Enterprise resource planning

Enterprise Resource Planning (ERP)
There are various ways in defining an Enterprise Resource Planning System. This is how it has
been defined by American Inventory and Production Control System (APICS) dictionary:
“Enterprise Resource Planning: An accounting oriented information systemfor identifying
and planning the enterprise-wide resources to make, ship and account for customer
orders.”
Again in Internet encyclopedia, it has defined as “An enterprise planning system is an integrated
computer-based application used to manage internal and external resources, including tangible
assets, financial resources, material and human resources”.
Basically, an ERP combines several traditional management functions into a logically integrated
system and facilitate the flow of information across these functions. It is designed to model and
automate basic processes across the organization over a centralized database and eliminates the
need of disparate systems maintained by various units of the organization.
Figure below shows how information is integrated into a typical organization using an ERP
system.

ERP system is thus a mirror image of the major business processes of an organization.
Need for Enterprise Resource Planning - Why ERP ?
Separate systems were being maintained during 1960/70 for traditional business functions like
Sales & Marketing, Finance, Human Resources, Manufacturing, and Supply Chain Management.
These systems were often incongruent, hosted in different databases and required batch updates.
It was difficult to manage business processes across business functions e.g. procurement to pay
and sales to cash functions. ERP system grew to replace the islands of information by integrating
these traditional business functions.
The successful implementation of an ERP systemwill have many advantages, as indicated
below:
 Business Integration and Improved Data Accuracy: ERP system is composed of various
modules/ submodules where a module represents a particular business component. If data is
entered in one module such as receiving, it automatically updates other related modules
such as accounts payable and inventory. This updating occurs at real time i.e. at the time a
transaction occurs. Since, data needs to be entered only once at the origin of the transaction,
the need for multiple entries of the same data is eliminated. Likelihood of duplicate/
erroneous data is, therefore, minimized. The centralized structure of the database also
enables better administration and security provisions, which minimizes loss of sensitive
data.
 Planning and MIS: The various decision support tools like planning engines and
simulations functions, form an integral part of an ERP system that helps in proper
utilization of resources like materials, human resources, and tools. Constrained based
planning help in drawing appropriate production schedules, thereby improving the
operation of plant and equipment. As a part of MIS, an ERP system, contains many inbuilt
standard reports and also a report writer that produce ad hoc reports, as and when needed.
 Improved Efficiency and Productivity: In addition to provision of improved planning,
ERP system provides a tremendous boost to the efficiency of day to day and routine
transactions such as order fulfillment, on time shipment, vendor performance, quality
management, invoice reconciliation, sales realization, and cash management. Cycle time is
reduced for sales to cash and procurement to pay sequences.
 Establishment of Standardized Procedures: ERP system is based on processes of
international best practices, which are adopted by the organizations during implementation.
Department silos are purged, and maverick practices are done away with. Because of top-
down view available to management, chances of theft, fraud and obsolescence are
minimized.
 Flexibility and technology: Due to the globalized environment, where production units,
distribution centers, and corporate offices reside in different countries, organizations need
multi-currency, multi-language and multi-accounting modes, in an integrated manner.
These provisions are available in most of the ERP systems, particularly in products offered
by tier 1 and tier 2 vendors. ERP vendors are also quick to adopt latest technologies, from
mainframe to client server to the internet. Unlike a bespoke system, Upgrading to latest
technology for a running ERP system is uncomplicated, involving mostly adoption of
service packs and patches.

Conclusion
Although ERP provides many advantages; its implementation is a strategic decision, involving
significant resources (both financial and human), proper evaluation and business process re-
engineering. There must be a commitment from all levels. A failed implementation may lead to
bankruptcy of an organization.
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Enterprise Resource Planning - I
 ERP - Introduction
 ERP Vendors
 ERP Life Cycle
 Implementation of ERP System
 Selection of ERP Packages
 Do’s & Dont’s in ERP Projects
 Environment for ERP Implementation
 Phases of ERP Implementation
 Change and Risk Management
 Return on Investment (ROI)
 Configuration Control & Base Settings
 MasterData Management
 General Ledger & Accounts
 Accounts Payable and Receivable
 Asset Management & Budgetary Control
 Cost Estimate and Accounting
 Cash Management Module in ERP
 Production Module - BOM & Routing
 Production Planning and Control
 Subcontracting and Materials Issue
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4. Enterprise Resource Planning - I
5. Growth and Historical Evaluation of ERP
Growth and Historical Evaluation of
ERP
Use of computer systems is a post second world war phenomenon. The first working computer
was developed by two scientists at the University of Manchester, UK. However, commercial
applications of computer commenced during the 1960s.
Pre ERP systems
In the sixties, computers were bulky, noisy and without the facility of standard operating
systems. The organizations used to develop computerized systems that were stand alone; tailor
made and without an integrated approach. The software development, in a sense, was a re-
inventing wheel, as the basic business process is similar for all organization in the same business
sector. Due to this restrictive environment, Development, maintenance, and modification cost
became prohibitive. Developer ended up developing isolated and piecemeal systems, even within
an organization. Thus, a payroll system, accounting system, and inventory system were
developed in isolation as per specific need of business units and were incompatible with each
other.
MRP-Advent of ERP
Stand alone systems, in vogue during the sixties, were incapable of processing planning
requirement of an enterprise encompassing production planning, procurement, and inventory,
which became an impediment to adopting Materials Requirement Planning (MRP). MRP was
first adopted by IBM and J I Case (a tractor maker from the USA) during the late seventies,
when integrated systems started taking shape. The basic idea of MRP was to assimilate planning
and scheduling elements to the manufacturing process. The process of MRP was to plan and
procure purchase requirements based on finished products, inventory on hand, allocated
inventory and expected arrivals. Subsequently, it was supplemented by Capacity Requirement
Planning (CRP) to create capacity plans of shop floors and sub=contractors.
There was continued development of MRP system during the 1980s. The need moves beyond
shop floor, and MRP II was introduced incorporating planning element of distribution as well as
forecasting requirement.
ERP Evolution
ERP was introduced in late 1980 to integrate other business functionalities not covered by MRP
or MRP II. It is not confined to manufacturing only but covers all facets of organization such as:

