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  • 1. CHAPTER 1 INTRODUCTION TO ERP INTRODUCTION Information Technology is revolutionizing the way in which we live and work. It ischanging all aspects of our life and lifestyle. The amount of calculation power that isavailable to mankind is increasing at an exponential rate. Computers and communicationare becoming integral part of our lives. To survive, thrive and beat the competition in today’s world, one has to manage thefuture. Managing the future means managing the information. IT has many roles to play inthe organization. All organizations have certain objectives and goals to achieve. For anyorganization to succeed, all business units or departments should work towards thesecommon goal. But each department or business function in the organization will have itsown goals and procedures. The departmental objectives can sometimes be conflicting. Forexample the finance department might want to cut down the advertising budget, whereasthe marketing department might want more money. Similarly production-planningdepartment might want to reduce the inventory level, but the production people mightwant to reduce the inventory level, but the production people might want to have morestocks. To success of an organization rests in resolving the conflicts between the variousbusiness functions and making them do what is good for the organization as a whole. Forthis, information is critical. Everybody should know what is happening in other parts of theorganization. It is not enough that each department manages its activities efficiently, itshould also help other departments manage their functions efficiently. For these tohappen, the organization should cease to function of islands of information, each workingin isolation. Each and every employee should know what his/her counter-parts are doing,how his/her actions and decisions will affect the other departments. This kind ofinformation sharing was difficult in the early days. Now with the advancement inInformation Technology this is possible. IT has a crucial role to play, both at the organizational level and at the departmentallevel. At the organizational level, IT should assist in specifying objectives and strategies ofthe organization. IT should aid in developing and supporting systems and procedures toachieve them. At the departmental level, IT must ensure a smooth flow of informationacross departments, and should guide organizations to adopt the most viable businesspractices. At this level, IT ensures seamless flow of information across the differentdepartments and develops and maintains an enterprise-wide database. This database willeliminate the need of the isolated data islands that existed in each department and makethe organization’s data accessible across the departmental boundaries. The enterprise-wide data sharing has many benefits like automation of the procedures, availability ofhigh quality information for better decision making, faster response time and so on.1.1. EVOLUTION OF ERP When companies were small and all the different managerial functions managed by asingle person, the decisions were made, keeping in mind the overall company objectives.But as company grew, managing the entire operations become impossible for a singleperson. More and more people were brought in and the different business functions weregiven to different individuals. When organization become larger, each person hired peopleto assist him/her and the various departments as we see now, evolved. The size of thedepartment began to increase more and more people were required to do the job. As the departments become large, they become closed and water tight. Each had theirown set of procedures and hierarchy. People at most levels within a department, wouldjust collect and pass the information upward. Thus information was shared betweendepartments only at the top level. Most developers ended up developing need-based, isolated information systems thatwere incompatible and it is no wonder that IT implementations automated only theexisting applications and not the business functions.
  • 2. The system has work around the core activities of the organization, and should facilitateseamless flow of information across departmental barriers. Such as systems can optimallyplan and manage all the resources of the organization and hence, they can be called asEnterprise Resources Planning (ERP) systems. An Enterprise is a group of people with a common goal, which has certain resources atits disposal to achieve that goal. The group has some key functions to perform in order toachieve its goal. Resources included are money, manpower, material, and all the other things that arerequired to run the enterprise. Planning is done to ensure that nothing goes wrong. Planning is putting necessaryfunctions in place and more importantly, putting them together. Therefore Enterprise Resources Planning or ERP is a method of effective planning of allthe resources in an organization. There are many misconceptions about ERP. The first one is that ERP is a computersystem. Yes, computer and IT are integral parts of an ERP system, but ERP is primarily anenterprise-wide system, which encompasses corporate mission, objectives, attitudes,beliefs, values, operating styles and people who make the organization. The secondmisconception is that ERP is for manufacturing organizations alone. This assumption isbasically due to the way in which ERP was historically developed from the manufacturingmethods such as MRP (Material Requirement Planning) and MRP II (ManufacturingResource Planning.)1.2. WHAT IS ERP? (OCT 04,10M) Enterprise Resource Planning (ERP) covers the techniques and concepts employed forthe integrated management of businesses by the effective use of management resources,to improve the efficiency of an enterprise. ERP packages are integrated (covering all business functions) software packages thatsupport the above ERP concepts. Originally ERP packages were targeted at themanufacturing industry, and consisted mainly of functions for planning and managingcore businesses such as sales management, accounting and financial affairs, etc.However in the recent years, adaptation not only to the manufacturing industry, but alsoto diverse type of industry has become possible and the expansion of implementation anduse has been progressing on the global level. ERP software is designed to model and automate many of the basic processes of acompany, from finance to the shop floor, with the goal of integrating information acrossthe company. Fig: Integration of information through ERP system
  • 3. 1.3. REASONS FOR THE GROWTH OF THE ERP MARKET (APR 07, 09, 10; 5M) There is no doubt that the market for the Enterprise Resource Planning (ERP) systems isin great demand. Industry analysts are forecasting growth rates of more than 30 % for atleast the next 3 years.Now why are so many companies replacing their key business systems? The answer is : • To enable improved business performance o Cycle time reduction : the time required to contact other department is reduced. o Inventory reduction: As the data is integrated there is no need to re enter the data and the paperless transaction is done using EDI (Electronic Data Interchange). o Order fulfillment improvement: There is no conflicts between the departments like sales and production so order can be made on time. • To support business growth requirements o New Products and New Customers : we can grow our organization by implementing new Products in the market and get the new customers for that product. o Globalize the product: We can Globalize the product for International customers • To provide flexible, integrated, real-time decision support o Managers gets the integrated data of different departments at any time to analyze and to take important decisions at the right time. • To eliminate limitations in the legacy system: o Integration of the isolated departments o Decision support system o Availability of the right data at right time o Flexibility to change o Supporting latest technologiesThere are some of the reasons for explosive growth rate of the ERP market and the ERPvendors. As more and more companies are joining the race, the ERP vendors are shiftingtheir focuses from big fortune 1000 companies to different market segments like mediumsized companies and small companies. The future will see the battle for market share andmergers and acquisitions for strategic and competitive advantage. The ultimate winner inthis race will be the customer, who will get the better products and better services ataffordable prices.1.4. THE ADVANTAGES OF ERP (OCT 04, 05, 07, 08, APR 08; 7M)Installing the ERP system has many advantages, some of the direct advantages includeimproved efficiency, information integration for better decision making, faster responsetime for customer queries, etc. And the indirect benefits include better corporate image,improved customer goodwill, customer satisfaction, and so on. The following are some ofthe direct benefits of the ERP systems. • Business Integration: The reason why the ERP packages are considered to be integrated, is the automatic data updation (automatic data exchange among departmental applications) that is possible among the related business components. Since conventional company information systems was isolated departmental functions, almost all were weak in terms of communication and integration of information. In the case of ERP packages, the data of related business functions is also automatically updated at the time of transactions occurs. For this reason, one is able to grasp business details in real time, carry out the various types of management decisions in a timely manner, based on that information. • Flexibility: o Multilanguage: It supports different languages so that the company can work in the language they want.
  • 4. o Multi currency: It also support different currencies so that if the company is globalize (multinational) then it could have branches in many countries and for this it should support different currencies. o Multiple accounting Standards: Organization can have multiple products and it can have extremely different way of business and information flow for different products, so there should be different accounting for calculation of profits, wages, general ledger and so on. Here ERP provide Multiple Accounting Standards for this type of company. To cope with company globalization and system unification, this flexibility is essential. • Better Analysis and planning capabilities: With the Integration of Information, one can get any information from the enterprise system. Because of this it became possible to utilize the decision support system and analysis of data from a variety of dimensions, one is able to give the decision maker the information they want thus enabling them to make better decisions. FOR Example: Problem: In 2007, our organization has made 35% more profit then the year 2006, now in 2010 the company want same 35% increment in the profit margins, this is the important task of the managers to cope with. Solution: Manager will first analyze the data of 2007 from the Archive such that he will get the information on the tasks to achieve 35% increment, he will analyze all the departmental duties assigned that time, To analyze all these information the manager can take a help of DSS (Decision Support System) system to take the departmental decision and EIS (Executive Information System) to take the decision at the organizational level. So the system will help the manager to do the Planning and also to take better decision to achieve the company’s goal. • Use of the latest technology: The ERP vendors are very quick to realize that in order to grow and sustain that growth, they had to embrace the latest developments in the field of IT. Therefore, they quickly adapted their systems to take the advantage of the latest technologies like open systems, client/server technology, Internet/Intranet, e-commerce, etc. It is this quick adaptation to the latest change in information technology that makes the flexible adaptation to change in future business environments possible. It is this flexibility that makes the in-corporation of the latest technology possible during system customization, maintenance and expansion phases.1.5. REASONS FOR THE FAILURE OF ERP IMPLEMENTATIONERP packages if chosen correctly, implemented judiciously and used efficiently, will raisethe productivity and profits of companies dramatically. But many companies fails in thisbecause of a wrong product, incompetent and haphazard implementation and inefficientand ineffective usage.There should be good people who know the business. The vendor should be good and hispackage should be the one best suited for the company’s needs. The ERP consultantsshould be good. The implementation should be planned well and executed perfectly. Theend-user training should be done so that the people understand the system, and theeffect of their efforts on the overall success of the program.The introduction of the ERP system will dramatically change the job descriptions andfunctions of many employees. Employees who were earlier doing the work of recordinginformation will, overnight, be transformed into decision makers. For example, in the pastan order entry clerk’s job was to enter the order that came to him. With theimplementation of the good ERP system, the order entry clerk became an action initiator.As soon as he enters the order into the system, the information is passed onto sales,distribution and finance modules. The distribution module checks whether the item is instock and if available, the item is dispatched and information is sent to the financemodule. If the items are not in stock, then the manufacturing module is given theinformation, so that the production can start. The customer is informed about the statusof his order. If the items are shipped, the finance module prepares the invoice and sendsit to the customer. All these action takes place automatically as soon as the order entryclerk enters the information regarding the order into the system. Thus order entry clerk istransformed from data entry operator to a decision maker whose action can trigger achain of action.
  • 5. Many employees find this transformation difficult to accept. If the employees are notgiven proper training, well in advance, then the system will fail. Another factor is the fearof unemployment. When procedures become automated, people who were doing thosejobs become redundant. So it is quite natural to have resistance from the employees. Butthe same employees can be trained in the new system and can work in more challengingand stimulating environments. For this also, the employees have to be told, in advance,as to what will happen and should be given ample time and training to make thetransformation. Without support from the company, even the best system will fail. So it isvery important that the management should take the necessary steps, well in advance, toremove the fear of, and provide necessary training to their employees.
  • 6. CHAPTER 2 ENTERPRISE – AN OVERVIEW INTRODUCTION (OCT 04, 6M)What is an enterprise? An enterprise is a group of people with a common goal, which hascertain resources at its disposal to achieve that goal. In the traditional approach theorganization is divided into different units based on the functions they perform such asmanufacturing or production department, the production planning department, thepurchasing department, the sales and distribution department, the finance department,the R&D department and so on. Each of these departments are compartmentalized andhave their own goals and objectives, which from their point of view are in line with theorganization’s objectives.Each of these departments function in isolation and have their own systems of datacollection and analysis. So the information that is created or generated by the variousdepartments, in most cases, are available only to the top management as a summaryreports which is not available to other departments. The result is that instead of takingthe organization towards the common goal, the various departments end up pulling it indifferent directions. This is because one department does not know what the other does.Also sometimes the departmental objectives can be conflicting. For example the sales andmarketing people will want product variety to satisfy the varying needs of the customer.But the production department will want to limit the product variety to cut down theproduction costs. So unless all the departments know what the others are doing and forwhat purpose, these kinds of conflicts will arise, thus disrupting the normal functioning ofthe organization.But in enterprise, the entire organization is considered as a system and all thedepartments are its subsystems. The information about all the aspects of the organizationis stored centrally and is available to all the departments.This transparency and information access ensures that the departments no longer work inisolation pursuing their own independent goals. Each sub system knows what the otherare doing why they are doing it and what should be done to move company towards thecommon goal.The ERP system helps to accomplish 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 organization to work andmove forward as a single entity.2.1. INTEGRATED MANAGEMENT SYSTEMS (OCT 07; 7M)An Information Systems is an open system that produces information using the input-process-output cycle. The minimal information system consist of three elements People,procedures and data. People follow procedures to manipulate data to produceinformation. Today Information system is defined as an organized combination of people,hardware, software, communication networks and data resources that collects, collates,transforms disseminate(spread information) in an organization.2.1.1. Management Information Systems (APR 08; 7M)It is also called as Information-Reporting systems produce information products thatsupport many of the day to day decision making needs of the management. Reports,charts, graphs, displays and responses produced by such systems provide information
  • 7. that managers have specified in advance. Each department will have its own databaseand information systems. These systems will produce different reports of varying detailthat were specified when the system were built. This method of information gathering has two major disadvantages. One people in onedepartment do not have any information about what is happening in the otherdepartments. May be at the top management level the summary reports are beingcirculated to other departments also, but these summary reports often fail in capturingthe real picture. The second drawback is that these system gives only the information thatthey were designed to produce at the time they were built. These systems lack the integrated approach. There will be an accounting system for anfinance department, a production planning system for the manufacturing department, aninventory management system for the stores department, and so on. All these system willperform in isolation. So if a person wanted some information which has to be derived fromany of these two systems, he has to get the necessary reports from both systems andthen correlate and combine the data. Because the system works in isolation, collecting and analyzing the data can be difficulttask, since getting information on more than one department can be tedious. No businessexecutives or decision makers can take good decisions with the isolated data that he getsfrom the various reports produced by each department. Even if he collates the data andproduces the information that he requires, he would have lost the valuable time thatcould have been better spent in decision making. An organization cannot function as islands of different departments. The productionplanning data is required for the purchasing department. The purchasing details arerequired for the finance department and so on. So if all the information islands, whichwere functioning in isolation, were integrated into a single system, then the impact of thatwould be dramatic. The three fundamental characteristics of information are accuracy, relevancy andtimeliness. The information had to be accurate, it must be relevant for the decision makerand it must be available to the decision maker when he need it. Today the time availablefor an organization to react to the changing market trends is very short. To survive, theorganization must always be on its toes.2.2. BUSINESS MODELLING (OCT 05, 06, 07, 08, 09, APR 08, 09; 5M) Business Modeling is a representation of the business as one large system showing theinterconnections and interdependencies of the various subsystems and businessprocesses. Based on the organizations goals, objectives and strategic plans, a businessmodel consisting of the business processes is developed. These business processes arecontrolled by different individuals in the organization to achieve common goals. Based onthe business model the ERP system is developed with the aim of providing the requiredinformation and necessary assistance to the various individuals, to help them performtheir business processes more effectively and efficiently. In business modeling, we model the business as an integrated system, taking theprocesses managing its facilities and materials as resources. Information is very importantresource and is very critical in managing all the other resources. Thus business model is a representation of the actual business—what are the variousbusiness functions of the organization, how they are related, what are theirinterdependencies, and so on. The business model is usually represented in graphicalform using flowcharts and flow diagrams. From the business model, the data model iscreated.2.3. INTEGRATED DATA MODEL (APR 09, OCT 09; 6M) One of the most critical steps in the ERP implementation is the creation of an IntegratedData Model. As we have seen earlier, one of the advantageous of having ERP systems isthat all the employees from the different departments get access to the data i.e. theintegrated data. The company uses these integrated data for its analysis and decisionmaking. With the implementation of the ERP systems, the departmental information system andthe departmental databases will have to go. There can no longer be isolated databases,which cater to the needs of a particular department. All the data has to be from the
  • 8. integrated database. This approach will reduce the data redundancy and provide updatedinformation about the entire organization to all employees. For the integrated database to be effective, it should clearly depict the organization,reflect the day-to-day transactions and should be updated continuously. At a given time,the database should give a snapshot of the organization. So if the order is entered, thesale is done and the goods are dispatched, then database should reflect those changes.The inventory should be reduced and the account receivable should be increased. Allthese thing have to happen instantaneously and automatically. That is the challenge andthat is the advantage of integrated database and the integrated data model. Theintegrated data model is derived from the business model.So when designing the data model for the ERP system, the most important thing thatshould be kept in mind is the information integration and the process or proceduresautomation. The data model should reflect the organization and it should successfullydepict and integrate the data structure of the entire organization.
