying, say, 100 cars
with air conditioners. As soon as the order details are entered into the
system, a lot of actions are triggered. The system will check whether the
items are available in the finished goods inventory. Then it will generate a
BOM for the order and will check whether all the items are available in the
inventory. Since all the records are kept in the system's database and since
every thing is up-to-date, finding out the parts that are to be ordered takes
no time (a task which could have taken days in the case of a manual or non-
integrated system). The items that are to be manufactured are identified,
and the production planning system prepares a production plan. Then the
material management module will prepare purchase orders for each and
every item taking into account the lead-times. It also decides when these
items are required for production. If the purchasing process has to go
through various processes like the invitation of quotations, vendor selection,
and so on which is performed by the ERP system.
Since most suppliers are also connected to the organisation's system soon
as a purchase order or requisition is issued, the supplier's system updated
with that information. The supplier knows what items are too supplied and
when. Since the activities like preparation of contracts, issue of purchase
orders and payments happen through the system electronically, the time

saved is phenomenal. ERP systems, by virtue of their integrated nature and

by the use of latest technologies like, Electronic Funds Trans (EFT),
Electronic Data Interchange (EDI), reduce the lead-times and make possible
for the organisations to have the items at the time they are needed (Just-in-
Time inventory systems).
Activity 1
In a departmental store how do you think you can bring in an ERP
system to improve the functioning of the store and also list out the major
areas that can be effectively managed in the store with the ERP system.

1. The time elapsed between placing an order and receiving is known
as_______________.
2. Company must attempt to correct ________________ delays instead of
automatically increasing the existing lead-times.
3. __________________ module is integrated with other modules like
purchasing, sales, marketing, manufacturing, and production planning.
4. The system will check whether the items are available in the
____________ goods inventory.
12.2.2 On-Time Shipment
Today, companies must be able to deliver customer-specific products
(Time-to-Order) with the lead-time of standard, off-the-shelf products. The
companies must be able to change the mode of production from make-to-
stock make-to-order. In spite of this change they must retain the cost and
time advantages of off-the-shelf products. Today, the ERP systems provide
the freedom to change manufacturer and planning methods as needs
change. This is achieved without modifying or reconfiguring the workplace
or plant layouts. With ERP systems, businesses are not limited to a single
manufacturing method, such as make-to-stock or make-to-order. Instead
many manufacturing, and planning methods can be combined with the same
operation. At the same time providing unlimited flexibility to choose the best
combination of methods. This is done for each product at each stage
throughout its cycle. In addition, this control and visibility comes without
having to sacrifice the functionality needed to efficiently manage different
types of production. Since, these systems support the entire range of

production strategy only one system is needed to manage all manufacturing

activities.
Engine-to-Order products are planned using these systems, while the
forecasting-distribution-planning features handle make-to-stock items.
Products that assembled to order can be planned using the extensive
production planned capabilities of these ERP packages. Various production
scenarios can be simulated using the simulation features and the best one
can then be selected. Also, since the different functions involved in the
timely delivery of finished goods to the customer-purchasing, materials
management, production, production planning, plant maintenance, sales
and distribution are integrated and the system automates the procedures.
The chances of errors are minimal and the production efficiency will be high.
All the information is available to the management at the desired level of
detail and in time. The system has exceptional handling features (which will
issue warnings if things are going out of control), the management can keep
track of things and can take corrective actions at the appropriate time.
Another step to shorter product development cycles is increased efficiency
in design and development activities. ERP systems are designed to help
your company trim data transfer time, reduce errors and increase design
productivity. This is achieved by providing an automated link between
engineering and production information. Most of these systems allow
smooth integration with popular Computer Aided Design (CAD) packages.
This simplifies the exchange of information about drawings, items, BOMs,
and routings with in the company. Using the Engineering Change Control
(ECC) system, businesses can gain effective control over engineering
change orders. The company can define the authorisation steps for
approving and implementing an Engineering Change Order (ECO). When
these steps are completed, the ERP system automatically implements the
change in the production database. Integrating the various business
functions and automating the procedures and tasks, the ERP systems
ensure on-time delivery of goods to the customers.
12.2.3 Reduction in Cycle Time
The time between receiving of the order and delivery of the product is
known as Cycle time. At one end of the manufacturing spectrum is the
make-to-order operation, where the cycle time and cost of production are

high. This is because in a make-to-order situation the manufacturer starts

making the product or designing the product only after receiving the order.
He will procure the materials and components required for production only
after getting the order. On the other end of the manufacturing operations is
the make-to-stock approach. Here the products are manufactured and kept
in the finished goods inventory before the order is placed.
In both cases the cycle time can be reduced by the ERP systems, but the
reduction will be more in the case of make-to-order systems. In the case of
make-to-stock, the items are already manufactured and kept in warehouses
or with distributors for the sales. Here, the cycle time is reduced not in the
shop floor, but during the order fulfilment. In the earlier days, even for the
made-to-stock items, the cycle time used to be high. This was because the
process was manual and if computerised, not integrated. Suppose a
customer places an order. The order entry clerk has to check whether the
order is available in the warehouse nearest to the customer. If it is not
available there, he will check whether it is available in any other warehouse
or with any of the distributors. Then he will have to process the order, inform
the concerned warehouse or distributor to ship the item. Simultaneously he
informs the finance department to raise the invoice, and so on. All this used
to take a lot of time – few days or sometimes even weeks. But with an ERP
system, as soon as the order is entered into the system, the system checks
the availability of the items. If it is not available with the nearest
manufacturer, then the warehouse that is closest to the customer and which
has the item in stock is identified. The warehouse is informed about the
order, and the shipment details are sent to the distribution module. Here it
will perform the necessary tasks like packaging and picking so that the
delivery is not affected. The finance module is also alerted about the order
so that they can raise the invoice. All these actions are triggered by the click
of a button by the order entry clerk. Since all the data, updated to the minute,
is available in the centralised database and since all the procedures are
automated. We have to keep in mind that almost all of these activities are
done without human intervention. This efficiency of the ERP systems helps
in reducing the cycle time.
In the case of make-to-order items, the ERP systems save time by
integrating with Computer Aided Design/ Computer Aided Manufacturing
(CAD/CAM) systems. Time and cost reductions are possible when CAD-
engineered designs are converted automatically into software programs for

computerised production machines using CAD/CAM systems. The
computerised conversion eliminates the costly and time consuming steps.
This avoids a person convert design drawings into a computer program for
computer-controlled production equipment, such as robots or machine tool.
These systems reduce cycle times by 30-50%. Combined with this it helps
in achieving automation in material procurement, and production planning.
Efficiency achieved through the plant maintenance and production systems
the ERP packages helps in reducing the cycle times.
5. The companies must be able to change the mode of production from
make-to-stock to _______________.
6. Engine-to-Order products are planned using these systems, while the
forecasting distribution-planning features handle_____________ items.
7. The order entry clerk has to check whether the order is available in the
_________________ nearest to the customer.
8. The ________________ conversion eliminates the costly and time
consuming steps.
12.2.4 Better Customer Satisfaction
Customer satisfaction means meeting or exceeding customers'
requirements for a product or service.
Evaluation of the degree of satisfaction is usually made on at least three
measures:
 Does the product or service provide the features that are most important
to the customer.
 Does the company respond to the customers' demands in a timely
manner, a criterion that is especially important for custom products and
services.
 Is the product or service free of defects and performs as expected.
ERP systems have proved that they can produce goods at the flexibility of
make-to-order approach without loosing the cost and time benefits of made-
to-order operations. This means that the customer will get individual
attention and the features that he/she wants. There is no need for the
customer to spend more money and wait for long periods. With the

introduction of the web-enabled ERP systems, the customers can place the
order, track the status of the order and make the payment sitting from home.
The customer could get technical support by either accessing the
company's technical support knowledge base (help desk) or by calling the
technical support. All the details of the production and the customer are
available to the person at the technical support department. With this data
the company will be able to support the customers even better. All this is
possible because of the use of the latest developments in information
technology by the ERP systems. However, this will go a long way in
improving the customer satisfaction.
12.2.5 Improved Supplier Performance
The quality of the raw materials or components and the capability of the
vendor to deliver them on time, are of critical importance for the success of
any organisation. So, an organisation needs to choose its suppliers or
vendor: very carefully. You have to monitor vendor activities closely, so that
problems can b corrected before it can disrupt the functioning of the
company. To realise these benefits, corporations depend heavily on supplier
management, and control systems. They help to plan, manage, and control
the complex processes associated with global supplier partnerships.
The ERP systems provide vendor management and procurement support
tools designed to coordinate all aspects of the procurement process. They
support the organisation in its efforts to effectively negotiate, monitor, and
control procurement costs and schedules. They also assure superior
product quality. The supplier management and control processes are
comprised of features that help the organisation. They manage the supplier
relations, monitor the vendor activities and manage the supplier quality.
There is a growing trend for organisations to establish partnership
agreements with their suppliers. Through such business relationships,
mutually beneficial results have been achieved in the areas of quality,
delivery, and cost. To realise these benefits, companies rely heavily on
procurement support systems to help manage and control processes
associated with supplier partnership agreements. Request for quotations,
contract negotiation and control, purchase order release, and delivery are
process steps considered when formalising such partnerships. Complexities
arise in the areas like services being procured, quantity and price breaks,

terms of the agreement, and methods employed for tracking and controlling
the process. The procurement support system provides immediate feedback,
flexibility, and comprehensiveness in managing supplier partnerships. This
will provide a clear, competitive advantage to the enterprise.
The ERP systems have features that will enable the companies to realise
the benefits associated with established partnership agreements. Supplier
quotations and contracts can be created to support the procurement of all
products and services required by the enterprise. Examples of this include
both inventory and non-inventory products, office supplies, and services, as
well as products requiring direct shipment to customers. Each agreement
must stand on its own merit, multiple quantity and price breaks, this must be
supported by the system. Along with terms specifying when the quotation or
contract becomes effective, and when it expires are also supported by the
system. To address the methods companies employ when tracking and
controlling these agreements, these systems provide a number of
alternatives.
First, after contracts are established, purchase orders and requisitions are
tracked as they are released against a corresponding contract. The ERP
system searches for the best-fit supplier contract and automatically assigns
it to the corresponding purchase order or requisition. If changes are
necessary, the user can override the contract selection made by the system.
Since it is imperative to know the status of a supplier quotation or contract,
the system provides immediate feedback to the organisation. Detailed
history provides for the deployment of in-depth procurement analysis tools.
The supplier management professional can easily compare total quotation
or contract commitments to actual purchasing activities.
Organisation needs the flexibility and comprehensiveness of the system's
supplier quotation, and contract management capabilities. So that
organisations can efficiently manage their supply-side trading partners. As a
result, the organisation gains significant cost and delivery procurement
benefits for their business.
Most suppliers have their systems connected to the company's system.
Therefore the information regarding an order is transmitted to the supplier's
systems almost instantaneously. This saves a lot of time and gives the
supplier more time in fulfilling the orders.

Businesses generally classify their suppliers into certified, approved, and

probationary categories for quality management and auditing purposes.
Additionally, supplier certification programs must be capable of
distinguishing between suppliers and original manufacturers. The objective
of supplier auditing, and classification programs is to ensure maximum
conformance of purchased materials, and services to specification.
Maintaining minimised lead-times and costs.
The Quality Management System in the ERP systems provides all the tools
needed to implement Total Quality Management programs. Especially to
implement it within an organisation's procurement function. Using the
system, organisations can establish and manage highly effective supplier
certification programs. This ensures maximum conformance of purchased
material to specification, while maintaining lead-times and costs. In quality
control program original manufacturer leaves the buyers free to seek the
best possible price and delivery terms. The buyers have the freedom to
choose from a variety of qualified distributors or brokers.
9. There is no need for the _________________ to spend more money
and wait for long periods.
10. To realise these benefits, corporations depend heavily on
______________ and __________________.
11. The ERP system searches for the best-fit supplier contract and
automatically assigns it to the corresponding _______________ order.
12. The Quality Management System in the ERP systems provides all the
tools needed to implement __________________________ programs.
12.2.6 Increased Flexibility
Since competition is growing, companies must learn to respond more rapidly
to customers' wishes as well as changes in the market. They will need to
design new products or redesign old products quickly and efficiently. Only
then will companies have the chance to capitalise on opportunities while
they are available. The window of opportunity is often quite small. The
manufacturing process must be flexible enough to accommodate new
product designs with minimal disruption or time loss.
Flexibility is a key issue in devising strategic plans in companies.
Sometimes, flexibility means quickly changing something that is being done,

or completely changing to adjust to new product designs. At other times,

flexibility is the ability to produce in small quantities. In order to produce a
product mixes that may better approximate actual demands and reduce
work-in-progress inventories. Regardless of the definition of flexibility,
traditional fixed automation manufacturing facilities, while efficient, are often
inflexible. Similarly, extremely flexible operations are often inefficient. An
argument can be made for the relative merits of both efficiency and flexibility.
Actually, both are desirable for making effective decision by the
management.
Product flexibility is the ability of the operation to efficiently produce highly
customised and unique products. Manufacturers tried to introduce some
amount of flexibility by using the assemble-to-order approach. This provided
some amount of flexibility without increasing the production cost, but could
not be applied to all situations. Along the wide range of Make-to-Order
(MTO) manufacturing, there is a growing convergence. Especially between
strictly assemble-to-order (limited options and features), and completely
engineer-to-order (just about anything goes, at a cost) environments. This
evolving environment is often referred to as configure-to-order. Most ERP
systems have now also added this technique to their systems. Using a
rules-based product configuration system, Configure-to-Order (CTO)
manufacturers are able to simplify the order entry process. They also retain
Engineer-to-Order (ETO) flexibility. This is achieved even without
maintaining bills of materials for every possible combination of product
options. How this is done and how this improves flexibility is explained in the
chapter "ERP – A Manufacturing Perspective."
ERP system not only increases the flexibility of the manufacturing
operations, but also the flexibility of the organisation as a whole. A flexible
organisation is one that can adapt to the changes in the environment rapidly.
With the technological revolution, the rules of the marketplace are changing
at a rapid pace. New competitors are emerging each day. New and complex
problems have to be tackled every day. New market segments have to be
penetrated not to succeed, but to stay in business. New marketing
strategies have to be devised and implemented at very short notices.
Companies have to constantly find new ways to keep the customer satisfied.
For doing all these, the company has to be flexible. The old methods of
functioning will no longer work. ERP systems help the companies to remain
flexible by making the company information available across the

departmental barriers. It also automates most of the process, and
procedures and thus enabling the company to react quickly to the changing
market conditions.
12.2.7 Reduced Quality Costs
Quality is defined in many different ways excellence, conformance to
specifications, fitness for use, value for the price, and so on. But,
manufacturing and design engineers are typically responsible for some of
the technological issues in the quality assurance for products. At the same
time operations managers often conduct the analysis of quality-related costs
which is an important task. Strategic opportunities, or threats, frequently
motivate the launch of aggressive quality management initiatives. Analysing
the cost of quality can provide the financial justification for implementing
them. Typically, the quality costs are in the range of 20% of the cost of
goods sold. Carefully planning quality improvement activities not only
improves quality, but lowers quality-related costs. The American Society for
Quality Control (ASQC) has developed a typology of quality related costs
that are based on the work of several quality masters. Operations managers
have found the classification system useful. Specially, for collecting data
that are consistent and for identifying the opportunities for controlling quality
costs that will have the greatest effect on efficiency.
The typology has four categories:
 Internal failure costs, for example, costs of scrap, rework, re-inspection,
and low production yields for non-conforming items that are detected
before they leave the company.
 External failure costs, for example, warranty claims, repairs, and service
costs that result when the failure is detected in the market place.
 Appraisal costs, for example, cost of inspecting upon arrival, during
manufacture, in laboratory tests, and by outside inspectors.
 Prevention costs, for example, design and development of new quality
equipment, evaluation costs of a new product or service, training of
quality personnel.
An extremely important truism is that the further along in the process an
item is, the more a defect costs. For example, in the design phase of a new
product or service, the cost of correcting a defect may be minimal. If that

defect goes undetected and the company releases the product or service to
the public, it will incur a much greater cost to resolve the problems that
result.
Elimination of defects in standard product designs and manufacturing
methods before production is just as important as eliminating defects during
production. In fact, to achieve quality levels, manufacturers must focus on
identifying and correcting defects. Especially in product designs and
production methods, not simply inspect incoming material or finished goods.
The Quality Management Systems in ERP packages support the
benchmarking and use of optimal product design, process engineering, and
quality assurance data. But this data is collected from all functional
departments within the manufacturing enterprise. Hence, facilitates
organisations in areas like definition of repeatable processes, root cause
analysis, and the continuous improvement of manufacturing methods. This
documentation supports the job functions of the quality assurance and
production managers in validating the manufacturer's conformance. The
validation is in accordance to ISO9000, Good Manufacturing Practices
(GMP) worldwide, and a variety of country specific standards of quality
assurance.
Specification Control Systems in ERP packages offer a state-of-the-art
approach for documenting specifications. They also enable an organisation
to standardise and simplify its quality assurance and control functions.
Sample types, sample rules, and testing levels are completely user-defined
for maximum flexibility and ease of use. Maintenance of standard
specifications, detailed sampling instructions and testing procedures are
performed on-line. Cyclic, subsequent, and repeat testing options are
available to support the material acceptance function. However, with
provision for the breakdown of test procedures into multiple dispositions,
improves inventory turnover and reduce inspection lead-times. The ERP
system's central database eliminates unnecessary specifications. It ensures
that a single change to standard procedures takes effect immediately
throughout the organisation. The ERP systems also provide tools for
implementing Total Quality Management programs within an organisation.
Original manufacturers may be defined independently from vendors, so that
businesses can strictly obey to quality assurance and control functions. This
is achieved without preventing their buyers from seeking the best possible
price and delivery terms. Each item supplied by an original manufacturer