i. Finance
ii. Human Resources
iii. Supply Chain
iv. warehouse management, and
v. Project Management
ERP development from software solution provider mainly emerged as a sequel of their MRP
products. Some of the early solution providers are
i. SAP from Germany
ii. BaaN from Netherland
iii. JD Edwards from USA, and
iv. Lawson from USA
Few vendors did not follow this course. Starting point of Oracle ERP was their accounting
package whereas People-soft ERP evolved from their HR suite.
During the 1990s, ERP products continued to evolve. Vendors added new functionalities,
incorporated Graphic User/ Internet browser interface and brought out new versions of their
products. Some solutions were found to be more suitable for a particular vertical such as discrete
manufacturing, utility, process industries, public sector and retail. Several vendors brought out
reference models of their product, meaning that through pre-configuring basic and common data,
a particular flavor of their product will be more compatible with the business need of a particular
sector/ sub-sector.
Traditionally, the biggest purchaser of an ERP solution is fortune 500 companies. But, this
market has since been saturated. Vendors are now looking to increase their presence in small and
medium business sector. Due to fierce competition and financial crisis, there are also some
takeover and mergers across ERP solution providers during early 2000 such as Oracle taking
over People Soft, Infor taking over BaaN and Microsoft taking over Axapta.
Current Trend
ERP solutions, which were mostly, operating as a back-end system, is now broadening its
horizon. ERP vendors are extending their products to become Internet-enabled. ERP extension
products (mostly as an add-on to their existing products) now provide solutions for Advanced
Planning and Scheduling, Manufacturing Execution System, Advanced Business Intelligence and
Dashboards, Salesforce Automation, Product Lifecycle Management and Warehouse
Management. Business to Businesses and Business to Commerce functionalities, as add-on
solution, is now getting seamlessly integrated with Back-end, thus making it possible to bring e-
commerce under the gambit of ERP.
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5. ERP and e-Commerce
ERP and e-Commerce
During 1990s’, the popular method of exchanging information between trading partners were
Electronic Data Interchange (EDI) and all major ERP vendors added EDI facilities to their
products. However, EDI did not achieve its desired outcome as each organization needs its

customized EDI (to account for its unique data format), high set up cost (requiring privately run
Value Added Network) and little cohesion or standardization. A majority of organizations did
not use EDI functionality while implementing their ERP systems.
The advent of the internet and intranet technologies since mid 1990s’ saw the exponential growth
of electronic commerce (e-commerce). E-commerce involved buying of goods through the
internet (comprising of advertising need, issue invitation to tender, reverse auction, etc.), selling
of goods through the internet (comprising electronic auction, publishing electronic catalogues)
and handle related processes electronically such as receive invoice, making payment, monitoring
performance.
Response of ERP vendors: ERP vendors were not agile to quickly respond to the changing need
where customers and suppliers, wanted information, contained in the backend ERP system, for
effective collaboration, better information flow and minimizing cost across the supply chain.
Customers demanded supply status, billing information, warranty compliance over the web
whereas suppliers wanted online information on inventory, supply schedule, and payment status.
ERP products have rigid architecture, and any modification/ development requires complex
coding and developing a link between backend ERP with front end web based e-commerce, was
a challenging task.
ERP vendors responded to this challenge by their effort to enable their product. They have
developed some functionality in-house but also used/ acquired third party products such as
storefront. They have developed new workflows encompassing vendors, customers, shippers,
distributors, and bankers. They have made these workflows web enabled by adopting open
standards such as Java and XML.
Another challenge faced by the ERP vendors for web enabling their product was security issues
relating to e-commerce transactions, which are carried out by Virtual Private Network (VPN)
over internet backbone. They have to adopt authentication tools such as electronic signatures and
digital certificates, Secured Electronic Transactions (SET) and confidentiality through symmetric
key encryption/ public key cryptography.
E-commerce transactions can be broadly classified under e-procurement and e-selling
particularly under the context of business to business transactions. Some details under these
classifications are given below:
E-Procurement - A typical e-procurement requirement of an organization is depicted below:
 Electronic tendering comprising of tender publication, submission, short listing, evaluation,
and award. Facility for evaluation of IT/ Service contracts containing Complex evaluation
matrix.
 Compliance of agreed quantity Vis-a-Vis called quantity, consolidation of called quantity
for obtaining agreed quantity discounts.
 Facility for publication and updating of electronic catalogues by vendors.
 Analytics for spend analysis that is used for strategic decisions, supplier relation
management and minimization of maverick buying.
 Facilities for reverse auctions through business to business marketplace.

For meeting the above requirement, ERP vendors carried out integration of web based front end
with generation of demand (planning module), preparation of Purchase Order (procurement
module), receiving of goods (warehouse module), payment (account payable module), dealt by
back-end ERP system.
E-Sales - The biggest change that has been brought by e- commerce in respect of selling and
marketing of goods is creating a new sales channel based on the web. This has impacted retail
sectors in a big way through increased sales, expanded market reach including overseas market,
improved customer loyalty, and reduction of transaction cost.
E-sales enhance value in respect of following business process:
 Reaching the customer quickly and a transparent way through the process of electronic
auction.
 Processing customer orders promptly through storefront web applications.
 Checking credentials of the customer.
 Arrange drop shipment where the nearest distributor ships goods.
 Providing facility to the customer to check the status of order through the web.
For meeting the above requirements, integration of web system with back-end ERP system was
done. Before order acceptance, ATP (Available to Promise) status of the item is verified from
planning module. For quoting price, dispatching of good and receiving of payment, sales,
warehousing, and accounts receivable modules of ERP system are interrelated.
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5. ERP Vendors and their Products Catering to Different Verticals
ERP Vendors and their Products
Catering to Different Verticals
During 1990, ERP market was dominated by few vendors namely SAP, BaaN, Oracle, People
Soft and JD Edwards, who were also known as big five of ERP market. The market was, then,
was growing at compound rate of approximately 35%. Fortune 500 companies were the major
customers. Key focus of ERP vendors, during that period, was to expand functional scope of
their product and provide sharper vertical focus. Manufacturing made up for the largest segment
of ERP spending.
Trend during 2000
IT spending as a whole slumped after the collapse of internet bubble and 9/11 terrorist attack,.
Market for ERP also saturated for fortune 500 companies. ERP vendors started to face financial
difficulties. ERP market went into an upheaval and following trend emerges:
Increased acquisition and merger activities: Financially stronger ERP vendors started to
swallow their weaker brethren. Private Equity firms also started to play a big role. BaaN was
taken over by Invensys and subsequently by SSA Global. SSA Global was later merged with
Infor, which was supported by a large private equity company. J. D. Edwards was merged People
Soft which in tern was taken over by Oracle through a hostile takeover.