  • 9. CHAPTER 3 ERP AND RELATED TECHNOLOGIES INTRODUCTION ERP is an abbreviation for Enterprise Resource Planning and means, thetechniques and concepts for the integrated management of businesses as a whole, fromthe viewpoint of the effective use of management resources, to improve the efficiency ofan enterprise.ERP systems serve an important function by integrating separate business functions—materials management, product planning, sales, distribution, finance and accounting andothers—into a single application. However, ERP systems have three significantlimitations: • Managers cannot generate custom reports or queries without help from a programmer and this inhibits them from obtaining information quickly, which is essential for maintaining a competitive advantage. • ERP systems provide current status only, such as open orders. Managers often need to look past the current status to find trends and patterns that aid better decision-making. • The data in the ERP application is not integrated with other enterprise or division systems and does not include external intelligence.There are many technologies that help to overcome these limitations. These technologies,when used in conjunction with the ERP package, help in overcoming the limitations of astandalone ERP system and thus, help the employees to make better decisions. Some ofthese technologies are: • Business Process Reengineering (BPR) • Management Information System (MIS) • Decision Support System (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, etc.) are integrated, the MIS or DSS will become redundant as their functions will betaken care of by the new systems and they will be slowly phased out from the scene. With the competition in the ERP market getting hotter and hotter, and ERP vendorssearching for ways to penetrate new market segments and expand the existing ones,tomorrows, ERP systems will have most of these technologies integrated into them. In thissession we will see how each of these technologies are related to ERP systems.3.1. BUSINESS PROCESS REENGINEERING (BPR) (OCT.04, 05, 06, 07, 08, APR.08, 09; 7M)
  • 10. Dr Michael Hammer defines BPR as "... the fundamental rethinking and redesign ofbusiness processes to achieve improvements in performance such as cost, quality, serviceand speed." Information technology is one of the most important tools, which can be used formaking changes in business process. While undergoing BPR, any business organizationshould consider the effects of I.T. solution on employees, if the organization will notbother for these effects then no doubt organization will crash during the initial phaseitself. In enterprise the reengineering offers advantages like information technologies,computer network, telecommunication and interfacing of computers at different locations,powers of DBMS. Business engineering makes the organization more customer focusedand responsive to changes in the market. This is achieved by reshaping corporatestructure around business process.3.2. MANAGEMENT INFORMATION SYSTEM (MIS) (OCT 05, 06, 08, 09, APR 10; 7M) In the past, most payroll systems were data processing systems that did little morethan process time sheets, print payroll checks and keep totals of annual wages anddeductions. This was the case with most other departmentalinformation systems. As managers began to demand more and better information aboutthe working of the organization, the data processing systems evolved into managementinformation systems. For example, a human resource MIS system is capable of predicatingthe average number of worker sick days, the amount that must be given as bonus, theovertime allowances, and so on. MIS is a computer-based system that optimizes the collection, transfer andpresentation of information throughout an organization, through an integrated structureof databases and information flow.The major differences between a management information system and a DataProcessing system are:(OCT 07, APR 10;5M) • The integrated database of the MIS enables greater flexibility in meeting the information needs of the management. • The MIS supports many functional areas (accounting, marketing, manufacturing, etc.) 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. • Managements information needs are supported on a more timely basis with the MIS (with its on-line query capability) than with a data processing system.The main characteristics of the Management Information System are: • The MIS supports the data processing functions of transaction handling and record keeping. • MIS uses an integrated database and supports a variety of functional areas. • MIS provides operational, tactical and strategic levels of the organization with timely, but for the most part structured information (ad-hoc query facility is not available). • MIS is flexible and can be adapted to the changing needs of the organization.3.3. DECISION SUPPORT SYSTEM (DSS) (OCT 04, 06,; 6M)
  • 11. Managers spend a lot of time and effort in gathering and analyzing information beforemaking decisions. Decision support systems were created to assist managers in this task.Decision support systems are interactive information systems, to produce and presentinformation targeted to support management in the decision-making process. However, decision-makers, especially at the top management levels, are often con-fronted with complex decisions. The analysis of such complex decisions which involvemany factors can be difficult for a human being. These types of decisions, and the needfor complex information analysis required for such decision-making, led to the evolution ofdecision support systems. A DSS can help close the information gap and allow managers to improve the qualityof their decisions. To do this, the DSS hardware and software employ the latesttechnological innovations, planning and forecasting models, 4th generation languagesand even artificial intelligence. In many cases, DSS facilitates the decision-makingprocess, helping the decision-makers to choose between alternatives. Some decisionsupport systems can automatically rank the alternatives, based on the criteria given bythe decision-maker. DSS also help in removing the monotony and tedium of gathering andanalyzing data. DSS are designed to support decision-making processes involving semi-structured andunstructured problems. Here, the role of the DSS is to help managers in getting theinformation they want in the way they want. For example, a manager wants to reducecycle time. He might look at various facts like the availability of raw materials, skilledpersonnel, the average machine down time, and so on. So there is no way the system cananticipate what the manager wants. DSS’s are capable of helping the managers inmaking such decisions.The main characteristics of a DSS are: • A DSS is designed to address semi-structured and unstructured problems. • The DSS mainly supports decision-making at the top management level. • DSS is interactive, user-friendly can be used by the decision-maker with little or no assistance from a computer professional. • DSS makes general-purpose models, simulation capabilities and other analytical tools available to the decision-maker. A DSS does not replace the MIS; instead a DSS supplements the MIS. There are distinct differences between them. MIS emphasizes 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. MIS is constrained by the organizational system; DSS is immediate and user-friendly.3.4. EXECUTIVE INFORMATION SYSTEM (EIS) (OCT 05, 06, 07; 5M) The line dividing DSS and EIS is very thin. EIS can be considered as a better andsophisticated DSS. Top-level executives and decision-makers face many problems andpressures. They have to make the right decisions at the right time to take the companyforward. In todays competitive world, reaction times are shrinking and time to makedecisions is very less. EIS is a decision support system especially made for senior-levelexecutives. An EIS is concerned with how decisions affect an entire organization. An EIS takes the following into consideration: • The overall vision and mission of the company and the company goals • Strategic planning and objectives • Organizational structure • Crisis management/Contingency planning • Strategic control and monitoring of overall operations
  • 12. Executive decision-making also requires access to outside information fromcompetitors, governmental regulations, trade groups, news gathering agencies, and soon. A high degree of uncertainty and a future orientation is involved in most executivedecisions. Successful EIS are easy to use, flexible and customizable and use the latesttechnological innovations.3.5. DATA WAREHOUSING (OCT 05, 06, 08, 09, APR 09; 8M) If operational data is kept in the databases of the ERP system, it can create a lot ofproblems. As time passes, the amount of data will increase and this will affect theperformance of the ERP system. So it is better to archive the operational data once its useis over. When I say the use is over, it does not mean that, the archived data is useless.On the contrary, it is one of the most valuable resources of the organization. Howeveronce the operational use of the data is over, it should be removed from the operationaldatabases. For example, once the financial year is over, the daily transactional data canbe archived. Figure 3.1 shows what happens if the data is not archived. It is evident from the figure that even though the operational data volume is nearlythe same each year, since the data is not archived, the total amount of data that is stored > Fig. 3.2 Data volume vs. performancein the operational database will go on increasing. Figure 3.2 shows the effect of keepingthis huge amount of data in the operational database. It is clear from the above graph that as the volume of the data in the databaseincreases, the performance of the database and the related applications decreases. Fromthe above discussions, it is evident that we should separate the operational data from the
  • 13. non-operational data. I am not using the term archive data, because if the non-operationaldata is archived, there is little or no use for it. But this data is a very valuable resourceand is too precious to be kept in some archive. It is in this situation that a data warehousecomes in handy. The reasons to separate the operational data from the analysis data have notsignificantly changed with the evolution of the data warehousing systems, except thatnow they are considered more formally during the data warehouse building process.Advances in technology and changes in the nature of business have made many of thebusiness analysis processes much more complex and sophisticated. In addition toproducing standard reports, todays data warehousing systems support very sophisticatedonline analysis, including multi-dimensional analysis.3.6. DATA MINING (OCT.06, 07, APR.09; 8M) Powerful systems for collecting data and managing it in large databases are availablein most organizations. However, the major bottleneck of converting this data into effectiveinformation is the difficulty faced in extracting knowledge about the system from thecollected data. Modeling the investigated system discovering relations that connectvariables in a database are the subjects of data mining. Data mining is the process of identifying valid, novel, potentially useful and ultimatelycomprehensible information from databases that is used to make crucial businessdecisions.Research organizations, academic institutions and commercial organizations create andstore huge amounts of data each day. It becomes impossible for human analysts to copewith such overwhelming amounts of data. Two other problems that surface when human analysts process data are: • The inadequacy of the human brain when searching for complex multifactorial dependencies in the data • The lack of objectiveness in analyzing the data.One additional benefit of using automated data mining systems is that this process has amuch lower cost than hiring an army of highly trained (and paid) professional statisticians.While data mining does not eliminate human participation in solving the task completely,it significantly simplifies the job and allows an analyst, who is not a professional instatistics and programming, to manage the process of extracting knowledge from data.3.7. ON-LINE ANALYTICAL PROCESSING (OCT.06, 09, APR.10; 6M)OLAP can be defined in five words—Fast Analysis of Shared MultidimensionalInformation.FAST means that the system is targeted to deliver most responses to users within aboutfive seconds, with the simplest analysis taking no more than one second and very fewtaking more than 20 seconds. ANALYSIS means that the system can cope with anybusiness logic and statistical analysis that is relevant for the application and the user, andkeep it easy enough for the target user. SHARED means that the system implements all
  • 14. the security requirements for confidentiality (possibly down to cell level) and, if multiplewrite access is needed, concurrent update locking at an appropriate level.MULTIDIMENSIONAL means that the system must provide a multidimensionalconceptual 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 dataaccess and analysis. While transaction processing (OLTP) generally relies solely onrelational databases, OLAP has become synonymous with multidimensional views ofbusiness .data. These multidimensional views are supported by multidimensionaldatabase technology and provide the technical basis for calculations and analysisrequired by Business Intelligence applications.3.8. SUPPLY CHAIN MANAGEMENT (OCT.08, APR.08, 10; 7M) A supply chain is a network of facilities and distribution options that performs thefunction of procurement of materials, transformation of these materials into intermediateand finished products, and the distribution of these finished products to customers.Supply chains exist in both service and manufacturing organizations, although thecomplexity of the chain may vary greatly from industry to industry and firm to firm. Traditionally, marketing, distribution, planning, manufacturing, and the purchasingorganizations along the supply chain operated independently. These organizations havetheir own objectives which are often conflicting. Marketings objective of high customerservice and maximum sales revenue conflict with manufacturing and distribution goals.Many manufacturing operations are designed to maximize throughput and lower costswith little consideration for the impact on inventory levels and distribution capabilities.Purchasing contracts are often negotiated with very little information beyond historicalbuying patterns. The result of these factors is that there is not a single, integrated plan forthe organization—there are as many plans as businesses. Clearly, there is a need for amechanism through which these different functions can be integrated*together. Supplychain management is a strategy through which such integration can be achieved.
  • 15. CHAPTER 4 MANUFACTURING PERSPECTIVE4.1. MATERIALS REQUIREMENT PLANNING (MRP)Initially, manufacturers viewed MRP as a better method for ordering components than theindependent demand inventory models they had been using during the 1950s and 1960s.However, it has evolved into a comprehensive priority planning system. MRP provides amethod that helps keep order due dates valid, even after the orders have been releasedto the shop floor or outside vendor. MRP systems can detect when the due date of anorder—the date the order is scheduled to arrive—is out of alignment with its need date—the date the order is actually required. During the 1970s and 1980s, techniques for helping to plan capacity requirementswere tied up with MRP. Tools were developed to support the planning of aggregateproduction levels and the development of anticipated production schedules. Systems toaid in executing the plans were incorporated—shop floor control for the in-house factoryand vendor scheduling for the outside factories. The expanded MRP system becameknown as closed loop MRP, because it provided feedback from the execution function tothe planning functions, so manufacturers could change plans when necessary. Eventually,practitioners expanded closed loop MRP to provide the ability to translate the operating
  • 16. plan—expressed in manufacturing terms such as units and kilograms—into financial terms—rupees—and have the capability to simulate the effects of various plans in terms of bothunits 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 amanufacturing organization. An MRP system requires 3 types of information: • Master Production Schedule (MPS) • Bill of Material (BOM) • Inventory Records (IR) The MPS is a detailed production schedule for finished goods or end items thatprovides the major input to the materials requirement planning process. Associated witheach finished product is a BOM, which describes the dependent demand relationshipsthat exist among the various components—raw materials, parts, subassemblies, etc.—comprising the finished product. The entire set of BOMs for the companys finishedproducts is called the BOM file. Inventory status data for each product or component suchas stock-on-hand, stock-on-order, etc. are provided by the inventory records, which alsocontain 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 determinethe following for all components: • Planned order quantities • Planned order release dates (to shop floor/suppliers) • Planned order due dates The MRP system calculates the release dates and the due dates taking intoconsideration the lead-times required to produce or procure the components and byrecognizing the order in which they are assembled into the finished product. If the MRPprocess is carried out in conjunction with capacity planning, the production facility shouldhave the capacity to complete the orders on time.4.2. BILL OF MATERIAL (BOM)A BOM defines the relationship of components to end items. The BOM identifies allcomponents used in the production of an end item, the quantity required, and the order inwhich the components are assembled. For example, consider an office chair. The chair iscomposed of a seat cushion, back cushion, adjuster mechanism, base unit, wheels, andfasteners. To manufacture the chair the wheels, base unit, and adjuster mechanism areassembled into a chair frame, to which the base cushion and back cushion are attached.All the fasteners are identical, there are 11 of them for this chair. Fig : Bill of material for a chair
  • 17. All items appearing below the final product (office chair in this case) in a BOM, arereferred to as components, whether they are raw materials or component parts orsubassemblies. In the above figure, all items with the exception of the Office chair, arecomponents. The term- parent component describes a component at one level in theBOM, that is composed of components from the next lower level in the BOM. The lowerlevel components are called child components.4.3. MANUFACTURING RESOURCE PLANNING (MRP-II)MRP was originally developed as a computer system that was limited to materialsplanning. As computer technology and MRP systems developed, it became clear that MRPsystems maintain extensive information that can be used for other company functions.For example, MRP systems maintain accurate inventory information. Combining thisinformation with cost data, allows accounting personnel to have accurate inventoryinformation, in meaningful financial terms. Rather than having separate production andaccounting systems, a company can expand MRP to meet the requirements of both thesystems. MRP-II is an expansion of closed loop MRP for managing an entire manufacturingcompany. MRP-II systems provide information that is useful to all functional areas andencourage cross-functional interaction. MRP-II supports sales and marketing by providingan order-promising capability. Order promising is a method of tying customers orders tofinished goods in the MPS. This allows sales personnel to have accurate information onproduct availability and gives them the ability to give customers accurate delivery dates.MRP-II supports financial planning by converting materials schedules into capitalrequirements. A company can use MRP-II to simulate the effects of different masterproduction schedules on material usage, labor, and capital requirements. MRP-II providesthe purchasing department with more than just purchase requisitions. The long-rangeplanned order release schedules can be used to provide the purchasing department withinformation for developing long-range buying plans. It is now common for suppliers todirectly access a customers MRP-II system to receive up-to-date information on thecustomers planned material needs. Information in the MRP-II system is used to provideaccounting with information on material receipts to determine accounts payable. Shopfloor control information is used to track workers hours for payroll purposes. Manufacturing is the central function in a manufacturing company. The informationrequired to successfully plan and schedule production is valuable to the other (supporting)functions in the company. MRP-II systems increase a companys efficiency by providing acentral source of management information.4.4. MAKE-TO-ORDER (MTO) AND MAKE-TO-STOCK (NITS)One way to classify the manufacturing operations is by the amount of processing theproduct requires, after the company receives an order from a customer. At one end of theprocessing spectrum is the make-to-order (MTO) company. This company does not beginprocessing the material for the component or product until it has received an order fromthe customer. In some cases, the company may not even procure the material andcomponents until after it receives the order. This type of manufacturing operations ispracticed when the company competes on the basis of product customization and servesits customer base by providing unique and/or highly specialized items. The MTO companyalso bases its production planning on firm customer orders. At the opposite end of the spectrum is the make-to-stock (MTS) company, whichmanufactures 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 thefactory or at a distribution centre. MTS companies rely heavily on market analysis and
  • 18. demand forecasting in planning the production of their products with respect to theproduct mix and volume.4.5. ASSEMBLE-TO-ORDER (ATO)Another variation of the manufacturing operations is the assemble-to-order (ATO)company. The assemble-to-order company manufactures standardized, option modulesaccording to the forecasts it has made and then assembles a specific combination, orpackage of modules, after receiving the customers order. The classic example is theautomobile manufacturer. After receiving orders from a host of dealers, the manufacturerspecifies the exact production schedule for the automobiles. The schedule is based on theoptions ordered by the customers—automatic transmission or manual transmission, airconditioning, standard or digital control panel, leather, cloth or vinyl seating, and so on.Many components for assembling the automobiles would have been ordered or startedinto production before receiving the customers order, based upon demand forecasts.Thus, the major processing that remains when the orders come in is assembly. Thisapproach shortens the time between placement of the order and delivery of the product—cycle time4.6. ENGINEER-TO-ORDER (ETO)Yet another variation of the manufacturing operations is the engineer-to-order (ETO)company. The engineer-to-order company is the ultimate in product variety, productcustomisation and flexibility. In this mode of operation, anything will be manufactured asper order—but at a price. The expensive clothing of the bold and beautiful is an exampleof this kind of production. Products are made for each customer and even the minutedetails, for example, the texture and feel of the cloth, the color of the threads, the size ofthe collar and so on will differ from one customer to another, depending upon thecustomers preferences. So the manufacturer cannot keep anything in inventory, he willhave to order only once the customer has given his/her specifications. Obviously, the costof production will be highest in this mode of production.4.7. CONFIGURE-TO-ORDER (CTO)Along the broad spectrum of make-to-order manufacturing, there is a growingconvergence between strictly assemble-to-order (limited options and features) andcompletely engineer-to-order (just about anything goes, at a cost) environments. Thisevolving environment is often referred to as configure-to-order. Using a rules-basedproduct configuration system, configure-to-order (CTO) manufacturers are able to simplifythe order entry process and retain engineer-to-order (ETO) flexibility, without maintainingbills of materials for every possible combination of product options.
  • 19. CHAPTER 5 ERP MODULES INTRODUCTION All ERP packages contain many modules. The number and feature of the modules varywith the ERP package. The most common module we will see are: • Finance • Sales & Distribution • Human Resources • Plant Maintenance • Quality Management • Material management • Manufacturing management, etc5.1. FINANCE MODULE
  • 20. This section provides an overview of the financial solutions in most of the ERPpackages. In todays business enterprise, you need to know that your financial decisionsare based on todays data, not numbers from records closed a month ago, or even a weekago. And you need to know that this same todays data represents every segment ofyour organizations activities, whether your enterprise stretches across a room or aroundthe globe. This is essential, because the most efficient way to get your enterprise towhere you want it tomorrow is to know exactly where it is today. Whatever be the financial goals of your organization, the financial applicationcomponents of the ERP solutions work hand-in-hand to improve the bottom line. This istrue because the financial functionality is tightly integrated across all business areas andall geographic areas. This tight integration includes all the other different modules, frommaterials management to human resources to logistics. Because the ERP systemautomatically links related areas, it eliminates the need to repeat procedures. You enteryour data only once. Within the ERP system, all areas work in concert, creating a newlevel of efficiency in handling your financial data. The finance modules of most ERP systems provide financial functionality and analysissupport to thousands of businesses in many countries across the globe. These ERPsystems include not only financial application components, but also Human Resources,Logistics, Business Workflow and links to the Internet. Hundreds of business processes arecovered in these systems. The finance modules of most ERP systems will have the following sub-systems: □ Financial Accounting (General Ledger, Accounts Receivable /Payable, Special Ledgers, Fixed Asset Accounting, Legal Consolidation) □ Investment Management (Investment Planning/Budgeting/Controlling, Depreciation Forecast/Simulation/Calculation) □ Controlling (Overhead Cost Controlling, Activity-Based Costing, Product Cost Accounting, Profitability Analysis) □ Treasury (Cash Management, Treasury Management, Market Risk Management, Funds Management) □ Enterprise Controlling (Executive Information System, Business Planning and Budgeting, Profit Centre Accounting)5.1.1. Financial AccountingThe objective of a good financial accounting system is to provide company-wide controland integration of financial information that is essential to strategic decision-making. TheFinancial Accounting Module of an ERP system, gives you the ability to centrally trackfinancial accounting data within an international framework of multiple companies,languages, currencies, and charts of accounts. For example, when raw materials movefrom inventory into manufacturing, the system reduces quantity values in inventory andsimultaneously, subtracts values for inventory accounts in the balance sheet. Most of theFinancial Accounting modules comply with international accounting standards, such asGAAP and IAS. They also fulfill the local legal requirements of many countries.5.1.1.a. General Ledger (OCT.04, 05, 06, APR.10; 6M)The General Ledger (GL) is essential to the financial accounting system and to strategicdecision-making. Through active integration with business processes in logistics and inthe accounting sub-ledgers, the GL serves as a central pool of financial data for financial
  • 21. reporting as well as for other accounting areas. However, the origin of centrally storeddata can still be traced at any time by drilling down on data from a given transaction. The General Ledger supports all the functions needed in a financial accounting system.This includes flexible structuring of the chart of accounts at the group and company level,distributed application scenarios, real-time simultaneous update of sub-ledgers and thegeneral ledger, elimination of time-consuming reconciliation, and parallel views of data, inboth the general ledger and the managerial accounting applications. The GL providesdocument parking, posting, reporting, and an integrated financial calendar for automatingperiodic activities. The system also provides summary information from other componentsat a user-defined level of detail. By creating combinations of entered data, you generatedata summaries, that can be used in planning, allocation, distribution and reporting.5.1.1.b. Accounts Receivable and PayableThis module provides financial information about all outstanding credits that we havegiven to our customers the due dates for the credits and also the credit limit to particularcustomer. It also provides the information about all outstanding debits (amount to begiven) should be return to the supplier after purchase of raw material, it also storesinformation on due dates to credit the suppliers account.ERP systems offer a financial overview of global business partner relationships, in theAccounts Receivable and Payable functions. These sub-ledgers are integrated, both withthe General Ledger and with, areas in Sales and Distribution and Materials Management,where financial data originates. Accounts Receivable and Payable transactions areperformed automatically, when related processes take place in other modules. Thismodule uses standard business rules for procedures ranging from data entry andreporting, to processing payments and bank transactions. Accounts Receivable and Pay-able functions include Internet integration, document management, full support for EDIprocessing, including automatic integration with cash management and flexible reportingusing customer and vendor information systems. The module also provides, enterprise-wide credit management with workflow integration, payment automation with EFT andcheck processing, and document parking with various approval procedures.5.1.1.c Asset AccountingAsset accounting, manages the companys fixed assets. Within the Financial Accountingsystem, Asset Accounting serves as a sub-ledger to the General Ledger, providingdetailed information on asset-related transactions. Asset Accounting also providesintegration with Plant Maintenance for management of machinery and equipment,management of leased assets and assets under construction, mass processing withworkflow integration, and interactive reporting.5.1.1.d Legal ConsolidationConsolidated financial statements need to be integrated effectively with operational dataat the individual company level. By using different valuation methods, you can planbalance sheet strategies to suit the companys requirements. The Legal Consolidationsub-system is closely linked to the Financial Accounting system, permitting direct datatransfer, from individual statements into the consolidated report. This eases the workloadof the staff and reduces data entry errors. In addition to the consolidated statementsrequired by law, Legal Consolidation also allows you, to create multiple views of yourconsolidation data. With these views you can generate reports about legal entities orsegments of your business.5.1.2 Controlling
  • 22. The controlling system gathers the functions required for effective internal costaccounting. It offers a versatile information system, with standard reports and analysispaths for the most common questions. In addition, there are features for creating customreports to supplement standard reports.5.1.2.a Overhead Cost ControllingMany organizations experience a significant increase in the percentage of indirect costs,which cannot be directly assigned to either the products manufactured, or to the servicesrendered. While cost monitoring and optimization may be quite advanced in productionareas, transparency is often lacking in overhead cost areas. The Overhead CostControlling subsystem focuses on the monitoring and allocation of overheads.5.1.2.b Cost Centre AccountingCost centre accounting analyses where overheads occur within the organization. Costs areassigned to the sub-areas of the organization where they originated. The system offers awide variety of methods for allocating posted amounts and quantities. In particular,activity accounting permits, the allocation of great many costs to products, based on costsources and enabling assignments, which were not previously possible.5.1.2.c. Overhead OrdersOverhead orders subsystem collects and analyses costs, based on individual internalmeasures. This system can monitor and automatically check budgets assigned to eachmeasure.5.1.2.d. Activity-Based CostingThe goals of the entire organization, should come before the goals of individualdepartments, when it comes to business process reengineering. The Activity-BasedCosting module, is a response to the growing need for monitoring and controlling cross-departmental business processes, in addition to functions and products. Seeing costs froma new perspective, substantially enhances organizational transparency in overhead areas.The system automatically determines the utilization of business processes by products,customers, and other cost objects based on the cost drivers taken from the integratedaccounting environment. This, significantly reduces the effort involved in maintaining abusiness process model in a separate system.5.1.2.e. Product Cost ControllingProduct cost controlling module determines, the costs arising from manufacturing aproduct, or providing a service. Plan and standard values, serve in valuating warehousestock and for contrasting revenues received with costs." In addition, the values in ProductCost Controlling, are crucial for determining the lowest price limit for which a product isprofitable. Simulations illustrate the effects of changes in production methods on the costof goods manufactured.5.1.2.f. Cost Object ControllingCost object controlling helps you monitor manufacturing orders. Integration with thelogistics components results in a logistical quantity flow, that provides instant informationon actual cost object costs, allowing ongoing costing calculations at any time. Follow-upcalculations determine and analyze the variances between actual manufacturing costs,and the plan costs resulting from Product Cost Planning.