may be linked to a standard product specification. Actual test results and
material disposition histories are retained under item, lot, original
manufacturer, and specification column. This is for in-depth quality
performance review and analysis. Material Inspection Systems offer a wide
range of capabilities for process supervision and control. These capabilities
are fully integrated with other modules like purchasing, inventory
management, and shop floor control functions. Since it ensures that the right
quality control procedures are followed. Thus, ERP systems play a vital role
in ensuring that the company has an efficient and effective quality
assurance and management system.
13. ____________ is a key issue in devising strategic plans in companies.
14. Manufacturers tried to introduce some amount of flexibility by using the
____________________ approach.
15. Carefully planning _____________ improvement activities not only
improves quality, but lowers quality-related costs.
16. Cyclic, subsequent, and repeat testing options are available to support
the _______________________ function.
12.2.8 Improved Resource Utilisation
Manufacturing processes are becoming more sophisticated. The
philosophies of elimination of waste and constraint management are
achieving broad acceptance. Hence, manufacturers are placing increased
emphasis upon planning and controlling capacity in the inventory and the
workforce. The creation of an accurate, achievable product schedule
requires the availability of both material and capacity. It is useless, and
indeed wasteful, to have financial resources tied up in material, if the
capacity is insufficient or improperly planned. Waste not only raises costs, it
also affects customer service levels and customer good will.
The capacity planning features of most ERP systems offer, both rough-cut
and detailed capacity planning. The system loads each resource with
production requirements from Master Production Scheduling, Material
Requirements Planning, and Shop Floor Control (detailed capacity planning).
All planned and released production is evaluated and loaded against
capacity definitions for each resource. All capacity requirements are hooked

back to the orders comprising the load. Capacity definitions are provided
from work centre and machine records. Work centres can be facility-specific
or enterprise-wide. Any work centre can be designated as a critical work
centre for evaluation by rough-cut capacity planning. This capability
provides an easy and efficient way to designate bottleneck operations that
act as system constraints. As the constraints change over time, the user can
re-designate the work centres as critical or non-critical. High volume
repetitive environments are further supported with both 'from and to material
movement location designations. These locations are used for pull system
back flushing/replenishment and can be designated by individual machines
within the work centre. These systems provide further refinement of
available capacity by providing definition for specific machines or pieces of
equipment. Each work centre also has user-defined input/output control
tolerance factors to control the level of action message sensitivity. For
example, a factor for average efficiency, separate speed factors for labour
and machine, designation of shift/hours schedule, and maximum desired
load percentage'(with 100% as the default). Capacity minimums can also be
designated for processes involving vessel size constraints and fixed cycle
constraints (heat treating, pickling, plating, sand blasting and paint dipping,
and so on.).
The ERP systems also have simulation capabilities. This helps the capacity
and resource planners to simulate the various capacity and resource
utilisation scenarios. After which they can choose the best option depending
up on their requirement. The efficient functioning of the different modules in
the ERP system like manufacturing, materials management, plant
maintenance, sales and distribution ensures that the inventory is kept to a
minimum level. The machine down time is maintained low. Along with that
the goods are produced only as per the demand. It also has to ensure that
the finished goods are delivered to the customer in the most efficient way.
Thus, the ERP systems help the organisation in drastically improving the
capacity and resource utilisation.
12.2.9 Improved Information Accuracy and Decision-Making Capability
One has to manage the future to survive, thrive and beat the competition in
today's brutally competitive world. Managing the future means managing the
information. In order to manage the information, deliver high quality
information to the decision-makers at the right time. ERP has to automate
the process of information collection, collation, and refinement.

Organisations have to make Information Technology (IT) an ally. So that
organisations can harness its full potential and use it in the best way
possible.
We have seen that in today's competitive business environment, the key
resource of every organisation is information. Consider an organisation does
not have an efficient and effective mechanism that enables it to give the
decision-makers the right information at the right time. Then the chances of
that organisation succeeding in the next millennium are very remote.
The three basic characteristics of information are accuracy, relevancy and
timeliness. The information has to be accurate and must be relevant for the
decision-maker and it must be available to the decision maker when he
needs it. The organisation must have the mechanism to collect, collate,
analyse, and present high quality information to its employees. This will
enable them to make better decisions and they will always be one step
ahead of the competition. Today, the time available for an organisation to
react to the changing market trends is very short. To survive, the
organisation must always be on its toes, gathering and analysing the data
internal and external. Any system that will automate this information
gathering and analysis process will enhance the chances of the organisation
to beat the competition.
One of the major short coming of the legacy systems was that it did not
have an integrated approach. For example, there would be an accounting
system for the finance department, a production planning system for the
manufacturing department, an inventory management system for the stores
department, and so on. All these systems would perform in isolation. So if a
person wanted some information which had to be derived from any of these
two systems. Then he has to get the necessary reports from both systems,
and then correlate and combine the data.
But in reality, an organisation cannot function as islands of different
departments. The data from production planning department is required for
the purchasing department. The purchasing department’s details are
required for the finance department and so on. So if all the information
islands, which were functioning in isolation, were integrated into a single
system, then the impact of that would be dramatic. For example, if the

purchase department can see the production planning details, it can make
the purchasing schedule. The finance department can check the details of
the purchase as soon as it is entered in the system. It can also plan for the
cash flow that will be required for the purchases.
Since the systems work in isolation, collecting and analysing the data
needed for the functioning departments. It also gets information about some
characteristic that is dependent on more than one department, which is
difficult manually. But no business executive or decision-maker can take
good decisions with the isolated data that he will get from the various
reports produced by each department. Even if you collate the data and
produces the information that you require, you would have lost valuable time
that would have been better spent in decision-making for that process.
So we need a system that treats the organisation as a single entity, and
caters to the information needs of the whole organisation. With the help of
this system we can generate the information that is accurate, timely, and
relevant. These systems will play vital role in helping the organisation to
realise its goals. This is the strong point of ERP systems that is integration
and automation. This is the reason why implementation of ERP systems will
help in improving the accuracy of information and thus help in better
decision-making.
Activity 2
Visit a small manufacturing industry with a new ERP system in place.
Enquire the management and the employees and list out the various
benefits that they were able to find with the new system.

17. The creation of an accurate, achievable product schedule requires the
availability of ___________ and ____________.
18. Each ______________ also has user-defined input/output control
tolerance factors to control the level of action message sensitivity.
19. The ERP systems also have ___________ capabilities.
20. The ____________ available for an organisation to react to the
changing market trends is very short.

12.3 Summary
ERP system software attempts to integrate business processes across
various departments onto a single enterprise-wide information system. The
major benefits of ERP are improved coordination across various functional
departments of an organisation, and increased efficiencies of doing
business. The immediate benefit that we can expect from implementing
ERP systems is reduced operating costs, such as lower inventory control
cost, lower production costs, lower marketing costs, and lower help desk
support costs.
Reduction of lead time plays a significant role in purchasing and inventory
cost. Most purchasing departments use the managers to anticipate material
demands well ahead of actual need. In order to reduce the lead-times, the
organisation must have an efficient inventory management system.
Monitoring and keeping track of the lead-times for each and every individual
item manually, is practically an impossible task. The ERP systems help in
automating this task and thus, make the inventory management more
efficient and effective.
The companies must be able to change the mode of production from make-
to-stock make-to-order. Today, the ERP systems provide the freedom to
change manufacturer and planning methods as needs change. Products
that assembled to order can be planned using the extensive production
planned capabilities of these ERP packages. The company can define the
authorisation steps for approving and implementing an Engineering Change
Order (ECO). ERP systems are designed to help your company trim data
transfer time, reduce errors and increase design productivity.
The time between receiving of the order and delivery of the product is
known as Cycle time. Cycle time can be reduced by the ERP systems, but
the reduction will be more in the case of make-to-order systems. In the case
of make-to-order items, the ERP systems save time by integrating with
Computer Aided Design/ Computer Aided Manufacturing (CAD/CAM)
systems. Efficiency achieved through the plant maintenance and production
systems the ERP packages helps in reducing the cycle times.
ERP systems have proved that they can produce goods at the flexibility of
make-to-order approach without loosing the cost and time benefits of made-

to-order operations. This means that the customer will get individual
attention and the features that he/she wants
The ERP systems provide vendor management and procurement support
tools designed to coordinate all aspects of the procurement process.
Organisation needs the flexibility and comprehensiveness of the system's
supplier quotation, and contract management capabilities which is provided
by the ERP system. The Quality Management System in the ERP systems
provides all the tools needed to implement Total Quality Management
programs.
Typically, the quality costs are in the range of 20% of the cost of goods sold.
Carefully planning quality improvement activities not only improves quality,
but lowers quality-related costs. Specification Control Systems in ERP
packages offer a state-of-the-art approach for documenting specifications
which help to track and monitor the components and material. Thus, ERP
systems play a vital role in ensuring that the company has an efficient and
effective quality assurance and management system.
The capacity planning features of most ERP systems offer, both rough-cut
and detailed capacity planning. Capacity definitions are provided from work
centre and machine records. Work centres can be facility-specific or
enterprise-wide. Each work centre also has user-defined input/output control
tolerance factors to control the level of action message sensitivity. The
efficient functioning of the different modules in the ERP system like
manufacturing, materials management, plant maintenance, sales and
distribution ensures that the inventory is kept to a minimum level.
The three basic characteristics of information are accuracy, relevancy and
timeliness. The information has to be accurate and must be relevant for the
decision-maker and it must be available to the decision maker when he
needs it. An organisation cannot function as islands of different departments.
ERP systems will help in improving the accuracy of information and thus
help in better decision-making.
The other benefits from implementing ERP systems are facilitation of day-to-
day management. The implementation of ERP systems looks after the
establishment of backbone for data warehouses. ERP systems offer better
and easy access to data so that management can have up-to-the-minute
access to information for decision making and managerial control. ERP

software helps monitor and track actual costs of activities and perform
activity based costing.
Strategic Planning is defined as 1 "a deliberate set of steps that assess
needs and resources; define a target audience and a set of goals and
objectives; plan and design coordinated strategies with evidence of success;
logically connect these strategies to needs, assets, and desired outcomes;
and measure and evaluate the process and outcomes." Part of ERP
software systems is designed to assist resource planning portion of strategic
planning. But, resource planning has been the weakest area in ERP practice
due to the complexity of strategic planning and lack of adequate integration
with Decision Support Systems (DSS).

1. What are the benefits of an ERP implementation?
2. How does an ERP system reduce cycle time?
3. Write a note on the benefits of improved supplier performance using
ERP.
4. How does an ERP system facilitate better decision-making?
12.5 Answers
1. Lead-time
2. Supplier's delivery
3. Material Management
4. Finished
5. Make-to-order
6. Make-to-stock
7. Warehouse
8. Computerised
9. Customer
10. Supplier management, control systems
11. Purchase
12. Total Quality Management
13. Flexibility
1
http://www.sysoptima.com/erp/erp_benefits.php

14. Assemble-to-order
15. Quality
16. Material acceptance
17. Material, capacity
18. Work centre
19. Simulation
20. Time
Terminal Questions
12.6 Case Study
Wrigley manufacturers of a wide variety of products, including chewing

gum have a huge global market. However, when they realised the size
their computer system increased they discovered a chance to improve the
way they ran their business. At the same time they planned to go for
implementing BPCS software from SSA.
Wrigley's Finance Director, Andrew Ogle, was appointed as Project
Manager. He was able to sort out some of the problems they were facing:
He found out that different parts of the company often worked to different
forecasts received from various sources. For example, the sales
department would ask for more than they needed from the factory to
provide a cushion for errors. In turn the production and the planning
departments think that the sales team would never sell that much. So they
manufactured less than the sales department demand. To overcome this
problem he realised the need to make everyone work together. It was
decided to get help from outside from an expert. Hence, MRP Ltd was
called in for assistance. MRP Ltd had more than 40 years experience in
various fields of manufacturing industry. Hence, they were able to help the
Wrigley's team to examine their operations and target areas for
improvement.

The process started with external education for the project team. The
Business Excellence implementation was then spread internally to all
levels with varying levels of intensity and scope. With the help of this the
workforce gained the self-confidence to take part in the decision making
processes. For the first time, employees realised not only where their
company was heading, but also their place within it. The attitude that
always made them say 'It's not MY problem' simply evaporated. The
Managing Director of Wrigley was delighted by the change this made to
his role. The Introduction of Sales and Operation planning slowly
eliminated the problems that were recurring. Many other senior managers
in the company were able find more time to make more use of their
creative skills and take advantage of market opportunities.
Only two years into the process the changes were dramatic. With greater
accuracy of forecasts meant that Wrigley was able to cut down raw
material safety stock levels. This in turn enabled them to enhance the
quality control of goods from suppliers. This resulted in cost cuts while
the level of customer satisfaction rose.
The Business Excellence principles are driven by philosophy of
continuous improvement. The pace of the improvement in process
continues to drive the company to higher levels of achievement. Recent
improvements consist of continuing to drive up the customer service. For
example, the system helped in improving their ability to forecast, the
extensive use of bar codes to improve inventory record accuracy, and so
on. The management believes everyone is proud of their excellent
results.
Although it has been hard work, the process has been simple. Together
MRP Ltd and the Wrigley team took an important look at where they were
Company I. They were able to identify its strengths and weakness and
built on them to create Company II, exactly where they want to be.
Questions:
1. What was the major concern that bothered the top management of
the company?
2. Do you think the company’s management was vigilant enough to
identify the problem and brought corrective measures? Justify.
3. What all benefits do you think the company achieved with the new
system?

12.7 Glossary
Term Description
Conformance The act of conforming or of bringing about accord or
compliance in the organisation between the system and the
employees who use the system.
Consolidation The bringing together of businesses or business activities into
a single unit for effective management of the various activities
of the organisation.
Convergence A coming together from different directions, especially a
uniting or merging of groups or tendencies that were originally
opposed or very different in an organisation.
Quotation Quoting price of prevailing stock, bond, or commodity
according to the market prices by the company or a vendor of
the product.
Typology The study or systematic classification of types of quality
control related issues of an organisation or a company.
Validating To confirm or to establish the truthfulness or soundness of
something related to quality of the product or the commodity,
with the clients, customers or vendors.
References
1. Emerging Trends and Challenges in Information Technology
Management by Khosrow-Puor and Mehdi.
2. Concepts in Enterprise Resource Planning by Monk, Ellen and Wagner
3. Ensuring ERP implementation success by King. W.

Unit 13 ERP Market

Structure:
13.1 Introduction
Objectives
13.2 ERP Market
13.3 SAP – AG
Products and Technology
R/3 Overview
SAP Advantage
13.4 BAAN Company
Baan ERP Modules
Global Support, Education, and Consulting
13.5 Oracle Corporation
Oracle Applications
Vertical Solution
13.6 People Soft
Business Management Solutions
Commercial Solutions
Industry Solutions
Applications
13.7 J D Edwards World Solutions Company
Modules
13.8 Systems Software Associates Inc (SSA)
BPCS Applications
13.9 QAD
Application MFG/PRO
Modules
13.10 Summary
13.12 Answers
13.13 Case Study
13.14 Glossary

13.1 Introduction
By now you must be familiar with the concept of ERP, its essence in an
organisation, its market and application in a wide variety of industries. This
unit familiarises you with some of the vendors and the market space that
various vendors have occupied with respect to ERP.
The ERP market is fast growing and very competitive. AMR Research Inc. is
a leading industry and market analysis firm specialising in enterprise
applications and enabling technologies. They had analysed in 2002 that
Enterprise Resource Planning (ERP) software market will grow at a
compound annual growth rate of 3.7% over the next five years. During 2007
this revenue growth reached double figures. The findings of the AMR report
indicate the continued growth of three primary factors. These are:
 ERP vendors are expanding market presence continuously by offering
new applications such as supply chain management, sales force
automation, customer support and human resources.
 ERP vendors to sustain their rapid growth will try to sell more licenses
into their installed base. Currently, ERP vendors have a 10-20%
penetration (i.e. %age of total employees currently using the ERP
system). This will grow to 40-60% within the next five years.
 ERP originated in the manufacturing industry. Today ERP usage has
spread to nearly every type of enterprise including retail, utilities, public
sector, and healthcare organisations. Most will purchase new ERP
systems over the next five years, often for the first time.
In this unit, we will study some of the top vendors in the ERP market, their
profile, their product offerings, and product features.
The companies featured here are SAP AG, Baan Company, Oracle
Corporation, People Soft, J.D. Edwards, SSA and QAD.
 Describe the ERP market.
 Explain the major players in ERP and their respective market share.
 Assess the various market trends in ERP.
 Recognise the target market of ERP.
 Analyse and know how to potentially use ERP in the market driven
economy.
 Assess the seven major ERP vendors – SAPAG, Baan, PeopleSoft, JD
Edwards, Oracle, QAD and SSA.
13.2 ERP Market

The vendors in the ERP market are segmented into two levels.
They are focusing on expanding product functionality, new market targets
and higher penetration rates. The top level consists of five vendors (1998) –
SAP AG, Baan PeopleSoft, Oracle Applications, and J.D. Edwards. These
companies, account for 64 % of the ERP market revenue and have grown
over the past year at a furious pace of 61 %. In addition, Oracle, People Soft
J.D Edwards, and Baan are each expected to approach or exceed $1 billion
in total revenue in 1998, while SAP will approach $5 billion. In the survey
conducted by ARM during the year 2005 the list had few changes with new
players entering into the huge market of ERP.
Some of the companies were not able keep up with the technology and lost
their market like Baan. Some even went for merger like PeopleSoft and J.D.
Edwards. The figure 1 13.1 shows the total revenue of the top five ERP
vendors of 2005 survey. The graph in the figure 13.1 shows the total
revenue in millions of the top five companies in ERP market (2005). The
graph also shows the strength of each company in terms of revenue and the
monopoly they have in the ERP market.
1
www.amrresearch.com

Figure 13.1: Top Five ERP Vendors
The efforts these companies (SAP AG, Baan PeopleSoft, Oracle

Applications, and J.D. Edwards) made as start-ups, created a new market
for ERP. Although ERP was considered only for manufacturing large scale
industries, they penetrated into new smaller markets during 90’s.
AMR Research had predicted that the ERP market will reach $14.8 billion in
total company revenue in 1998. In addition, when third party services like
hardware, databases, and networking are considered, AMR Research
estimated that the ERP infrastructure was worth over $ 42 billion. It was
obvious that the market for ERP would continue to be one of the largest,
fastest growing and most influential in the applications industry. It was
poised for steady growth into the new millennium.
It is evident from the figure2 13.2 that the SAP had conquered the major
portion of the market with 29% of the total global market. This showcased
the efficiency and the strength of the company in handling customers and
technology. Oracle stood next to SAP followed by JD Edwards and
PeopleSoft. The most important aspect noticed is that 27% of the markets
occupied by other vendors were local vendors. They had a better picture of
their local conditions and benefited from it.
2
www.amrrresearch.com
Marcam
JBA Intentia
3%
SSA 4% 2% QAD
Baan 5% 2%
Others
5% 27%
PeopleSoft
6%
JD Edwards
7%
Oracle
SAP AG
Applications
29%
10%
Figure 13.2: Shows the global market share of the major ERP vendors.
Compared to the global market the scenario in India is slightly different. The
Indian ERP package Ramco's Marshal accounted for 9% of the market
share as shown in Figure3 13.3.
This proved the capability of Indian companies to penetrate the Indian
market in spite of the presence of some global giants. According to the
Dataquest survey (Dataquest, April 15, 1999), of the Indian ERP market,
SAP is the market leader with 20% market share. The survey also showed
that ERP does not appear to be new to the Indian market. This is indicated
by the large number of solutions, which have been implemented.
While SAPs R/3 and QADs MFG/PRO continued to dominate the Indian
market, the presence of some of the lesser-known brands like J.D. Edward
and SSA’s BPCS cannot be ignored. Other familiar and strong competitors
like Oracle’s Financials, Ramco‘s Marshal, and Baan also dominate the
second and third level of the domestic ERP market.
3
Dataquest Magazine