Segmenting / diversifying of ERP Market: Due to saturation at top end, ERP vendors were
trying to penetrate medium and small market segments. The market thus got segmented into tier
1(large organization), Tier 2(medium organizations) and tier 3 (small organization). Major ERP
vendors started offering products for lower end of the market either through
extension/rationalization of their products or through acquisition. ERP vendors were also
diversifying their product to different verticals. Whereas, manufacturing provided the major
chunk of their revenue, the focus area turned to retail, public sector, utility, financial sector, and
telecom.
Web enablement: Rising opportunity of ERP vendors was to leverage their existing products
with niece acquisition, to extend beyond their earlier solutions, limited to four walls of an
organization. The explosive development of internet made possible seamless web based
collaboration by organizations with their vendors and customers, such as “mySap.com” solution
from SAP and e-business suite from Oracle.
Some Key Vendors
 SAP: They are the largest ERP solution provider with more than 75.000 customers and 12
million users and holding around 30% of market share. The flagship Solution, R/3 is
unmatched for its sophistication and robustness. R/3 software gives an option of around
1000 pre-configured business processes. This solution is available in all major currencies
and languages and can be hosted on several Operating Systems and Databases. As mid
market option, SAP has brought out, Business All in One, a solution with industry tailored
configurations. SAP offering for smaller organization is SAP Business One. SAP offers a
hosted solution, namely SAP Business by Design, for organizations lacking IT resources.
 Oracle: Oracle is next to SAP in ERP market breadth, depth and share. It offers a
comprehensive, multilingual and multi currency solution, mostly through its channel
partners.. It is the first to implement internet computing model for developing and
deploying its product. Oracle also took over various ERP solution providers during 2000
such as People Soft, JD Edwards, Retek (retail industry solution), and Siebel (customer
relationship management software). It has taken up project Fusion (based on Service
Oriented Architecture) to integrate various products, outcome of which is keenly awaited.
 Infor: Infor is of recent origin and expanded through a number of acquisitions. Its
acquisition of SSA global during 2006 made it a forerunner as ERP solution provider. SSA
global had two strong product lines, BPCS and BaaN. SSA also made a number of other
acquisitions, such as MAPICS, Lily Software Associate and GEAC. SSA is focused on
building, buying and integrating best of breed solutions.
 Microsoft Dynamics: Microsoft, which did not have an ERP portfolio, started by acquiring
a host of ERP products like Navision, Solomon, Great Plain and Axapta. Excepting Axapta,
which is strong in manufacturing and suitable for mid market, other products are meant for
smaller organizations. Microsoft is much dependent on channel partners, not only for sales
and consulting but also for add on development. Their solutions are closely integrated with
their office suit.

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5. Technical Foundations of ERP Architectures

Technical Foundations of ERP
Architectures
Information technology is changing at a fast pace. Underlying ERP technology is needed to keep
pace with first changing IT scenario and should also be flexible to adopt ever changing business
scenario. ERP technical architecture basically defines layout of layers of application deployment
between servers and desktops, interfaces and software objects. ERP architecture is no more
meant to just provide technical functionality, user interface and platform support but should be
able to absorb emerging technologies. It should be expandable and maintainable to meet future
business needs such as business process changes, merger and acquisitions, compatibility with
future regulations etc.
Mainframe Era: During, 1980s, ERP systems were running on mainframe, capable of
supporting hundreds of users concurrently. Users were connecting to this monolith system
through dumb terminals (terminals without any memory or processing power), only to access and
input data. Concept of Graphic users Interface was still to come and only a few knowledgeable
users were comfortable with this set up.
Client Server: During 1990s, client server (C/S) ERP application became popular. PC became
powerful and provided a better user interface (UI), through Graphic Users Interface (GUI).
Mainframe computers were getting replaced by midrange system such as AS/400 or powerful PC
servers. PCs (clients), networked with server / cluster of servers, are known as Client Server
platform and have the following characteristic:
 Server hosts central database and application programme.
 PC Clients, provide input, request service from server, performs display and does some
processing.
 System functions are done in three logical layers i) Presentation layer-at client PC ii)
Application layer, executing instructions from users and transferring and receiving data
from database iii) Database layer for centrally managing data. Under C/S concept, server
denotes either a physical or a virtual server.
 Application programme and database may be hosted in a single server or in two separate
servers. For multi location or large systems, application program is divided in a number of
networked servers which enhance speed and reliability of the system.
Monolith system of mainframe era gave away to multilayered and decentralized architecture of
C/S. Consequently, ERP vendors started adopting more and more Object Oriented Program (OO)
and third / forth generation programming language (3GL/ 4GL). This componentized
development environment enables them to develop more modular solutions which can be
customized, tested, deployed and retrofitted easily and separately.
Web enabled ERP
Adoption of Internet technology allows access to an ERP system from anywhere anytime,
enabling new ERP functionalities like Sales Force Automation.

User Interface (UI) under a Client / Server system was normally a small software programme
which needed to be installed, maintained and updated, at each desktop. Carrying out this task
over a number of desktops located at various nodes of Wide Area Network, became a
cumbersome assignment. Consequently, the concept of Uniform Resource Locator (URL) was
adapted and internet browser was used to access server from client side. This development
eliminated the need of installing client program but made use of Java applets, which gets
downloaded whenever a connection is made by the client, through URL. This was the beginning
of adoption of internet technology by ERP systems.
Additionally, on server side, a new layer of web server (HTTP server) was added for generating
HTML pages, to respond to client instructions. A Caching server was, also, added to improve
speed and performance. Browser enabled client and additional layer of web servers, provided the
first step of web enablement of ERP solutions.
The next step of web enablement is to extend backend ERP system to the web so that mobile
workers, suppliers and vendors can access and collaborate through secured internet link. To
achieve this, ERP systems are needed to be redesigned and made compliant of standard like Java
2 Enterprise Edition (J2EE). This is a time consuming work as traditional ERP systems are
complex, inflexible and developed on proprietary platforms and is progressing slowly.
Conclusion
As a consequence of emerging technologies such as WEB 2.0 and Service Oriented Architecture
(SOA), new business models like extended ERP and Software as Service (SAAS) are evolving.
ERP vendors, who will be able to adapt and make changes to their extant architecture, will come
out successful.
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5. Business Process Reengineering and Best Practices
Business Process Reengineering and
Best Practices
Enterprise Resource Planning (ERP) and Business Process Re-engineering (BPR) evolved almost
at the same time i.e. 1st half of 1990. Both relates to radical redesign of an organization at a
relatively short period. Both are having the primary intend to optimize workflow and improve
productivity. But, the chicken and egg question remained, whether an organization reengineer
business process before implementing ERP or directly implement ERP and reengineer by
adopting standard business process, included in the ERP package.
What is Business Process Re-engineering (BPR) ?
BPR means not only change but radical change within a short period. This change is achieved by
complete revamp of organizational structure, business process workflow, job description,
performance measurement and adoption of information technology. Some of Basic
characteristics of BPR are:
 View business as a set of customer (both internal and external) oriented processes rather
than a set of departmental functions.