  • 23. 5.1.2.g. Profitability AnalysisProfitability analysis subsystem examines the sources of returns. As part of salescontrolling, Profitability Analysis is the last step in cost-based settlement, where revenuesare assigned to costs according to the market segment. You can define any marketsegment—distinguishing, for example, between products, customers, orders, salesorganizations, distribution channels and business areas—and evaluate it, according tocontribution and revenue margins. Information from Profitability Analysis, framesimportant decisions in areas such as determining prices, selecting customers, developingconditions and choosing distribution channels.5.1.3. Investment Management (OCT.07; 7M)Investment management provides extensive support for investment processes right fromplanning through settlement. Investment management facilitates investment planningand budgeting at a level higher than that needed for specific orders or projects. You candefine an investment program hierarchy using any criteria—for example, department-wise. As a result of subsequently assigning specific investment measures (internal ordersor projects), to positions in the hierarchy, you are kept up-to-date about available funds,planned costs, and actual costs already incurred from internal and external activities. Theinvestment program allows you to distribute budgets^ which are used during the capitalspending process. The system helps you monitor, and thereby avoid, budget overruns. Investment Management provides tools, enabling you to plan and manage your capitalspending projects right from the earliest stage. In the initial stage of the capital spendingprocess, you enter the application for the spending project as an appropriation request.You define your own evaluation and approval process, during which the system keeps adetailed history of the status of the appropriation request. You transfer the data from theappropriation request, to the investment measure, when the request is approved forimplementation. You enter detailed plan values in the appropriation request, and itsdifferent variants, for use in the pre-investment analysis. Depending on their complexity, investment measures that need to be monitoredindividually can be represented either as internal orders or projects. These internal ordersor projects, provide the means for actually carrying out the capital investment; that is,they serve as the objects for collecting primary and secondary costs, for calculatingoverhead and interest, for managing down payments and commitments, and for handlingother related tasks. As the result of having an asset under construction assigned to it, theinvestment measure also benefits from all of the required asset accounting functions.Settlement is both flexible and almost fully automatic. This kind of settlement ensures acomplete integration with business planning and control, and provides consistently up-to-date values. Investment Management module recognizes the importance of the assetaccounting aspects of investment measures. The system automatically separates costsrequiring capitalization from costs that are not capitalized, debiting the correct costs tothe asset under construction. For different accounting needs, the system can use differentcapitalization rules for making the split. At its completion, the investment measure can besettled to various receivers by line item. Asset accounting provides precise proof of originfor all transactions affecting acquisition and production costs. Budgeted balance sheets and cost planning are always based on current values.Planned depreciation values for investment measures and appropriation requests, can betransferred directly to ongoing overhead cost planning. The system recalculates expecteddepreciation amounts whenever planning data is updated.5.1.4. Treasury Module (OCT.04, 06; 8M)You can gain a significant competitive advantage by efficiently managing the short,medium, and long-term payment flows and the resulting risk exposure. Tasks such as
  • 24. short-term monitoring and concentration of bank account balances, medium-termplanning, and forecasting of incoming and outgoing resources in accounts receivable andpayable, to a long-term view of areas such as materials management and sales, underlinethe importance of integrating information from various company divisions. Linking theseoperating divisions to realized and planned financial transactions and positions inTreasury, has a significant impact on the companys success. Such integration alsofacilitates management and control of cash flows, and risk positions through all thedivisions in the company. The Treasury component provides you with a basis for effectiveliquidity, portfolio and risk management.5.1.4.a. Cash ManagementThe cash management subsystem, allows you to analyse financial transactions for a givenperiod. Cash Management also identifies, and records future developments for thepurposes of financial budgeting. The companys payment transactions are grouped intocash holdings, cash inflows and cash outflows. Cash Management provides information onthe sources and uses of funds to secure liquidity inorder to meet payment obligationswhen they become due. Cash Management also monitors and controls incoming andoutgoing payment flows, and supplies the data required for managing short-term moneymarket investments and borrowing. Depending on the time period under review, adistinction is made between cash position, short-term cash management and medium andlong-term financial budgeting. The Cash Management component thus ensures that allinformation relevant to liquidity is available to you for analysis purposes, creating a basisfor the necessary cash management decisions.5.1.4.b. Treasury ManagementIn your role as treasurer, you> take the results of your current liquidity, currency, and riskpositions and consider the conditions prevailing on the money and capital markets, beforeimplementing concrete decisions in the form of financial instruments in TreasuryManagement. The Treasury Management component offers functions for managingfinancial deals and positions, from trading to transferring data to Financial Accounting.Treasury Management also supports flexible reporting and evaluation structures foranalysing financial deals, positions and portfolios. For short-term liquidity and riskmanagement, you can use the money market, or foreign exchange transactions, tosmooth out liquidity squeezes and gluts, or to eliminate currency risks. Securities andloans come into play in the medium and long-term. Derivative financial instruments facilitate active management of interest rate andcurrency risks. The trading area contains functions for recording financial deals, exercisingrights, performing evaluations and calculating prices (for example, option pricecalculator). In back office processing, you enter the additional data required forprocessing deals (such as account assignment and payment details) and generateautomatic confirmations. Position management functions, such as securities accounttransfers or corporate actions relating to securities, are also supported in the back officearea. The general ledger is updated in the accounting area, which also offers flexiblepayment processing functions in addition to valuation and accrual/ deferral methods. Byusing common organizational elements throughout, various organizational structures canbe represented in the system, such as a central enterprise-wide treasury department orin-house banks. This also ensures full integration of Treasury ir*to other modules of thesystem.5.1.4.c. Market Risk ManagementMarket risk management plays a vital role within Treasury, in ensuring your companyscompetitiveness. The process involves a complex feedback loop encompassing datacollection, risk measurement, analysis and simulation as well as active planning offinancial instruments. This process dovetails closely with other treasury and corporatefunctions. Market Risk Management acts as an integrated, central risk control station withmonitoring and management functions. Access to information on current and future cashflows and on financial deals already processed, is an absolute must. As a result, CashManagement, which pools all cash flows from the business sectors, such as sales and
  • 25. distribution or purchasing, forms the basis. Consequently, all cash flows from thecompanys operating business can be accessed for the purposes of risk management.Furthermore, all financial transactions managed in Treasury Management can beevaluated together witlTthe cash flows generated by the various operating divisions. Thecomponent provides various measurements for analysing and assessing interest rate andcurrency risks. Mark-to-market, effective rate and effective yield calculations are based onup-to-the-minute market data, uploaded via data feed, and financial transactions orpositions. By simulating market data, you can determine the risk structure of what-ifanalyses (such as crash scenarios or worst case scenarios). You can also measure andcompare the impact of alternative hedging strategies, using simulated transactions.5.1.4.d. Funds ManagementFunds management subsystem supports your funds management process from budgetingall the way through to payments, including monitoring expenditures, activities, resourcesand revenues. Budgets are entered for areas of responsibility that can cover as manymanagement levels, as you require. Funds centres and their hierarchical structure providea base for top-down budgeting and represent responsibility areas within budget control.The system enables you to control your various funds commitments and determine howmuch of your budget has already been utilized via availability checking. The informationsystem can supply you with information at any time, on when, where, and how your fundscommitments arose. Analyses by responsibility area and commitment items allow you toidentify any budget bottlenecks.5.1.5. Enterprise ControllingEnterprise controlling comprises of those functions that will optimise shareholder value,while meeting internal objectives for growth and investment. This modules usually includeexecutive-Information System, Business Planning and Budgeting, Consolidation, and ProfitCentre Accounting.5.1.5.a. Executive Information SystemThe executive information system provides an overview of the critical informationnecessary to manage the organization. This component integrates data from other ERPcomponents, and non-ERP data sources both inside and outside the enterprise. Drill-downreporting and report portfolio are available to evaluate and present the data. In drill-downreporting, you can analyze the data interactively. Exceptions can be defined in order tohighlight areas of concern. The drill-down reports can also be made available in thegraphical report portfolio for less experienced users. The report portfolio is aimed at userswith basic knowledge of the system who wish to access information put together for theirspecific needs.5.1.5.b. Business Planning and BudgetingBusiness planning and budgeting supports the management teams of business units andgroups in the calculation c "■ business targets, such as return on investment. Thismodule also supports central investment planning, budget release and tracking. Thismodule automatically transfers data about investment requirements from transactionapplications, and provides extensive analysis functions for budget monitoring.5.1.6. Profit Centre Accounting
  • 26. Profit centre accounting analyses the profitability of internal responsibility centers. Acompanys organizational structure is represented in the form of a profit centre hierarchy,with the profit centre as the smallest unit of responsibility. All business transactions inFinancial Accounting, Materials Management, Asset Management, and Sales andDistribution, which affect profits, are automatically reflected in Profit Centre Accounting. Itis also possible to analyze selected balance sheet items by profit centre and use them forcalculation of ratios (such as ROI). Profit centre planning is part of total corporateplanning. Profit centers, in particular, emphasize the integration aspect of corporateplanning, as plans from other application areas can be combined, extended and altered inthis module. Profit centre related postings can be analyzed through the systems standardreports and facility, to create custom reports for special analyses. There is also a provisionto provide profitability information to appropriate management and controlling depart-ments.5.2. SALES AND DISTRIBUTIONIn todays global business environment, the one thing companies can count on is rapidchange—and the new opportunities and challenges that change is sure to bring. Newcompetition pushes businesses to achieve higher levels of service, while evolvingtechnology compresses product life cycles and forces companies to adopt newtechnologies or risk losing market share. In this ever-changing environment, keeping acompetitive edge means being able to anticipate and respond quickly to changingbusiness conditions. To keep pace with these rapid changes, companies need anintegrated and flexible enterprise system that supports all aspects of their business withstate-of-the-art functionality. This innovative solution should upgrade effortlessly andinterface easily with third-party applications, as well as have the ability to incorporateexisting systems while extending its reach to the Internet and e-commerce. Inquiry Quotation Sales Contract Order MATERIAL Shipping Delivery MANAGEMENT Billing Invoice FINANCIAL ACCOUNTING Fig: Sales and Distribution Module With todays business environment characterized by growing competition, shrinkingcycle times and the accelerating pace of technological innovation, companies are
  • 27. increasingly being forced to streamline business processes. In a world in which it is nolonger enough to simply have the best product, these companies are focusing on corecompetencies and closer partnerships over the whole supply chain. Here, increasedefficiency in sales and distribution is a key factor to ensure that companies retain acompetitive edge and improve both profit margins and customer service. In helpingbusiness to beat them on delivery, the sales and distribution modules of many ERPvendors offer a comprehensive set of best-of-breed components for both order andlogistics management. Many of these systems are tightly integrated with the DistributionRequirements Planning (DRP) engine of the for just-in-time deliveries. This integrationenables the mapping and supply of single-site or multi-site organizations and thedefinition of relationships in a companys internal supply chains. Developing preciselogistics planning for just-in-time deliveries, this system can also generate replenishmentorders by using defined warehouse requirements. The following are the sales related business transactions: • Sales queries, such as inquiries and quotations • Sales orders • Outline agreements, such as contracts and scheduling agreements • Delivery/Shipment • Invoicing/Billing • After sales support During sales order processing, the following basic functions are carried out: • Inquiry handling • Quotation preparation and processing • Contracts and contract management (order management) • Monitoring the sales transactions • Checking for availability • Transferring requirements to materials planning (MRP) • Scheduling the delivery • Calculating pricing and taxes • Checking credit limits • Invoicing /Billing • Creating printed or electronically transmitted documents (confirmations, and so on) Depending on how your particular system is configured, these functions may becompletely automated or may also require some manual processing. The data that resultsfrom these basic functions (for example: shipping dates, confirmed quantities, prices anddiscounts) is stored in the system where it can be displayed and, in some cases, changedmanually during subsequent processing. The sales and distribution module very activelyinteracts with the Material Management and Financial Accounting modules for deliveryand billing. Typically, a Sales and Distribution module will contain the following sub-systems: • Master Data Management • Order Management • Warehouse Management • Shipping • Billing • Pricing • Sales Support • Transportation • Foreign Trade
  • 28. 5.2.1. Master Data ManagementThis is module which keeps all the information about products, customers, required rawmaterial and suppliers. This information is made available to the decision makerswhenever required. Master data management system also provide the automaticgeneration of reports, contracts and billing. The data about products, services andbusiness partners provides the basis for sales processing. Automatic sales processingusing ERP system, like accounting and material management also can access masterdata.5.2.2. Order ManagementThis module usually includes Sales Order" Management and Purchase Order Managementand supports the entire sales and purchase processes from start to finish. With companiestoday being confronted with increasingly demanding customers and increasingly complexbuying and selling organizations, both internally and externally, Order Managementcombines the provision of efficient management solutions with the possibility ofanticipating and responding quickly to changes in global business conditions.5.2.2.a. Sales Order Management (OCT.07, 09; 7M) Credit Checking, Inventory Availability Pricing & Checking Discounting Material Sales Management, Order Quotation/ Warehousing Entry Contracts and Invoicing Change Order Order History Management/ Statics return handlingApplications in sales order management (Fig. 5.3) represent a companys most importantpoint of contact with the customer. These applications allow a company to manage salesoperations quickly and efficiently and provide comprehensive solutions for themanagement of quotes, orders, contracts, prices and customer discounts. Through theuse of templates, the system streamlines order entry procedures to manage productsranging in complexity from standard stocked items to those that are engineered-to-order.The system can also customize and streamline order entry procedures to the specificrequirements of both an individual business and its customers. Intelligent pricing anddiscount strategies that are accompanied by simulation capabilities to support what-ifscenarios and are available for multi-currency environments. On-line Available-to-Promisecalculations ensure that there is sufficient product availability for a specific customer and,if so, to identify exactly where and when that product is available. Built-in contract andrelease management system evaluates whether or not customer contract agreements arebeing met with and incorporates multilevel customer credit reviews and substantial order
  • 29. blocking functionality. Evaluation of sales performance is possible through extensivereport capabilities that retrieve both current and past information that concern orders,cancellations, budgets and revenues. Rebate and commission control enables theautomatic calculation of employee and supplier commissions to reward achieved targetsbased on predefined agreements and customer bonuses, or rebates to reward customersfor purchasing certain quantities. Electronic Data Interchange (EDI), streamlinescommunication throughout a companys entire supply-chain, from customer to supplier.The system should support standard business documents such as orders and invoices,along with general information such as project information and product specifications. Agood system will have tools and features for Sales Force Automation (SFA) and customerservice. These tools include the tracking and tracing of appointments, schedules andfollow-ups, plus product and sales feasibility information.5.2.2.b. Purchase Order Management (OCT.08, APR.08; 7M) Schedule Planning/ Source Requisition Definition Shop Floor Information Request For Quotation Purchase Order Purchase Schedule Purchase Contract Warehouse Orders Fig: Purchase flowPurchase order management is increasingly essential in todays ever more competitivebusiness environment because it enables a company to make the correct purchasedecisions about quality and price, where quality refers to supply lead-time as well as tothe (to be purchased) product itself. Purchase order management includes onlinerequisitioning, centralized contract management, just-in-time schedules and vendormanagement. Offering access to an approved supplier list, purchase order managementenables a purchase quotation to be sent to multiple suppliers. The purchase contractinformation is made available to the people in the purchasing department. Thisinformation will help in supplier selection and provide an insight as to which suppliers cansupply items with the right specifications, in the shortest period of time. The system willhave facility to generate purchase contracts. Purchase requisition is a function that isused in the purchase process. Purchase requisitions allow companies to enter non-system-planned requirements for various types of items. Requisitioning can be linked to workflowfor authorization purposes and to approve suppliers. Schedules can be used, instead oforders,- to provide detailed purchase and delivery information. These schedules aregenerated in contracts in just-in-time environments—in which customer service, in-timedelivery and cost reduction are all-important—and can be sent through the supply chainby means of EDI communication. In addition, schedules are fully linked with othermodules of the system. Sophisticated vendor management tools allow companies tocheck the reliability and performance of vendors. The vendor rating system can handleboth objective and subjective criteria. Objective criteria are tracked and traced
  • 30. automatically by the system and can include information about receipts, quality approval,invoicing and purchase-order confirmation. Subjective criteria are determined by the user.Together, these criteria enable companies to make the right purchase decisions withregard to quality, price and delivery. Purchase Order Analysis enables historical as well asstatistical data to be used to assist in the analysis of purchase activities.5.2.3. Warehouse ManagementThis module provides real-time information about inventory levels across the enterpriseand tools to manage the daily operational needs of single-site or multiple-site four-wallwarehouses. Coordination of an organizations warehouse network is one of todays mostimportant business needs and requires an understanding of the relationship between thedifferent organizational units such as warehouses, production facilities, sales offices, andpurchase offices. The actual transfer of goods can be handled through the WarehouseManagement application. The various components of a good Warehouse Managementapplication will be designed to meet a wide range of warehousing needs, such as themapping of internal goods flow within warehouses and the monitoring of all warehouseinventory transactions. In addition, these components are centralized for- areas thatinclude production, sales, purchase projects and service and provide companies with thetools to inform customers about where (the companys or the customers) goods arelocated, the number of goods on hand, current storage conditions and projected deliveryschedules. Components of a good Warehouse Management Application include thefollowing: □ Inventory Planning Comprises 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 planning also allows the commitment of inventory to a specific customer order—hard allocation—so that customers receive the right order in the right quantity at the right time. □ Inventory Handling Allows for monitoring of all warehouse order scenarios such as the receipt, issue and transfer of inventory. Functions include the previously mentioned expanded capabilities such as cross-docking, receipt by back-flushing, rules-based replenishment of inventory, picking and wave-picking optimization, assembly and multi-level packaging. To ensure fast communication with suppliers and customers, advanced shipping notifications can be received or sent by means of Electronic Data Interchange (EDI), which enables shipments to be received and allocated ahead of time. □ Intelligent Location Assignment Used to create intelligent storage put-away lists, which enable the storage of goods that are automatically inspected for quality and the detection of dedicated locations by criteria such as item, storage conditions, packaging definitions, size restrictions and location availability. □ 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. The systems extensive reporting capabilities also enable consigned" goods management. □ Inventory Analysis This module enables the analysis of information that result from warehousing activities and the use of feedback in process optimization. In addition, inventory analysis supports inventory forecasting, inventory valuation, ABC analysis and slow-moving analysis. □ Lot Control This facility offers lot tracking and tracing, so that a company can trace all the raw materials and finished goods that its products require. In a business world where customers demand product responsibility, lot control helps to store product quality data and meet ISO9001 certification standards. □ Distribution Data Collection This is an essential element in paperless warehousing that provides the communications link between storage and shipping systems and warehousing equipment like bar-coding scanners.5.2.4. Shipping (APR.09; 6M)
  • 31. 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 (can be linked to the Warehouse Management System) • Packing deliveries. • Information support for transportation planning. • Support for foreign trade requirements. • Printing and sending shipping output Data update in goods issue.The Delivery note is the central shipping document. When a delivery is created (at theshipping point), shipping activities such as picking and delivery scheduling are initiatedand monitored, and the data generated during shipping processing is recorded Dependingon your requirements, you can create deliveries automatically using work lists, ormanually. You can make agreements with your customers for complete and partialdeliveries and for order combinations. The monitoring functions allow you to monitorcreated deliveries and outstanding sales activities.5.2.5. BillingA business transaction is completed for Sales and Distribution once it has been billed. TheERP systems support billing functions like issuing of invoices on the basis of goods andservices, issuing of credit and debit memos based on corresponding requests andPerforma invoices, canceling billing transactions, giving rebates, transferring billing datato Financial Accounting, Purchasing and so on. The billing system is integrated with theother modules like Financial Accounting, so that the documents are automatically gener-ated.5.2.6. PricingThe term pricing is used broadly to describe the calculation of prices (for external use bycustomers or vendors) and costs (for internal purposes, such as cost accounting). Thepricing module keeps the information about the prices of the various items, the detailsabout the quantity discounts, the discounts to the different customer categories and so onand enables the organization to generate documents like quotations, delivery notes,invoices and so on. Also, since this information is available to all the sales people, theycan make better decisions thus improving the sales performance.5.2.7. Sales SupportThe Sales Support component helps the sales and marketing department to support yourexisting customers and, at the same time, to develop new business. Sales Supportprovides an environment where all sales personnel— both the field sales people and thestaff in the sales office—can contribute to and access valuable information aboutcustomers, sales prospects, competitors and their products, and contact people. The Sales Support function has a rich tool set that will help in creating direct mailings todevelop new business as well as to consolidate the existing customer base. On the basisof the sales information already stored in the system, you can create address lists of thecustomers and sales prospects whom you wish to target with your direct mailingcampaign.5.2.8. TransportationTransportation is an essential element of the logistics chain. It effects both inward andoutward movement of goods. Effective transportation planning is required to ensure thatshipments are dispatched without delay and that they arrive on schedule. Transportationcosts play a considerable role in determining the price of a product. It is important thatthese transportation costs are kept to a minimum, in order to keep the price of a productcompetitive. Efficient planning and processing of transportation contributes to keepingthese costs down. The aim of the transportation element of the SD System is to providebasic functions for*transportation, like transportation planning and processing, freight
  • 32. calculation, freight settlement, customer freight calculation, customer freight invoicing aswell as functions for service agent selection.The transportation functionality fulfills the requirements in the areas oftransportation planning and processing, for both inbound and outboundshipments. You can control and monitor the entire transportation processfrom the planning stage right through to the dispatch of the goods from yourshipping point (outbound shipment) or the vendor location (inbound shipment) and theirarrival at the customer location (outbound shipment) or yourplant (inbound shipment).5.2.9. Foreign TradeIn domestic, and increasingly, in international trade, you are required by the authorities toadhere strictly to the laws and regulations. The growing tendency towards the formationof trade areas is a further challenge to a company operating on4, a worldwide basis. Theentire logistics chain, from the import of raw materials, finished and unfinished goods, tothe sale of goods and the transfer of data to materials management and financialaccounts, is significantly influenced by foreign trade activities. These main tasks in foreigntrade processing can be carried out using the foreign trade system.5.3. MANUFACTURING Manufacturers are measured by their ability to react quickly to sudden, oftenunpredictable change in customer demand for their products and services. Manufacturingapplications are focused on the customer. These manufacturing applications should allowan easier exchange of, information throughout the entire global enterprise, or at a singlesite within a company. 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 reengineering. As a companys internalprocesses become more sophisticated or as market forces change, these solutions shouldbe capable of meeting the challenge. The manufacturing system should be integratedwith the other modules of the package. Regardless of how manufacturers view their internal operations, to the customer, itboils 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 theymake and ship the products upon receipt of a customer order. Manufacturers mustaccomplish this task quickly, efficiently and cost effectively to remain profitable andcompetitive. 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, theManufacturing module provides the freedom to change manufacturing and planningmethods, as and when they need a change. The Manufacturing modules of most ERPvendors, do not limit businesses to a single manufacturing method, such as make-to-stockor make-to-order. Instead, many manufacturing and planning methods can be combinedwithin the same operation, with unlimited flexibility to choose the best method—orcombination of methods—for each product, at each stage throughout its life cycle. The manufacturing module should enable an enterprise to marry technology withbusiness processes to create an integrated solution. It must provide the information baseupon which the entire operation should be run. It should contain the necessary businessrules to manage the entire supply chain process, whether within a facility, betweenfacilities, or across the entire supply chain.