Baan
Oracle
7% MAMIS
7%
4%
Others
Ramco 23%
9%
SSA
10%
JD Edwards
10% QAD SAP
10% 20%
Figure 13.3: Indian ERP Market Share
There was also an extensive list of ERP solutions being implemented in

much smaller numbers. The ERP awareness in Indian organisations was
growing. The survey shows around 35% of organisations are using ERP for
more than 24 months. Some of the companies have been using ERP for
less than 24 months and the number is growing. Assuming an average
implementation process of 18 months, 35% of organisations have therefore,
been grappling with ERP issues for close to 4 years and longer. Amongst
the organisations planning to implement ERP in the future, the research
indicated that SAP still remains the number one preferred solution. This is
followed by Oracle Financials, Baan and MFG/PRO. Home-grown solutions
like Marshal and MakESS have also been indicated as preferred options.
13.3 SAP– AG
Systems, Applications and Products in Data Processing popularly known as
SAP or Systemanalyse und Programmentwicklung was founded in the year
1972, in Germany. It is the leading global provider of solutions for
client/server business application. SAP has installations in over 107
countries.
SAP’s ERP package is available in two versions – the mainframe version
(SAP R/2) and client/server version (SAP R/3). Most prominent among
SAP’s product range is the enterprise application suite R/3 for open
client/server systems. With SAP Systems, customers can opt to install the
core system and one or more of the functional components. You can even
purchase the software as a complete package.
SAP customers have chosen to install SAPs client/server suite in more than
19,750 sites worldwide. The System Software is accepted as the standard in
key industries such as oil, chemicals, consumer products, and high
technology and electronics.
SAP has work force strength of over 19,300 and has offices located in more
than 50 countries across the world. SAP is the most successful vendor of
software on standard business applications. It is also ranked as the fourth
largest independent software supplier in the world.
During the fiscal year, ending December 31, 1998, SAP AG reported
revenues of DM 847 billion, a 41% increase over 1997s revenues. In the
same period, sales of R/3 rose by 31%.
13.3.1 Products and Technology
SAP products feature a sophistication and robustness unmatched by other
business software solutions. SAP has developed a huge library of more than
800 predefined business processes, spanning each functional software
requirement. These processes can be selected from the SAP library. It is
then included within the installed SAP applications, after modifying the
application solution to suit the user's exact requirements. New business
processes and technologies become available regularly to the customers.
This enables the SAP customers to add state-of-the-art solutions to meet
their ever-changing business demands. The power of SAP software lies in
real-time integration. It has the ability to link a company's business
processes and applications. It also supports immediate response for any
change throughout the organisation on a departmental, divisional or global
scale. The international strength of the products extend to every aspect of
the application, such as the support of multiple currencies simultaneously,
and the automatic handling of country-specific import/export, tax, legal, and
language requirements. The complete suite of the applications on R/3 is

available in over 24 languages, including Japanese and other double-byte

character languages.
13.3.2 R/3 Overview
R/3 employs three-layer client/server architecture. This is widely recognised
by SAP customers, technology partners, and industry analysts. They believe
it as a winning approach for solving some of the day's most demanding
information-management challenges. The three-layered architecture
separates a system into three functional layers, each structured to support
the demands of its function.
 The Database layer resides on mainframe or central servers host
computers.
 The Application layer holds the logic of processing for the system,
preparing and formatting data for individual offices or departments.
The Presentation layer, installed on Personal Computers (PC), handles all
the tasks related to the presentation of data. This includes user interfaces
that enable easy access to complex applications and data. SAP has also
incorporated and integrated intranet and Internet technologies into business
solutions for its customers. Both internally and together with its partners, the
company is defines, and creates a number of Internet standard-based
interfaces, applications, and business processes. This helps in stretching
the usefulness of SAP software to entirely new ways and to new classes of
customers.
Through its Industry Business Units (IBUs) and extensive development
network, SAP works closely with its customers to develop new information
technology approaches. With the help of this SAP is trying to meet the
unique demands of a wide spectrum of industries. With this approach,
customers become members of the SAP development team, sharing their
best practices, and solutions.
R/3 enables react quick reaction and is more flexible, and leveraging on the
changes is on added advantage. Everyday business will surge, and this
means one can concentrate on strategically expanding to address new
products and markets. The R/3 System is ideal for companies of all sizes,
and industries and 50% of its users are small scale industries. It gives them

a forward-looking information management system, and the means to

optimise their business processes. R/3 consists of powerful programs for
accounting and controlling, production, and materials management, quality
management and plant maintenance, sales, and distribution, human
resources management and project management. Already, over 2,000,000
users put R/3 business applications to test every day. R/3 also has
information and early warning systems which helps in troubleshooting and
problem resolution.
R/3 brings together individuals who work on shared tasks within the same
company, in a network of companies, or in their dealings with customers
and business partners. R/3 unlocks ways to optimise organisational
structures for a smoother flow of information at all layers and between all
parts of the organisation. With integrated workflow management and access
to up-to-the-minute information, R/3 lets employees assume greater
responsibility, and work more independently.
R/3's applications consist of various modules. They can either be used
alone or in combination with other solutions. From a process-oriented
perspective, greater integration of applications increases the benefits
derived.
The following are the R/3 modules:
 Financial Accounting: Collects all relevant company data for
accounting, and provides complete documentation and comprehensive
information. At the same time it also provides up-to-the-minute basis
information for enterprise-wide control and planning.
 Treasury: A complete solution for efficient financial management across
the company worldwide ensures liquidity, proper structuring, financial
assets profitability and helps minimise risks.
 Controlling: A complete array of friendly planning and control in
instruments for company-wide controlling systems. Along with a uniform
reporting system for coordinating the contents and procedures of the
company's internal processes.

 Enterprise Controlling: Continuously monitors company's success

factors and performance indicators on the basis of specially prepared
management information.
 Investment Management: Offers integrated management and
processing of investment measures and projects from planning to
settlement. It also includes pre-investment analysis and depreciation
simulation.
 Production Planning: Provides comprehensive processes for all types
of manufacturing, from repetitive, make-to-order and assemble-to-order,
production, through process, lot and make-to-stock manufacturing. Also
to integrated supply chain management with functions for extended
MRP-II and electronic Kanban, plus optional interfaces for PDC, process
control systems, CAD and PDM.
 Materials Management: Optimises all purchasing processes with
workflow-driven processing functions, enables automated supplier
evaluation, lowers procurement and warehousing costs with accurate
inventory and warehouse management and integrates invoice
verification.
 Plant Maintenance and Service Management: Provides planning,
control and processing of scheduled maintenance, inspection, damage-
related maintenance and service management to ensure availability of
operational systems, including plants and equipment delivered to
customers.
 Quality Management Monitors: captures and manages all processes
relevant to your quality assurance along the entire supply chain,
coordinates inspection processing, initiates corrective measures and
integrates laboratory information systems.
 Project System: Coordinates and controls all phases of a project, in
direct cooperation with Purchasing and Controlling, from quotation to
design and approval, to resource management and cost settlement.
 Sales and Distribution: Actively supports sales and distribution
activities with outstanding functions for pricing, prompt order processing
and on-time delivery, interactive multilevel variant configuration and a
direct interface to Profitability Analysis and Production.
 Human Resources Management: Provides solutions for planning and

managing your company's human resources, using integrated
applications that cover all personnel management tasks and help
simplify and speed the processes.
13.3.3 SAP Advantage
SAP has established partnership with hardware manufacturers, database
providers and technology and service companies which play a significant
role for successful implementation. Client/server architectures, database
systems take care of managing enterprise data. They communicate with
application servers that coordinate the actual applications and control
communication with the database. At the client level, where the end users
work, the cycle of tasks is appropriately distributed across various
computers. The process ends with a presentation of the results on the
desktop for the user to apply across various levels of management For
efficient implementation and use of R/3, the Business Engineer application
of SAP allows installation and customisation of R/3 quickly and smoothly.
This is provided at minimum cost and with maximum reliability. After the
Business Engineer is fully integrated into the R/3 System, it helps in
analysing, designing and configuring business processes. As a result,
considerable time is saved in implementing R/3 and in subsequently
customising the system as business needs change, but it also greatly
reduces the cost.
The Business Engineer delivers a complete tool kit that greatly facilitates the
implementation of R/3 and the engineering of the business processes. For
example, the R/3 Procedure Model guides through the different project
phases step-by-step from project generation to going live. in order to always
be on the right track, a wide range of tried and tested, graphically portrayed
business scenarios and processes are stored in the R/3 Reference Model.
From this wealth of experience, the best possible processes can be chosen.
The openness of R/3 sets the pace in the market for client/server software.
You can:
 Link together R/3 systems or loosely couple distributed R/3 applications.
 Link both third-party software and popular desktop programs such as
MS Word, MS Excel, and MS Project to R/3 applications.

 Integrate specialised systems for computer-aided design (CAD), plant

data capture (PDC), or mobile data entry.
 Incorporate specific solutions for industry, such as laboratory systems or
geographic information systems (GIS).
 Include enhancements to R/3 applications, such as systems for
production optimisation and transportation planning.
 Open up new business opportunities with e-commerce, thanks to direct
cooperation between R/3 and the Internet.
 Use Java technology to make R/3 available to users with a familiar GUI
on the Internet.
 Include fax, e-mail, optical archiving systems and multimedia tools in the
R/3 System's business applications.
 Electronically transmit via EDI, receive and process data from R/3
applications.
 Build cooperating groups of solutions between R/3 applications and
SAPs R/2 System.
Activity 1
Make a list of the various ERP software or solution providers with their
various products available in the market today.

1. _________________is a, the leading industry and market analysis firm
specialising in enterprise applications and enabling technologies.
2. The _______________ is accepted as the standard in key industries
such as oil, chemicals, consumer products, and high technology and
electronics.
3. R/3 employs three-layer _____________ architecture.
4. The _______________ delivers a complete toolkit that greatly
facilitates the implementation of R/3 and the engineering of your
business processes.
5. Client/server architectures, ____________ systems take care of
managing enterprise data.

13.4 Baan Company

Baan Company is one of the leading providers of enterprise business
software in the global market. Baan was founded in the Netherlands in 1978
by brother’s Jan and Paul Baan. Baan Company offers a widespread
collection of best-in-class, component-based applications for front office,
corporate office and back office automation. These applications are in use at
over 7,000 customer sites worldwide. Baan Company products reduce
complexity and cost, improve core business processes. They are faster to
implement and use, are more flexible in adapting to business changes. They
also optimise the management of information throughout the entire value
chain.
Baan Company's product family offers on-going delivery of open
components for enterprise applications. It consists of a comprehensive and
flexible suite of year 2000-compliant software solutions and best-in-class
business modelling tools. These tools are based on a flexible, multi-level
architecture which can scale to meet the needs of small, medium, and large
enterprises. Baan Company makes this possible with its open architecture.
This enables customers to migrate to new technologies and product
releases at their own pace. Referred to within Baan Company as Dynamic
Enterprise Modelling Strategy Execution (BaanDEMSE), this unique
approach puts business requirements at the heart of the implementation
process.
Baan Company and its partners work closely with customers to insure the
success of every installation. They also enable customers to achieve the
highest level of self-reliance desired. The company's most important
customer base includes industry leaders such as Boeing, Philips, Mercedes
Benz, Nortel, Fujitsu Network Communications and Motorola. Baan
Company aims to ensure that every interaction its customers have is in line
with its “Three I” philosophies:
 Integrity: In its interactions with its customers, colleagues, partners, and
shareholders.
 Innovation: In what it builds and how it delivers.
 Initiative: In the speed and focus it brings to all aspects of its market
opportunity.

13.4.1 Products and Technology

Over the past 14 years, Baan Company has evolved from revolutionising the
Enterprise Resource Planning (ERP) software market to now offering the
most complete set of single-vendor enterprise business applications. The
foundation for Baan's products is differentiated through their open
component architecture and through the use of BaanDEM. BaanDEM via a
graphical process/model-based view provides a business view of the
enterprise. It is modified or templated to the specific needs of industry
groups or individual customers. BaanDEM delivers the capability to rapidly
configure and re-install Baan.
Company’s applications from a single view, helping to ensure that the Baan
Company enterprise application accurately reflects a company's most
current organisational structure, business practices, and operational
procedures.
Baan's product line features multi-layer architecture for maximum scalability
and flexible configuration. Applications are isolated from the systems
environment. This enables the support of new hardware, operating systems,
databases, networks and user interfaces without any modification to the
application code. Baan Company supports popular UNIX platforms as well
as Microsoft NT. Baan has the distinction of being the first solution provider
in its class to earn the 'Designed for Microsoft BackOffice logo certification.
Products also support major relational database systems (Oracle, Informix,
DB2, Sybase, and Microsoft SQL Server).
Built on a commitment to reduce the complexity of IT solutions, the Baan
product collection assembles best-of-class components. They keep them
"evergreen" through on-going release cycles. This enables enterprises to
update their information infrastructure in manageable and incremental
initiatives.
Three advantages distinguish each component element within the
BaanSeries-based family of products including.
They are:
1. Best-in-class components
2. Evergreen delivery;

3. Version independent integration.

The BaanSeries-based product family includes:
 Baan Enterprise Resource Planning (BaanERP)
 BaanFrontOffice
 BaanCorporateOffice Solutions
BaanSupply Chain Solutions.Baan offers specific vertical industry solutions
for aerospace and defence companies engaging in multi-level projects and
contracts. Baan's A&D offering includes BaanProject to enable the effective
management of key functional business process areas. Baan also offers
specific vertical industry solutions for automotive companies. Many of the
world's leading automotive companies use Baan's business applications to
support worldwide manufacturing, distribution, and financial operations.
Baan's product suite offers automotive companies next-generation
information technology across manufacturing, supply chain and front office
operations.
13.4.2 BaanERP Modules
BaanERP, the successor to Baan IV, is a proven enterprise resource
planning software application. It is fully integrated and provides exceptional
functionality across the enterprise. BaanERP consists of a number of
interdependent components that can be deployed to meet business needs.
The flexibility within BaanERP allows customers to maximise the benefits of
both best-in-class solutions and a fully integrated, high-performance system.
BaanERP includes the following components - manufacturing, finance,
project and distribution.
 Manufacturing Module: It includes Bills of Material, Cost Price
Calculation, Engineering Change Control, Engineering Data
Management, Hours Accounting, Product Classification, Product
Configuration, Production Control, Production Planning, Project
Budgeting, Project Control, Repetitive Manufacturing, Routings, Shop
Floor Control, Tool Requirements, Planning and Control, Capacity
Requirements Planning, Master Production Scheduling, and Material
Requirements Planning.

 Finance Module: It includes Accounts Payable, Accounts Receivable,

Financial Budgets System, Cash Management, Financial Reporting
System, Fixed Assets, General Ledger, Cost Accounting, and Sales
Invoicing.
 Project Module: It includes Project Budget, Project Definition, Project
Estimating, Project Invoicing, Project Monitoring, Project Planning,
Project Progress, and Project Requirements Planning)
 Distribution Module: It includes Sales Management, Purchase
Management, and Warehouse Management.
13.4.3 Global Support, Education, and Consulting
Support: Baan Global Support is a company's best source for fast, consis-
tent problem resolution, as well as preventive technical advice. Baan Global
Support offers a broad range of support services. It includes telephone
support, Critical Incident Support, an Interactive Support Website, and an
Ongoing Subscription to Innovation. Baan has closely linked Implementation
Solution Centres around the world. They support internal and third party
implementation consultants as well as customers. Baan also assists
customers in establishing on-site competence centres to manage all aspects
of the implementation and ongoing systems use. Products are available in
over 59 countries through both direct and indirect channels, and are
translated into more than 20 languages.
Baan Education: As a partner in lifetime learning, Baan Education helps
maximise the return on investment in people and technology. Baan
Education addresses the education needs of everyone in an organisation. It
includes newly hired employees to seasoned professionals who are
maturing with technology. Baan Education offers new Internet-based
learning called Virtual Campus. With Baan Education, a partner can realise
the company's goals of profitability, productivity, and competitive advantage.
Baan Education's process-based course, addresses not only specific Baan
Company's enterprise applications. It also provides an in-depth
understanding of the business processes that its applications automate.
Thus, Baan Company extends education beyond simple functionality. It
takes into account the various conditions within which its applications are
used in their manufacturing, sales, financial, and technical environments of

a company. This lifetime learning approach means that a company's

workforce is always side by side with the latest technology and business
developments.
Baan Consulting: Baan Consulting is dedicated to implement Baan
Company’s enterprise applications around the globe, along with the
thousands of customers served by its consulting partners. Baan Consulting
has a successful track record with well over 1,000 customers worldwide, in
almost every business environment. Baan Consulting provides a wide range
of services, such as Project Management, Business Consulting, Application
Consulting, and Technical Consulting. Consultation support is provided
throughout the implementation process, and after a company goes live with
the project. Baan Consulting works with its client through Internet-based
Baan Cyber Consult offering.
6. _________________ product family offers on-going delivery of open
components for enterprise applications.
7. These tools are based on a flexible, _____________ architecture which
can scale to meet the needs of small, medium, and large enterprises.
8. ______________ are isolated from the systems environment.
9. ________________ helps maximise the return on investment in people
and technology.
10. Baan Consulting works with its client through Internet-based
_____________________ offering.
13.5 Oracle Corporation