 Processes must have clear cut ownership.
 Non value adding activities within a process should be eliminated..
 Gather information only once at the point of origin.
A successful BPR implementation brings significant improvement to productivity, customer
service and bottom-line. There are pain and difficulties during implementation and instances
where BPR efforts did not achieve desired result. Notwithstanding, the risk is worth taking.
Otherwise, there will be grater risk of being overtaken by competitors who develop and progress
rapidly through BPR.
Implementation phases
i. Project kick off: Project goal, project team and communication standards are agreed upon.
A number of workshops are held where project scope, sponsors commitment, project risk,
milestones and deliverables are discussed. A SWOT (strength, weakness, opportunities and
threat) analysis is carried out with active participation of all.
ii. Process identification and data gathering: “As is” processes are assembled through flow
charts. Current practice of Interfacing with business partners is gathered. Bottlenecks,
delays, complexity, internal blame games, idle assets etc. are brought forward. Use of
existing technologies is comprehended. Major and strategic business processes to be
reengineered, are identified. Stakeholders categorize the processes to be reengineered and
agreed upon on the timeline of implementation.
iii. Process Reengineering: In this phase, actual reengineering begins. A number of brain
storming sessions are held with project team and other stakeholders, where current business
processes are critically analyzed to determine non value adding activities and identify
excess control and check, always with customer value as a focal point. Impact of new
technologies on process improvement is also evaluated. New process ideas with reduced
check and control and enabling technologies such as Workflow automation and ERP, are
envisaged. Benchmarking is also done with best of breed industrial peers.
iv. Blueprint of new system: Blueprinting involves modeling workflow and information
requirement, of new business processes. “To be” processes are modeled using various
modeling tools. New organization structures, human resource need, performance
monitoring and compensation, technological needs, are also outlined. Normally, a first cut
redesign scheme is produced which is modified after gathering actionable feedback from
the stakeholders.
v. Transformation: A migration strategy and a migration plan is the first step of
transformation. Migration strategy may decided as a pilot, phased or big bang
implementation. The migration plan would include establishment of new organizational
structure, detailed training and reallocation of workforce, and cut off dates for
implementation. Change management and introduction of new technologies will form an
important part and may need engagement of outside consultants for this specific purpose.
There should be provision on the plan to tweak the implemented system so as to get
maximum value out of it.
BPR or ERP: For successful of BPR implementation, Information Technology plays the role of
a key enabler. Therefore, a question is raised whether it is logical to directly implement ERP and

re-engineer business processes by adopting world class practices, contained in ERP packages.
This approach would avoid embarking on BPR which is expensive, time consuming and often
risky. Also reengineered process arising out of BPR exercise may not be best of class. On the
other hand, there is a grave risk in this approach if a proper ERP package is not chosen. Process
orientation and ownership will be lacking from employees which may lead to major
implementation difficulties.
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5. ERP Life Cycle
ERP Life Cycle
Initial investment in acquiring and implementing an ERP system is substantial in terms of both
human efforts and financial resources. After, successful implementation, the system goes to
maintenance mode and organizations start getting value out of their investment. After a
prolonged period, due to changes in business and technological paradigm, it becomes more and
more difficult and expensive to maintain and extend the system. The process of
reimplementation and beginning of a new cycle starts.
ERP life cycle Phases
ERP life cycles, which encompass entire 10 to 20 years of effective operating life, are often
confused with ERP Implementation Life Cycle. Some of the phases of ERP life cycle is shown
in following diagram.
1. ERP Roll out: The initial roll out of an ERP system itself consists of various phases
commencing with Request for Proposal (RFP) and vendor selecton and ending with go live
and hand holding phase. Some important matter concerning this phase,as given below, will
have direct bearing on subsequent phases of ERP lifecycle:
 Degree of matching of vanila ERP product to current business need and extent of
customization done, particularly source code customization.

 Commitment of the vendor for future development and their financial health
 Support issues including License fees and escalation thereof.
2. Optimization: After the system is live and rolled out, there will be a period of turmoil. Due
to lack of understanding, a lot pf confusion will prevail amongst users. There will be
teething problems and some software bugs will invariably appear. With retraining, some
tweaking of the system and assistance from a responsive help desk, this phase should be
over within six months to one year and the system should start stabilzing.
3. Maintenance: This is the longest period of life cycle, when the organization start realizing
value of their investment. Users will get familiar and start owning the system. Some
changes will be continuing such as new reports, different workflows, some localisation on
taxes etc. Maintenance will be covered by service level agreement, entailing payment of
license fee to the vendor. For a complicated system, there may be a third party vendor,
helping maintenance at site. The license fee, due to provision of escalation, gets escalated at
regular intervals and after some years, adversely effects Total Cost of Ownership (TCO).
4. Extending Values: This phase overlap with the phase of maintenance. New or changed
business processes necessiate minor or moderate changes in the system. There may be
extensive changes under scenario such as i) implementing a new accounting system e.g.
International Finance Reporting standard (IFRS) ii) A new regulatory requirement like
Sarbanes=Oxley iii) Margers and acquisations/ restructuring.iv) Extending the system with
add on poducts suchy as Customer Relationship Management and Business Intelligence
(BI). Sometime the cost changes may be prohibitive, particularly for systems where a lot of
customization has been done during implementation phase.
Parallel to business changes, technological changes also occur. New release and versions
appear for underlaying technologiocal platforms like Operating System and Data Base. ERP
vendors release patches and versions of their producdts at regular intervals which needed to
be incorporated in the existing system. This usually involves minor or modeate efforts. But,
problem arises where many softwae objects were customized during implementation.
Retrofitting these objects for making them compatiable with later versions, may turn out to
be a major migration exercise involving exorbitant cost and effort.
5. Decaying Performance: For an enterprise, business need and technological requirement,
continue to evolve. Cost, Complexity and difficulty to modify and update the existing
system mount. Fixing existing system is no more viable and provides diminishing return.
Alternatives are investigated and decision of reimplementation is taken.
6. Reimplementation: Similar to Roll Out phase as mentioned above. However, the
organizations are better organized now. Initial process will be carried out more
professionally. It is likely that they will adopt more of a vanilla version with minimum need
of customization, so that the next cycle gives a better Return on Investment (ROI).

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5. Implementation of ERP System
Implementation of ERP System
Implementation of ERP System, is a complex exercise, involving many process alterations and
several legacy issues. Organizations need a implementation strategy encompassing both pre
implementation and implementation stages. The fallout of a poor strategy is unpreparedness of
employees, implementation not in conformity with wider business strategy, poor business
process redesign and time and cost overrun.