  • 33. How does manufacturing responds to customer? (OCT.06; 8M)Manufacturers must respond quickly and effectively to customer demands. While agility isdesirable, agility without an effective enterprise manufacturing system results in speedwithout purpose. The very heart of an enterprise manufacturing system centres on itsintegrated planning, business process and execution capabilities. Traditional Closed LoopMRP concepts have long heralded the importance of effective planning, business processunderstanding, and timely execution. Strategically, effective-planning results in improvedinventory turns, increased productivity and improved return on assets. Tactically,effective business processes provide improved customer satisfaction, reduced time tomarket and improved market share. Effective execution provides short cycle time, qualityassurance, continuous improvement and quick response to process variability. All threeelements contribute to a managements decision to install an enterprise-widemanufacturing management system.Some of the major subsystems of the Manufacturing module are: • Material and Capacity Planning • Shop floor control • Quality Management • JIT/Repetitive Manufacturing • Cost Management • Engineering Data Management • Engineering Change Control • Configuration Management • Serialization/Lot Control • Tooling5.3.1. Material and Capacity PlanningTodays customer-focused business environment makes it more critical than ever formanufacturers to have an effective production plan for managing material and capacity.Customers want accurate shipment dates—sometimes to the hour—even when there areschedule and product changes. The Planning systems of ERP packages are designed toprovide the responsiveness your company needs to meet those customer requirements.With these systems, planners can simulate alternative plans; gaining the information theyneed to determine which parts and assemblies to make, which to buy and when tomanufacture or purchase. Most packages have features to generate recommendations forpurchases and production and, where necessary, recommend changes to current plans toprevent under or over-utilization of work centres. If requirements change often, exception-based planning features can. run continuously, graphical reporting makes potentialmaterial and capacity problems easy to identify. Meeting your business goals requiresdetailed production planning and effective execution control. . The ERP packages giveyour company full control with flexible scheduling and sophisticated shop floorfunctionality. Depending on the requirements of the companys product and processes,production can be scheduled using work orders or repetitive build schedules. With therepetitive planning feature, companies can implement Just-in-Time techniques tostreamline material issue and production reporting. Using the shop floor control facility,the company has the visibility necessary for managing lead-times and for carefullycontrolling the amount of work-in-process and the timely release of production orders.Most of these systems are flexible enough to enable the company to establish order-pro-cessing priorities that reflect business priorities.5.3.2. Shop Floor ControlThe Shop Floor Control means reducing the Manufacturing time to increase the productavailability in the market. With increasing emphasis being placed upon reducing
  • 34. manufacturing time in support of the need to reduce product time to market,manufacturers have turned greater attention to evaluating their shop floor activities.Processes reengineering efforts and the elimination of waste have necessitated greaterreliance upon powerful, user-friendly, flexible shop floor planning and control systems.Management needs timely, accurate information and the ability to manage the shop floorby exception. Cost information must be flexible as well. Factories are being realigned toreduce material travel time through a facility. . Shop floor control systems must beflexible and adaptable to changing needs. A shop order can be reprinted at any time withuser selection of whether to reallocate material.5.3.3. Quality ManagementWith product quality under the microscope in all industries today, every company strivesfor superior quality in its products and services. All manufacturing modules track qualitycontrol activities across the enterprise—from intermediate producers to finished goods.These systems allow a wide variety of characteristics and parameters to be specified intest and inspection operations and maintain an extensive history to improve productquality and identify recurring problems. To achieve quality levels, manufacturers mustfocus on identifying and correcting defects in underlying product designs and productionmethods and not simply inspect the in-coming material and finished goods. The QualityManagement Systems usually support the bench-marking and use of optimal productdesign, process engineering and quality assurance data by all functional departmentswithin the manufacturing enterprise, thereby facilitating definition of repeatableprocesses, root cause analysis and the continuous improvement of manufacturingmethods.5.3.4. Just-In-Time/ Repetitive Manufacturing (OCT.08, APR.09; 6M)Many systems not only provide high volume repetitive manufacturing functionality, butalso provide for the transition to rate-based production by allowing the use of repetitivescheduling, even for products that are not rate-based. This allows a production facility totransition products from discrete manufacture into a JIT/ Repetitive focus. For example,when the demand pattern for an item begins to stabilise and show arepeatable/predictable pattern, then a production schedule can be initiated even thoughthe item may not be designated as rate-based. Over time, as the items demand patterngrows, the item can be switched to full rate-based production scheduling. This transitioncapability enables production facilities to adopt process reengineering, setup reductionprograms, single minute exchange of die (SMED) programs, employee empowermentwork teams, etc. with the confidence of knowing that the planning and control system willeffectively support their efforts.5.3.5. Cost ManagementERP packages provide extensive cost information at several levels that helps businessesidentify cost drivers and reduce product costs. They support multiple inventory valuationmethods, so that you can choose the costing method that best reflects your companysbusiness. To reduce administrative overhead, prevent input errors and provide faster andmore accurate information for planning, these systems provide detailed records of timeand materials data on the shop floor.For example, 1. Many systems have features that let your company compare estimates and production costs for different work centers, machines, employees and order quan- tities while monitoring overtime, indirect hours, subcontracted jobs and other costs. 2. Moreover, to provide even more accurate production and inventory planning, these systems can track material usage for each job.
  • 35. 3. 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.5.3.6. Engineering Data ManagementEngineering Data Management is designed to help your company trim data transfer time,reduce errors and increase design productivity by providing an automated link betweenengineering and production information.5.3.7. Engineering Change ControlBy using Engineering Change Control, businesses can gain effective control overengineering change orders. Your company can define the authorisation steps forapproving and implementing an Engineering Change Order. When these steps arecompleted, the system automatically implements the change in the production database.5.3.8. Configuration ManagementThe Configuration Management dramatically reduces order cycle time by eliminating thelengthy engineering review, typically associated with determining feasibility and the costsassociated with the configured end item. This reduction is achieved by creating a flexibleuser-defined knowledge base that is accessed by a powerful analytic engine.The knowledge base contains the sales and engineering expertise of the organization.Product attributes and variables, such as height, width, or cubic pounds of pressure, areentered in the knowledge base in the form of an option matrix.5.3.9. Serialization / Lot controlMany systems will provide the facility for the designation of raw material lots and theserialization of component parts made from those lots. This serialization is applicable tocommercial aviation, defense industry suppliers and capital equipment manufacturerswho 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 isavailable throughout the product offering and includes MRP, shop floor control, orderprocessing and JIT.5.3.10. ToolingFor many manufacturers, ensuring that proper tooling is available is just as critical toproduction schedules as the availability of material. The ERP systems extends capacityand inventory management to include these valuable resources. These systems help toensure that tools and materials arrive together at scheduled operations by storing tools ininventory and planning and allocating the required tools as part of the production order.They also provide visibility of tool use, calculate the remaining useful life of a tool andautomatically route tools for maintenance, based on usage.
  • 36. 5.4. HUMAN RESOURCESINTRODUCTION (OCT.08, APR.08; 6M)Human resources management is an essential factor of any successful business. Thecompetitive environment of the next millennium, with its economic and technologicalchallenges, will affect the HR department in the same way it will affect all the other areasof your enterprise. In short, HR managers must continually review and optimize theirbusiness processes. The HR modules of most ERP systems have a set of rich features andwill integrate seamlessly with the other modules and are thus, invaluable aids inimproving productivity. They offer company-wide solutions for HR departments and makeit possible for other departments to access specific employee data.A human resource management system has to be adaptable to company-specificrequirements, and should constantly grow with increasing HR requirements. It shouldcover all the functions required in business practices. It should be flexible enough to allowyou to optimize your business processes by tailoring the ERP solution to suit yourorganizations needs. Today, many businesses cross boundaries. The system shouldsupport the organizations international needs with country-specific versions of the HRcomponents. Apart from languages, currencies and legal requirements, accountingsystems often vary from country to country as well, making this a vital feature. A flexiblestructure enables quick and easy customization of the system to suit your requirements.When you log on in a particular language, screens, messages and documents appear inthe language you specify. The various subsystems under the HR module are: □ Personnel Management (HR master data, Personnel administration, Information systems, Recruitment, Travel management, Benefits administration, Salary administration) □ Organizational Management (Organizational structure, Staffing schedules, Job descriptions, Planning scenarios, Personnel cost planning) □ Payroll Accounting (Gross/net accounting, History function, Dialog capability, Multi-currency capability, International solutions) □ Time Management (Shift planning, Work schedules, Time recording, Absence determination) □ Personnel Development (Career and succession planning, Profile comparisons, Qualifications assessments, Additional training determination, Training and event management)5.4.1. Personnel Management (OCT.07, 08, 09; 7M) Personnel management includes numerous software components, which allow you todeal with human resources tasks more quickly, accurately and efficiently. You can usethese components not only as part of the company-wide ERP solution, but also as stand-alone systems.5.4.1.a. Personnel AdministrationA Global Data structure is created which gives the hierarchical structure of theorganization. Tables with the relationships are created and values are inserted whichprovides information. Information is no longer owned by specific departments, but isshared by multiple entities across an organization. This eliminates duplicate entries,reduces the chance for error and improves data accuracy. The HR modules provide aglobal, fully integrated data structure for the enterprise, without compromising yourcontrol over individual segments of the operations.5.4.1.b. Employee Master Data
  • 37. Human Resource module has a centralized database with integration to multiplecomponents for processing employee information. The system provides tools to save timeand help you tailor the system to fit your needs. The HR module contains features forstoring any desired information about your employees. Most systems have the facility toscan the original documents for optical storage. The HR Information System displaysgraphical information such as organization charts or employee data. The system canproduce charts and reports—both standard and customer-defined.5.4.1.c. Recruitment ManagementThis function helps in hiring the right people with the right skills. Reducing the cost ofrecruiting and hiring new employees is a challenge for the HR professional, who isresponsible for placing people in the right job, at the right time, and with the right skillsand education. These requirements are fulfilled only through effective automation of theentire recruitment process. The recruitment component is designed to help meet everyfacet of this challenge. This component includes processes for managing open positions/requisitions, applicant screening, selection and hiring, correspondence, reporting and costanalysis.5.4.1.d. Travel ManagementThis module helps you in processing the travel expenses effortlessly, in several currenciesand formats. HR Travel Management allows you to process a business trip from start tofinish—from the initial travel request right through to posting in Financial Accounting andControlling. This includes any subsequent corrections and all retroactive accountingrequirements. Integration with the other modules ensures correct posting, taxation andpayment of trip costs. Travel data can be entered by the person traveling, or by asecretary or by the relevant department, either before or after the trip. The entry of atravel request automatically generates a workflow that makes the administrators workmuch easier. Business-, employee-, and country-specific trip provisions can beimplemented via system settings. Travel Management automatically calculates the tax. Italso automatically processes credit card transactions for a particular trip. The receipts canbe entered in any currency and include supplementary receipt information. An opticalarchive is available for the long-term archiving of travel receipts. Travel costs can bedivided into different levels (employee, trip destination and receipt). Expenses can beposted to numerous account assignment objects, for example, cost center, order, project,or cost object. You reimburse costs incurred during a trip through payroll accounting,accounts payable accounting, or by data medium exchange. In addition, TravelManagement provides multiple report formats. You can enter receipts in any currency andthen print reports in your native currency. Travel Expense Accounting provides you withself-explanatory forms, statements and an electronic approval process to improvecommunications and reduce unnecessary calls to the HR department.5.4.1.e. Benefit AdministrationThis system brings flexibility and power to your benefits program. As organizationscontinue to grow, as laws change and employee requirements expand, you need a flexiblesystem to satisfy all your requirements. The Benefits Administration component providesyou with the capabilities and flexibility to effectively manage benefits programs fordiverse employee populations. Benefits Administration uses a hierarchical structure thatgives you the ability and flexibility to add new programs at any time. This system canmaintain an unlimited number of benefits types and individual plans that are offered tothe employees. With Benefits Administration you can establish benefits groups based onspecific employee demographics. A company needs options for enrolling employees inbenefits programs. This module furnishes you with real-time processing, allowing you toprepare employee specific enrollment forms, using any and all employee data. Using theBenefits Administration component, you can define eligibility groups and rules based on awide range of factors. You can determine the variables, rules and cost formulas for eachbenefits plan. You can design the types of benefits plans that best fit your employee. Withthe Benefits Administration feature, you can maintain an unlimited amount of savingsplans for your employees to consider. The Benefits Administration component gives youthe capability to maintain both deferred and non-deferred options, as well as employer-matched and unmatched contributions. The component tracks employee changes andinvestment histories.
  • 38. 5.4.1.f. Salary AdministrationThis function helps you in simplifying the process of rewarding your employees.Administration of salaries is an ongoing process within your human resources department.It is particularly important during the review process, when your goal is to justly rewardgood performance. The Salary Administration module assists you in the salary reviewprocess by taking into account standard salary changes within the company, as well asIndividual compensation exceptions.5.4.2. Organizational ManagementThis module will assist you in maintaining an accurate picture of your organizationsstructure, no matter how fast it changes. In many cases, graphical environments make iteasy to review any moves, additions, or changes in employee positions. You can alsocreate multiple simulations for the organization, as you explore your options for makingadjustments in personnel. Planning features designed to assist you include graphical orga-nization charts; staffing schedules- by headcount, percentage and working hours; job andwork center descriptions and job tasks and descriptions.5.4.2.a. Payroll AccountingThe Payroll Accounting system can fulfill the payroll requirements and provide you withthe flexibility to respond to your changing needs. Payroll Accounting should addresspayroll functions from a global point-of-view. You should be able to centralize your payrollprocessing, or decentralize the data based on country or legal entities. Most PayrollAccounting systems give you the options and capabilities to establish business ruleswithout modifying the existing payroll. The system automatically creates a history recordfor every payroll transaction. With Payroll Accounting, you have the ability to tailor thesystem to your organizations requirements.5.4.3. Time ManagementThis module assists you in simplifying the administration and evaluation of time data.Time Management is a powerful tool that helps you administer and evaluate data relatedto the time your employees spend working. This component can simplify your effortsirrespective of whether the organization uses centralized or decentralized data todetermine employee working hours. Time Management manages work schedulesefficiently and effectively by automating schedule generation and allowing flexibledefinition of time models and schedules per location and organization level. With TimeManagement, you can set flexible working hours and process work notices as times are re-corded. Individual and group piecework calculation for employee incentive wages is alsoavailable through the incentive wages feature. The Time Evaluation component allowsdaily processing of employee time data. It is a flexible tool designed to handlecomplicated evaluation rules to fulfill regulatory requirements and determine overtimeand other time-related data. The Time Evaluation component stores your organizationsbusiness rules and automatically validates hours worked and wage types. The results oftime evaluation can be shown on a time sheet that provides a detailed overview of dailybalances and time wage types. Most packages provide a review feature that will provideall necessary information and tools to review and maintain employee time data.5.4.3.a. Shift PlanningThis module helps you to plan your workforce requirements quickly and accurately. Youare able to arrange a target plan that can be drafted for any given period. You can planyour shifts according to your requirements, taking into consideration all criteria, includingabsences due to leave or sickness, and employee requests for time off. Shift Planningkeeps you informed at all times of any staff excess or deficit; a convenient planning boardis provided to guide you when entering and copying shifts for any designated period oftime. Furthermore, you can check the plans at any time against rules governingemployees working time, for example, to detect non-compliance with relevant legislation.