Oracle Corporation (founded in 1977) is the world's second largest software
company. It is also the leading supplier of software for Enterprise
Information Management (EIM). With annual revenues exceeding $ 8.0
billion, the company offers its tools, database, and applications products,
along with related consulting, education and support services. Oracle
employs more than 41,000 people in more than 145 countries around the
world. Oracle has its headquarters in Redwood Shores, California. It is the
first software company to implement the Internet computing model for
developing and deploying enterprise software across its entire product. They

are application development, databases and relational servers, and decision

support tools, and enterprise business applications.
13.5.1 Product and Technology
Oracle software runs on personal digital assistants, set-top devices, network
computers, PCs, workstations, minicomputers, mainframes, and massively
parallel computers. Oracle8i, the latest version of Oracle industry's leading
database, is the database for Internet Computing. Oracle's family of
database, networking, and gateway products enable corporations to access
any data, on any server, over any network, from any client device.
Oracle's Warehouse Technology Initiative (WTI), one of the fastest growing
and most comprehensive alliance programs in the data warehousing
industry. It provides customers with a complete solution on data
warehousing. This is based on the industry-leading Oracle database, and
more than 60 complimentary third-party software products and services.
WTI is designed to increase the quantity and quality of Oracle-based data
warehousing solutions. This provides customers with greater choice,
specialised tools, Oracle-optimised products, and streamlined support as
they build their data warehouse system. Oracle's integrated Business
Intelligence Solutions deliver powerful capabilities to users anywhere in the
enterprise, at any time. End users benefit from sensitive tools that provide
easy access to business data and fast answers to any question. Oracle's
Business Intelligence family of products including integrated releases of
Oracle Reports, Oracle's enterprise reporting tool, Oracle Discoverer,
Oracle's award-winning ad-hoc query and analysis tool, Oracle Express,
and Oracle's industry-leading enterprise online analytical processing (OLAP)
engine. Oracle also offers pre-built OLAP applications like Oracle Financial
Analyser and Oracle Sales Analyser which help to further reduce
implementation time and costs.
13.5.2 Oracle Application
It is a leading provider of packaged and integrated front office and ERP
solutions for the enterprise. It is also a division of Oracle Corporation, the
world's second-largest software company and the largest supplier of
software for information management. Oracle Application’s strategy is to
offer all the enterprise solution components like proven applications,

advanced technologies, business expertise and partnerships required to

enable customers to execute strategies quickly. It also assists in managing
the risk of change, and lead their respective industries in right direction.
Oracle Applications is the only collection of enterprise business applications
from a major Enterprise Resource Planning (ERP) vendor that follows the
Internet Computing (IC) model. Each of the over 45 modules for human
resources, financials, manufacturing, supply chain, and front office
automation is web-enabled. It also allows the modules to be deployed on
corporate intranets with no software, other than a browser, required on
users’ desktops. This architecture allows organisations to shift the
complexity of application management, maintenance, and upgrading from
users' desktops onto centralised, professionally managed servers. Hence, it
significantly reduces the cost of deploying and administrating the software.
By minimising network traffic, this approach also makes it economical to
deploy the applications over Wide Area Networks (WANs) to hundreds or
thousands of users. This system has enabled the company to distribute
critical business information much more broadly which is only possible in the
client/server model.
Oracle Applications further exploit the low-cost and universal access in the
Internet Computing model. By providing a set of applications specifically
designed for secure, self-service business transactions across the Internet
and corporate intranets this is achieved. These applications are integrated
with Oracle Workflow to completely automate business processes.
Oracle Applications comprise of 45-plus software modules, which are
divided into the following categories:
 Oracle Financials
 Oracle Human Resources
 Oracle Projects
 Oracle Manufacturing
 Oracle Supply Chain
 Oracle Front Office
More than 6,000 customers in over 76 countries use Oracle Applications.
Available in more than 29 languages, Oracle Applications lets companies

operate in multiple currencies and languages, support local business

practices, and legal requirements. It also handles business-critical
operations across borders.
A brief overview of the Oracle Application categories is given below:
 Financials: Oracle Financial Applications can transform a finance
organisation into a strategic force. In today's fast-moving corporate field,
organisations require access to critical financial management functions.
With Oracle Financial Applications, companies will be able to work
globally, lower their administrative costs, close their books faster, and
improve cash management. At the same time they provide the strategic
information required for making timely and accurate decisions.
 Projects: Oracle Projects Applications improve operational efficiency by
providing an integrated project management environment. This supports
the full lifecycle of every project in your enterprise, increasing top-line
revenue growth and bottom-line profitability. It acts as the bridge
between operations systems and corporate finance. Oracle Projects
Applications provide a central storeroom of certified cost, revenue, billing,
and performance data associated with your business activities or
projects.
 Human Resources: Well-managed human resources directly improve
the bottom line and contribute to competitive advantage. The ability to
hire, motivates, and retains the most capable workforce; engage
employees and line managers directly in managing their skills and
careers. It also provides comprehensive and up-to-date workforce
information for management on a global basis. These are a few of the
characteristics important for success of this software. The Oracle Human
Resource Management System (HRMS) provides comprehensive
facilities for organisations to achieve such goals.
 Manufacturing: Oracle Manufacturing Applications are the industry-
leading mixed mode manufacturing solution. It enables companies to
achieve market leadership by becoming more customer-responsive and
efficient. This product family supports companies from small, single-
facility environments to multi-plant, global manufacturers with complex
requirements. Oracle Manufacturing Applications help companies

increase revenue, profitability, and customer loyalty. It is achieved by

universally capturing demand, planning the extended enterprise in one
rapid step. Along with these it ensures that the most efficient
manufacturing process is used to produce each product in the
respective company using it.
 Supply Chain: Oracle Supply Chain Management Applications simplify
supply-chain processes by providing a single, integrated environment for
managing the extended enterprise. Oracle enables effective trading
partner collaboration and supply-chain optimisation capabilities that are
essential to gain and sustain competitive advantage. Oracle Supply
Chain Management Applications help in increasing market share while
improving customer service. It also helps the company in minimising the
costs across the networked supply chain system.
 Front Office: Oracle Front Office Applications provide a true customer-
centric approach. Allowing you to better understand your customer
relationships, their value and profitability. Oracle Front Office
Applications increase revenues, decrease sales and service costs, and
maintain customer retention and satisfaction. The sales, marketing, and
service solutions provide deep integration with the entire enterprise
collection of applications. Hence, enabling you to attract and retain
profitable customers through a unified set of channels, including Web,
mobile, and call centre.
13.5.3 Vertical Solutions
Oracle also provides vertical solutions with a full line of modular product
components aimed at the unique requirements of many major industries,
including automotive, aviation, aerospace and defence, communications,
consumer packaged goods, energy downstream, energy upstream, financial
services, high-tech, public sector, and utilities.
This uniqueness and versatility of the company not only provides the
required solution to the customer but also the support system has made it
the most preferred choice of many companies. Their commitment and
knowledge over the field has made them the most successful vendors in the
ERP market. Their continuous innovation and up gradation in technology

has provided an edge over other ERP vendors to firmly hold on to the ever
changing ERP market.
13.6 People Soft

PeopleSoft Inc. was established in the year 1987 to provide innovative
software solutions that meet the changing business demands of enterprises
worldwide. It employs more than 7,000 people worldwide. The annual
revenue for the year 1998 was $ 1.3 billion. PeopleSoft's objective is to
provide innovative software solutions that meet the changing business
demands of organisations worldwide.
PeopleSoft develops software that supports enterprise wide solutions to
handle core business functions. This includes human resources
management, accounting and control, project management, treasury
'management, performance measurement, and supply chain management.
It provides enterprise solutions which is industry-specific to customers in
select markets. Like healthcare, manufacturing, communications, financial
services, higher education, public sector, services, retail, transportation, US
federal government, and utilities. PeopleSoft Select offered by the company
is a complete packaged solution including software, hardware, and services
to address the needs of medium sized organisations.
Solutions of PeopleSoft run on a variety of leading hardware and database
platforms. Like IBM, Sun Microsystems, Compaq, Hewlett-Packard, Informix,
Microsoft SQL Server, Sybase, DB2, and others. PeopleSoft delivers Web-
enabled applications, workflow, OnLine Analytical Processing (OLAP), and
so on.
13.6.1 Business Management Solutions
PeopleSoft solutions extend across the globe. The applications help in
managing a broad set of business processes, from human resources and
finance to supply chain management. One can implement a single
application, or a complete enterprise wide solution. The flexible design lets
you modify the applications to your specific needs. The PeopleSoft's
business management solutions are in the areas given below:
 Human Resources Management
 Accounting and Control
 Treasury Management
 Performance Measurement
 Project Management
 Sales and Logistics
 Materials Management
 Supply Chain Planning
 Service Revenue Management
 Procurement
13.6.2 Commercial Solutions
Supply Chain Management: PeopleSoft has the industry's only complete
enterprise resource planning solution that is built around supply chain
optimisation. A Demand Planning module enables sophisticated forecasting,
using both real-time and historical information. PeopleSoft's complete suite
of Supply Chain Management products provides comprehensive support for
any organisation that produces or markets a physical product.
Service Industry Solutions: PeopleSoft also provides a complete
commercial support solution for service industries. The Service Revenue
Management suite features modules supporting the tracking of time and
labour, payroll processing, project management, billing, and expense and
receivables processing. A suite of Procurement modules is also available
supporting purchasing, inventory management, payables and expense
processing, and asset management.
13.6.3 Industry Solutions
PeopleSoft supports industry-specific market initiatives in many business
sectors. The initiatives include industry specific products, customisation of
existing applications, and sales and marketing support through direct
channels and business alliances.
PeopleSoft has 11 distinct business units, which provide software solutions
specific to a broad range of public and private sector industries. These
Industry partners help in making the solutions widespread and spanning the
enterprise from the back office to the front lines. From service and
manufacturing to education and government, PeopleSoft solutions are

global, enterprise-wide, and modified to unique industry requirements. The

different business units are:
 Communications
 Federal Government
 Financial Services
 Healthcare
 Higher Education
 Manufacturing
 Public Sector
 Retail
 Service Industries
 Transportation
 Utilities
13.6.4 Applications
PeopleTools is an integrated set of client/server business application
development and customisation tools from PeopleSoft. These tools enable
customers to implement, modify, and maintain PeopleSoft applications as
well as to extract, analyse and manipulate data. PeopleTools includes
several tools for reporting, customisation and workflow.
PeopleSoft continually adds and refines technology to optimise their
customer’s information systems. They help customers take advantage of
new and emerging technologies, giving them more choices and freedom to
develop their own innovative business processes. Some of them are given
below:
 Self-Service Applications: Helps to improve productivity throughout the
organisation. PeopleSoft focuses on providing the occasional user with
easy access to information and functionality specific to their role. They
have developed a set of self-service applications to help companies
quickly and cost-effectively distribute functionality throughout the
enterprise over the Internet, and intranets. Built with a spontaneous
interface based on a standard Web browser such as Netscape
Navigator or Microsoft Explorer. These Java-based, cross-platform
applications enable employees, customers, suppliers, and other
occasional users to perform self-service administrative tasks easily. Self-

service applications are linked to PeopleSoft core product lines. Such as

PeopleSoft Accounting and Control, Human Resources Management,
and Materials Management.
 Web Client: Self-service applications use the PeopleSoft Web Client.
The Web Client is downloadable on demand and runs on a Web
browser across multiple platforms. Its affordability, open architecture and
simplicity provide an ideal framework for delivering enterprise solutions
to a large number of people. Applications don't need to be installed at
every desktop; they are accessed easily through a browser. In addition
to supporting self-service applications, the PeopleSoft Web Client has a
Work list and Query interface. This improves the flow of the company's
business processes and improves access to information for occasional
users. Furthermore, all data transmitted between the Web Client and the
application server is coded for added security. Because the Web Client
takes advantage of PeopleTools, self-service applications can be
deployed across the Internet or existing corporate intranets with
common business rules workflow logic and security features.
 Multi-layer Transaction Processing: The ability to support large
numbers of parallel users, while maintaining reliable, and superior
performance, is critical to enterprise-wide data processing. PeopleSoft
works in a variety of settings over Local Area Networks (LANs) and Wide
Area Network (WANs), throughout organisations. In the latter, the
application logic runs on an application server instead of the client. The
application server is designed to relieve the client from processing
intense SQL transactions, thereby reducing LAN traffic and improving
performance across WANs. Three layered architecture also provides
increased scalability to accommodate high volumes of parallel users
while maintaining a consistent and reliable performance level.
PeopleSoft continues to support its traditional two layered architecture
as well.
 OnLine Analytical Processing (OLAP): Companies must be able to
quickly extract and analyse the information they require for effective
decision-making. OLAP, or online analytical processing, is a powerful
method for interactively analysing data online. PeopleSoft integrates

popular OLAP tools including Cognos PowerPlay and Arbor Essbase

that enable users to easily share multidimensional data stored in various
locations. With the Cube Manager application, users can define the data
they want to extract into an OLAP cube. It enables them to quickly view
information from all different angles to test conclusions, conduct what-if
scenarios and compare alternative strategies. With multidimensional
information presented in quick-read formats, managers can make better
decisions, react faster to competitive threats and identify inefficiencies.
 Workflow: An essential part of the solution, PeopleSoft workflow
capabilities help communications companies achieve enterprise-wide
integration of information, applications, and people. Workflow enables a
company to automate many time-consuming clerical tasks, while putting
useful data into the hands of users. With workflow, the company's
PeopleSoft applications do more of the work. For example, if managerial
approval is needed for a work order, the system automatically forwards
the request. Workflow can also help the company track projects, by
initiating a workflow message to the appropriate person when a project
exceeds a predetermined cost. The company can even bring non-
PeopleSoft users into the workflow process, using e-mail systems and
the Internet for collecting, and distributing data.
Activity 2:
Visit a nearby departmental store and find out the features as a small
business unit what the requirements an ERP package must provide
them.

11. Oracle's __________________ one of the fastest growing and most
comprehensive alliance programs in the data warehousing industry.
12. Oracle Applications further exploit the low-cost and universal access
inherent in the ____________________ model.
13. Oracle Projects Applications improve operational efficiency by
providing an integrated _____________________ environment.
14. _____________ focuses on providing the occasional user with easy
access to information and functionality specific to their role.

15. PeopleSoft works in a variety of settings over _____________and

________________.
13.7 JD Edwards World Solutions Company

1977 Denver, Colorado, three men left the accounting world to form a
software company that would specialise in midrange computing solutions.
Each of the three founders Jack Thompson, Dan Gregory and Ed McVaney
lent a small portion of his name for the company name. On March 17, JD
Edwards was formed.
In the early years, JD Edwards designed software for several small and
medium-sized computers. They eventually started focusing on the IBM
System/38 in the early 1980s. It was in this effort that JD Edwards
pioneered the Computer-Aided Systems Engineering (CASE) software
development and design tool. This lend for consistency across the broad
range of JD Edwards' integrated applications.
As JD Edwards' business continued to grow, it became obvious that
servicing a large number of customers was creating challenges. The
company could either remain small or serve customers on an individual
basis or, with a breakthrough in technology; it could become an industry
leader in enterprise software. When McVaney and Thompson began to
design and implement Worldsoftware, they provided the pathway to success.
By the mid-1980s, JD Edwards was being recognised as an industry-leading
supplier of applications software for the highly successful IBM AS/400
computer, a direct successor of the System/38.
With the June 1996 introduction of OneWorld, the company once again
achieved a technological breakthrough. Building on the CASE technology
pioneered in the 1980s, OneWorld combines a full range of platform
independent applications with an integrated toolset. OneWorld gives
organisations the power to configure their systems and applications as their
needs change.
Today, JD Edwards is a publicly traded company that has more than 4,700
customers with sites in over 100 countries and more than 4,200 employees.
The company attributes much of its success to a corporate culture that

emphasises quality at all levels. JD Edwards' commitment to its product

quality, its corporate culture and a customer centric approach enable the
company to deliver and support leading enterprise software solutions that
solve business problems.
JD Edwards offers its solutions primarily for the AS/400 platform. JD
Edwards's has two application suites, OneWorld and WorldSoftware.
WorldVision, provide comprehensive supply chain management functionality
across the wide range of technology. Both can run parallel on the same the
AS/400 platform, share data and interact with each other as a unified
solution.
13.7.1.1 OneWorld
JD Edwards OneWorld is flexible enough to support an extended solution by
integrating with existing, best-of-breed and other company products. This
can be achieved without sacrificing the security, integrity, or consistency of
the existing systems or data. OneWorld's own Application Programming
Interface’s (APIs) , as well as such industry standards as CORBA, ODBC
and other packaged integration solutions ensure that you won't be locked
into limited functionality, and any of the future opportunities.
OneWorld embraces change with its modular architectural foundation. The
information processing is segmented into five functional elements. They are
database, data warehouse, business objects, reporting, and GUI. The users
can link these elements in a variety of configurations from one level, with
every element running on a stand-alone PC, to five levels or more. One can
also distribute the elements geographically, departmentally, or
administratively. You also can configure and reconfigure in the field, as
requirements change. There are provisions to add new servers, even Web
servers, without having to rewrite applications for the new machine.
OneWorld has the tools and technologies that will quickly bring archived
data to light. And you can extend and supplement those technologies with
solutions offered by leading industry data warehousing and decision support
specialists. The customer has the option to choose the data warehousing

solution that he wants. OneWorld provides alternatives, so that you can

choose the most appropriate solution based upon your own requirements.
With OneWorld, you can distribute your enterprise applications to
employees, business partners, and customers using web-based technology,
without rewriting your applications. OneWorld software version supports
client/server and Internet modes. This results in an extended enterprise that
works together to support the same business tasks.
No matter how well your applications fit, they probably need a little
modification to fit precisely to the needs of your organisation. With
OneWorld, you get a powerful set of tools to make those alterations.
OneWorld's toolset uses business logic, not symbols and syntax, to drive
the modification process. Change your business specifications, and the
toolset automatically regenerates the appropriate object code. You can
modify applications, balance processing loads run reports, and build
graphical user interfaces without writing codes. Add hardware and
databases without bringing your business to a halt. Since modifications are
made with the same toolset used to build OneWorld, it's all integrated.
When a new release arrives, your changes will automatically be
incorporated you won't have to make them again. The interface is consistent
whether you are partitioning applications or replicating data. This will save a
lot of time and effort in reprogramming and retraining. OneWorld allows you
to build highly flexible workflow solutions and execute, predefined, and
unplanned processes in your organisation. With OneWorld, your ability to
learn, implement, and maintain workflow at all levels of your organisation is
simplified.
13.7.1.2 WorldSoftware and WorldVision
In the age of technology change, the popularity of many enterprise software
solutions is fleeting. The resulting obsolescence is frustrating and costly. It is
better to have a system that has the necessary functionality with built-in
longevity. More than 4,000 customers have found this staying power in JD
Edwards WorldSoftware. On its strength and the reliability of it’s host-centric.
IBM AS/400 foundation, WorldSoftware's global popularity has endured in
the ERP marketplace for over a decade.