Following issues must be carefully thought out and formulated, as a part of implementation
strategy, before embarking on actual implementation:
Business Process: Hypothetically, company insiders should know best about the processes of
their organization. But employees often constrained to work in departmental silos and overlook
wood for the tree. Under most circumstances, prevailing business practices are not properly
defined and no”as is” flow charts, documenting existing processes, are available.
An ERP implementation could be a great occasion to assess and optimize existing business
processes, control points, breaking points between departments, and interfaces with trading
partners. But, often, due to resistance to changes and departmental clouts, ERP implementation is
comprehended as an exercise to automate legacy processes. This may lead to little improvement
in underlying business processes, resulting no appreciable return on investment.
Automating existing manual processes peculiar to a company necessitates, significant source
code customization, as even a best fit ERP product match to a maximum of 85% to 90% of
legacy processes. Source code customization will not only require changing of software objects
but also need changing data models. The efforts needed to make such changes are significant in
terms of development, testing and documentation. The future cost of maintenance and upgrades
will be substantial, affecting entire life cycle of the system.
Unless a considered view favoring process changes is taken as a part of implementation strategy,
pressure will mount subsequently for more and more customization, when the exercise of
Business Process Mapping and Gap Analysis is taken up during implementation.
ERP systems are highly configurable and contain series of design trade off to meet various
nuances of the same business cycles / processes. This should, normally, be sufficed to cover
needed processes, probably with a little bit of swapping whenever needed. At occasions, it may
be imperative to change source code to account for some unique core processes of the
organizations. Procedure for authorization of such changes, normally requiring attention from
sponsor, should also form part of the strategy document.
Implementation Methodology: Selection of implementation methodology constitutes an
important component of implementation strategy. Most popular implementation methodology is
“big bang” approach where on a scheduled cut-off date; entire system is installed throughout the
organization. All users move to the new system and manual / legacy systems are discontinued.
The implementation is swift and price tag is lesser than a phased implementation. On the flip
side, risk element is much higher and resources for training, testing and hand holding are needed
at a much higher level, albeit for a shorter period of time.
Another major implementation strategy is “phased implementation”, where roll out is done over
a period. This method is less focused, prolonged and necessitates maintenance of legacy system
over a period of time. But, phased implementation is less risky, provides time for user’s
acquaintance and fall back scenarios are less complicated. There are various choice of phasing
such as i) phased roll out by locations for a multi location company ii) phased roll out by
business unit e.g. human resources iii) Phased roll out by module e.g. general ledger.

Methodology of implementation should form an important constituent of implementation
strategy, which should be formulated after considering availability of resources, state of
preparedness, risk perception, timeframe of implementation and budgetary provisions.
Other important strategy issues:
 Legacy data: Gathering, cleaning and removing of duplicate data.
 Hardware and software: Addition and updating of existing resources. Compatibility with
existing Operating system and Database.
 Project structure: Project champions and competency centre.
Conclusion: A proper implementation strategy, drawn in advance and containing important
strategic directions, should favorably impact project execution. An outside consultant, at this
stage, also helps to formulate a proper strategy as well as making a Request for Proposal (RFP)
document for selection of vendor, which constitutes the next phase.
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5. Evaluation and Selection of ERP Packages
Evaluation and Selection of ERP
Packages
Evaluation and selection of ERP package is an essential criterion for successful ERP
implementation. Quality of selection will have a long term impact on the processes of the
organization. It is also not easy to switch to another product with concomitant scale of
investment and complexities. This evaluation and selection process should be properly directed
and normally comprises of following activities:
Formation of an evaluation committee: An ERP implementation is not an IT project but a
business oriented development. Therefore, in addition to Chief Information Officer, this
committee should comprise of all functional heads and driven by a top management
representative. Since all business functions are represented in selection process, the chosen
package would have wide acceptance subsequently.
Requirement Analysis: This analysis should outline functional expectations of various business
divisions, such as warehouse, finance, procurement, from potential ERP package. Vital
requirements specific to the company should be highlighted e.g.
 Must have Distribution Requirement Planning (DRP) functionality.
 In transit inventory and pallet tracking, as a part of shipping requirement.
 Multiple purchase orders linked to one bill of lading.
 Multi currency and multi locations functionality.
Requirement analysis forms a base for preparing a Request for Proposal (RFP), where important
technical and commercial perquisites are incorporated. Common examples of technical
perquisites: flexibility, Upgradability, User friendliness, field level security, Operating system

and database compatibility. Common examples of commercial perquisites: cost, reference sites,
high level project plan, resumes of consultants, post implementation support, financial health of
the company, local presence, number of installation and upgrade.
Selection Criteria: A pre-determined selection Criteria should be ready before actual selection
process commences. Selection criteria are normally in the form of questionnaire and point
system, where each question represents a business or technical need. Weightage for each point or
a group of points are predetermined which varies according to criticality of the issue. These
processes help in making the selection process objective and transparent.
Selection Process: Selection process constitutes various stages as mentioned below:
1. Short listing of vendors: Hundreds of ERP packages are available in the market, which
have different concept, architecture and sets of functionalities. Analyzing all the packages is
not feasible. Organization need to identify a few best suited packages by looking at product
literatures of vendor, finding out which product is being used by their peer organizations
and getting help from external consultants. Once a few packages are short listed, respective
vendors should be asked to respond to the RFP, as per its format.
2. Demo and Presentation: Responses from shortlisted vendors are evaluated by the selection
committee after collating scores obtained by them and a consensus is reached about their
final ranking. Anyone not fulfilling a predetermined vital requirement is eliminated at this
stage. Top two or three vendors, are then invited for demo and presentation. Mode of
presentation should be carefully scripted and send to the vendors in advance. They should
be asked to walkthrough a particular business cycle through their vanilla software. They
should be specifically asked to clarify any area of concern about their proposal, which may
expose weak/ problem area of their offer.
3. Site visit and contract negotiations: After the committee has reached a decision on best
suited package, visits to reference sites are imperative. The vendor should provide reference
sites of similar size and industry, identical version and belonging to same geographical
location. Team members should have look and feel of the systems operating at reference
sites and ask pertinent questions covering overall satisfaction, functionality, cost/ time over
run, support concerns etc. After site visit, if the committee members feel that their selection
is right, they proceed with final negotiation and procurement. Negotiations are normally
held on license and annual maintenance cost, payment plan including a leasing option,
support issues and other commercial and legal terms.
Conclusion
The most important point of selection process is that it should be based on a consensus and have
maximum buy in as an ERP system belongs to all functions and departments. Another important
issue is that over expression of requirement during requirement planning should be avoided as
this will lead to incurring unnecessary expenditure.