  • 39. 5.4.3.b. Personnel DevelopmentThis function helps in selecting the best people and enhancing careers more effectively.The system provides advanced tools to automate the labor-intensive process of matchinginternal job requirements to qualified candidates. You can profile predefined tasks andprerequisites of each position in your organization. Additionally, you can profile thequalifications of employees and external candidates under consideration for each position.A comparison of the qualifications and profiles, assists you in selecting individuals forfurther consideration. Effective personnel development planning ensures that the goals ofthe organization and the goals of the employee are in harmony. The benefits of suchplanning include improvements in employee performance, employee potential, staffquality, working climate and employee morale. A good system should provideorganizations with a method of modeling suitable career opportunities for employeeswithin the company. Also, there should be features to determine the areas in whichemployees need further training. Once this is established, you can then draw up individualplans for further education.5.4.3.c. Training and Event ManagementEvery successful organization should plan the training and events, faster than everbefore. A good HR system will have features to assist you with planning, managing andanalyzing your scheduled seminars, training courses and business events. Detailedinformation for each of the events is maintained to facilitate production of event catalogsand schedules. There should be tools to maintain information on the internal or externalorganizers of each event, as well as details such as prerequisites, objectives, content,time schedule, prices, capacity, locations, attendee billing information and budgets.Resources such as instructors, rooms, equipment and course materials can beautomatically suggested, saving you a great deal of data entry time. On completion of atraining course, appraisal forms can be automatically issued. Appraisals can be carriedout for instructors, attendees, business events and training courses. There will be featuresfor providing the training coordinator with reports on event data, ranging from cateringrequirements to registrant qualifications for each business event. The reporting featureprovides measurements of education and training performance.5.5. PLANT MAINTENANCEINTRODUCTION (OCT.04, 09, APR.08; 10M)The achievement of world class performance demands delivery of quality productsexpeditiously and economically. Organizations simply cannot achieve excellence withunreliable equipment. The attitude towards maintenance management has changed as aresult of quick response manufacturing, Just-in-Time reduction of work in processinventory and the elimination of wasteful manufacturing practices. Machine breakdownand idle time for repair was once an accepted practice* Times have changed. Today whena machine breaks down, it can shut down the production line and the customers entireplant. The Preventive Maintenance module provides an integrated solution for supportingthe operational needs of an enterprise-wide system. The Plant Maintenance moduleincludes an entire family of products covering all aspects of plant/equipment maintenanceand becomes integral to the achievement of process improvement. The major subsystemsof a Plant Maintenance module are:5.5.1. Preventive Maintenance ControlPreventive Maintenance Control provides planning, scheduling and control of facilities andequipment. Equipment lubrication, component replacement and safety inspection can beplanned scheduled, and monitored. Maintenance tasks can be tracked for each machine,or piece of equipment, by two user-defined modes, as well as calendar day frequency.These modes could include tracking by hours of operation, units of production produced,
  • 40. gallons of fuel consumed, or the number of days in operation since the last serviceinterval. Preventive Maintenance Control enables organizations to lower repair costs byavoiding downtime, machine breakage and process variability. Companies achieve highermachine utilization and improved machine reliability and tolerance control, along withhigher production yields.5.5.2. Equipment TrackingEquipment is an asset that needs to be monitored and protected. In many situations,equipment maintenance costs constitute the single largest controllable expenditure of anorganization. All facets of plant location history and utilization history are described andtracked. This history includes acquisition and disposition information and associationsbetween different pieces of equipment to pinpoint operational dependencies. Runningtotals for operation units to date (miles, hours, days, units of production, etc.) are alsoprovided. Each piece of equipment is defined by a model and serial number. User-defineddata sheets can be developed which allow for the grouping of user data into formats thatcan be linked to equipment records. All of this information can be used to createequipment specifications, which provide detailed information for technical specialistsworking in equipment operations, maintenance and transportation control.5.5.3. Component Tracking Components are, typically, subsets of larger equipment and deserve the same amount ofcost controlling scrutiny. Component tracking enables equipment managers to identifycomponents with chronic repair problems. They can determine whether a repair orreplacement should be covered by warranty. Planning component replacements, ratherthan waiting for component failures to occur, reduces unscheduled equipment downtime.Component tracking includes repair/exchange history and component service life.5.5.4. Plant Maintenance Calibration TrackingPlant Maintenance Calibration Tracking allows organizations to leverage their investmentin the Plant Maintenance module by providing for the tracking of equipment calibration insupport of ISO9000 requirements5.5.5. Plant Maintenance Warranty Claims TrackingPlant Maintenance Warranty Claims Tracking is an administrative system designed toprovide control of all items covered by manufacturer and vendor warranties. It enablesplant management to recover all of the warranty; reimbursements to which they areentitled but have not been able to recover in the past. Features include the ability toestablish the type and length of warranty, for example, elapsed day, months, mileagestipulation, or operating units. A complete history is performed for each item covered bythe warranty, and complete information regarding the warranty service provider is gener-ated.5.6. QUALITY MANAGEMENTINTRODUCTION (OCT.08, APR.08; 7M)The ISO 9000 series of standards defines the functions of quality management and theelements of a quality management system. The functions in the Quality Managementmodule support the essential elements of such a system. The other integrated modules inthe system complement this functionality. The ISO standards require that qualitymanagement systems penetrate all processes within an organization. The task priorities,according to the quality loop, shift from production (implementation phase) to productionplanning and product development (planning phase), to procurement and sales anddistribution, as well as into the entire usage phase. In the area of production, qualityassurance is no longer viewed in terms of inspection and the elimination of defects alone.Instead, the production process itself becomes the focus of attention.
  • 41. 5.6.1. CAQ / CIQ (APR.08; 3M)Just as the requirements for quality management systems have changed as a result of theISO 9000 standards, the term Computer-Aided Quality Management (CAQ) must also beredefined. Computer-Integrated Quality Management (CIQ) is a more appropriate termbecause an isolated CAQ system cannot carry out the comprehensive tasks of a qualitymanagement system. The ERP system takes this into consideration by integrating thequality management functions into the affected applications themselves (for example,procurement, warehouse management, production and sales/distribution), instead ofdelegating them to isolated CAQ systems. As a result of this approach, the processesdescribed in the quality manual can be implemented and automated in the electronic dataprocessing (EDP) system. The representation of the elements of a quality management system within the ERPsystem is not only the responsibility of the Quality Management module. Instead, the. ERPsystem must be considered as a whole, in which all integrated modules contribute theirpart. Within the framework of the system, for example, the Human Resources modulehandles personnel-related matters, the Controlling module handles the management ofquality-related costs and the Plant Maintenance module handles the monitoring of testequipment. As a part of the Logistics application, the Quality Management modulehandles the traditional tasks of quality planning, quality inspection and quality control. Forexample, it supports quality management in procurement, product verification, qualitydocumentation and in the processing of problems. The Quality Management modules internal functions do not directly interact with thedata or processes of other modules.5.6.2. Quality Management Module Functions (OCT.04; 8M)The Quality Management module fulfills the following functions: □ Quality Planning (Management of basic data for quality planning and inspection planning, Material specifications, Inspection planning) : Here the planning will be done that how should be the product quality, for that what kind of materials will be required?, how the Inspection should take place?, what should be the criteria for each type of inspection. □ Quality Inspection (Trigger inspections, Inspection processing with in- spection 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): here the actual Inspection starts, Inspection is started right from purchasing of raw material, selection of the supplier, inspecting raw material, inspection of machines, inspection of tools, inspection of workers. □ Quality Control (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) : while inspection, if they find any flaws in quality, that time quality control should be done, controlling can be done by replacing faulty items,
  • 42. appointing specialized workers, purchasing quality tools, having excellent machinery, etc.5.6.3. Computer Integrated Quality Management (CIQ) (OCT.04; 8M)The integration of Quality Management in the ERP systems provides considerableadvantages because only an integrated system can support all the elements of a qualitymanagement system, according to ISO 9000. The integration allows the qualitymanagement functions to influence all processes within a company, thereby affecting allphases of a products life cycle. The Quality Management module uses the systems integration to link the tasks ofquality management with those of the other applications, such as materials management,production, sales/distribution and cost accounting. An inspection that is triggeredautomatically upon goods receipt is an example of this. The Quality Management moduleis integrated with the master data and processes of the following applications: • Materials management (purchasing, inventory management, warehouse management, material requirements planning) • Production (work scheduling, shop floor control) • Sales and distribution (delivery, creation of quality certificates) The Quality Management module supports the exchange of data with other applicationsin order to prevent related data from being recorded and stored redundantly! Forexample, the information provided by a goods receipt posting relating to the material,vendor and lot size is automatically transferred to the inspection lot data record when aninspection is triggered.5.7. MATERIAL MANAGEMENT (OCT.06, 08, APR.10; 8M)The Materials Management module optimizes all purchasing processes with workflow-driven processing functions, enables automated supplier evaluation, lowers procurementand warehousing costs with accurate inventory and warehouse management andintegrates invoice verification. The main modules of the Materials Management moduleare: • Pre-purchasing Activities • Purchasing • Vendor Evaluation • Inventory Management • Invoice Verification and Material Inspection Requirements Calculations Requisition for Contract Vendor Selection Quotation Evaluation Quotation Vendor Rating
  • 43. fig : Pre-purchasing Activities5.7.1. Pre-Purchasing Activities (OCT.07; 5M)This system supports the complete cycle of bid invitation, award of contract andacceptance of services. The pre-purchasing activities include maintaininga service master database, in which the descriptions of all services that are to beprocured can be stored. The system also keeps a separate set of service specificationsthat can be created for each concrete procurement project or proposed procurement inthe purchasing document. Sets of service specifications may include, both items withservices and items with materials. When creating such specifications, the user does nothave to list individual services manually. Instead, the data is simply copied from themaster data. Use of this technique means that data only has to be entered once. Themanual entry effort is reduced to a minimum.There are two ways of entering service specifications—planned and unplanned. Plannedservice specifications mean that service whose precise nature and intended scope arealready known at the beginning of a procurement project. At the time they are requestedfor, they are either entered with the aid of a service master record, or set out in servicespecifications as short or long texts. Prices and quantities are stipulated in both cases. Aprocurement project may constitute or include a number of individual services, which youinitially cannot or do not wish to specify in detail (for example, the construction of anoffice building). Such initial undefined services specifications are termed unplannedservice specifications and thus, have no descriptions. They are entered in the form ofmoney value limits. Service specifications 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 valuelimit at the uppermost level (for example, 5 crores for the construction of the officebuilding). In addition, you can set limits for individual contracts within the project (forexample, Rs 100,000 for masonry works and Rs 150,000 rupees for electricalinstallations).5.7.2. Purchasing (OCT.07; 5M)Purchasing is a very important component of the Materials Management module. TheMaterials Management module is fully integrated with other modules in the system. Itsupports all phases of materials management: materials planning and control, purchasing,goods receiving, inventory management and invoice verification. Good communicationbetween all participants in the procurement process is necessary for purchasing tofunction smoothly. Purchasing communicates with other modules in the system to ensurea constant flow of information.
  • 44. For example, it works side by side with the following modules: □ Cost Accounting System Orders for materials and services consumed directly illustrate the interface to the cost accounting system. This is because they can be assigned to a cost center directly. □ Financial Accounting Purchasing and Accounting both maintain information on vendors. Information on each vendor is stored in a vendor master record, which 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 G/L accounts are to be charged in the financial accounting system. □ Sales and Distribution Within the framework of material requirements planning (MRP), customer requirements from Sales can be passed on.5.7.3. Vendor Evaluation (OCT.09, APR.10; 8M)The Vendor Evaluation component has been completely integrated into the Materialmanagement module. Information such as delivery dates, prices and quantities can betaken from purchase orders. Vendor evaluation also uses data from Quality Management,such as results of incoming inspection or quality audits. It also accesses basic data inMaterial Management such as goods receipt data from Inventory Management.The Vendor Evaluation System supports the optimization of the procurement process inthe case of both material and services. In the case of procurement of materials thesystem helps you select sources of supply and facilities the continue monitoring ofexisting supply relationships. It provides you with accurate information on prices, andterms of payment and delivery. By evaluating Vendors, you can improve your enterprisecompetitiveness. You can quickly determine and resolve any procurement problems. Inthe case of procurement services, you can check the reliability of vendorsMost of the vendor evaluation system offers you a point based evaluation system basedon certain selection criteria. Most systems have their own predefined set of criteria, butwill allow the user defined criteria also. Using these criteria, the performance of thevendors is measured and points are given. You can determine and compare theperformance of the vendors by reference to their overall scores. The main criteria that areusually used are price, quality, delivery, service and support, replacement of returns, leadtimes, and so on. The vendor evaluation system ensures that evaluation of vendors isobjective, since all vendors are accessed according to uniform criteria and the scores arecomputed automatically.5.7.4. Inventory Management (OCT.09, APR.10; 8M)Inventory Management system allows you to manage your stocks on a quantity and valuebasis, plan, enter and check any goods movements and carry out physical inventory. Inthe Inventory Management system, the physical stocks reflect all transactions resulting ina change in stock and thus, in updated inventory levels. The user can easily obtain anoverview of the current stocks of any given material. For each material, not only are thestocks in the warehouse shown, but also the stocks ordered but not yet delivered,reserved for production or for a customer, and the stocks in quality inspection can bemonitored. If a further subdivision by lots is required for a material, one batch per lot ispossible. These batches are then managed individually in the stock. Special stocks fromthe vendor or from the customer (for example, consignment stocks) are managedseparately from the companys own stock. The stocks are managed not only on a quantity basis but also by value— a prerequisitefor cost accounting. With every goods movement, the following values are updated:
  • 45. • Stock value for inventory management • Account assignment for cost accounting • Corresponding G/L accounts for financial accounting via automatic account assignment Both the quantity and the value are updated automatically when entering a goodsmovement. Goods movements include both external movements (goods receipts fromexternal procurement, goods issues for sales orders) and internal movements (goodsreceipts from production, withdrawals of material for internal purposes, stock transfersand transfer postings). For each goods movement a document is created which is used bythe system to update quantities and values and serves as a proof of goods movements.Goods receipt/issue slips are printed to facilitate physical movements and the monitoringof the individual stocks in the warehouse. The adjustment between the physical stocksand the book inventories can be carried out automatically.Most inventory management systems support inventory methods like Periodic inventory,Continuous inventory, Inventory sampling and Cycle counting. In a periodic inventory, allstocks of the company are physically counted on the balance sheet key date. In this case,every material must be counted. During counting, the entire warehouse is usually blockedfor material movements.5.7.5. Invoice Verification and Material InspectionThe Invoice Verification component is part of the Materials Management system. Itprovides the link between the Materials Management component and the FinancialAccounting, Controlling and Asset Accounting components. Invoice Verification inMaterials Management serves the following purposes: • It completes the materials procurement process—which starts with the purchase requisition, continues with purchasing and goods receipt and ends with the invoice receipt • It allows invoices that do not originate in materials procurement (for example, services, expenses, course costs, etc.) to be processed • It allows credit memos to be processed, either as invoice cancellations or discounts Invoice verification does not handle the payment or the analysis of invoices. Theinformation required for these processes is passed on to other departments. Each invoice contains various items of information. To post an invoice, you must enterthis information into the system. If an invoice refers to an existing transaction, certainitems of information will already be available in the system. The system proposes thisinformation as default data so that you only need to compare it and, if necessary, correctany possible variances. If an invoice refers to a purchase order, for example, you onlyneed to enter the number of the purchase order. The system selects the right transactionand proposes data from the purchase order, including the vendor, material, quantityordered, terms of delivery and terms of payment. You can, of course, overwrite thisdefault data if there are variances. You can display the purchase order history to see, forexample, which quantities have been delivered and how much has already been invoiced.If there are variances between the purchase order or goods receipt and the invoice, thesystem will issue a warning on the screen. If the variances are within the preset tolerancelimits, the system will allow the invoice to be posted but will automatically block it forpayment. The invoice must then be released in a separate step. If the variances are notwithin the tolerances, the system will not allow the invoice to be posted. When the invoice is entered, the system also finds the relevant account. Automaticpostings for sales tax, cash discount clearing and price variances are also generated andthe posting records displayed. If a balance is created, the user is required to makecorrections, as an invoice can only be posted if the balance equals zero. As soon as theinvoice is posted, certain data, such as the average price of the material ordered and thepurchase order history is updated in the system.
  • 46. The invoice posting completes Invoice Verification. The data necessary for the invoiceto be paid is now contained in the system. The accounting department can retrieve thedata and make the appropriate payments with the aid of the Financial Accountingcomponent. CHAPTER 6 ERP MARKETS INTRODUCTION (OCT.08, 09; 6M)The ERP market is a very competitive and fast growing market. According to AMRResearch Inc., the leading industry and market analysis firm specializing in enterpriseapplications and enabling technologies, the Enterprise Resource Planning (ERP) softwaremarket will grow at a compound annual growth rate of 37 per cent over the next five
  • 47. years. According to the firms Enterprise Resource Planning Software Report, 1997-2009,total company revenue will top $52 billion by the year 2002. This conclusion is in markedcontrast to other forecasters, who believe that ERP demand has been artificially stimu-lated by Year 2010 concerns. AMR Research attributes the continued growth to three primary factors.These are: • ERP vendors are continuing to expand market presence by offering new applications such as supply chain management, sales force automation, customer support and human resources. • To sustain their rapid growth, ERP vendors will try to sell more licenses into their installed base. Currently, ERP vendors have a 10-20 percent penetration (i.e. percentage of total employees currently using the ERP system). This will grow to 40-60 percent within the next five years. • While ERP originated in the manufacturing market, ERP usage has spread to nearly every type of enterprise including retail, utilities, the public sector and healthcare organizations. Most will purchase new ERP systems over the next five years, often for the first time. The vendors in the ERP market are segmenting into two tiers and are focusing onexpanded product functionality, new target markets and higher penetration rates. The toptier consists of five vendors—SAP AG, Baan, PeopleSoft, Oracle Applications andJ.D. Edwards. These companies—The Big 5—account for 64 per cent of the ERP marketrevenue and have grown over the past year at a furious pace of 61 percent. In addition,Baan, J.D. Edwards, Oracle and People Soft are each expected to approach or exceed $1billion in total revenue in 1998, while SAP will approach $5 billion. The top five ERPvendors, on the basis of the total projected company revenue for 1998, are shown in Fig. fig: Top five Vendors by projected company’s revenue In US $ millions Fig: Top 5 ERP Vendors by total projected company revenue
  • 48. Fig: Global ERP Market shareAccording to the. Dataquest survey (Dataquest, April 15, 1999), in India also, SAP is themarket leader with a 20% market share. According to the survey, ERP does not appear tobe new to the Indian market. This is indicated by the proliferation of solutions, which havebeen implemented. While SAP R/3 and QADs MFG/PRO continue to dominate the Indian market scene,there is also an undeniable presence of lesser-known breeds like J.D. Edwards and SSAsBPCS. Other familiar stalwarts like Oracle Financials, Ramco Marshal and Baan alsodominate the second and third rungs of the domestic ERP market.6.1. SAP AGCOMPANY’S PROFILEFounded in 1972, SAP (Systems, Applications and Products in Data Processing), based inWalldorf, Germany, is the leading global provider of client/ server business applicationsolutions. Today, SAP has installations in more than 107 countries.SAPs ERP package comes in two versions: the mainframe version (SAP R/2) and theclient/server version (SAP R/3). Most prominent among SAPs product range is theenterprise 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 functionalcomponents, or purchase the software as a complete package.SAP customers have chosen to install SAPs client/server suite in more than 19,750 sitesworldwide. The System is accepted as the standard in key industries such as oil,chemicals, consumer products and high technology and electronics. The SAP groupemploys a work force of over 19,300 and has offices in more than 50 countries worldwide.SAP is the Most Successful vendor of standard business-application software and is thefourth-largest independent software supplier in the world.6.1.1. Products and technologySAP products feature a sophistication and robustness unmatched by other businesssoftware solutions. SAP has developed an extensive library of more than 800 predefinedbusiness processes, spanning each functional software requirement. These processes maybe selected from the SAP library and included within installed SAP applications, aftertailoring the application solution to suit the users exact requirements. New businessprocesses and technology becomes available regularly, enabling SAP customers to addstate-of-art solutions to meet ever changing business demands.