Inherently flexible and easy to use, WorldSoftware readily adapts to your

situation, letting you:
 Selectively mix, match and integrate software applications from among
its diverse industry product suites.
 Easily modify it to ongoing business, local and organisation-specific
requirements.
 Add WorldVision, its advanced graphical user interface, to gain
client/server benefits.
 Optionally run it alongside OneWorld, JD Edwards' network-centric
solution, to gradually incorporate other computing platforms into your
network.
JD Edwards WorldVision provides the Graphical User Interface (GUI) with a
look and feel common to the PC. At the same time it protects your
investment in WorldSoftware and the AS/400. WorldVision also allows you
to:
 Maximise productivity by shrinking the amount of training users need.
 Make a safe move to client/server by leveraging your existing host-
centric WorldSoftware applications.
And like WorldSoftware, another bread of software WorldVision is
developed and continually enhanced for the future. For example, you can
have WorldVision as a Windows 95/NT style GUI for a PC and as a Java-
based interface for use across the Internet, or intranets.
13.7.3 Modules
The different product modules available from JD Edwards are:
 Foundation Suite: Consists of Back Office, CASE Foundation,
Environment/ Toolkit, Financial Analysis Spreadsheet Tool and Report
Writer, WorldVision GUI, Electronic Burst & Bind.
 Financial Suite: Consists of General Accounting, Accounts Payable,
Accounts Receivable, Fixed Assets, Financial Modelling and Budgeting,
Multi-Currency Processing, Cash Basis Accounting, Time Accounting)
 Logistics/Distribution Suite: Consists of Forecasting, Requirements
Planning, Enterprise Facilities Planning, Sales Order Management,
Advanced Pricing, Procurement, Work Order Management, Inventory

Management, Bulk Stock Management, Quality Management, and

Advanced Warehouse.
 Management: Consists of Equipment Management, Transportation
Management, Job Cost and Service Billing
 Services Suite: Contract Billing, Subcontract Management, Change
Management, and Property Management.
 Manufacturing Suite: Consists of Configuration Management, Cost
Management, Product Data Management, Capacity Planning, Shop
Floor Management, and Advanced Maintenance Management)
 Architecture, Engineering, Construction, Mining and Real Estate
Suite: Consists of Procurement, Inventory Management, Equipment
Management, Job Cost, Work Order Management, Subcontract
Management, Change Management, Contract Management, Contract
Billing, Service Billing, Homebuilder Management, and Property
Management.
 Energy and Chemical Suite: Consists of Agreement Management,
Advanced Stock Valuation, Sales Order Management, Bulk Stock
Management, and Load and Delivery Management.
 Government, Education, and Not-for-Profit Solutions: Consist of
Financial Administration and Reporting, Budget Administration, Fund
and Encumbrance Accounting, Grant and Endowment Management,
Purchasing and Material Management, Warehousing and Central Stores
Management, Human Resources Management, Service and Work Order
Management, Capital Project and Construction Management, Contract
Management, Plant, Equipment, and Fleet Maintenance.
 Utility and Energy Solutions: Consists of Customer Information
System, Human Resources Management, Work Management,
Regulatory Reporting, Supply Chain Management, Project Management,
Enterprise Maintenance Management.
JD Edwards offers customers the means of achieving greater ongoing
control of their businesses. It is enabled by their ability to define and
redefine the way they do business as markets, customers and competitive
conditions change. Behind this customer commitment is a twenty-two year

history of listening to customers, understanding what they ask of business

technology. At the same time learning the problems and requirements of
their industry and developing solutions accordingly. By emphasising
solutions, relationships, and value, JD Edwards maintains its focus on what
truly matters to its customers.
16. _____________ combines a full range of platform independent
applications with an integrated toolset.
17. Change your business specifications, and the toolset automatically
regenerates the appropriate__________.
18. A network of certified service and support providers complements the
services directly available from ______________ to ensure timely
implementation and ongoing quality of the solution.
19. Through continual enhancements in features and functionality,
____________________ opens to other technologies.
13.8 Systems Software Associates Inc.(SSA)

System Software Associates (SSA), Inc. is one of the leading providers of
software for industrial businesses in the world. The company was founded in
1981 by Roger E. Covey. Covey at age 26 was already experienced in
selling software manufacturing systems. He had worked previously for
Chicago, Illinois-based Professional Computer Resources, Inc before
starting his own company.
The reason for the company's early growth was its unique distribution
system. Covey had determined that selling through retail channels made it
difficult to find customers, while selling though a direct sales force and
providing extensive servicing made it difficult to turn a profit. Therefore, SSA
instead developed a network of local affiliates, trained by SSA, that would
sell, install, and service the products for a commission. This enabled the
company to expand at an impressive rate while keeping its overhead costs
low.
Covey and his employees decided to focus on improving the company's
specialty, integrated software packages for industry. Instead of searching for
the ways to diversify the product line the company had. In 1984, SSAs sales
reached $3.9 million. This growth continued rapidly through the mid 1980s
with the services they offered to medium-sized companies. Since these
companies often needed to expand their computer system capacities and
software capabilities. However, they wanted to achieve this without hiring
programming personnel as a part of their work force. Since hiring program
developers was not only costly but also required resources to support it.
SSA was able to make use of this opportunity and establish its market is
these medium sized companies.
SSA by 1989 had a workforce of 400 employees with over 4,000 customers
in 30 countries. The company was producing software in eight languages,
including French, German, Italian, Chinese, and Japanese. They were
offering twenty-six integrated software products for their customers. At a
price rang varying from $50,000 to $500,000, depending on the size of the
computer on which the applications were to run. Network of associates
working for SSAs had grown to 52 by the middle of 1989, penetrating nearly
every major market in the world. The competition became tough when IBM's
improved integrated software package was released to the market. However,
the market for integrated software for medium-sized companies remained
somewhat under-penetrated, and SSA was able to sustain its rapid growth
rate through the year. The company's sales increased to $95 million, with
net income reaching $11.1 million in 1989. SSA had made its presence felt
in the ERP market.
After Covey's resignation, his place was filled by Larry J. Ford. Larry J. Ford
was the vice-president of IBM, in charge of marketing the AS/400. Ford, who
had been with IBM for 28 years, had occupied the posts of president,
chairman, and chief executive of SSA. Under leadership of Ford, SSA
continued to prosper. Increasing stress was placed on the company's CASE
products, which assist clients in adapting software for their own purposes as
business conditions change. SSA had over 4,000 customers, more than half
of them were overseas customers. The company's net income finally began
to stabilise during that year, although sales continued to climb, reaching
$146 million.
SSA concentrated its attention on a new strategy for supporting open-
system client server computing environments. Using its CASE technology, it

began offering more flexible software than compared to previously available.

The company's new version of its most important BPCS series was called
Business Planning and Control System/Advanced Solution (BPCS/AS).
BPCS/AS consists of over 40 applications integrated in it. These
applications can be easily modified to keep up with rapid changes taking
place in the hardware on which they are run and the business climates in
which they are used. The company announced that its new client/server
application products can run on systems based on UNIX as well as on the
AS/400. Now SSA is the single largest supplier of software for IBM
manufactured AS/400 line of minicomputers. The flexibility of SSAs software
products are so flexible that they can be reconfigured to meet specific
customer and business demands in any industry. The company through
offices and business support system in 67 countries maintains its global
presence. It also provides support for clients with the help of a network of
over 5,000 professionals working round the clock.
Business Planning and Control System (BPCS) is the main product line of
SSAs. This is an integrated group of software products for industry that
includes applications for manufacturing, distribution, and financial operations.
The company is also a major force in Computer-Aided Systems Engineering
(CASE) technology. Its AS/SET line uses CASE technology to allow clients
to construct their own applications. Electronic Data Interchange (EDI)
enables businesses to communicate electronically with trading partners, is
another area in which SSA has developed advanced products. The
company's new software line the Main/Tracker automates, maintenance,
performs safety inspection, and warranty tracking. Therefore it is one of the
leading maintenance management system software in the world.
Some of the most popular products of SSA are:
 Business Planning Control System (BPCS): BPCS consists of
processes that monitor various functions of distribution and
manufacturing.
 Business Performance Management: Business performance
management (BPM) consists of a set of management and analytic
processes, supported by technology, that enable businesses to define

strategic goals and then measure and manage performance against

those goals.
 Customer Relationship Management (CMR): CMR consists of the
processes a company uses to monitor and organise its contacts with its
current and future customers. CRM software is used to support
processes. Also information about customers and their interactions can
be entered, stored, and accessed by employees in different company
departments. Typical CRM objective is to improve services provided to
customers, and to use customer contact information for targeted
marketing.
 Financial Management (FM): FM is the sub-division of finance that
concerns itself with the managerial significance of finance techniques. It
is focused on assessment rather than technique. It is an
interdepartmental approach that borrows from both managerial
accounting and corporate finance.
 Human Capital Management (HRM): HRM is the strategic and rational
approach to the management of an organisation's most valued assets
the people working there who individually and collectively contribute to
the achievement of the objectives of the business.
 Product Lifecycle Management (PLM): PLM is the process of
managing properly the entire lifecycle of a product from its conception,
through design and manufacture, to service and disposal. PLM
integrates data, processes, people, and business systems and provides
a product information backbone for companies and their extended
enterprise.
 Supply Chain Management (SCM): SCM is the management of a
network of businesses that are interconnected, involved in the ultimate
provision of product and service packages required by end customers. It
monitors the movement and storage of raw materials stock, inventory,
work-in-process, and finished goods from point of origin to point of
consumption.
 Supplier Relationship Management (SRM): SRM is a discipline of
working in cooperation with the suppliers that are vital to the success of

your organisation, to maximise the potential value of the relationships of

the supplier.
Lets us study about SSAs highly popular product the BPCS. Business
Planning Control System (BPCS) was developed by System Software
Associates (SSA), which later became SSA Global Technologies. This
software is used to control the operations of manufacturing company’s
processes.
 BPCS consists of MRP logic for manufacturing operations, provided
there are high standards of data validity such as engineering
specifications and inventory accuracy. It runs on several systems, which
includes the IBM System also known as IBM AS/400 or IBM eServer
iSeries.
 It is written in SQL, As/Set, RPG, and other IBM languages somewhat
unique to the System.
The main strength of BPCS that helps it to compete with other ERP vendor
is its manufacturing and planning applications.
13.8.2 BPCS Applications
BPCS Applications dependent very much on the BPCS software version of
SSA. Since, SSA enters into partnerships with various specialty suppliers of
applications such as Data Mining, Bar Coding, and so on, and suppliers that
integrated with a particular version.
Most planning in BPCS Application suite functions are used in both
Distribution and Manufacturing. The BPCS Application suite includes:
 Financial: It consists of Costing (CST), Accounts Payable (ACP),
Accounts Receivable (ACR), Billing BIL, General Ledger GLD, Cash
Management (CSH), Multiple Currencies (MLT), Currency Translation
(CTR), Financial Assistant (FIN), Fixed Assets (FXA), Payroll (PAY),
Business Modeling, and Data Mining.
 Planning: It consists of Forecasting (FOR), Master Scheduling (MPS),
Material Requirements Planning (MRP), Capacity Planning (CAP),
Distribution Resource Planning (inter facility) (DRP), Planner's Assistant
(PLN), and Simulations.

 Distribution: It consists of Inventory (INV), Purchasing (PUR),

Customer Order Processing (ORD), Billing (BIL), Sales Analysis (SAL),
Promotions and Deals (PRO), and Performance Measurement
(PRF),(such as supplier quality and on-time, your company performance
in supplying to the customers, our internal quality control, Multiple
Environments, Companies, Divisions, Facilities, Warehouses, and
Locations).
 Manufacturing: It consists of Bill of Material (BOM), Inventory (INV),
Shop Floor Control (SFC), Master Scheduling (MPS), Material
Requirements Planning (MRP), Capacity planning (CAP), Laboratory
Management (LMS), Just In Time (JIT), Quality Control (QMS),
Repetitive Manufacturing, CIMPath (Barcoding and Data collection)
(CIM), Advanced Process (chemical) Industries (API), and Performance
Measurement (factory production) (PRF).
 Systems Applications: It consists of ASAP Information Retrieval, Misc
Reports & Retrievals, System Parameters or Business Rules,
Transaction Effects, Documentation, Data Base X-Reference, Interest
Area Menus, Sliding Y2K Window, and Data Base upgrade.
13.9 QAD
QAD was founded in 1979 and now has a presence in 21 countries and
employs more than 1100 people. The company's products include
MFG/PRO, On/Q, Service/Support Management, Decision Support, and
Qwizard. The company's flagship product is its ERP solution MFG/PRO. It is
available in 26 languages and has more than 4,000 installed sites in over 80
countries. The company got the ISO certification in 1995. QAD offers a
variety of supply chain and Enterprise Resource Planning (ERP) software
products to manufacturing industries within the automotive, consumer
products, electronics, food and beverage, industrial products and medical
sectors. QAD software optimises your enterprise by increasing the speed of
internal processes and by synchronising distributed operations.
QADs flagship product, MFG/PRO software, provides multinational
organisations with an integrated Global Supply Chain Management solution.
It includes financial, manufacturing, distribution, and service/support

management applications within an open system environment. Internet-

Enabled MFG/PRO allows you to share information and conduct commercial
transactions over the Internet.
QAD's On/Q Extended Supply Chain Applications manage the complex
demand and fulfilment transactions of large multinational corporations with
dynamic, collaborative relationships spanning multiple enterprises. Service/
Support Management are designed for companies who not only
manufacture and sell their products but also offer after-sales service and
support. QADs Decision Support is a tool designed to provide
manufacturers with access to information necessary for informed decision-
making. Qwizard, QADs interactive mentor for users of MFG/PRO software,
is a value-added tool that provides easy-to-use business modelling,
implementation, and interactive learning tools.
QAD has currently developed a number of business arrangements with
Product Alliance Partners to enhance the effective functionality of QADs
products.
13.9.1 Application
MFG/PRO software is one of the successful client/server ERP applications
as it dramatically increases the internal efficiencies of distributed operations
within months of purchase. The software is complete, open, flexible,
scalable, interactive, and designed to address the operations requirements
of today's manufacturers. It is available in 26 languages, is year-2000
compliant, and supports multiple currencies including the Euro.
MFG/PRO includes a large set of solution components for manufacturing,
distribution, financial, supply chain, and service /support management.
Configurable and interoperable, it is open to best-of-breed components,
uses either Oracle or Progress databases, and runs in UNIX, Windows and
Windows NT environments.
MFG/PRO can be implemented at multiple locations and it easily scales to
meet the changing business requirements. MFG/PROs user interface is an
ultra-thin Java browser. MFG/PRO is also available with a Windows
Character User Interface (CUI).or Graphical User Interface (GUI).

Manufacturers need a solid strategy for achieving and maintaining

competitive advantage. MFG/PRO software quickly synchronises distributed
operations within your enterprise, enabling you to balance supply and
demand across multiple sites. MFG/PROs supply chain functions include
centralised order processing, centralised purchasing, enterprise operations
planning, distribution requirements planning, and enterprise materials
transfer. By using MFG/PROs enterprise-level supply chain functions, you
can manage supplies within your enterprise far more effectively, no matter
how widely distributed your sites are. This means you will be able to
respond to customer needs much more rapidly.
13.9.2 Modules
MFG/PRO of QAD is a fully integrated software package available on a
module by module basis. MFG/PRO addresses the entire manufacturing
band from repetitive to configure-to-order. It is appropriate for batch process
like make-to-stock, configure-to-order, and repetitive manufacturing
environments. With world class supply chain management tools, it is
particularly useful for multinational companies. The various modules of
MFG/PRO are:
 Distribution: The Distribution Modules (DM) of MFG/PRO are used to
monitor inventory balances and manage purchasing and sales order
entry activities.
 Manufacturing: The Manufacturing Modules (MM) are used to regulate
all manufacturing activity within the various types of production
environments.
 Financials: The Financial Modules (FM) interface with the Distribution,
Planning and Manufacturing modules to report the financial implications
of the company's activities.
 Service/Support: Service/Support Modules (SM) are designed for
companies which not only manufacture and sell their products, but also
offer after-sales service and support.
 Supply Chain: Supply Chain Management (SCM) is the control of
goods and information from supplier to customer.

 Master Files: Master File’s (MFs) functions provide access to a series of

foundation modules that are used by the rest of the MFG/PRO
applications. These master files include: Inventory Control Settings,
Items/Sites, Addresses/Taxes, Physical Inventory, Multiple Database
configurations, and Manager Functions.
Activity 3
Consider that you are a manager, in a manufacture industry and you are
asked by your management to recommend ERP software for one of the
supply chain process. What are the criteria’s that you keep in mind
before choosing software or an ERP system?

20. SSA concentrated its attention on a new strategy for supporting
________________ client server computing environments.
21. ______________________ is the main product line of SSAs.
22. _____________ includes an extensive large set of solution
components for manufacturing, distribution, financial, supply chain, and
service /support management.
23. MFG/PRO is also available with a Windows graphical user
interface______________________.
13.10 Summary
Analysing ERP market share is quiet different when compared with
reviewing the market segments for any other product or service. The
segmentations in that case will be numerous and in the form of many criteria
like physical, geographical, functional, distribution level and many more
factors. ERP the segmentation falls in than three main categories namely
type of the industry, size of the industry and geographical areas in terms of
the nations where the product is demanded. This helps in arriving at ERP
market and ERP software market share. (Instead use ERP Market can be
segmented into three major segments/Categories).
While discussing size of industry it refers to the volume of business
transacted and the capacity of the firm in terms of large sized or mid sized
or low rung. When it comes to the question of type it refers to the mode of

business via hospitality or insurance or manufacturing or health and so on.

The market for them purely depends on the services offered by the vendor.
The question of geographical segmentation involves a detailed study when it
comes to ERP markets.
The companies SAP, Baan, Oracle, PeopleSoft, JD Edwards, SSA and
QAD and their respective products have not only revolutionised the ERP
market but also give it a new dimension. With new technologies and the
capability to provide solutions to the small scale industries along with the
customer support services have enabled them to penetrate into the small
and unorganised sectors. Both the vendors and the customers are
benefiting form this highly flexible and cost effective solutions.