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5. Do’s and Dont’s during ERP Implementation
Do’s and Dont’s during ERP
Implementation

ERP systems are complex, time consuming and expensive. Instances of failure of ERP projects
abound including some high ticket failures such as Hershey, (largest chocolate maker of USA),
where a SAP implementation was abandoned after three years. There are various “Dos” and
“Dont’s” effecting success or failures of an ERP implementation. Some of critical success
factors, needing focused initiative, are appended below:
 Commitment from project sponsor: Project sponsors normally belong to top echelon of
the organization. A deep commitment and active involvement is needed from them and bare
monitoring and oversight may not suffice. Their vigorous engagement should get other
executives in board. One of their important roles will be to resolve any inter departmental
conflict which is bound to occur during the course of implementation. They should also
ensure that most knowledgeable executives are engaged in the project and released from
routine functions whenever needed.
 Commitment of resources: An ERP project needs a significant financial commitment and
budgetary support. Expenditure involves not only direct expenditure relating to ERP
package but a host of indirect cost such as integration with other software, gathering and
cleaning of input data, archiving data from legacy system, engaging expert/consultant,
additional support need, provision for contingency etc.
 Selection of package and consultant: The selection of ERP package should be absolutely
need based, as detailed on business requirement analysis, done beforehand. Selection should
not be influenced by extraneous factors such as glamour involved in the name of big ERP
packages. Selection of a consultant, who will provide advice independent of the interest of
vendor and guide the entire process of implementation, should be done carefully and with
due diligence. The consultant should be truthfully independent and should not be linked to a
particular ERP vendor. This is also applicable to consultants from big named consulting
firms as they may have tendency to recommend a complex product, requiring added
consulting effort during implementation process.
 Project Management: An empowered project manager, supported by IT and functional
experts and appropriate project management methodology, is key to success of ERP
implementation. Setting up of project team, resource allocation, milestones and deliverables
etc form important part of project management. Tailor made training programme for
different type of users and a predefined change management process, are also crucial.
 Legacy Data: Legacy data are stored manually, in excel files or in legacy system.
Collection of legacy data is needed to be planned carefully to avoid the syndrome known as
“garbage in and garbage out” which will undermine the confidence on the system after
implementation. Cleaning of data should be done by removing duplicate and unnecessary
information, before importing to ERP system.
Critical failure factors: Critical factors for failure may be defined as contrary to critical success
factors. Some specific concerns of failures are mentioned below:
 Creeping in of additional functionality: Pressure often mounts for additional
functionalities not envisaged earlier during implementation. This may lead to conflict with
ERP vendor. Dealing through change management process also involves additional cost and
time and should be avoided as far as possible.

 Unrealistic expectations: ERP system is not an all cure silver bullet. Users often like to see
an immediate improvement after installation. There are bound to be initial period of
frustration which may snowball, undermining confidence on the system.
 Information overload: An ERP system contains hundreds of reports and queries. Too
much information creates a lot of confusion amongst users. Notwithstanding information
overload, many a time, users feel cheated as the system fail to generate identical reports to
which they are accustomed.
 Resistance to Change: Users are overwhelmed by all the new features of the system. Some
of the aged employees may be unwilling to adopt a new way of working. Some may be
uncomfortable with the awareness that their supervisor will now keep a better trail on what
they are doing.
Conclusions
Success and failure factors encompass pre-implementation planning, phases of implementation
and managing post implementation scenario. There are many instances of failures resulting bitter
legal battle with the vendor. Although vendor plays an important role, organisations are mostly
responsible for success or otherwise of the project.
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5. Identification of Suitable Platform & Environment for ERP Implementation
Identification of Suitable Platform &
Environment for ERP Implementation
Any ERP implementation attracts expenditure on account of Operating System (OS) and
Relational Database Management (RDBMS) for hosting the system. Networking issues also
assumes importance particularly when the system is rolled out at different locations.
Additionally, licensing options associated with ERP packages need to be carefully evaluated
during final contract negotiation.
Operating System and Database
Unless a system is implemented from scratch, it may be a better option to integrate the chosen
ERP system with existing OS and RDBMS of the organization, which will reduce upfront
expenditure of implementation. Therefore, the important consideration is that whether the
preferred ERP system is compatible with current hosting platform.
Another important consideration is how robust and scalable is existing platform. Most popular
players of RDBMS market are Oracle, IBM, Microsoft and Sybase, constituting about 90% of
market share. In the OS sector (for mainframe and server segment), there are offering of various
flavors of UNIX (IBM, HP, Solaris etc), propriety OS from IBM and Microsoft windows (Linux
OS is also used to run some open source ERP package like Compiere but yet to be popular for
commercial applications).
The chosen ERP package should conform to one of the popular OS and RDBMS. If the existing
platform of OS and RDBMS does not belong to mainstream offering, it may be prudent to
explore an alternative. Off course, there may be exceptions, such as an organization selecting

QAD solution, may consider use of “Progress” RDBMS with which this package is most
compatible.
Another important factor relating to ERP platform is whether the ERP system to be hosted in
house or hosted remotely. If hosted remotely, all upfront cost relating to hardware, OS and
RDBMS are eliminated. The vendor may then charge an additional hosting cost periodically.
Networking Issues
Important networking issues relating to ERP implementation are- network topology, detailed
networking design, networking printers etc. Setting up new or leveraging existing Local Area
Networking (LAN) and Wide Area Networking (WAN), constitute an important part of pre
implementation/ implementation process. This includes cabling to planned workstations, laying
fiber optic backbone, provision for sufficient bandwidth to remote sites ( particularly hosting
distributed application/database). Mode of sharing networked printers in various functional
divisions such as warehouses, accounting offices and sales units need to be planned beforehand.
Licensing Issues for ERP products
Implementation of an ERP package necessitates entering into a software license and support
agreement with vendor. This agreement constitutes a complex legal document containing details
of license and maintenance fee and formula for escalation thereof. Before finalization of this
contract, following issues should be given due consideration:
 If the licensing agreement covers only the core ERP products or contain additional business
software like report writer, interfaces and middleware.
 What are the user type definitions? User type may be a i) power user with full access to
development tools, ii) Informational user meant for management with access to dashboards,
MIS and approving role of a workflow. Iii) Normal user with transactional roles and limited
access.
 There are other user categorizations like named users, where a license is needed for each
user of the system and concurrent users indicating maximum number of users with right to
access the system simultaneously.
 It is, imperative that a proper assessment is made for types of licenses to be procured as
license fee varies for type of users. Price should be negotiated before entering into the
agreement when the vendors may be willing to offer significant discount over their list
prices.
 It is also important to decide when to buy the licenses. Agreement may be made to procure
only a few licenses at the commencement of project, for training, development and testing
and rest during go live. It is also important to secure fees for additional licenses that may be
procured during next couple of years.
Conclusion
Though not considered as direct cost, OS and RDBMS may impact final cost of implementation
substantially. Licensing issues will not only impact current cost but also future cost as yearly
maintenance fee is normally based as a percentage of license fees.