  • 49. The power of SAP software lies in real time integration, linking a company’s businessprocesses and applications, and supporting immediate responses to change through theorganization on a departmental, divisional or global scale. The international strength ofthe products extends to every aspect of the application, such as support of multiplecurrencies simultaneously and the automatic handling of country-specific import/export,tax, legal and language requirements6.1.2. R/3 – An OverviewR/3 employs a three-tier client/server architecture widely recognized by SAP customers,technology partners and industry analysts as a winning approach to solving some oftoday’s most demanding information-management challenges. The three-tiredarchitecture separates a system into three functional layers, each structured to supportthe demands of its function. 1. The database layer resides on central servers or mainframe host computers. 2. The application layer holds the processing logic of the system, preparing and formatting data for individual offices or departments 3. The presentation layer, typically on personal computers, handles all the tasks related to the presentation of data, including user interfaces that enables easy access to complex application and data.SAP has also incorporated and integrated the intranet and Internet technologies intobusiness solution for its customers. Both internally and together with its partners, thecompany is defining and creating a number of Internet standards-based interfaces,applications business processes that will extend the usefulness of SAP software in entirelynew ways and to new classes of customers.6.1.2.a. The R/3 SystemsSAPs R/3 System is the worlds most-used standard business software for client/ servercomputing. R/3 enables you to respond quickly by making you more flexible—so you canleverage changes to your advantage. The R/3 System is ideal for companies of all sizesand industries. It gives them both a forward-looking information management system andthe means to optimize their business processes. At R/3s core are powerful programs foraccounting and controlling, production and materials management, quality managementand plant maintenance, sales and distribution, human resources management and projectmanagement. Already, over 2,000,000 users put R/3 business applications to the testevery day. The R/3 System is an unbeatable combination of functionality and technology.Although designed as an integrated system, R/3s modules can also be used individually.You can expand it in stages to meet the specific requirements of your business. R/3 runson the hardware platforms of leading international vendors. . It is open enough to allowinteroperability with third-party solutions and services. It is quick and efficient to install.R/3 overcomes the limitations of traditional hierarchical and function-oriented structureslike no other software. Employees receive the right information and documents at theright time at their desktops. R/3 does more than just opening up completely new IT solutions within your company.Its applications also link your business processes with those of customers and suppliers tocreate complete logistical chains, covering the entire route from supply to delivery. R/3lets you integrate banks and other business partners into inter-company communications,both nationally and internationally.6.1.2.b. R/3 Modules (OCT.06, APR.10; 10M)R/3s applications are modules. They can either be used alone or in combination withother solutions. From a process-oriented perspective, greater integration of applicationsincreases the benefits derived. The following are the R/3 modules:
  • 50. ■ Financial Accounting Collects all the data in your company relevant to accounting, provides complete documentation and comprehensive information, and is at the same time an up-to-the-minute basis for enterprise-wide control and planning. ■ Treasury A complete solution for efficient financial management that ensures the liquidity of your company worldwide, structures financial assets profitably and minimises risks. ■ Controlling A complete array of compatible planning and control instruments for company-wide controlling systems, with a uniform reporting system for coordinating the contents and procedures of your companys internal processes. ■ Enterprise Controlling Continuously monitors your companys 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, including 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, 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 companys human resources, using integrated applications that cover all personnel management tasks and help simplify and speed the processes.6.1.3. SAP AdvantagesR/3 unlocks the client/server world for you. In these open architectures, applications aredistributed across a number of computers that communicate with each other through anetwork. R/3 offers integrated solutions for client/ server information processing thatcombine a variety of products and services, to create a smoothly functioningcommunications network. R/3 incorporates not only system management, but alsonetwork administration and backup solutions. SAPs partnerships «with hardwaremanufacturers, database providers and technology and service companies play asignificant role here. In client/server architectures, database systems take care ofmanaging enterprise data. They communicate with application servers that coordinate theactual applications and control communication with the database. At the client level,where the end users work, the cycle of tasks is appropriately distributed across variouscomputers and concludes with a presentation of the results on the desktop. The benefit: cooperative client/server processing distributes applications andcomputing capabilities almost at will across multiple levels, and systematically takesadvantage of the strengths of different hardware and software components. Whether youuse R/3 in two- or three-tier client/server architectures, locally or worldwide choose the
  • 51. best solution for your needs. The number of workstations you include with R/3 in yourclient/server solution is determined solely by your particular needs. R/3 is infinitelyexpandable, and can be used in client/server architectures with anywhere between 30and several thousand end users. This scalability ensures that R/3 can always grow withyour requirements.6.2. BAAN COMPANYCOMPANY’S PROFILEBaan Company is a leading global provider of enterprise business software. BaanCompany offers a comprehensive portfolio of best-in-class, component-based applicationsfor front office, corporate office and back office automation. These applications are in useat over 7,000 customer sites worldwide. Baan Company products reduce complexity andcost, improve core business processes, are faster to implement and use, are more flexiblein adapting to business changes and optimize the management of information throughoutthe entire value chain. Founded in the Netherlands in 1978 by brothers Jan and Paul Baan, Baan Company hasdual headquarters in Barneveld, The Netherlands and Reston, Virginia, United States ofAmerica. Since 1995, the Company has significantly expanded its sales and servicepresence in North America, Latin America, Europe and Asia.6.2.1. Products and technology Over the past 14 years, Baan Company has evolved from pioneering the EnterpriseResource Planning (ERP) software market to now offering the most complete set of single-vendor enterprise business applications. Baan Company supports popular Unix platformsas well as Microsoft NT, and was the first solution provider in its class to earn theDesigned for Microsoft® BackOffice logo certification. Products also support majorrelational database systems (Oracle, Informix, DB2, Sybase and Microsoft SQL Server),and are Year 2000 compliant. Built on a commitment to reduce the complexity of IT solutions, the Baan productportfolio assembles best-of-class components, keeps them "evergreen" through on-goingrelease cycles, and enables enterprises to update their information infrastructure inmanageable, incremental initiatives. Three advantages distinguish each componentelement within the BaanSeries-based family of products including: best-in-classcomponents; evergreen delivery; and version independent integration.6.2.2. Baan ERP ModulesBaanERP, the successor to Baan IV, is a proven enterprise resource planning softwareapplication. It is fully integrated and provides exceptional functionality across theenterprise. BaanERP consists of a number of interdependent components that can bedeployed to meet business needs. The flexibility within BaanERP allows customers tomaximize 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 (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)
  • 52. □ Finance Module (includes Accounts Payable, Accounts Receivable, Financial Budgets System, Cash Management, Financial Reporting System, Fixed Assets, General Ledger, Cost Accounting and Sales Invoicing) □ Project Module (includes Project Budget, Project Definition, Project Estimating, Project Invoicing, Project Monitoring, Project Planning, Project Progress and Project Requirements Planning) □ Distribution Module (includes Sales Management, Purchase Management and Warehouse Management)6.3. ORACLE CORPORATIONCOMPANY’S PROFILE (OCT.05; 5M)Oracle Corp. (founded in 1977) is the worlds second largest software company and theleading supplier of software for enterprise information management. With annualrevenues exceeding $ 8.0 billion, the company offers its database, tools and applicationsproducts, along with related consulting, education and support services. Oracle employsmore than 41,000 people in more than 145 countries around the world. Headquartered inRedwood Shores, California, Oracle is the first software company to implement theInternet computing model for developing and deploying enterprise software across itsentire product line: databases and relational servers, application development anddecision support tools and enterprise business applications.6.3.1. TechnologyOracle software runs on network computers, personal digital assistants, set-top devices,PCs, workstations, minicomputers, mainframes and massively parallel computers.Oracle8i, the latest version of Oracle industrys leading database, is the database forInternet Computing. Oracles family of database, networking and gateway products enablecorporations to access any data, on any server, over any network, from any client device. Oracles Warehouse Technology Initiative (WTI), one of the fastest growing and mostcomprehensive alliance programs in the data warehousing industry, provides customerswith a complete data warehousing solution, based on the industry-leading Oracledatabase and more than 60 complimentary third-party software products and services.WTI is designed to increase the quantity and quality of Oracle-based data warehousingsolutions, provide customers with greater choice, specialized tools, Oracle-optimizedproducts and streamlined support as they build data warehouses. Oracles integrated Business Intelligence solutions deliver powerful capabilities to usersanywhere in the enterprise, at any time. End users benefit from intuitive tools that provideeasy access to business data and fast answers to any question. Oracles BusinessIntelligence family of products includes integrated releases of Oracle ^Reports, Oraclesenterprise reporting tool; Oracle Discoverer, Oracles award-winning ad-hoc query andanalysis tool; and Oracle Express, Oracles industry-leading enterprise online analyticalprocessing (OLAP) engine. Oracle also offers pre-built OLAP applications— Oracle FinancialAnalyzer and Oracle Sales Analyzer—to further reduce implementation time and costs.6.3.2. Oracle Applications (MODULES - OCT.05, 06, 07, 09; 8M) It is a leading provider of packaged and integrated front office and ERP solutions for theenterprise and a division of Oracle Corporation, the worlds second-largest softwarecompany and the largest supplier of software for information management. OracleApplications strategy is to offer all the enterprise solution components—provenapplications, advanced technologies, business expertise and partnerships required—to
  • 53. enable customers to execute strategies quickly, manage the risk of change and lead theirrespective industries. Oracle Applications further exploit the low-cost and universal access inherent in theInternet Computing model, by providing a set of applications specifically designed forsecure, self-service business transactions across the Internet and corporate intranets.These applications are integrated with Oracle Workflow to completely automate businessprocesses. Oracle Applications comprise of 45-plus software modules, which are divided into thefollowing categories: • Oracle Financials • Oracle Human Resources • Oracle Projects • Oracle Manufacturing • Oracle Supply Chain • Oracle Front Office A brief overview of the Oracle Application modules categories is given below: • Financials Oracle Financial Applications can transform a finance organization into a strategic force. In todays fast-moving corporate arena, organizations 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—while providing the strategic information required for making timely and accurate decisions. • Projects Oracle Projects Applications improve operational efficiency by providing an integrated project management environment that supports the full lifecycle of every project in your enterprise, increasing top-line revenue growth and bottom- line profitability. As the bridge between operations systems and corporate finance, Oracle Projects Applications provide a central repository of validated 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, motivate and retain the most capable workforce; engage employees and line managers directly in managing their skills and careers; and provide comprehensive and up-to-date workforce information for management—on a global basis—are a few of the characteristics important for success. The Oracle Human Resource Management System (HRMS) provides comprehensive facilities for organizations to achieve such goals. ■ Manufacturing Oracle Manufacturing Applications are the industry-leading mixed- mode manufacturing solution that 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 Manuacturing Applications help companies increase revenue, profitability and customer loyalty by universally capturing demand, planning the extended enterprise in one rapid step and by ensuring that the most efficient manufacturing process is used to produce each product. ■ Supply Chain Oracle Supply Chain Management Applications simplify supply- chain processes by providing a single, integrated environment for managing the extended enterprise. From your suppliers suppliers to your customers customers, Oracle enables effective trading partner collaboration and supply-chain optimization capabilities that are vital to gaining and sustaining competitive advantage. Oracle Supply Chain Management Applications help in increasing market share while improving customer service and minimizing costs across the networked supply chain. ■ 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 top-line revenues, decrease sales and service costs, and maintain customer retention and
  • 54. satisfaction. The sales, marketing and service solutions provide deep integration with the entire enterprise suite of applications, and enable you to attract and retain profitable customers through a unified set of deployment channels, including Web mobile and call center.6.4. PEOPLESOFTCOMPANY’S PROFILEPeopleSoft Inc. was established in 1987 to provide innovative software solutions that meetthe changing business demands of enterprises worldwide. It employs more than 7,000people worldwide. The annual revenue for the year 1998 was $ 1.3 billion. PeopleSoftsMission is to provide innovative software solutions that meet the changing businessdemands of organizations worldwide. PeopleSoft develops markets and supports enterprise-wide software solutions to handlecore business functions including human resources management, accounting and control,project management, treasury management, performance measurement and supply chainmanagement. PeopleSoft provides industry-specific enterprise solutions to customers inselect markets, including communications, financial services, healthcare, manufacturing,higher education, public sector, services, retail, transportation, US federal governmentand utilities. The company also offers PeopleSoft Select, a complete packaged solutionincluding software, hardware and services to address the needs of medium-sizedorganizations. PeopleSofts innovative use of technology empowers individuals to make informeddecisions and delivers the flexibility that allows dynamic organizations to manageconstant change. Based on a multi-tier client/server architecture and using advancedworkflow technology, PeopleSoft products support clients running both Microsoft Windowsand popular Web browsers, as well as a range of mainframe, midrange and LAN relationaldatabase server platforms. PeopleSoft solutions run on a variety of leading hardware and database platforms,including Compaq, Hewlett-Packard, IBM, Sun Microsystems, Informix, Microsoft SQLServer, Sybase, DB2 and others. PeopleSoft delivers Web-enabled applications, workflow,online analytical processing (OLAP), etc. PeopleSoft has over 2,900 customers in nearly every industry and geographic region inthe world, including a large cross-section of the Fortune 1000.The companys products are sold through direct sales offices and distributors in the UnitedStates, Canada, Europe, Asia/Pacific, Latin America and Africa. With award-winningcustomer service, PeopleSoft dedicates approximately 47 per cent of its staff to customerservice in the areas of account management, product support, professional services,education services and communication services.6.4.1. Business Management solutionsPeopleSoft solutions extend across the globe. The applications help in managing a broadset of business processes, from human resources and finance to supply chainmanagement. One can* implement a single application, or a complete enterprise-widesolution. The flexible design lets you tailor the applications to your specific needs. ThePeopleSofts 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
  • 55. • Service Revenue Management • Procurement6.4.2. Commercial SolutionSupply Chain Management—PeopleSoft has the industrys only complete enterpriseresource planning solution that is built around supply chain optimization. A DemandPlanning module enables sophisticated forecasting, using both real-time and historicalinformation. PeopleSofts complete suite of Supply Chain Management products providescomprehensive support for any organization that produces or markets a physical product.Service Industry Solutions—PeopleSoft also provides a complete commercial supportsolution for service industries. The Service Revenue Management suite features modulessupporting the tracking of time and labor, payroll processing, project management andbilling, as well as expense and receivables processing. A suite of Procurement modules isalso available supporting purchasing, inventory management, payables and expenseprocessing, and asset management.6.5. JD.EDWARDS WORLD SOLUTION COMPANYCOMPANY’S PROFILE1977, Denver, Colorado. Three men left the accounting world to form a software companythat would specialize in midrange computing solutions. Each of the three founders—JackThompson, Dan Gregory and Ed McVaney—lent a small portion of his name for thecompany name. On March 17, JD Edwards was formed. In the early years, JD Edwards designed software for several small and medium-sizedcomputers, eventually focusing on the IBM System/38 in the early 1980s. It was in thiseffort that JD Edwards pioneered the CASE software development and design tool, whichlends consistency across the broad range of JD Edwards integrated applications. As JD Edwards began to outgrow its headquarters in Denver, it started opening branchoffices, first in Dallas and then in Newport Beach, California; Houston; San Francisco; andBakersfield, California. Beginning in 1988, the company began to concentrate its effortson international expansion and opened its European headquarter in Brussels, Belgium,which has since been moved to Buckinghamshire, UK.As JD Edwards business continued to grow, it became obvious that servicing a largenumber of customers was creating challenges. The company could either remain smalland serve customers on an individual basis or, with a breakthrough in technology, it couldbecome an industry leader in enterprise software. When McVaney and Thompson beganto design and implement WorldSoftware, they provided the pathway to success.Today, JD Edwards is a publicly traded company that has more than 4,700 customers withsites in over 100 countries and more than 4,200 employees. JD Edwards is a leadingprovider of Idea to Action enterprise applications, encompassing flexible, integratedsoftware for distribution, finance, human resources, manufacturing and supply chainmanagement. JD Edwards maintains its focus on what truly matters to its customers. • Solutions Business doesnt live by software alone. JD Edwards offers a balance of technology and service options tailored to your unique industry and processes. A network of certified service and support providers complements the services directly available from JD Edwards to ensure timely implementation and ongoing quality of the solution.
  • 56. • Relationships With JD Edwards, you have a partner committed to ushering you through changes in business and technology. The companys product development, support and training are tuned to meet your current and evolving needs. By understanding the customers industry, paying attention to business fundamentals and ensuring customer participation in the development process, JD Edwards work to protect the customers investment with solutions that evolve with their business. • Value In enabling Idea to Action, JD Edwards provides you with an appreciating software asset—one with the potential to increase in value over the life of your business. Through continual enhancements in features and functionality, an architecture open to third-party technologies, and the real-time adaptability afforded by ActivEra, you can capitalize on new ideas and maintain your flexibility in the face of change. JD Edwards also offer multi-currency, multi-language and multi-location capabilities, so your solution grows as your business grows.6.5.1. TechnologyJD Edwards offers its solutions primarily for the AS/400 platform. JD Edwardss twoapplication suites, OneWorld and WorldSoftware/WorldVision, provide comprehensivesupply chain management functionality across the technology continuum, from host-centric, to thin-client, to network-centric computing. All three can run concurrently on thesame AS/400, share data and interact with each other as a unified solution.6.6. SYSTEM SOFTWARE ASSOCIATES INC. (SSA)COMPANY’S PROFILESSA was founded in December 1981 and has its headquarters in Chicago, USA. SSA has itspresence in 91 countries and employees more than 2000 employees. The 1998 revenuesof the company was $420.8 Million. The Companys product line, BPCS Client/Server V6, iscurrently live or being implemented in more than 1,000 major industrial sector firms inover 4,000 sites worldwide. SSAs vision is to be the best global«partner to the worlds industrial sector companies.SSAs mission statement, which has been the same since SSA was founded in December1981, is to provide competitive advantage for Clients through the implementation of theirbusiness enterprise information system. This mission statement is underwritten by six keygoals: 1. Best Client Satisfaction This means that the company wants their clients to achieve the greatest possible business benefit from their relationship with SSA. 2. Single Image Worldwide Means that the clients get the same high level of support and expertise all around the world. 3. Enterprise Solutions Leadership It means that the company is focused on building and delivering solutions, which bring together the entire enterprise. 4. Proven Leading Technology This means that every piece of technology applied by SSA will already be proven for high transaction volume enterprise-wide applications. 5. Highly skilled and motivated professionals It means that SSA is committed to having the best professionals and resources in the application software business. 6. Strong Financial Results This means that SSA can continue to invest in the improvement of its software and professionals, and will be a stable partner in the long run.
  • 57. 6.7. QADCOMPANY’S PROFILEQAD was founded in 1979, and now has a presence in 21 countries and employs morethan 1100 people. The companys products include MFG/PRO, On/Q, Service/SupportManagement, Decision Support, and Qwizard. The companys flagship product is its ERPsolution—MFG/PRO. It is available in 26 languages and has more than 4,000 installed sitesin over 80 countries. The company got the ISO certification in 1995.6.7.1.ProductsQAD offers a variety of supply chain and Enterprise Resource Planning (ERP) softwareproducts to manufacturing industries within the automotive, consumer products,electronics, food and beverage, industrial products and medical sectors. QAD softwareoptimises your enterprise by increasing the speed of internal processes and bysynchronising distributed operations. QADs flagship product, MFG/PRO software, provides multinational organizations withan integrated Global Supply Chain Management solution that includes manufacturing,distribution, financial, and service/support management applications within an opensystem environment. Internet-Enabled MFG/PRO allows you to share information andconduct commercial transactions over the Internet.MFG/PRO (OCT.04, 05, 07, 08, APR.08; 8M) MFG/PRO is a fully integrated software package available on a module by module basis.MFG/PRO addresses the entire manufacturing spectrum from repetitive to configure-to-order. It is appropriate for process, batch process, make-to-stock, configure-to-order andrepetitive 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 of MFG/PRO are used to monitor inventory balances and manage purchasing and sales order entry activities. □ Manufacturing The Manufacturing Modules are used to regulate all manufacturing activity within the various types of production environments. □ Financials The Financial modules interface with the Distribution, Planning and Manufacturing modules to report the financial implications of the companys activities. □ Service/Support Service/Support Modules 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 is the control of goods and information from supplier to customer. □ Master Files Master Files functions provide access to a series of foundation modules that are used by the rest of the MFG/PRO applications. These master files include: Items/Sites, Addresses/Taxes, Inventory Control Settings, Physical Inventory, Multiple Database configurations and Manager Functions
  • 58. CHAPTER 7 ERP IMPLEMENTATION LIFE CYCLE INTRODUCTION (OCT.04, 05, 06, APR.09; 8M) 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 organization might have already identified a particular package; then the pre-selection screening and package evaluation phases are not done. The different phases of the ERP implementation are given below:• Pre-evaluation Screening• Package Evaluation • Project Planning Phase • Gap Analysis • Reengineering • Configuration • Implementation Team Training • Testing • Going Live • End-user Training • Post-implementation Although these phases, as shown in Fig. 8.1, may seem very linear and distinct from each other, in reality, throughout an actual implementation, the phases are in fact quite fluid. In many cases, companies go through many implementations—in different business
  • 59. units, different modules, or manufacturing locations. So at any given time, more than oneof the phases may be operational. Some companies opt for the one and only Big Bang,while other companies favor sequential rollouts—each company has different needs. Butwhether it is the Big Bang method or sequential rollout, the lifecycle phases are thesame. Pre-Evaluation Screening Package Evaluation Project Planning Gap Analysis Reengineering Configuration Implementation Team Testing End-User Training Training Going Live Post Implementation Phase Fig: ERP Implementation Life cycle- different phases7.1. PRE-EVALUATION SCREENING (OCT.04, 05, APR.09; 6M)Once the company has decided to go in for the ERP system, the search for the perfectpackage starts. But there are hundreds of ERP vendors—of all sizes and shapes—allclaiming to have the solution that is ideal for you. Analyzing all the packages beforereaching a decision is not a viable solution. It is also a very time consuming process. So itis better to limit the number of packages that are evaluated to less than five. It is alwaysbetter to do a thorough and detailed evaluation of a small number of packages, thandoing a superficial analysis of dozens of packages. Hence, the company should do a pre-evaluation screening to limit the number of packages that are to be evaluated by thecommittee. Not all packages are equal—each has its own strengths and weakness. Thepre-evaluation process should eliminate those packages that are not at all suitable for thecompanys business processes. One can zero in on the few best packages by looking atthe product literature of the vendors, getting help from external consultants and mostimportantly, by finding out what package is used by companies which are similar. It isalways better to find out how the different packages are performing in environmentssimilar to yours. 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 oropportunity of a group, of people, working in a specific business, who created systemsthat could deal with certain business segments. It is generally accepted that most ERPpackages are stronger in certain areas than in others, and each one is madly trying to addfunctionality in areas where they have been lacking. For example, PeopleSoft is strong inHR and less so in manufacturing; Baan, on the other hand, is historically stronger inmanufacturing than in finance and so on.