1. Who are the major players in the global ERP market and what are their
market shares?
2. Who are the major ERP players in the Indian market and what are their
market shares?
3. What are the modules available in SAP R/3?
4. Write a note on Oracle and its application.
5. What are the functions of Baan’s Global Support, Education, and
Consulting operations?
6. Discuss briefly about JD Edward’s and PeopleSoft’s applications and
their various modules.
13.12 Answers
1. AMR Research Inc.
2. System Software
3. Client/server
4. Business Engineer
5. Database
6. Baan Company's
7. Multi-level
8. Applications
9. Baan Education

10. Baan Cyber Consult

11. Warehouse Technology Initiative (WTI),
12. Internet Computing
13. Project management
14. PeopleSoft
15. Local Area Networks (LANs), Wide Area Networks (WANs)
16. OneWorld
17. Object code
18. JD Edwards
19. Architecture
20. Open-system
21. Business Planning and Control System (BPCS)
22. MFG/PRO
23. Graphical User Interface (GUI)
Terminal Questions
2. Refer Section 13.2
6. Refer Sections 13,6 and 13.7
13.13 Case Study
The new Chief Information Officer's responsibility was to replace the

out dated computer systems with new packaged systems. It had to
provide a competitive advantage through technology for the company.
This meant using sophisticated systems to bring more resources to
market (that is, filling jobs faster with their temporary employees), while
at the same time slashing prices by reducing operating margins. The
objective was to implement improved business processes by
configuring and installing packaged ERP systems according to the
results of an enterprise-wide reengineering effort.

The sales and service department will be able to fill jobs faster with
temporary employees by using sales support applications. This was
supposed to be configured in to the new system based on best practices
identified and propagated throughout the organisation's distribution
network. New business acquisition and retention of existing customers is
going to be enhanced through customer management software and
customer information reporting.
With the use of the packaged applications the field offices will be able to
reduce operating margins. This is meant to support field office functions,
such as billing, payroll, time accounting, and collections. The definition
of flow of activities, core business processes, and decision support
needs will ensure the proper configuration of the packaged software to
take advantage of reengineered processes with the latest technologies.
The pre-integrated nature of the ERP-packaged software that is going to
be implemented will provide a new baseline for all the company's
systems. Plans were made to include those that will not be involved in
the initial installation. These included systems that were isolated without
integration requirements, systems that were not included in the available
ERP functions and some special in-house applications and customised
applications. Systems will be modified into the new order on a
scheduled basis, and new development will target the standards
established by the new ERP implementation. Integration will increase as
all application of the company move into the new ERP environment.
Therefore, the company will begin to develop superior knowledge
management at the corporate level to be used for decision-making.
But the CIO's main problem was the seemingly overwhelming gap
between what he knew (the fragmented puzzle of the company's current
systems) and what he needed to know (business requirements for the
new systems). The CIO had minor information about how the existing
systems were actually being used to conduct business in the company.
His field managers, technical managers, and the headquarters staff that
supported them all wanted the package installation to succeed. All the
managers held a piece of the information needed to make it a success,

but none could see the whole picture. Without the crucial analysis of the
use of current systems as a basis for defining future business
requirements, the implementation project risked missing the mark.
Questions:
1. Do you think the company’s management was clear about the
implementation process that it wanted to carry out?
Is their any requirement of the company’s top manager to take the
responsibility of the implementation process?
2. What were the results the company was expecting from the new
implementation?
3. How do you think the CIO has to overcome the problem that he is
facing in this situation?
13.14 Glossary
Term Description
Attributes To regard somebody or something as having particular
qualities required or demanded by a particular organisation
or group to meet some requirements.
Best-of-breed In the market of ERP companies performing extremely well
when compared to its counterparts is considered to be the
best in that group.
Leverage Power over other people, especially something that gives an
advantage but is not referred to openly in an organisation.
Mainframe A fast powerful computer with a large storage capacity that

can accommodate several users simultaneously
Obsolescence It is the state of being which occurs when an object, service
or practice is no longer wanted even though it may still be in
good working order.
Application Suite A collection of computer programs, usually application
software and programming software of related functionality,
often sharing a more-or-less common user interface and
some ability to smoothly exchange data with each other.

References
1. ERP Demystified 2/E by Alexis Leon.
2. ERP Market by M.H. Lakdawla.
3. www.amrresearch.com.

Unit 14 ERP Vendors, Consultants, and Users

Structure:
14.1 Introduction
Objectives
14.2 In-House Implementation – Pros and Cons
14.3 Vendors
Role of the Vendor
14.4 Consultants
Role of the Consultants
14.5 End Users
14.6 Factors for the Success of an ERP Implementation
14.7 Summary
14.9 Answers
14.10 Case Study
14.11 Glossary
14.1 Introduction
By now you must be familiar with the concept of ERP and the ERP market.
This unit familiarises you with various roles of vendors, consultants and
users of ERP in the market. The main question that many people ask is:
Why can't companies develop their own ERP packages?
ERP package is very complex and needs a lot of skilled manpower and
other resources to develop. Many companies have personnel in their
Information Technology departments who can absorb the necessary
knowledge and who have experience in developing sophisticated systems.
But then such specialised computer work is not the main business of these
companies. They should direct all their available resources into improving
their own products or services so that they can remain competitive, serve
their customers better and continue to grow instead of trying to develop an
EPR system for which they will need to invest more resources and time.
Software firms who are specialised in designing and implementing these
integrated software packages provide better quality systems than any other
companies whose in-house team come up with an idea to develop these
software packages. These software firms (ERP vendors) can produce

sophisticated packages and provide their clients with products that allow
them to maintain a focus on their own chief activities, thus improving
revenues, profits and shareholder returns.
ERP consultants are very crucial players in ERP implementation. They
provide professional services including IT strategy planning, software
evaluation, and ERP system implementation experience. The ability of
consultant's service is the source of providing customer satisfaction. With
proper training on ERP, end-users can make effective use of this system
and provide maximise business benefits to the company.
Learning Objectives
 Evaluate the three major players in an ERP implementation and their
profiles.
 Describe the roles of each of these players.
 Elucidate the reasons for success of an ERP implementation.
14.2 In-House Implementation – Pros and Cons

The next question that many people ask is: why can't the company carry out
the ERP implementation by itself? To successfully set up and implement an
ERP package, which functions perfectly, is not an easy task. One cannot go
in for a trial-and-error method of implementation strategy due to the huge
amount of investments involved. The consequences of a failed ERP
implementation can be quite catastrophic. It might put the organisation out
of business. For example, the pharmaceutical distribution company
FoxMeyer Drugs was forced to declare bankruptcy after an unsuccessful
ERP implementation. Also, the ERP implementation process cannot go on
for a long time. It has to be completed within a reasonable time period.
To successfully carry out the implementation within a reasonable timeframe,
the in-house people who are designated to do the job should possess a
certain amount of knowledge and skill. To start with, the company should
have people who are familiar with the ERP package and with the technical
issues. Implementing the ERP software means, assigning the optimum
values to the various parameters and the variable elements of the system.
Experience has proven that a good professional needs at least one year to
become reasonably good in an ERP system and that this one year should

be hands-on practical experience. It is not possible to become an expert by

reading product brochures and on-line help files. You need to have practical
implementation experience.
The only advantage of the in-house ERP implementation is that companies
will depend less on the vendors and will have access to the open community
that is as the owner of the software, you can become an integral part of the
Open Community of developers and can submit feature requests, questions
and get free guidance.
However, software vendors have their own team of consultants, whose
responsibility is to ensure that their software package follows a standard
approach or methodology. Definitely, these people know the product and
can be of great value during implementation. But, developing a good
software package and successfully implementing it are two entirely different
propositions. A good package vendor need not be good at implementing it‟s
own product. Also, each group of people in an implementation project
(vendors, consultants, in-house team, users and so on) have definite roles
to play in the implementation. If the same party is performing multiple roles,
it can create a conflict. For example, if the vendor is doing the
implementation, the vendor's consultants may not be as open to the ideas of
the in-house team as third-party consultants, because the vendor's
consultants will have a mindset which will prevent them from seeing the
other side's perspective.
Besides having a very good knowledge of the product, the people who are
to implement the ERP system should possess the following skills:
 Knowledge of how to organise and run a project: This requires good
organisational skills, project management skills, team management skills
and knowledge of scientific methods of software project management.
 Experience in handling problems and issues that arise during the
implementation: No implementation will be a smooth process; there will
be problems, cost overruns, time overruns and so on. Knowing what to
do in these situations is vital for the success of the project.
 Good people skills: Any ERP implementation will face resistance from
the employees. The resistance could be due to ignorance about the
product, fear of unemployment, fear of training, fear of technology and

so on. So it is very important that the people in the implementation team

are very good diplomats, adept at diffusing crisis situations.
 Good leadership skills: ERP implementation involves dealing with a lot
of people, good leadership, broad technical knowledge and effective
communication skills.
 Excellent training skills: Every ERP project involves considerable
amount of training at various levels and in various details. There will be
familiarisation programs for all the employees, executive programs for
the top management, functional training for the implementation team
members and end-user training.
In today's business environment, where the trend is to reduce manpower
and focus more on the company's core competencies, it becomes ever
more difficult to take the total responsibility of the ERP implementation and
get it done using in-house resources. If the company is planning to do the
ERP implementation in-house, it might have to hire experts and have them
on the company's rolls. This is an expensive plan because once the
implementation is over, you won't need that many experts to keep the
system running in the post-implementation phase. You will need only a
handful of people may be a few of them in each functional area, to
effectively handle the post-implementation scenario. If the company is
planning to do the ERP implementation all by itself, then it will be wasting a
lot of its resources and spending a lot of money on training–most of which
are not needed after the package implementation.
Hence, it is always a better idea to leave the implementation to the people
who are specialising in it and focus the company's efforts on preparing its
personnel to administer the package after it is implemented. Once these
employees have been trained, they can help the company in its
implementation efforts in other units of the company, or provide training to
the employees in using the system and so on. By getting the employees
trained during the implementation, the company can save a lot of money
that otherwise would have been spent on hiring trainers.
In brief, it is better for companies to concentrate on their business and leave
the job of ERP implementation to people who are in that business. But to get
maximum benefit out of a packaged solution, the company personnel should
participate fully during the implementation of the package. The company

should plan the participation so that its people play an appropriate role in the
implementation project so that it has enough experts in-house, once the
implementation is over. The company should bring in the know-how and
experience that will guarantee the best possible use of the acquired
package.
1. __________ will face resistance from the employees.
2. Mention any two skills that people should possess to implement the ERP
system.
3. The Company cannot go in for a __________ method of implementation
strategy due to the huge amount of investments involved.
14.3 Vendors
Vendors are the people who invest huge amounts of time and effort in
research and development of the ERP package. They come up with
innovations that make the packages more efficient and flexible to implement
and use. If one studies the history of the ERP packages and finds out how
each package evolved, it soon becomes evident that every ERP package
grew out of the experience or opportunity of a group of people, working in a
specific business, who created systems that could deal with certain
business segments.
ERP market place is crowded with more and more players and competitor
entering the market to provide ERP packages that have features and
functionality to cater to the needs of businesses in almost all sectors. The
ERP vendors spent billions of rupees in research to come up with new ideas
that make the packages more efficient and flexible. With the evolution of
new technologies, the vendors constantly upgrade their product to make the
best and latest advancements in technology available in the market.
For example, SAP is the global market leader in ERPs with approximately
30 to 60 percent of the world market; The company spends a large
percentage of its revenue in research and development of new technologies.
14.3.1 Role of the Vendor
As soon as the company signs the contract, the vendors should supply the
product and its documentation. Once the software is delivered, the company

can develop the training and testing environment for the implementation
team. The roles of the vendors during and after implementation of ERP are:
The vendor is responsible for fixing any problems in the software that the
implementation team encounters. The vendor should have a liaison officer
to constantly interact with the implementation team.
The vendors provide initial training for the company's key users. These key
users are the ones who will define, together with the consultants, how the
software is to serve the company. They are also called as in-house
functional experts who decide how the functionalities are implemented to
adapt the product to suit the company's unique requirements. It is very
important to provide these in-house experts a through training on the
features of the package.
Vendor's training should include showing the key users how the package
works, what are the major components, how the data and information flows
across the system, what is flexible and what is not, what can be configured
and what cannot, what can be customised and what should not, what are
the limitations, what are the strengths and weaknesses and so on.
The objective of the vendor training is to show how the system works, not to
show how it should be implemented. This means that the vendor
demonstrates the product as it exists and highlights what are the possible
options available. The company's employees who are participating in the
vendor training should try to understand the characteristics of the package
and the impact of the system on their business processes. The trainees
should use these training sessions to question the vendor on all aspects of
the system.
Now some of you might ask, we are hiring consultants who are experts in
the package so why can't we get training from the consultants? This is true.
Most of the consultants are capable of providing sound training for the
packages. But we are hiring the consultants for implementing the system.
However, the consultants also have a role to play during this vendor training.
They should participate in the training sessions to evaluate how the users
react to the reality that is starting to take shape from the detailed
presentations and demos. Consultants should also ask questions that the
vendors are trying to avoid and the users are unaware of. This is the best

way to present the real picture to the users and it will also prevent the
vendors from making false claims.
Vendors play an important role in project support function and exercise the
quality control with respect to how the product is implemented. It is the
vendor who understands the finer details and subtleties of the product and
can make valuable suggestions and improvements that could improve the
performance of the system. It is also in the best interests of the vendor that
this participation continues, because if the implementation fails, most of the
blame will fall on the vendor. Also a successful implementation means
another satisfied client, improved goodwill and good referrals and so on. So
the vendor will continue to participate in all the phases of the implementation,
mostly in an advisory capacity, addressing specific technical questions
about the product and technology.
Vendors help to fill gaps between the package and the actual business
processes. The software might have to be customised to suit the company's
needs. Here, customising means altering the product so that it is suited for
the company's purposes. The choice of whether to customise or not is the
one that can have enormous impact on the project and it often constitutes a
point of conflict between the consultants and users. But if the decision to
customise has been taken, it is the vendor's duty to carry out the necessary
modifications. This is because only the vendor knows the product well
enough to make the necessary changes without affecting the other parts.
Moreover, the company should get a guarantee (in writing) from the vendor
that despite the customisation, it will be able to benefit from the future
software improvements introduced by the vendor.
ERP integrates business process reporting for the different business
divisions. It creates transparent data exchange and facilitates timely and
informed decision making for senior managers. The successful
implementation of the enterprise resource planning software improves the
management and planning of a business corporation. It increases the
performance of the organisation. This increasing trend has enhanced the
value of ERP vendors in the market.
ERP vendors are continuing to expand market presence by offering new
applications. The top three players namely SAP AG, Oracle, Baan
PeopleSoft account for 64 per cent of the ERP market revenue.

(For more information on these vendors, refer to ERP unit 13).

4. _______ are the people who invested huge amounts of time and effort in
research and development of the ERP package.
5. The vendor should have a _______ who should to constantly interact
with the implementation team.
6. Key users are also called as in-house functional experts. True or False.
7. Vendors help to fill gaps between the _____ and the ________.
Activity 1:
List out the names of the companies spending a large percentage of its
revenues in research and development of ERP packages.
14.4 Consultants
Business consultants are professional who specialise in developing
techniques and methodologies for dealing with the implementation .They are
the experts in the administration, management and control of various
problems that crop up during the implementation. Each of them has many
man-years of implementation experience with various industries and would
have time-tested methodologies and business practices that ensure
successful implementation. They are good at all phases of the
implementation lifecycle, right from package evaluation to end-user training.
The only problem with these business consultants is that they are very
expensive. Many of the big consulting firms invest a great deal of money in
developing a range of consulting services and assign many of their
professionals to become specialists in the various aspects of ERP packages
and their implementation.
These firm develop an in-depth understanding of each product's strengths
and weaknesses, work by the side of the ERP vendors to confirm that the
vendor's package actually works, learn the tricks and techniques of the
trade, find out the pitfalls and mistakes that should be avoided and thus
create a pool of experts who could handle the ERP implementation without
failure.
Thus, consultants are people who have made the business of ERP
implementation their business and have invested huge amount, of money

and manpower for that purpose. So when you want to get the services of
these consultants, the first question that will be asked is – "Are they going to
be expensive?" The answer is a definite YES.
The consultants will be expensive, so the company will have to formulate a
plan regarding best optimum use of the money spent on consultants. If you
study the statistics, you can see that a well-selected, integrated system that
was successfully implemented and which is successfully working usually
pays for itself in a relatively short period–between 10 and 30 months. If you
analyse the cost break-up, you will find that the most expensive part of the
implementation was the consultation charges. For a typical ERP
implementation, the cost of consultants is 1.5 to 3 times for every rupee
invested in the software product. Sounds amazing; but it is true and it is also
true that the software will pay for itself – the software cost, the consultant's
charges and other expenses incurred during implementation – in the above
mentioned period (10-30 months). But the catch is that the product has to be
the right one and the implementation has to be successful. That is why the
expertise of the consultants becomes invaluable and the money spent on
good consultation is never wasted. So finding the right consultants–people
who have the necessary know-how, who will work well with the company
personnel, people who will transfer their knowledge to the company's
employees and people who are available in case their services are required
again is very important.
14.4.1 Role of the consultants
The role of the ERP consultants is known to all of us as we have seen many
of them in action. The company places its trust in the consultants, that its
business objectives will be achieved. The consultants ensure the success of
the project. This produces quantifiable results to the satisfaction of the
company management.
Consultants administer each of the phases of the implementation. This
ensure that the required activities occur at the scheduled time and at the
desired level of quality with effective participation of all those who must
participate. The consultants are responsible to convert the planned
methodology into task and allocate right resource to complete that task.
Consultants add value to the project. They bring the know-how about the
package and about the implementation – the know-how that is not included

in the standard documentation. This know-how (also know as practical

knowledge) is derived from their expertise which stems from practical
experience. Thus by eliminating the trial-and-error method of
implementation, and by doing it right the first time, the consultants help in
saving huge amounts of money, time and effort.
Consultants should remain impartial while questioning current company
processes in an effort to promote better businesses practices and better
implementation results. They should strive to improve the company's
business processes so that the software package can be used as it was
originally intended by its developers. Refining the company's processes can
only optimise the performance of the system and maximise future user
satisfaction. The consultants are also responsible for analysing and clearly
addressing the customisation issues.
ERP consultants show the advantages and drawbacks of each area to the
management and reach a consensus decision. Consultants need to balance
their loyalty to the client and the project with that of defending the package
vendor, when such defence is technically correct.
Consultant alerts the company management about actions and decisions to
be taken. This ensures that job will not be compromised and the
implementation will not be jeopardised. Once the project is complete,
consultants will leave the company. However, the knowledge of the project
should remain within the organisation. Hence, consultants should train
enough people in the organisation so that the work they have started is
continued.
There are other tasks performed by the ERP consultants. They:
 Maintain technical documents on the projects.
 Analyse business requirements.
 Prepare the functional specifications for ERP program development.
 Perform Gap analysis and related studies.
 Assess the competence level of the users of the ERP system.
 Perform Product design and operations review.
 Identify requirements of the users of the ERP system.
 Interact with other modules consultants.