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5. Phases of ERP Implementation

Phases of ERP Implementation
Like any other project, ERP implementation goes through various interconnected phases. These
phases may be sequential but at occasions overlap. Normally, every phase has entry criteria,
which needs to be fulfilled before the commencement of the phase. A phase is deemed to have
completed when pre-determined deliverables are achieved.
Various phases of ERP implementation, for a typical ERP project, are mentioned below:
1. Project Establishment
Project Establishment will comprise of the following activities:
 Mobilization.
 Project teams formation
 Project plan detailing and fine tuning
For a successful implementation, several types of skills are required. To ensure that the
requisite expertises are available to the project, different teams are formed, consisting of
members from the organization and vendor.
 Project board
 Competence center team, mostly represented by IT personnel of the organization.
 Key users team.
 Consultants’ team.
 Project Implementation Committee.
Entry Criteria
 Vendor Project Team on site.
 Organizations implementation team tentatively identified.
Deliverables
 Project Administration Plan.
 Project standards document.
 Project board formation.
 Project Implementation Committee formation.
 Competency Centre Team formation.
 Key Users Team formation.
 Delivery and Installation of vanilla ERP Application.
2. Procedure Development
In this phase, key users and competence center team map the existing functional processes
with the functions available in the vanilla ERP application, in conjunction with the vendor
team. The following activities will occur in an iterative manner.

 Process mapping
 Gap detection
 Work-around identification
 Organizational impact analysis
Deliverables
 Business Model through flow chart.
 Customization Design Specification document for identified modifications.
 Draft Procedure Manual
 Acceptance Test Plan and Data
3. Application Software Customisation
This phase includes program development for all modules using the Customization Design
Specification Document, unit testing and system testing of all modules. The individual
programs will be unit tested, based on test plans developed by the vendor. This phase may
be carried out at offshore.
Next, the developed and unit tested application software will be system tested during this
phase. The system testing will be based on the acceptance test plan and test data provided
by the organization. Thereafter it will be installed on the Designated Computed System.
Entry Criteria
 Acceptance Test Plan and Test Data
 Customization Design Specification Document for identified modifications
Deliverables
Customized unit and system tested application software.
4. Acceptance Testing
The focus of user acceptance testing is to exhibit that the system works. From the user’s
point of view, acceptance testing is the final quality control procedure to determine whether
the software product is performing as expected.
Entry Criteria
Availability of customized unit and system tested application.
Deliverables
 Tested Application Software
 Updated procedure manual
5. End User Training

All identified end users will be trained in the specific functions they are required to work.
The training will be conducted by vendor.
Entry Criteria
Deliverables
 End users trained as per training plan
6. Conference room trial
This phase deals on the simulation of the actual business environment. The following
activities will occur iteratively during this phase:
 Identification and entry of representative data
 Simulation of the business model
 Business Model enhancement
 Finalization of procedure manual
As the team reviews the data model, the business model that is prepared in the Procedure
Development stage may undergo some changes.
Entry Criteria
Deliverables
 Final Procedure Manual
 Final Business Model
7. Data Loading
This is the migration phase where data from existing manual/legacy operations are
transferred to System’s database using interface programs or utilities available within the
ERP package. The following activities will occur:
 Data conversion & loading
 Establishment of Access Rights and Passwords
Entry Criteria
 Final Procedure Manual.
 Final Business Model

Deliverables
 Data Loading Completed
8. Live trial
Once the Final Business Model is ready and database is loaded, the system is ready to go
live. This phase will allow users to work on the application software with real time data.
Entry Criteria
 Data Loading Completed
 Trained End Users.
Deliverables
 Live Trial completed
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5. Change and Risk Management in ERP Implementation
Change and Risk Management in ERP
Implementation
An ERP system is a process and not an end in itself. Perfunctory Implementing of ERP system
will not boost efficiency. Reasons for failure of an ERP project such as lack of commitment from
management and employees, lack of communication, knowledgeable employees not available for
the project, are mostly organizational issues and have nothing to do with technical matter.
Hence, to alleviate the risk of failure due to organizational issues, adoption of proper
change and risk management process, plays a crucial role.
Change/Risk management
Implementation of ERP necessitates a broad based organizational change which is more
disruptive than incremental. Change management effectively deals with the process of managing
such changes, and broadly encompasses all major segment of the organization such as:
 People-Employees education and competence.
 Organization- Organizational structure, Business functions and processes
 System-Information planning, Hardware and Software.
Effective change management is interconnected with risk management which minimizes risk of
failure and ensures avoidance of unpleasant surprises, both during implementation and post
implementation phases.
Processes of change/risk management: Starting with project kick off, following Processes
should be beneficial:

1. Engaging a change management agent: He may be a project sponsor/ project champion
and well conversant with business process of the organization. For a large project, an
outside consultant, specialized on change management may be engaged. The project
manager is usually not given this task.
2. Risk analysis: At the outset, detailed analysis of perceived risk is drawn with active
participation of change agent, project manager, consultants and key users. Perceived risks
are classified into different categories. After deliberation of their likely impact, what action
is to be taken by whom and when, are agreed upon. Some of such risk categories are:
i. Risks perceived by key users and project sponsor.
ii. Risks resulting from project size, excess customization and multi location
implementation.
iii. Risks resulting from organizational structures, general motivation and procedures.
iv. Risks resulting from communication structure.
v. Risks resulting from stuffing availability.
vi. Risk arising from knowledge and expertise of users.
vii. Risks arising from knowledge and experience of project manager, consultants and
project team.
viii. Risks arising from supply of hardware and software and network bottleneck.
3. Communications: One of the important function of change management process is
communication of scope, purpose, progress of the ERP project all across the organization.
This may be in the form of news letter (or an bulletin board if intranet is available). The
news letter should include up to date news of the project, upcoming milestone, individual /
group achievement and should highlight benefit of the project.
4. Dealing with the people factor: Resistance to change is usually encountered from
employees with longer years of service. There may also be apprehension of redundancy.
User buy in of the ERP system is a critical success factor and there is always difficulty in
adapting to a new culture of computerized environment. Recognizing such behavioral issues
and developing a plan to address, is one of the most important responsibility of change
agent.
5. Training: For user understanding of the new system, organizing multiple and on going
training is an important function of change management process. Training methodology
includes classroom training, workshop, hands on practice, streaming video etc. Training
manual with screenshots and user feedback at the end of any training programme, augment
effectiveness of the training.
6. Monitoring of activities during go live: This period is a crucial part for change
management process as some nasty surprise may emerge, needing immediate resolution.
Change agent must check and ensure that all transactional data are entered into the system
and any system error is resolved forthwith. If a legacy system is needed to be maintained
temporarily for fall back purpose, then he needs to ensure entering of data in both the
system and organize additional resources wherever required.
Conclusion
ERP implementation is a complex process as it involves both technological and functional issues.
Pre defined plan for managing the associated risk and effectively changing process of the
organization will go a long way to ensure success of the project.