  • 60. As the companies grew over time the ERP packages evolved. The experience gainedfrom implementation, the feedback by the users, the need to enter into new markets andthe pressure from competitors forced most ERP vendors to redefine and expand the scopeof the activities and functionality of their products. The concepts were expanded upon,new functions were introduced, good ideas were copied from others, and so on. But still,each package has a history (or origin) that determines in which type of business it is bestsuited for. While making the analysis it would be a good idea to investigate the origins of thedifferent packages. Now, most packages cater to almost all business and service sectors.It would be wrong to say that a system that was developed initially for manufacturing, isnow not capable of catering to the needs of another business sector, say, softwaredevelopment. The system would have been thoroughly revamped and redesigned to caterto the needs of the diverse business sectors that it is catering to. But it should beremembered that many ERP packages are still very good in some areas, even though theyare capable of catering to the needs of other sectors. Once you select a few packages after the screening, you can start the detailedevaluation process.7.2. PACKAGE EVALUATION (OCT.04, 05, 06, 07, 09, APR.08, 10; 8M)The evaluation/selection process is one of the most important phases of the ERPimplementation, because the package that you select will decide the success or failure ofthe project. Since ERP systems involve huge investments, once a package is purchased, itis not "an easy task to switch to another one. So it is a do it right the first timeproposition. There is little room for error. The most important factor that should be kept in mind when analyzing the differentpackages is that none of them are perfect. The idea that there is no perfect packageneeds to be understood by everyone in the decision-making team. The objective of theselection process^ is not to identify a package that covers each and every requirement (aperfect fit). to find a package that is flexible enough to meet the companys needs, or inother words, a software that could be customized to obtain a good fit. Once the packages to be evaluated are identified, the company needs to develop aselection criteria that will permit the evaluation of all the available packages on the samescale. To choose the best system, the company should identify the system that meets thebusiness needs, that matches the business profile and that which identifies with thebusiness practices of the company. It is impossible to get a system that will perform,exactly as the company does business, but the aim should be to get the system that hasthe least number of differences. According to S Shankarnarayanan, Senior Consultant with Baan Infosystems India PvtLtd. (ERP Systems—Using IT to gain a competitive advantage), some important points tobe kept in mind while evaluating ERP software include: • Functional fit with the companys business processes • Degree 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—client/server capabilities, database independence, security • Availability of regular upgrades • Amount of customization required • Local support infrastructure • Availability of reference sites
  • 61. • Total costs, including cost of license, training, implementation, maintenance, customization and hardware requirements.It is always better to form a selection or evaluation committee that will do the evaluationprocess. This committee should comprise of people from the various departments (thefunctional experts), the top management (preferably the CIO or COO) and consultants(package experts). The selection committee should be entrusted with the task of choosinga package for the company. Since all business functions are represented and themanagement 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 explainingthe pros and cons of each package.7.3. PROJECT PLANNING PHASEThis is the phase that designs the implementation process. It is in this phase that thedetails of how to go about the implementation are decided. Time schedules, deadlines,etc. for the project are arrived at. The project plan is developed. Roles are identified andresponsibilities are assigned. The organizational resources that will be used for theimplementation effort are decided and the people who are supposed to head theimplementation are identified. The implementation team members are selected and taskallocation is done. This phase will decide when to begin the project, how to do it and whenthe project is supposed to be completed. This is the phase which will plan the what to doin case of contingencies; how to monitor the progress of the implementation; what controlmeasures should be installed and what corrective actions should be taken when thingsget out of control. The project planning is usually done by a committee constituted by theteam leaders of each implementation group. The committee will be headed by the ERP in-charge (usually the CIO or COO). The committee will meet periodically (during the entireimplementation lifecycle) to review the progress and chart the future course of actions.7.4. GAP ANALYSIS (OCT.04, 06, 07, 09, APR.08, 09, 10; 6M)This is, arguably, the most crucial phase for the success of the ERP implementation. Putvery simply, this is the process through which companies create a complete model ofwhere they are now, and in which direction they want to head in the future. The trick is todesign a model which both anticipates and covers any functional gaps. It has beenestimated that even the best ERP package, custom tailored to a companys needs, meetsonly 80% of the companys functional requirements. The remaining 20% of these requirements present a problematic issue for thecompanys BPR (business process reengneering). One of the most affordable, albeitpainful, solutions entails altering the business to fit the ERP package. Of course, acompany can simply agree to live without a particular function (the cheap but annoyingsolution). Other solutions include: • Pinning your hopes on an upgrade (low cost but risky) • Identifyinga third-party product that might fill the gap (hopefully it also partners with the ERP packages, keeping interfacing to a minimum) • Designing a custom programAltering the ERP source code, (the most expensive alternative; usually reserved formission-critical installations)7.5. REENGINEERING
  • 62. (APR.09; 7M)It is in this phase that the human factors are taken into account. In ERP implementationsettings, reengineering has two different connotations. The first connotation is thecontroversial one, involving the use of ERP to aid in downsizing efforts. And there havebeen occasions where high-level executives have invoked the reengineering slogan, andpurchased an ERP package with the aim of reducing significant numbers of employees.While every implementation is going to involve some change in job responsibilities, asprocesses become more automated and efficient, it is best to treat ERP as an investmentas well as a cost-cutting measure, rather than as a downsizing tool. Downsizing is abusiness practice that may have its place, but it should not be cloaked within the glossierslogan of reengineering, or justified by the purchase of an ERP package. ERP shouldengender business change, but should not endanger the jobs of thousands of employees. The second use of the word reengineering in the ERP field [or business processreengineering (BPR) as it is usually called], refers to an ERP implementation model initiallydesigned and used with much success by the Big Six consulting firms. The BPR approachto an ERP implementation implies that there are really two separate, but closely linkedimplementations involved on an ERP site: a technical implementation and a businessprocess implementation. The BPR approach emphasizes the human element of necessarychange within organizations. This approach is generally more time consuming, and hasreceived its share of criticism for creating bloated budgets and extended projects. Butadherents of the BPR approach to ERP, would argue that there is no way that you canignore the human element in an implementation that involves significant changes inresponsibilities. As the ERP market shifts to a mid-market focus, and as allimplementations are becoming more cost-sensitive, the BPR approach has come undersome real scrutiny.7.6. CONFIGURATIONThis is the main functional area of the ERP implementation. There is a bit of mystiquearound the configuration process and for good reason: the Holy Grail or unwritten rule ofERP implementation is, synchronizing existing company practices with the ERP packagerather than changing the source code and customizing it to suit the company. In order todo so, business processes have to be understood and mapped in such a way that thearrived-at solutions match up with the overall goals of the company. But, companies cantjust shut down their operations while the mapping processes take place. Hence theprototype—a simulation of the actual business processes of the company—will be used.The prototype allows for thorough testing of the "to be" model in a controlledenvironment. As the ERP consultants configure and test the prototype, they attempt tosolve any logistical problems inherent in the BPR before the actual go-liveimplementation. Configuring a companys system reveals not only the strengths of a companysbusiness process but also—and perhaps more importantly—its weaknesses. Its vital tothe health of the company and to the success of the ERP implementation that thoseconfiguring the system are able to explain what wont fit into the package, and where thegaps in functionality occur. For example, a company might have an accounting practicethat cannot be configured into the system or some shipping process that wont conform tothe package. The company obviously needs to know which processes have to change inthe process of implementation. Finding out what will work and what wont requires aknowledge of the business process itself, and an ability to work with people throughoutthe company. So, people with such skills should be assigned to these tasks. As a rule, inmost large implementations, the functional configurations are split between the differentareas within the company, so some will attend to HR, some will be involved in financialsand so forth. ERP vendors are constantly striving to lower configuration costs. Strategies currentlybeing pursued include automation and pre-configuration. Baan for instance, hasdeveloped Orgware, an automated configuration tool, while SAP has pre-configuredindustry-specific templates that can be tweaked for each individual company (AcceleratedSAP Solutions).
  • 63. The current ERP industry push towards developing the mid-range market in turncreates an added incentive {o reduce costs, encouraging the sought-after mid-rangecompanies to feel they can afford to implement a top-of -the -line ERP package. Bycreating a custom pre-configured ERP module for a particular industry—say a shoesoftware-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 akind of "question and answer" format can be used to find out the kinds of businessprocess information hitherto addressed through the hands-on configuration process. Intheory, these pre-configured tools should save time and money, but every business isunique and at least some configuration is unique to each project.7.7. IMPLEMENTATION TEAM TRAINING (OCT.04, 05; 7M)Around the same time that the configuration is taking place, the implementation team isbeing trained, not so much how to use the system, but how to implement it. This is thephase where the company trains its employees to implement and later, run the system.The ERP vendors and the hired consultants will leave after the implementation is over. Butfor the company to be self-sufficient in running the ERP system, it should have a good in-house team that can handle the various situations. Thus, it is very vital that the companyrecognizes the importance of this phase and selects those employees who have the rightattitude—people who are willing to change, learn new things and are not afraid oftechnology—and good functional knowledge.7.8. TESTINGThis is the phase where you try to break the system. You have reached a point where youare testing real case scenarios. The system is configured and now you must come up withextreme-case scenarios—system overloads, multiple users logging on at the same timewith the same query, users entering invalid data, hackers trying to access restricted areasand so on. The test cases must be designed specifically to find the weak links in thesystem and these bugs should be fixed before going live.7.9. GOING LIVEThis is it. Lights on, switches thrown, gloves off. On the technical side, the work is almostcomplete—data conversion is done, databases are up and running; and on the functionalside, the prototype is fully configured and tested and ready to go operational. The systemis officially proclaimed operational, even though the implementation team must havebeen testing it and running it successfully for some time. But once the system is live, theold system is removed, and the new system is used for doing business.7.10. END-USER TRAINING (OCT.06, 07, 09, APR.08, 10; 6M)This is the phase where the actual users of the system will be given training on how to usethe system. This phase starts much before the system goes live. The employees who aregoing to use the new system are identified. Their current skills are noted and based onthe current skill levels, they are divided into groups. Then each group is given training onthe new system. This training is very important as the success of the ERP system is in the
  • 64. hands of the end-users. So these training sessions should give the participants an overallview of the system and how individual actions would affect the entire system. In additionto these general topics, each employee is trained on the job or task that he/she issupposed to perform once the system goes live. It is human nature to resist change. Alsomany people are afraid of computers and other new technologies. So there will beresistance to change. Another factor is that not all people will be successful in making thechangeover. The company management should address these concerns and takenecessary actions to avoid failure. The end-user training is much more important andmuch more difficult (since most end-users are not thrilled at having to change) than theimplementation team training. Companies are beginning to take this phase seriously, asthere is statistical evidence now, which shows that most implementations fail because ofa lack of end-user training.7.11. POST-IMPLEMENTATION (MAINTENANCE MODE) (OCT.06;5M)One important factor that should be kept in mind is that the post-implementation phase isvery critical. Once the implementation is over, the vendors and the hired consultants willgo. To reap the full benefits of the ERP system, it is very important that the system shouldget enterprise-wide acceptance. There should be enough employees who are trained tohandle the problems that might crop-up. There should be people, within the company,who have the technical prowess to make the necessary enhancements to the system asand when required. The system must be upgraded as and when new versions or newtechnologies are introduced. Here the organization should think in terms of theincremental benefits of the new enhancements. Because with any upgradation orenhancements, there will be a lot of other aspects like user training that have to beconsidered. So instead of going in for upgradation as and when a new version isannounced by the vendor, the organization should first analyze the costs and benefits. The post-ERP organization will need a different set of roles and skills than those withless integrated kinds of systems. At a minimum, everyone who uses these systems needsto be trained on how they work, how they relate to the business process and how atransaction ripples through the entire company whenever they press a key. The trainingwill never end; it is an ongoing process; new people will always be coming in, and newfunctionality will always be entering the organization. Just as courtships and honeymoons are different from marriages, living with ERPsystems will be different from installing them. Projects for implementing the ERP systemsget a lot of resources and attention. However, an organization can only get the maximumvalue of these inputs if it successfully adopts and effectively uses the system.
  • 65. CHAPTER 8 VENDORS, CONSULTANTS AND USERS INTRODUCTIONWhy cant companies develop their own ERP packages? Developing an ERP package is a verycomplex and time-consuming process, which needs a lot of skilled manpower and otherresources. Many companies have personnel in their IT/IS departments who can absorb thenecessary knowledge and who have experience in developing sophisticated systems. Theproblem is that such specialized computer work is not the main business of these companies.They should be directing all their available resources into improving their own products orservices so that they can remain competitive, serve their customers better and continue togrow. Since designing and implementing integrated software packages is not the business ofmost- companies, or a focus of their executives, the systems that their in-house team come upwith will never equal in quality, scope, functionality or technology those systems created bysoftware firms whose business this is. These software firms (ERP vendors) can producesophisticated packages and provide their clients with products that allow them to maintain afocus on their own chief activities, thus improving revenues, profits and shareholder returns.8.1. IN-HOUSE IMPLEMENTATION—PROS AND CONS (OCT.04, 07, 08, 09, APR.08, 10; 7M)The next question that many people ask is: why cant the company carry out the ERPimplementation by itself? To successfully set up and implement as ERP package, whichfunctions perfectly, is not an easy task. One cannot go in for a trial-and-error method ofimplementation strategy due to the huge amount of investments involved. The consequencesof a failed ERP implementation can be quite catastrophic. It might put the organization out ofbusiness. Also, the ERP implementation process cannot go on for a long time. It has to becompleted within a reasonable time period. To successfully carry out the implementation within a reasonable timeframe, the in-housepeople who are designated to do the job should possess a certain amount of knowledge andskill. To start with, the company should have people who are familiar with the ERP packageand with the technical issues. Implementing the ERP software means, assigning the optimumvalues to the various parameters and the variable elements of the system. Experience hasproven that a good professional needs at least one year to become reasonably good in an ERPsystem and that this one year should be hands-on practical experience. It is not possible tobecome an expert by reading product brochures and on-line help files. You have to havepractical implementation experience.
  • 66. Many software vendors have their own team of consultants, whose responsibility is toensure 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 entirelydifferent propositions. A good package vendor need not be good at implementing its ownproduct. 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 sameparty is performing multiple roles, it can create problems when a conflict arises. For example,if the vendor is doing the implementation, the vendors consultants may not be as open to theideas of the in-house team as third-party consultants, because the vendors consultants willhave a mindset which will prevent them from seeing the other sides perspective. Besides having a very good knowledge of the product, the people who are toimplement the ERP system should possess the following skills: • Knowledge of how to organize and run a project of this magnitude. This calls for good organizational skills, project management skills, team management skills and knowledge of scientific methods of software project management. • 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 will involve dealing with a lot of people and good leadership and communication skills are very effective. • Excellent training skills. Every ERP project involves considerable amount of training at various levels and in various details. There will be familiarization programs for all the employees, be executive programs for the top management, functional training for the implementation team members and end-user training. In todays business environment, where the trend is to reduce manpower and focus more onthe companys core competencies, it becomes ever more difficult to take the totalresponsibility of the ERP implementation and get it done using in-house resources. If thecompany is planning to do the ERP implementation in-house, it might have to hire experts andhave them on the companys rolls. This is an expensive proposition because once the imple-mentation is over, you wont need that many experts to keep the system running—the post-implementation phase. You will need only a handful of people, may be a few of them in eachfunctional area, to effectively handle the post-implementation scenario. If the company isplanning to do the ERP implementation all by itself, then it will be wasting a lot of its resourcesand spending a lot of money on training—most of which are not needed after the packageimplementation. Hence, it is always a better idea to leave the implementation—most part of it—to the peoplewho are specializing in it and focus the companys efforts on preparing its personnel toadminister the package after it is implemented. Once these employees have been trained—during the course of the implementation—they can help the company in its implementationefforts in other units of the company, or provide training to the employees in using the system
  • 67. and so on. By getting the employees trained during the implementation, the company cansave a lot of money that otherwise would have been spent on hiring trainers. In summary, it is better for companies to concentrate on their business and leave the jobof ERP implementation to people who are in that business. But to get maximum benefit out ofa packaged solution, the company personnel should participate fully during theimplementation of the package. The company should plan the participation so that its peopleplay 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 experiencethat will guarantee the best possible use of the acquired package.8.2. VENDORSVendors are the people who have developed the ERP packages. They are the people who haveinvested huge amounts of time and effort in research and development to create thepackaged solutions. If one studies the history of the ERP packages and finds out how eachpackage evolved, it soon becomes evident that every ERP package grew out of the experienceor opportunity of a group of people, working in a specific business, who created systems thatcould deal with certain business segments. Now with the ERP market place becoming crowdedwith more and mcrre players entering the market and the competition becoming hot, todaysERP packages have features and functionality to cater to the needs of businesses in almost allsectors. The ERP vendors spent billions of rupees in research to come up with innovations thatmake the packages more efficient, flexible, and easy to implement and use. Also with theevolution of new technologies, the vendors have to constantly upgrade their product to beable to use the best and latest advancements in technology.8.2.1. Role of the vendors (OCT.05, 07; 8M) 1. First and the foremost role of all the vendors is to sell their ERP package in the organization. 2. As soon as the contract is signed with the organization, the Vendor should supply the Product and Documentation to them. 3. The Vendors are responsible for product customization during the implementation 4. The Vendors should provide training to the key users such as Organizational experts 5. The Vendors should provide Post Implementation Support (Maintenance) to the Organization.The vendor should supply the product and its documentation as soon as the contract is signed.Only after the software is delivered, can the company develop the training and testing
  • 68. environment for the implementation team. The vendor is responsible for fixing any problems inthe software that the implementation team encounters. So the vendor should have a liaisonofficer who should constantly interact with the implementation team. Another role the vendor has to play is that of the trainer—to provide the initial training forthe companys key users, people who will play lead roles in the implementation of the system.These key users are the ones who will define, together with the consultants, how the softwareis to serve the company. In other words, it is these in-house functional experts who will decidehow the functionalities are to be implemented, as well as how to use or adapt the product tosuit the companys unique requirements. So it is very critical that these key users are given athorough training on the features of the package. Vendors training should achieve the goal ofshowing the key users how the package works, what are the major components, how the dataand information flows across the system, what is flexible and what is not, what can beconfigured and what cannot, what can be customized and what should not, what are thelimitations, what are the strengths and weaknesses and so on. Now some of you might ask: we are hiring consultants who are experts in the package sowhy cant we get training from the consultants? This is true. Most of the consultants arecapable of providing sound training for the packages. But we are hiring the consultants forimplementing the system. The objective of the vendor training is to show how the systemworks, not to show how it should be implemented. This means that the vendor demonstratesthe product as it exists and highlights what are the possible options available. The companysemployees who are participating in the vendor training should try to understand thecharacteristics of the package and the impact of the system on their business processes. Thetrainees should use these training sessions to question the vendor on all aspects of thesystem. The consultants also have a role to play during this vendor training. They should participatein the training sessions to evaluate how the users react to the reality that is starting to takeshape from the detailed presentations and demos. Consultants should also ask questions thatthe vendors are trying to avoid and the users are unaware of. This is the best way to presentthe real picture to the users and it will also prevent the vendors from making false claims. The role of the package vendor does not end with the training. The vendor also plays animportant project support function and must exercise the quality control with respect to howthe product is implemented. It is the vendor who understands the finer details and subtletiesof the product and can make valuable suggestions and improvements that could improve theperformance of the system. It is also in the best interests of the vendor that this participationcontinues, because if the implementation fails, most of the blame will fall on the vendor. Also asuccessful implementation means another satisfied client, improved goodwill and goodreferrals and so on. So the vendor will continue to participate in all the phases of theimplementation, mostly in an advisory capacity, addressing specific technical questions aboutthe product and technology. The vendor has other responsibilities also. There will be gaps between the package and theactual business processes. The software might have to be customized to suit the companysneeds. Customizing means altering the product so that it is suited for the companys purposes.The choice of whether to customize or not is the one that can have enormous impact on the
  • 69. project and it often constitutes a point of conflict between the consultants and users. But if thedecision to customize has been taken, it is the vendors duty to carry out the necessarymodifications. This is because only the vendor knows the product well enough to make thenecessary changes without affecting the other parts. Moreover, the company should get aguarantee (in writing) from the vendor that despite the customization, it will be able to benefitfrom the future software improvements introduced by the vendor.8.3. CONSULTANTS (OCT.08, 09, APR.09; 10M)Business consultants are professional who specialize in developing techniques andmethodologies for dealing with the implementation and with the various problems that willcrop up during the implementation. They are experts in the administration, management andcontrol of these types of projects. Each of them will have many years of implementationexperience with various industries and would have time-tested methodologies and businesspractices that will ensure successful implementation. They will be good at all phases of theimplementation lifecycle, right from package evaluation to end-user training. The only problemwith them is that they are expensive—very expensive. Many of the big consulting firms, havingforecasted the ERP boom, invested a great deal of money in developing a range of consultingservices in this field and assigned many of their professionals to become specialists in thevarious aspects of ERP packages and their implementation. These firms researched the variousproducts, developed an in-depth understanding of each products strengths and weaknesses,worked by the side of the ERP vendors, confirmed that the vendors package worked andlearned the tricks and techniques of the trade-, found out the pitfalls and mistakes that shouldbe avoided and thus created a pool of experts who could handle the ERP implementationwithout failure. Thus, consultants are people who have made the business of ERP implementation theirbusiness and have invested huge amount, of money and manpower for that purpose. So whenyou want to get the services of these consultants, the first question that will be asked is—"Arethey 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 utilization of the moneyspent on consultants. If we study the statistics, we can see that a well-selected, integratedsystem that was successfully implemented and which is successfully working, usually pays foritself in a relatively short period—between 10 and 30 months. If you analyze 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 rupeeinvested in the software product. Sounds amazing; but it is true and it is also true that thesoftware will pay for itself— the software cost, the consultants charges and other expensesincurred during implementation—in the above mentioned period (10-30 months). But the catchis that the product has to be the right one and the implementation has to be successful. Thatis why the expertise of the consultants becomes invaluable and the money spent on goodconsultation is never wasted. So finding the right consultants— people who have thenecessary know-how, who will work well with the company personnel, people who will transfertheir knowledge to the companys employees and people who are available in case theirservices are required again—is very important.