8. _________ are professional who specialise in developing techniques
and methodologies for dealing with the implementation.
9. The consultants are responsible to convert the _________into task.
10. The consultants are not responsible for analysing and clearly addressing
the customisation issues. True or False
Activity 2:
Consider that you own a manufacturing company with around 100
employees. You decide to implement ERP software package to control
and track finance and human resources.
What are the skills you would look at in the people who are to implement
the ERP system to successfully carry out the implementation process
within a reasonable timeframe?
14.5 End-Users
ERP end-users are the people who will be using the ERP system once it is
implemented. Most of the functions that the end users used to perform are
being automated by the ERP system. ERP system brings drastic
transformation in the actual work process which leads to change in old job
descriptions.
It is human nature to resist change. Implementation of an ERP system
brings change in a very massive scale. Employees will fear that system will
replace existing jobs, as many functions will be automated. Also people will
be afraid of the amount of training they have to undergo and learning they
have to do to use the new system. Job profiles will change, job
responsibilities will undergo drastic alterations, and people will be forced to
develop new skill sets. If these fears are not addressed and alleviated well
in advance, it will cause trouble for the organisation.
The automation of the business processes, through technology, can
eliminate the jobs of many employees whose function it is to record, control,
calculate, analyse, file or prepare reports. Even though ERP systems
eliminate many existing jobs, it creates many new ones with more
responsibilities and value addition. Employees get away from the
monotonous clerical work and transform themselves into highly valued
individuals, in a new and challenging working environment using modern
technology. If the company succeeds in convincing its employees to accept

this fact and assist by giving them proper training, then the major obstacle in
the path of an ERP implementation is solved.
For example, the recent research on SAP end-user training suggested that
enterprises should allocate 17 percent of the total cost of an ERP project to
training. Gartner research recognised training as the top priority, and
suggested that companies that budget less than 13 percent of the
implementation costs for training are three times more likely than companies
that spend 17 percent or more to see their ERP projects run over time and
over budget.
The impact of application on ERP end-user productivity is a complex
undertaking because of the wide range of business functions and user types
who interact with such systems. The business productivity framework is
developed to measure how ERP end-users feel system affects their
personal productivity. This also develops an opportunity to create a
framework to evaluate new system.
Figure 14.1: Business Productivity Measurement Frameworks

The six dimensions that comprise the business productivity frameworks are:
Usability:
 Ease of the application to use.
 Ease „in command‟ of application.
 Easy to navigate in the software.
 User enjoys using the software.
 Familiarity:
 Intuitiveness of the system.
 Easy to learn.
 Comfortable with application.
 Proficient with the application.
 Transactional Efficiency:
 Easy to execute common and repetitive tasks.
 Efficiency of user interface.
 Speed and reliability of system
 Flexibility:
 Ease of completing infrequent tasks.
 Easy to adapted specific business needs and processes.
 Quick in handling unexpected issues.
 Business Insight:
 Ease of comprehensive reporting.
 Ease to access real-time information.
 Ease to gauge the impact of business decisions.
Collaboration:
 Ease of collaboration with colleagues.
 Efficiency of application workflow.
 Ease of communication with suppliers, partners, customers.
Productivity is crucial in maintaining profitable business. The business
productivity measurement framework1 used in this study provides a useful
mechanism to study the perceptions of actual end users and to standardise
the applications according to the six productivity dimensions. Thus it
encourages the company as a whole to dedicate itself to encourage end-
user productivity in all its dimensions.
1
Reference: ERP End-User Business Productivity: A Field Study of SAP & Microsoft


11. The functions that the end users used to perform are being automated
by the ________.
12. Employees get away from the __________and transform themselves
into highly valued individuals using modern technology.
13. __________ is crucial in maintaining profitable business.
14. Even though ERP systems eliminate many existing jobs, it creates many
new ones with more responsibilities and value addition. True or False
14.6 Factors for the Success of an ERP Implementation

Many assume that the success or a failure of a project depends on the
vendor the company select for their software purchase. However the actual
fact is that, success or failure is in the hands of the company implementing
the software and not the software vendor.
The few factors for the success of an ERP implementation are:
Focus on business processes and requirements: The focus of the
company to check the business operations and identify the key
requirements brings more effective ERP software selection process. This
leads to success of an ERP implementation.
Focus on achieving ERP ROI (Return on Investment): This also monitors
post-implementation performance measurement and set baselines and
targets for those measures. This in turn helps to maximise the business
benefits of ERP.
Strong project management and resource commitment: A strong project
manager and good support of employees are the reasons for success of an
ERP implementation
Commitment from company executives: Support from top management
to deal with any problem is another factor for the success of an ERP
implementation.
Adequate training and change management: A good understanding of
the ERP software enables you to use it effectively.
Understand why you’re implementing ERP: This is the most important
factors for the success of an ERP implementation. With clear understanding
of the business objectives and proper vision of what to achieve with an ERP
system, maximises the business benefits of ERP.

14.7 Summary
Enterprise resource planning (ERP) is the term used to describe the
automation of core business functions, including production, accounting,
distribution, supply chain and human resources.
A well-implemented ERP system creates significant efficiencies across your
business. This results in timely business information, better customer
relationships, a more cost-effective supply chain, improved internal process
and, ultimately, increased profitability. ERP implementation strategy needs
huge amount of investments. Hence, one cannot go for trial-and-error
method of implementation process. A company should be familiar with ERP
package and with all the technical issues. Hence, it is always a better idea
to leave the implementation to the people who are specialising in it and
focus the company's efforts on preparing its personnel to administer the
package after it is implemented.
Vendors are the people who develop ERP package and come up with
innovations that make the packages more efficient and flexible to implement
and use. The vendors provide initial training for the company's key users.
They play an important role in project support function and exercise the
quality control with respect to how the product is implemented. They also
help to fill gaps between the package and the actual business processes.
Business consultants are the experts in the administration, management
and control of various problems that occur during the implementation.
Consultants administer each of the phases of the implementation. They
bring the practical knowledge about the package and about the
implementation. Consultant alerts the company management about actions
and decisions to be taken.
Even though ERP systems eliminate many existing jobs, it creates many
new ones with more responsibilities and value addition. Employees get
away from the monotonous clerical work and transform themselves into
highly valued individuals.
ERP system enables you to enter the customer order information once and
then make it available throughout the business. This in turn helps you to
have clear and timely information to take critical business decisions.


1. Why is it that a company cannot develop an ERP system in-house?
2. Who is an ERP vendor and what are his roles?
3. Who are the consultants and what are their roles?
4. Who is an end-user and why are they so critical for the success of the
ERP implementation?
5. Explain the six Business Productivity dimensions?
14.9 Answers
1. ERP Implementation
2. The two skills that people should possess to implement the ERP
system are:
• Good people skills
• Good leadership skills
3. Trial-and-error
4. Vendors
5. Liaison officer
6. True
7. Package and the actual business processes
8. Business consultants
9. Planned methodology
10. False
11. ERP system
12. Monotonous clerical work
13. Productivity
14. True
Terminal Questions

14.10 Case Study

ABC is the world's best ERP and business applications vendors with
offices all around the globe. The client from ABC company made a plan
to implement a Management Consulting Portal to deal with the
challenge of knowledge sharing amongst consultants located all around
the world. This portal helped to build communities amongst the client‟s
Consultants and Partners. The ABC company needed a solution that
could allow their consultants to upload and manage their content by
themselves.
They addressed this challenge by implementing Microsoft‟s SharePoint
software. SharePoint software was customised and well-integrated to
suite with the rest of the site to provide perfect interface with other
portal pages. Users were not only able to load and manage content but
were also able to change the attributes and layout of different document
libraries from the portal itself.
The Management Consulting Portal used SharePoint features to
provide document libraries and links, news and discussion board. With
the help of role based security, safety measures were put in place so
that only official or authorised users could access various parts of the
site and change or upload content in the portal.
With the help of management consulting portal, the client is now able to
effectively share knowledge amongst consultants and partners.
Questions:
1. Why did ABC company decide to employ a Management Consulting
Portal?
2. How did SharePoint Software help the client to share knowledge
amongst consultants and partners?

14.11 Glossary
Term Description
Adept Having knowledge, skills and aptitude in any field
Catastrophic Extremely harmful causing financial ruin in case of improper
implementation of ERP software.
Diplomats A person who deals tactfully with others and engage in
international negotiations
Jeopardised Possibility of incurring loss
Liaison A channel for communication between groups
Strategy Systematic plan, which are adopted by different types of
organisation.
References
1. Aladwani, A.M., 2001, “Change Management Strategies for Successful
ERP Implementation”, Business Process Management Journal, Vol. 7
no.3 pp. 266-275.
2. ERP Tools, Techniques, and Applications for Integrating the Supply
Chain. Second Edition by Carol A. Ptak ISBN 0-203-59294-8 .
3. ERP: Making It Happen: The Implementers' Guide to Success with
Enterprise Resource Planning By: Wallace, Thomas F.; Kremzar,
Michael H. Published By: John Wiley & Sons, Inc.

Unit 15 Future Directions in ERP
Structure:
15.1 Introduction
Objective
15.2 New Markets
ERP Trends
15.3 New Channels
15.4 Faster Implementation Methodologies
15.5 Business Models and Business Application Programming Interface
(BAPI)
15.6 Application Platforms
15.7 New Business Segments
15.8 Summary
15.10 Answers
15.11 Case Study
15.12 Glossary
15.1 Introduction
By now you must be familiar with the various roles of vendors, consultants
and the users of ERP in the market. This unit familiarises you with the future
trends and technologies in the ERP market. It also helps you to take
decisions with respect to these trends and technologies. The movement
towards a global ERP system is a key factor in shaping the future of
Enterprise Resource Planning (ERP).
ERP industry watchers agree on at least one point: 'one-size-fits-all', across
the board integration, i.e. the goal of ERP system is to provide single
application that can monitor all the business functions. To achieve this, ERP
vendors are advancing their system by adding more features to their
products and integrating new applications to deliver a one-stop application
to the organisations.
ERPs are dominating Back-Office practices such as Financial Management,
Human Resources and basic manufacturing. ERP vendors are expected to
advance in mid-market sector. There are now increasing investment in

innovative Front-Office applications such as electronic commerce and

supply-chain and HR/customer self-service.
To achieve the company’s objectives, ERP vendors evaluate functionality of
their applications and also transform the business processes. Effective ERP
implementation methodologies have been developed based on industry
experiences gained over many years in this business. Effective business
models have been developed to deliver quick and effective return on
investment. Faster implementation methodologies not only save the overall
cost of the system, but also provide a faster time-to-benefit. The top-tier
ERP vendors such as SAP AG Inc., Oracle Corporation, and Baan Co will
continue their supremacy in the global core applications while the small
companies will advance in industry-specific Front-Office market to capture
best of niche applications.
This unit familiarises you with all the factors that are necessary to consider
while selecting the application platforms and also introduces you with all the
emerging business segments that enables various ERP vendors to make
their products more efficient. These factors greatly affect the total cost,
efficiency and future extendibility of an ERP system.
Learning Objectives
After studying this unit you will be able:
 Describe the future directions of the ERP market and trends.
 Elucidate how these trends will shape the future ERP products.
 Describe how ERP vendors striving for more market share are making
their product more efficient and loaded with features by using new
15.2 New Market

The ERP market is very competitive and fast growing. Over the last decade,
ERP emerged as big hit in the market, where many companies were able to
run their business more efficiently by using the software which replaced staff
working in back-office functions such as accounting and administration.
ERP holds an undisputed demand in the national and the global level.
According to AMR Research Inc., one of the leading market analysis firms
specialising in enterprise application and enabling technologies, the ERP
software market will have a growth rate of 37 per cent over the next five
years. ERP vendors have to sell more licenses into their installed base to
maintain this growth rate.
For example, at present the vendors have a 10-20 per cent penetration that
is percentage of total employees currently using the ERP system. This is
expected to grow to 40-60 per cent within the next five years.
As larger enterprises become saturated with new-generation client/server
ERP systems, the vendors strive to find new markets for their product suites
to have a rapid growth in the business. ERP vendors have increased their
appeal to small business clients through a number of initiatives. These
initiatives include the following:
Increasing their direct sales force with the resellers channels.
 Lowering the entry point of their software to make it financially feasible.
 Arranging their software offerings on the basis of reduced functionality.
 Improving the implementation methodologies for faster operation.
 Modifying the products to platforms such as Microsoft Windows NT.
While ERP initiated in the manufacturing market, ERP usage has gradually
spread in almost every type of enterprise such as retail, the public sector
and healthcare organisation. The following growth is expected to come from
software that enables companies to link up their back offices with those of
partners, automating a process which is largely done via human contact
such as procurement officers.
ERP Trends
According to the advancement in technologies, ERP requires constant
modifications and up gradations. This has increased pressure on ERP
developers to fulfil the demands of both vendors and companies. Hence it is
vital to analyse the ERP's trends.
The latest trends that have rejuvenated the functioning of ERP are:
 Open Source ERP: This has cut down the hassle of paying the license
fees not only during installation but also whenever a modification is
made.
 Web enabled ERP: This has made enterprise operations go online. This
trend has helped stakeholder or the third party to easily access the
required information by sitting anywhere in the world. It also helps during
emergencies when the details are to be sourced with immediate effect.

 Wireless ERP: It is sharing enterprise information through devices like

internet and other devices. This has helped to make effective use of the
communication channels. It also makes possible for outsiders to access
the required information.
To study the future trends of ERP we must first look at the present state of
ERP software industry. ERP software was earlier developed and
manufactured from MRP (Manufacturing Resource Planning) and MRP II.
However, it is now being used for CRM (Customer Relationship
Management) and SCM (Supply Chain Management). Most of the ERP
companies are catering to SMEs (Small and Medium Enterprise) to expand
the capacity and efficiency of their product.
Internet and E-commerce are the two important aspects to shape the future
ERP products. Many companies are in the process to combine their SCM
functions with Internet. This helps the suppliers to easily access the
information from anywhere in the world.
Most of the ERP companies are focusing on SME as their future trend. As
many large companies are implementing integrated software system, the
market will gradually decrease for large companies. Thus the growth for the
ERP will be in SME segment only, which will enable ERP companies to
provide better products and service at lower cost and reduce the complexity
of implementation. The vendors will have to understand the need of SME to
obtain superior quality products from ERP companies. Thus to sustain in the
future ERP market, companies must be able to adapt the new technologies.
ERP trends bring positive signals for the ERP vendors and companies
availing their services. Only through proper coordination, teamwork and
nurturing a cordial atmosphere both vendors and the company will be able
to make use of these modern services.
15.3 New Channels

ERP vendors such as SAP AG Inc., Oracle Corporation, and Baan Co., are
building worldwide reseller channels to provide complete-one-stop shopping
for their ERP solutions. ERP software is made more affordable by lowering
the entry price point for each module, to reach even the smaller businesses
that are looking for these ERP solutions.

By comparing with middle-market client/server offering from companies

such as Platinum Software and Great Plains Software, Oracle has been
much favourable in terms of software pricing. JD Edwards ventured by
complementing its OneWorld suite with a lower-cost line called Genesis;
however most of the vendors including SAP have avoided producing less-
expensive 'lite' versions of their software.
Many channel companies have invested in ERP because of the benefits it
brings to business. There are also many compelling case for smaller
channel partners to consider making use of ERP. As ERP implementation is
cost and time intensive, it is better to evaluate various alternative channels
and choose the one that best fits your requirements and budget.
Vendors select different channels strategies depending on the customers
they target. For example, customers who use QuickBooks business
accounting can purchase directly from Intuit Software Company. The high
end customers depend on consulting services and reseller advice when
buying an Oracle or SAP solution.
1. The ERP market is very competitive and fast growing. (True/False)
2. ___________ ERP has made enterprise operations go online.
3. _______ is sharing enterprise information through devices like internet
and other devices.
4. JD Edwards ventured by complementing its OneWorld suite with a
lower-cost line called Genesis. (True/False)
15.4 Faster Implementation Methodologies

Most of the ERP vendors have opinion that their software is difficult and
costly to implement. This is a kind of perception that has provided huge
profits to the ('Big 5') accounting firms that have generated billions in fees
from their ERP software implementation practices. Even though only
10-15% of the implementations have taken years to complete, the facts
remains that implementing ERP packages is difficult.
Faster the ERP is implemented the better are the advantages and delivery
in terms of results. Many different business departments use ERP system
modules that are deployed on a multinational basis. There may also be
change in IS infrastructure-say from a mainframe to a UNIX platform with
simultaneous re-engineering the core business processes. ERP vendors

have made an effort on making the implementation process easier by
offering tools and methodologies to speed up the process. This is achieved
by using model-based approaches and opening up their systems for easier
integration.
For example, SAP has introduced a method called Accelerated SAP (ASAP)
that takes knowledge obtained from thousands of R/3 implementations to
combine this skill in a product called the Business Engineer. This product
enables implementation team to configure the SAP modules to accept the
processing style of some 100 business operating settings. ASAP
methodologies also reduce SAP implementation times to less than six
months in many cases. Oracle has introduced a similar method called Fast
Forward, which speed up implementations of Oracle Applications suites and
cut down the implementation costs.
The ERP Services OnePoint Implementation Methodology also offers value
and increase business efficiency by adding new functionality, or by
upgrading to a new version of your existing applications. This method
provides disciplined approach to implement enterprise software backed by
the people with the applications knowledge and skill. This in turn makes
your implementation process fast, and accurate.
1
The ERP Services OnePoint Implementation Methodology helps
companies to:
 Reduce risk.
 Increase operational effectiveness.
 Achieve strategic goals.
 Optimise your systems at a low total cost of ownership.
 Improve competitive advantage.
Despite the availability of new channel partners and implementation
methodologies of the major consulting firms, ERP systems have often been
difficult to implement because of a dearth of skilled consultants. As a result,
initiatives such as Oracle's OracleOne or SAP's Platinum consulting
services are leading the way in creating highly skilled consulting teams and
1
http://www.ssaglobal.com/documents/SSAPD_SOIGEENA4.pdf

are charged with delivering fully trained and experienced consultants on a

worldwide basis to push implementations through faster.
Activity 2
Imagine that you are a project manager of a company. What are all the
benefits you expect to gain by using OnePoint ERP Implementation
Methodology?
15.5 Business Models and BAPIs

A company's business model is usually referred as revenue architecture that
consists of major value creation principles. This business model describes
revenue sources and the way the company organises its activities to
profitably exploit these sources. With the current business model,
companies can achieve the better business results which includes lower the
amount of waste, reduce errors, increase delivery speeds and so on. The
change in current business model provides new ways to fulfil orders, create
products and service customers.
ERP Business Modelling is a well-defined approach to arrive at full and
specified descriptions of the business processes that are supported with the
new ERP package. ERP Business Modelling emphasise on managing the
group decision-making process for developing the required process
descriptions. This process also highlights on employing a systems and
modelling-oriented perspective to look at different functions as one
integrated whole.
ERP Business Modelling can be called as process facilitation approach
rather than an expert approach. Here, the client plays a leading role in the
whole business modelling process. Although clients have an in-depth
knowledge of their business processes, they lack in identifying the overall
view and the relationships between the business processes. External
expertise will only be used if explicitly desired by the client. The major role of
consultants is to assist the client’s project team in gathering that information
to construct a well-understood model of the business processes which are
to be supported by the new ERP package. This can be achieved with the
help of workshop and group facilitation techniques.

For example, with the help of Intellicorp Inc.'s LiveModel, implementation

teams are able to review and simulate changes to the SAP R/3 application
Reference Model that provides views of R/3 processes, data models and
functions. Any changes made to the Reference Model are stored in the
LiveModel repository which can further be audited and changed on demand.
Furthermore, because LiveModel is OLE compliant, the R/3 models can be
manipulated and documented through desktop OLE applications such as
Microsoft Word.
The Open ERP business model is developing popularity in enterprise
management. A Global Business Process Model is also developed, which
comprises the whole ERP software product.
This model is imposed in three levels. They are:
 System Configuration Level: This level scopes on high-level
optionality on the entire system and is static. The high-level option of the
ERP system is chosen for the organisation, which cannot be made
undone at any stage.
 Object Level: This level scopes on single data objects and is more
dynamic.
 Occurrence level: This level analyses single process occurrences and
is very dynamic. This level elaborates on object parameters.
Further, the optional levels of ERP modelling are used to reverse engineer
the ERP system and the organisational structure. The right way to align both
ERP and organisational models is as follows:
 Convert the ERP system database to an object model.
 Construct a global business process model.
 Identify the system configuration-level business process alternatives.
 Identify the object-level variants of the business processes.
 Expose the occurrence-level business process options.
Business Application Programming Interface (BAPI)
BAPI (Business Application Programming Interface) is a set of interfaces to
object-oriented programming methods that enable a programmer to
integrate third-party software into the proprietary R/3 product from SAP. For
specific business tasks such as uploading transactional data, BAPIs are

implemented and stored in the R/3 system as remote function call (RFC)
modules.2
BAPI is the most dominant tool in the SAP consultant’s toolkit. It is one of a
set of tools for interfacing with an SAP R/3 system. The priority of BAPI is
calling data in and out of SAP. For the SAP consultant, BAPIs are the small,
powerful ships that keep these barges of data moving. SAP's R/3 system is
now open by releasing the specifications for some 170 business application
programming interfaces (BAPIs). This helped third-party applications
interact with R/3 directly. BAPIs can be called as sets of methods that allow
external applications to collaborate with specific R/3 business objects such
as customers, accounts, or employees. As R/3 data is addressable through
callable methods, BAPIs gives flexibility to the third party application
vendors to build supporting applications for the R/3 system.
In similar way, Baan offers OrgWare which is based on integrated business-
modelling tool, combined with business-specific templates that automate the
configuration of the software to suit specific operational needs. Baan is in
the process of advancing this tool with new setup wizards to accelerate
software implementation on the Windows NT platform.
5. Oracle has introduced ____________ method to speed up
implementations of Oracle Applications suites.
6. A company's business model is usually referred as ______________.
7. ERP Business Modelling can be called as ____________.
8. _______ is the most dominant and commanding tool in the SAP
consultant’s toolkit.
15.6 Application Platforms

The company has to take very cautious steps while choosing ERP platforms.
Most of the companies normally go for a platform that is similar to the
current work setting. This enables them to easily work with existing systems
rather than to opt for a new one. The other factors to consider while
choosing application platforms are:
2
http://searchsap.techtarget.com/sDefinition/0,,sid21_gci845424,00.html

 Any experience with ERP: The company should check if the platform,
which is successfully experimented in an ERP environment, provides
greater credibility. As the platform has demonstrated competence in
ERP, it increases the comfort zone and provides better results.
 Networking facilities: The platform should allow free flow and
exchange of data between networks and should work in the latest
atmosphere.
 Proper designs: ERP applications are the complex concept and can
create a worse condition if the preferred ERP platforms are also of the
same status. Hence the designing part of the platform should be in a
manner that can be used freely either in integrated or distributed
applications.
 Effective outputs: Application platform are bound to face problem in the
introduction stage that arises during any output procedures. The
platform you select should resist the errors that come during these
procedures even though these problems are not directly connected with
the platform.
 Sustainability: The desired platform should have the capacity to suite
well within the company's environment. The company should make sure
that the platform they implement will sustain for considerable longer time.
The growing popularity of Microsoft Windows NT Platform has forced almost
all ERP vendors to offer products that cater to this segment. SAP R/3 has
been available since April 1994 on NT and since October 1995 on SQL
Server – while Baan, Oracle, and PeopleSoft have announced the general
availability of their applications on the BackOffice platform in 1997.
SAP claims to have over 2,000 R/3 installations on NT and holds Microsoft
itself as the company's best customer. Baan sports the 'Designed for
Microsoft BackOffice' certification. Oracle boasts its support for its own NT-
based clustering technology, and PeopleSoft shows off its recent switch to
BackOffice as its primary development and initial rollout platform. As
Microsoft scales up its enterprise versions of NT and SQL Server to support
more processors as well as failover clustering and row-level locking,
BackOffice is simply becoming a more viable platform for running
demanding ERP applications. The BackOffice platform is already the
platform of choice among the middle market vendors of accounting and
distribution software, with the NT/SQL Server combination grabbing market

share from the popular Novell/Btrieve platform.
The company should look at all the internal and external factors to decide on
the matter of choosing the ERP platforms. Each company is trying to extend
the reach of its software and to make it an application platform rather than a
suite of modules. For example, SAP has its R/3 product that can manage
centrally using platform management tools from vendors such as Computer
Associates (UniCenter TNG) and Tivoli (TME).
Activity 1
List out the types of application platform installed by various companies for
implementing the ERP system to improve their business efficiency.
15.7 New Business Segments

All the ERP vendors are now capable of delivering specialised variants of
their applications to service vertical markets such as government,
healthcare, financial service, or retail environments. Some vendors are also
moving into more specialised areas, such as supply chain management and
demand forecasting or sales automation and marketing.
Figure 15.1: New Business Segments in ERP

As the new ERP business segment, the PeopleSoft has bought Red Pepper
Software in the business to enhance its supply chain offering. Baan has also
developed Aurum Software for its Aurum Customer Enterprise suite of
customer relationship management tools. Baan strengthen its financial
modules by linking Hyperion's financial accounting and budgeting solutions
with Baan's distribution and manufacturing modules.
With new technological innovations ERP vendors are striving to make their
products more efficient. They focus mainly on decision support. Baan is
associating its applications with Gentia product to provide OLAP capabilities
for monitoring of key performance indicators. JD Edwards grouped with
Information Builders to deliver a data mart, based on Information Builders
Inc.'s SmartMart suite of data transformation and OLAP tools. With the help
of data mart designer and builder, Oracle has created data marts. For
querying, charting and reporting data from Oracle's Applications suite,
Oracle offers an end-user tool called Oracle Discoverer. PeopleSoft will
integrate PeopleSoft applications with Arbor Software Corp.'s
multidimensional Essbase server and client-based Cognos Corp. PowerPlay
multidimensional OLAP tool. To improve the product efficiency, SAP has
previewed its Business Information Warehouse product for synchronising
the R/3 transaction system with a data warehouse. This enables SAP to
manage both R/3 and non-R/3 data, by using metadata repository and a
front-end OLAP engine.
Table 15.1: Major ERP Vendors and their Products
Vendor Product
SAP AG R/3
Oracle Corporation Oracle Applications
JD Edwards World Solutions Co. OneWorld
PeopleSoft Inc. PeopleSoft
Baan Co. Baan IV
Web Enabling
ERP vendors are now being forced to move from a client/server to
browser/server architecture to Web-enable their software. This helps them
to deliver self-service and electronic commerce capabilities. ERP vendors

are using Java rather than Microsoft's ActiveX for their first generation of
Web-enabled applications. Baan is working to distribute a Java-based Web
interface to its products. Automating supply-chain relationships via the
Internet, offering e-commerce via the Microsoft Merchant Server and using
Hyperion Software Corp.'s Spider-Man technology for alert distribution
across the Web are the main focus of Baan. PeopleSoft is set to deliver
Java-based self-service applets with its PeopleSoft 7. JD Edwards is using
Java OneWorld functionality to make it available either through a Windows
client or a Web browser. Oracle has already used Java to deliver its Oracle
Web Employees, Oracle Web Customers, and Oracle Web Suppliers
modules.
ERP vendors are using Java as a means to deliver and deploy their Web
functionality. This is considered as the first move away from proprietary
technologies to more open tools. Implementing solutions from SAP and
PeopleSoft can be expensive because the tools for customising their
products such asABAP4 and PeopleTools are proprietary. However, many
lower-tier software vendors are using commercial tools such as
PowerBuilder, Visual Basic, or Microsoft Access to build the front ends of
the application. Oracle is a tool vendor, which uses Oracle Forms,
Developer 2000, and Designer 2000 to develop its Oracle Applications.
Market Snapshot
Even with zero growth at SAP, it would still take any competitor a couple of
years of triple-digit growth to overtake the German giant. PeopleSoft has not
made a wrong move so far, and Baan is also showing that it has the
mentality and results to become a top-three player. Oracle has lately
focused more attention on its applications business as a growth engine and
seem to be reaching, most aggressively, into the territory targeted by the
middle-market client/server accounting players. JD Edwards seem to be in
the most vulnerable position, with their continued reliance on the momentum
of IBM's AS/400 line, coupled with their need for transition to new product
lines and platforms, where their previous market-leading positioning was
less than clear cut.
Even during the transition from client/server through browser/server, ERP
vendors are striving to maintain their growth momentum in the market. We
can see many achievements in the lines of the Baan/Aurum deal, an

increasing focus on the Microsoft BackOffice platform, and advancement in

ERP packages. Integration with new, cutting-edge technologies such as
Sales Force Automation (SFA) and customer management are the rising
trends in the enterprise packaged application industry. With the huge impact
of Internet-based Enterprise Resource Planning commerce, there is some
leading divergence between so-called Back Office and Front Office
functionalities.
9. The company need not have to take cautious steps while choosing
ERP platforms. (True/False)
10. Mention any two factors to consider while choosing application platform.
11. ERP vendors are using ____ as a means to deliver and deploy their
Web functionality.
12. Integration with new, cutting-edge technologies such as _________and
______ are the rising trends in the enterprise packaged application
industry.
13. The BackOffice platform is already the platform of choice among the
middle market vendors of accounting and distribution software.
(True/False)
15.8 Summary
ERP is an industry that always shows various prospects of investment
rather than just technology. It is basically considered as an investment in the
business and its people. The most challenging part is implementing the
system into a company’s culture, where it is necessary to develop a
business and fulfil a vision. Despite these challenges, the movement toward
a global ERP system is a key factor shaping the future of enterprise
resource planning. The future of the ERP holds certain demands in the
national and global level. Here, ERP trends also reflect positive signals for
the ERP vendors and companies availing their service. ERP product and
ERP software will always be on great demand.
As the ERP market is very competitive and fast growing, vendors are
striving to find new markets for their product suites to have a rapid growth in
the Business. ERP vendors have increased their appeal to small business
clients through a number of initiatives. According to the advancement in
technologies, ERP requires constant modifications and upgradations.
Vendors now select different channels strategies depending on the

customers they target.
Faster the ERP is implemented the better are the advantages and delivery
in terms of results. ERP vendors are making the implementation process
easier by offering tools and methodologies to speed up the process. Despite
the availability of many new methodologies, ERP systems have often been
difficult to implement because of a dearth of skilled consultants. ERP
Business Modelling also called as process facilitation approach, emphasise
on managing the group decision-making process of developing the required
process descriptions. BAPI (Business Application Programming Interface) is
a set of interfaces to object-oriented programming methods that enable a
programmer to integrate third-party software into the proprietary R/3 product
from SAP.
The company takes cautious steps while choosing ERP platforms. The
proper selection of the application platform enables an organisation to easily
work with existing systems rather then to opt for new one. Some of the ERP
vendors are moving on to new business segments such as supply chain
management and demand forecasting or sales automation and marketing.
This helped many vendors to improve their product efficiency. Even during
the transition from client/server through browser/server, ERP vendors are
striving to maintain their growth momentum in the market.

1. Explain the latest trends that have rejuvenated the functioning of ERP
2. Which are the new channels explored by the ERP vendors?
3. Mention the implementation method used by various ERP vendors to
increase the efficiency of their product.
4. What is BAPI? Why BIAP is considered as commanding tool in the
SAP consultant’s toolkit?
5. Explain the various factors to consider while choosing application
platform.
15.10 Answers
1. True

2. Web enabled
3. Wireless ERP
4. True
5. Fast Forward
6. Revenue Architecture
7. Process Facilitation Approach
8. Business Application Programming Interface (BAPI)
9. False
10. The two factors to be considered while choosing application platform
are:
Prior experience with ERP
Networking facilities
11. Java
12. Sales Force Automation (SFA) and customer management
13. True
Terminal Questions
15.11 Case Study
PLIVA is the largest pharmaceutical company that consist of 44 legal

entities, has 5 major business divisions and 9 strategic/corporate
divisions. PLIVA was following classical transaction information system
with centralised, hand-entered data. Pressured by a lack of time, the
management decided on the purchase of a complete system, keeping
the SAP package in mind.
In 1997, implementation of the SAP solution took place in cost centre
accounting and profit centre accounting. The main idea was to control
financial resources, forecasts and provide new type of analysis. The
consulting company PriceWaterhouseCoopers conducted a re-
engineering project, during the implementation of the IS. SAP modules
were implemented through 4 phases:

1. phase: 1996-1997 (SAP 3.0)

2. phase: 1998-2000
3. phase: 2001
4. phase: 2002
The transfer of operations to the new system lasted 12 days, as the
problem of shifting from the old coded system need to be resolved. The
process preparations and system training lasted for 4 months.
During the implementation of the new system, operations were halted
for 10 days. In addition to employees’ resistance to change, the most
significant problems in the system implementation were in the weak
experience and quality of consultants who bid in the public tender. Lack
of time and the specificity of the pharmaceutical industry were also
some of the problem occurred during implementation process.
After successful implementation and utilisation of ERP system, the
PLIVA Information Department was able to achieve USD 1 million in
revenues, which was the remarkable profit of the year 2001. In this 2%
of revenues were reserved for information from the strategic business
plans and the IT Committee gave global initiatives and a strategic
development direction.
The Information Department in PLIVA is directly responsible for the
company management and is developing as a profit centre, meaning
that daughter companies are billed for use of the information system
and the transfer of the existing system is underway in the daughter
companies. PLIVA has over 1500 SAP licenses, a help desk, highly
educated employees and an organisational management for user
support, which allows PLIVA to become a SAP Customer Competence
Centre, which would then reduce the costs of license maintenance on
20%.
In addition to the plans to implement new ERP modules such as SCM
and CRM, the PLIVA also plans to create a unique methodology for
project management in the near future.
Questions:
1. Mention the four phases used for the implementation of SAP
modules.
2. What were the results of successful implementation of ERP
system?

15.12 Glossary
Term Description
Business Information Also called as Business Warehouse is a combination
Warehouse of databases and database management tools which
are used to support management decision making.
Dearth Insufficiency number of resource or consultants.

Metadata Repository It is a collection of information that documents
databases.
Procurement Officers It is used to describe a person, who works full time in
the field of purchasing.
Proprietary Technologies These are the types of systems that are developed by
and for a specific business entity.
References
1. Enterprise Resource Planning Second Edition by Alexis Leon
ISBN(13): 978-0-07-065680-2.
2. ERP in Practice, ERP strategies for steering organisational
competence and competitive advantage by Jagan Nathan Vaman ISBN
13: 9780070621077.
3. ERP Tools, Techniques, and Applications for Integrating the By: Ptak,
Carol A; Schragenheim, Eli Published By: CRC Press Edition: 2.
4. Enterprise Resource Planning (Paperback), Third Edition by Bret
Wagner (Author) and Ellen Monk (Author).

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MI 0038

Enterprise Resource Planning

Curriculum Revised : Spring 2010

Unit 1 Introduction to ERP

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many benefits like automation of the procedures, availability of high quality

1.2 Evolution of ERP

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software that provided solution for handling these fragments of information.

Figure 1.1: Isolated Information Systems – A Pre-ERP Scenario

Although IT provided the perfect answer, in the haste, most developers

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wonder that IT implementations automated only the existing applications

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accounting, human resource management functions, distribution

1.3 What is ERP ?

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Figure 1.2 shows how information is integrated within an organisation using

Figure 1.2: Information Integration through ERP Systems

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ERP software is a replica of the major business processes of an

1.4 Reasons for the Growth of the ERP Market

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 To provide flexible, integrated, real-time decision support.

1.5 The Advantages of ERP

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systems and simulation functions. Furthermore, since it becomes possible to

1.6 The Failure of Many ERP Implementations

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To work successfully, the ERP solutions need to address a lot of factors.

Self Assessment Questions

1.7 ERP Packages

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functions found throughout the organisation in order to achieve integration

1.9 Terminal Questions

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4. Production management and control

1.11 Case Study

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Unit 2 Enterprise – An Overview

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Figure 2.1: The Enterprise

A group of people working together for a common goal, with certain

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Figure 2.2: Organisation where there is no or little communication between

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Figure 2.3: An enterprise where all departments know

 Evaluate the business modelling approaches.

2.2 Integrated Management of Information

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Information can be categorised into three fundamental characteristics:

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2.3 Business Modeling