  • 70. 8.3.1. Role of the consultants 1. The first role of the Consultants is to help organization in selecting the best ERP Package for implementation in Package Evaluation Phase 2. The Consultants should guarantee for the success of the ERP implementation. 3. The Consultants are responsible for solving all the functionality and technical problems arrived during the Implementation. 4. The Consultants should provide support to Organization, when the Vendors are Providing Training to them, so that Vendors cannot cheat organization (the vendors will never show there weakness, so the consultants should be there to determine there weakness)THEORY:The role of the consultants is very familiar to all of us because we have seen many of them inaction. The company places its trust in the consultants, that its business objectives will beachieved. In fact, it is a better practice that the contract between the company and theconsultants should have all the performance clauses in place. The consultants shouldguarantee the success of the project and should be able to show the results (quantifiableresults like reduction in cycle time, increased response time, improved productivity and so on)to the satisfaction of the company management. Consultants are responsible for administering each of the phases of the implementation, sothat the required activities occur at the scheduled time and at the desired level of quality andwith effective participation of all those who must participate. For keeping the promises thatthe consultants have made during the negotiations, they have to transform their approachesand methodologies into detailed work plans. The methodology will have to be converted intotasks and should be allocated to the right people. The time schedule for each phase and eachtask has to be determined and the project plan has to be finalized. Consultants should add value to the project. They bring the know-how about the packageand about the implementation—the know-how that is not included in the standarddocumentation. This know-how (also know as practical knowledge) is derived from theirexpertise which stems from practical experience. Because the consultants have seen manyprojects and have made or seen many mistakes, they can avoid the phenomenon ofreinventing the wheel. They will know what will work and what will not. Thus by eliminatingthe trial-and-error method of implementation, and by doing it right the first time, theconsultants help in saving huge amounts of money, time and effort. Consultants should also know how to remain impartial while questioning current companyprocesses in an effort to promote better businesses practices and better implementationresults. They should strive to improve the companys business processes so that the softwarepackage can be used as it was originally intended by its developers. Refining the companysprocesses can only optimizes the performance of the system and maximize future usersatisfaction. The consultants are also responsible for analyzing and clearly addressing the
  • 71. customization issues. They must be able to distinguish between the must have and nice tohave items and decide on the level of customization. This is an area where the consultantshave to use their diplomatic skills, as the company people might want to customize all the as-pects. It is the duty of the consultants to present the advantages and drawbacks of each areaand reach a consensus decision, which should also be the right one. Consultants need toposition themselves in such a way as to balance their loyalty to the client and the project, withthat of defending the package vendor, when such defense is technically correct. This is indeeda very difficult job (like a tight-rope walk) and that is why consultants are being paid such hugeamounts for their services. It is the duty of the consultant to understand the total context and scope of the envisionedwork and to know when to alert the company management about actions and decisions thatmust be undertaken so that the job will not be compromised. Maintaining technicaldocumentation on the project also falls within the duty of the consultant. The consultants willleave once the project is complete, but the knowledge of the project must stay within theorganization. So the consultants should create a knowledge base and should train enoughpeople so that the work they have started is continued.8.4. END-USERS (OCT.04, 05, 06, APR.09; 6M)These are the people who will be using the ERP system once it is in place. These are thepeople who were doing the functions that are being automated or computerized by the ERPsystem. With the implementation of the ERP system, the old job descriptions will change, thenature of the job will undergo drastic transformation. It is human nature to resist change.When we are talking about implementing an ERP system we are talking about change in a verymassive scale. Employees, will fear that system will replace existing jobs, as many functionswill be automated. Also people will be afraid of the amount of training they have to undergoand learning they have to do to use the new system. Job profiles will change, jobresponsibilities will undergo drastic alterations, and people will be forced to develop new skillsets. If these fears are not addressed and alleviated well in advance, it will cause trouble forthe organization. It should be worth noting the fact, that while the ERP systems eliminate many existing jobs,it creates many new ones—ones with more responsibilities and value addition. It is easy to seethat the automation of the business processes, through technology, can eliminate the jobs ofmany employees whose function it is to record, control, calculate, analyze, file or preparereports. But it must be pointed out to the employees that the same automation creates manymore opportunities for them, because they can get away from the monotonous clerical workand transform themselves into highly valued individuals, in a new and challenging workingenvironment using modern technology. If the company can succeed in making its employeesaccept this fact and assist in making the transformation (by giving them training), then themajor (and most critical) obstacle in the path of an ERP implementation is solved.
  • 72. CHAPTER 9 FUTURE DIRECTIONS IN ERP INTRODUCTION (OCT.06; 8M)The only constant is change. No more so than in the constantly evolving,high-speed world of technical innovation. Therefore, the question is: How willthese inevitable changes affect the ERP market?ERP industry watchers are agreed on at least one point: one-size-fits-all, across the boardintegration is no longer seen as the unwritten law. As revolutionary as the ERP concept was,and to a certain extent still is, given the number of companies yet to implement it, it isdoubtful whether it can hold onto its overall position as the hottest dominating technology inthe face of competition from new cutting-edge technologies such as Internet commerce andEDI (Electronic Date Interchange), and competitive new business practices involving supplychain and customer self-service. As the market stands now, no one doubts ERPs ability to continue dominating Back-Officepractices in areas of traditional strength such as Financial Management, Human Resources andbasic manufacturing. Top-tier ERP vendors can expect to continue to make healthy inroadsinto these markets, particularly into the mid-market sector. But as industry experts havepointed out for some time, the enormous surge in ERP implementations over the last severalyears has, to a certain extent, been fueled by its ability to provide solutions to Y2K problems.Therein lies part of the dilemma for ERP vendors. The Y2K problem has dominated the marketbecause of its pressing nature, forcing cutting-edge projects to take a back seat to Y2Ksolutions. That mindset is changing rapidly, and now there is increasing demand forinvestment in innovative applications such as electronic commerce and supply-chain andHR/customer self-service (sometimes referred to as Front-Office applications). The question then becomes: can ERP afford the kind of investment needed to maintain boththeir Back-Office supremacy and develop the technology and the market it needs in the Front-Office; or, will smaller companies with a faster response time and less investment resources,commanded by existing applications, take over the Front-Office and leave ERP in Back-Officemaintenance—upgrade mode—still lucrative and stable to be sure, but not quite as attractive.Forrester Research group look at the market five years from now and suggest that the currenttop-tier ERP vendors will continue their supremacy in the global core applications market,while the dynamic, emerging, industry-specific Front-Office market will be captured by best-of-breed niche applications.
  • 73. But just how likely is it that the ERP behemoths will roll over and play dead? Given theinevitable slowing of the growth rate in the basic core applications market (expected to dropfrom its current rate of 50% to about 33%, five years from now), wont the Big 5—SAP, Baan,Oracle, PeopleSoft and JD Edwards—refocus their energies into Front-Office areas such ascustomer management and supply chain? That is what the Hurwitz Group anticipate. Theypredict that the top-tier ERP vendors will move into new technologies while preserving theircurrent market share, albeit with slower growth rates. There is lots of evidence for the view that the Big 5 ERP vendors are finding it hard to resistthe siren song of the Web. And let us not forget the supply chain buzz. The future of the supplychain market seems all set. The problems are logistical, reflecting the fluid state of the marketas developers strive for market share, rather than any inherent problems in supply chain itself.The Hurwitz Group expects supply chain to shake out and fuel significant business growth. Enterprise resource planning (ERP) applications are the complex, multi-module suites ofbusiness management software that handle accounting, distribution, manufacturing, humanresources, and payroll. Typically targeted at Fortune 1000-level enterprises, these are theapplications that, before client/server, would have been run on IBM mainframe, AS/400, DEC,or HP minicomputer platforms.10.1. NEW MARKETSAs larger enterprises become saturated with new-generation client/server ERP systems,vendors are being forced to find new markets for their product suites in order to grow. Thispressure is causing ERP vendors to increase their appeal to small business clients through anumber of initiatives. These initiatives include the following: • Supplementing their direct sales force with reseller channels • Lowering the entry price point of their software to make it financially viable • Stratifying their software offerings to appeal on the basis of reduced functionality • Improving the implementation methodologies for faster deployment • Porting the products to platforms such as Microsoft Windows NT.10.2. NEW CHANNELSVendors such as SAP AG Inc., Oracle Corporation, and Baan Co. have been building resellerchannels—both in the US and worldwide—to reach the smaller businesses that are looking forthe complete-one-stop shopping for their ERP solutions. The ERP software is made morefinancially attractive by lowering the entry price point for each module and by ramping up thetotal costs by basing price on user licenses.Oracle is being particularly aggressive in this respect with software pricing, comparingfavorably with middle-market client/server offerings from companies such as PlatinumSoftware and Great Plains Software. Although JD Edwards ventured in these waters bycomplementing its OneWorld suite with a lower-cost line called Genesis, most of the vendors
  • 74. have avoided producing less-expensive lite versions of their software. SAP abandoned its SAPLite project some time ago and it looks as if the lite versions will have to wait for some moretime.10.3. FASTER IMPLEMENTATION METHODOLOGIES (OCT.05, 06, 07, 08, 09, APR.09; 6M)All ERP vendors have suffered from the perception that their software is difficult and costly toimplement. This perception has provided huge profits to the Big 6 accounting firms (now Big5 with the merger of Price Waterhouse and Coppers & Laybrand) that have generated billionsin fees from their ERP software implementation practices. Even though only 10-15% of theimplementations have taken years to complete and have eaten up millions of dollars ofconsulting costs, the fact remains that implementing ERP packages is difficult. An ERP system may consist of dozens of modules that are deployed on a multinational basisto service hundreds of users from many different business departments. There may also be acomplete change of IS infrastructure—say from a mainframe to a UNIX platform—while anumber of core business processes are being simultaneously reengineered. ERP vendors havethus begun to focus their effort on making the implementation process easier by providingmore effective tools and methodologies to speed up the process, creating elite consultingteams to intensify resources when required, and using model-based approaches and openingup their systems for easier integration. For example, SAP has introduced a program called Accelerated SAP (ASAP) that takes theknowledge gained from thousands of R/3 implementations to date and consolidates thisexpertise in a product called the Business Engineer. This product helps implementation teamsconfigure the SAP modules to conform to the processing style of some 100 business operatingscenarios. Methodologies such as ASAP help reduce SAP implementation times to less than sixmonths in many cases. Oracle recently introduced a similar program called Fast Forward, tohelp speed up implementations of Oracle Applications suites and nail down the costs up-front. Despite the availability of new channel partners and implementation methodologies of themajor consulting firms, ERP systems have often been difficult to implement because of adearth of skilled consultants. As a result, initiatives such as Oracles OracleOne or SAPsPlatinum consulting services are leading the way in creating highly skilled consulting teamsand are charged with delivering fully trained and experienced consultants on a worldwidebasis to push implementations through faster.10.4. BUSINESS MODELS AND BAPI’S (OCT.05; 5M)Using products such as Intellicorp Inc.s LiveModel, implementation teams can review andsimulate changes to the SAP R/3 application Reference Model that provides views of R/3processes, data models and functions. The Reference Model and any changes made to it arestored in the LiveModel repository and can thus be audited and changed on demand.
  • 75. Furthermore, because LiveModel is OLE compliant, the R/3 models can be manipulated anddocumented through desktop OLE applications such as Microsoft Word. SAP has attacked the notion that the R/3 system is not open by releasing the. specificationsfor some 170 business application programming interfaces (BAPIs), which help third-partyapplications interact with R/3 directly. BAPIs are simply, sets of methods that allow externalapplications to collaborate with specific R/3 business objects, such as customers, accounts, oremployees. The fact that the R/3 data is addressable through these callable methods, (BAPIs)gives the third party application vendors a lot of flexibility to build supporting applications forthe RV3 system. In a similar manner, Baan provides an offering called OrgWare that is based on the use of atightly integrated business-modeling tool, combined with business-specific templates that helpto automatically configure the software to suit specific operational needs. Baan is currently inthe process of enhancing this tool with new setup wizards to accelerate software imple-mentation on the Windows NT platform.10.5. CONVERGENCE ON WINDOWS NTThe growing popularity of Windows NT has forced almost all ERP vendors to offer products thatcater to this segment. SAP R/3 has been available since April 1994 on NT and since October1995 on SQL Server—while Baan, Oracle, and PeopleSoft have announced the generalavailability 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 thecompanys best customer. Baan sports the Designed for MicrosoftBackOffice certification. Oracle touts its support for its own NT-based clustering technology,and PeopleSoft shows off its recent switch to BackOffice as its primary development and initialrollout platform. As Microsoft scales up its enterprise versions of NT and SQL Server to supportmore processors as well as failover clustering and row-level locking, BackOffice is simplybecoming a more viable platform for running demanding ERP applications. The BackOfficeplatform is already the platform of choice among the middle market vendors of accounting anddistribution software, with the NT/SQL Server combination grabbing market share from thepopular Novell/Btrieve platform.10.6. APPLICATION PLATFORMSERP vendors already deliver comprehensive suites of application modules that supportmultinational deployment, Year 2000 compliance, and the Euro (European single currency).But each vendor is trying to extend the reach of its software and make it more like anapplication platform than a suite of modules. SAP is already ahead in this race; its R/3 product
  • 76. is one of the few that can be managed, centrally using popular platform management toolsfrom vendors such as Computer Associates (UniCenter TNG) and Tivoli (TME).10.7. NEW BUSINESS SEGMENTSAll the ERP vendors are now capable of delivering specialized variants of their applications toservice vertical markets such as government, healthcare, financial service, or retailenvironments. Some vendors are also moving into more specialized areas, such as supplychain management and demand forecasting or sales automation and marketing.PeopleSoft bought Red Pepper Software to enhance its supply chain offering, while Baanrecently acquired Aurum Software for its Aurum Customer Enterprise suite of customerrelationship management tools. To strengthen its financial modules, Baan also teamed up withHyperion Software to link Hyperions financial accounting, budgeting and reporting solutions toBaans distribution and manufacturing modules.10.8. MORE FEATURES...Improving decision support has been another focus of almost all the ERP vendors. Baan islinking its applications to the Gentia product (from Gentia Software Inc.) to provide OLAPcapabilities, and for the setup and monitoring of key performance indicators. JD Edwardsteamed up with Information Builders to deliver a data mart, based on Information BuildersInc.s SmartMart suite of database access middleware, data transformation, reporting, andOLAP tools. Oracle provides a data mart designer and builder tool for creating data marts, andOracle also offers Oracle Discoverer, an end-user tool for querying, charting and reporting datafrom Oracles Applications suite. The next version of PeopleSoft will include closer integrationbetween PeopleSoft applications and both, the client-based Cognos Corp. PowerPlaymultidimensional OLAP tool and Arbor Software Corp.s multidimensional Essbase server. SAPhas also previewed its own Business Information Warehouse product for synchronizing the R/3transaction system with a data warehouse that can manage both R/3 and non-R/3 data,through use of a metadata repository and a front-en«J OLAP engine.10.9. WEB ENABLING (OCT.04, 08, APR.08, 09; 6M)As with every other software market, ERP vendors are being forced to move from aclient/server to browser/server architecture to Web-enable their software and thus, deliverself-service and electronic commerce capabilities. Baan is working to deliver a Java-based Webinterface to all its products. The company is also focusing on the automation of supply-chainrelationships via the Internet, on e-commerce via the Microsoft Merchant Server (now knownas Site Server), and on using Hyperion Software Corp.s Spider-Man technology for report and
  • 77. alert distribution across the Web. PeopleSoft is set to deliver its Universal Applications—Java-based self-service applets—with its PeopleSoft 7. JD Edwards is also using Java to allow itsOneWorld functionality to be available either through a Windows client or a Web browser,while Oracle has used Java to deliver its Oracle Web Employees, Oracle Web Customers, andOracle Web Suppliers modules. In 1997, SAP released 25 Web applications for version 3.1 ofthe R/3 and recently previewed links to online catalogs for Web-based procurement. Unlike theMicrosoft-centric middle market applications, the ERP vendors are all using Java, rather thanMicrosofts ActiveX, for their first generation of Web-enabled applications.The move by the ERP vendors to embrace Java as a means to deliver and deploy their Webfunctionality, is the first move away from proprietary technologies to more open tools. Onereason why implementing solutions from SAP and PeopleSoft can be expensive is because thetools for customising their products—ABAP4 and PeopleTools—are proprietary. Whereas manylower-tier software vendors have built their application front ends using popular commercialtools—such as PowerBuilder, Visual Basic, or Microsoft Access—the-ERP vendors have nottaken this route. As a result, the customer will have to pay a premium for ABAP4 andPeopleTools programmers, instead of leveraging the PowerScript or Visual Basic expertise thatthey may already have in-house. Because Oracle is already a tool vendor, the company usesOracle Forms, Developer 2000, and Designer 2000 to develop its Oracle Applications.10.10. MARKET SNAPSHOTEven with zero growth at SAP, it would still take any competitor a couple of years of triple-digitgrowth to overtake the German giant. PeopleSoft has not made a wrong move so far, andBaan is also showing that it has the mentality and results to become a top-three player. Oraclehas lately, focused more attention on its applications business as a growth engine and seem tobe reaching, most aggressively, into the territory targeted by the middle-market client/serveraccounting players. JD Edwards seem to be in the most vulnerable position, with theircontinued reliance on the momentum of IBMs AS/400 line, coupled with their need fortransition to new product lines and platforms, where their previous market-leading positioningwas less than clear cut. ERP vendors are definitely extending their reach as they fight to maintain their growthmomentum, during the transition from client/server through browser/server to the promisedland of distributed components. We can expect to see many more acquisitions along the linesof the Baan/Aurum deal, an increasing focus on the Microsoft BackOffice platform, and ERPpackages turning up more and more in businesses that previously, could just envyfunctionality available to those with deeper pockets. One thing is clear; no one wants just ERP anymore. The emerging trends in the enterprisepackaged application industry are its integration with new, cutting-edge technologies, such assales force automation (SFA) and customer management. Driven in part by the huge impact ofInternet-based commerce, these new applications are leading to a seeming divergence be-tween so-called Back Office and Front Office functionalities.