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5. Return on Investment (ROI) in ERP Project

Return on Investment (ROI) in ERP
Project
When a proposal is put forward for implementing an ERP system, two questions are invariably
asked i) How much it is going to cost ii) What is the pay back period. It is always preferable to
have a cost benefit analysis before embarking on ERP project. A properly done ROI analysis
builds a business case for the project. The organization is in a better position to make a decision,
set goals and deadlines. This analysis will also create a base that can be used to measure future
performance of the system.
ROI in the context of an ERP project
A ROI for ERP project represents metric of completed due diligence and a time phased plan that
define when money will be needed and what for it will be used. ROI calculation is made by
dividing monetary gain by amount spent. While it is easier to calculate the expenditure for an
ERP project, it is difficult to determine the gain, as several gains from the project are intangible
and not quantifiable. Typically, ROI involves a pay back period, which is the length of time
taken for the cumulative expenditure equals cumulative cost of investment.
Tangible and Intangibles benefits of ERP
Some of the quantifiable and tangible benefits of ERP system are mentioned below:
Implementation of ERP, however, does not lead to headcount reduction (redundancies of few
lower ended positions of payroll and accounts payable gets counterbalanced by additional higher
paid IT staff).
1. Reduced level of inventory, including raw material, work in progress and finished goods,
through improved planning and control.
2. Reduced materials cost through improved procurement and accounts payable practices, less
obsolescence and wastage.
3. Reduced labor cost through better allocation and reduction of overtime of workmen directly
involved with production such as technicians and skilled workers.
4. Improved production throughput through better scheduling of critical equipment and sub
contracting operations, there by minimizing shortages, interruption and rework.
5. Reduction in the cost of after sales services.
In addition to tangible benefits, following intangible benefits also occur:
1. Integration of information resulting efficiency, transparency and effective MIS.
2. Error reduction, accuracy of inventory record.
3. Improved customer service, on time shipment, shorter order to shipment cycle.
4. Establishment of standardized procedures.
5. Improved accounting control and shorter sales to cash cycle.
6. Legal and regulatory compliance.

Calculation of ROI
There is no standard method of calculation of ROI for an ERP project but a structured method of
analysis is achievable. It may be too cumbersome and subjective to factor in intangible benefits.
But these factors are important for creating an overall business case and in many instances,
where ROI is not calculated, form a base line objective for the project.
First step is to determine cost of various components of the project such as consulting fees,
license fees, modification and implementation cost, hardware cost etc. Maintenance fees for a pre
determined period (say for three or five years) should be added to arrive at Total Cost of
Ownership over the specified period. The estimated expenditure should be time phased over the
period, used to calculate TCO.
Next step is the more difficult part which is to estimate expected benefits over a period of time.
For estimating these figures, there should be wide consultation and reference to statistics
emanating from various survey reports. Benefits will largely occur from the reduction of
inventory level, operation cost, labor cost and improved production. Whereas the last three
elements will have a direct impact on profit and loss account, the reduction in inventory will
cause release of additional cash which can be assigned to a yearly value of saving, based on
organization’s standard internal rate of return.
Relationship between time phased cost and benefit will project a time phased ROI, which will be
negative at the outset and will turn positive over the pay back period.
Conclusion
ROI is a bit problematic particularly in term of unquantifiable figures. But it offer a measure of
success or otherwise of the project. ROI measurements help in many circumstances specially buy
in from project stakeholders, which enhance chances of a successful completion of the project.
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5. Configuration Control and Setting Up of Base in ERP System
Configuration Control and Setting Up
of Base in ERP System
ERP systems were developed based on generic need of various types of organizations, belonging
to diverse business segments and further evolved through continuous adding up of new business
processes. Consequently, any ERP system now offers numerous functionalities, which
overwhelm most of the enterprises, during project implementation. Enterprises are needed to
pickup relevant components of the system and set up and align these components to meet their
specific business requirement.
What is configuration?
Configuration of an ERP system deals with handling of numerous usage controls, which can be
switched off or switched on, so as to balance its functionalities to extant needs. First thing to
happen is to install specific modules needed and configuring these modules, as per the scope of

the project. Thousands of configuration tables are present, which define how the system should
operate, how the data entry screen will look like, how the signals and massages will appear etc.
The above process is extremely complex, particularly for tier 1 vendors like SAP and Oracle. To
alleviate this complexity, ERP vendors are creating pre configured modules suitable for a
particular business vertical. ERP vendors are also developing automated pre configuration tools
such as Orgware from BaaN. SAP has also brought out “Accelerated SAP Solution” containing
industry specific templates which can be tweaked for an individual company.
General Mode of Configuration:
1. A function can be turned on or turned off or made optional.
2. XOR i.e.to chooses only one flow that fulfills the specified condition.
3. OR where a configuration supports optional activities or flow requiring all, none or some of
the activities.
4. AND - indicate mandatory parallel flows.
Some configuration choices are irreversible e.g. if “negative inventory allowed” option is
chosen, it can not be reversed at a latter stage. Some configurations are reversible e.g. purchase
order quantity may exceed blanket order quantity or not. In some case if a specific choice is not
made, configurable function can be switched on or off by default.
Setting up of basic system: Some important activities related to setting up of base system,
having impact on all modules, are given below:
1. Creation of a company: This is basically to create a data base. A number of data bases can
be created of which one may be for actual transactions where as the others may be for used
for testing and training. A Company may different hierarchies such as single logistics /
single finance, multi logistics /single finance, multi logistics / multi finance etc.
2. Setting up of currency: Currencies need to be configured as i) base currency which is the
legal currency of the country where the organization is operating ii) Alternate reporting
currencies, iii) transaction currencies used for transaction with vendors and customers who
may be spread over a number of countries.
3. Setting up of calendar and periods: Calendars are used to record information on the
availability of resources. Periods are time intervals that can be utilized for statistical,
financial, planning and cost control purpose.
4. Units of Measure: Base units of length, surface area, weight, time and their conversation
factors for transactional purpose.
5. Integration between finance and logistic: Setting up of inter company relations, mode of
updating finance tables either in real time or in batch mode, mode of inventory valuation
such as LIFO, FIFO, Standard Costing or Weighted Average, treatment of finalized and non
finalized transactions on financial ledger etc.
6. Defining number group, series type and series length: To be used as ID of a unique
transaction like purchase orders, sales order, production order etc.
7. Defining Countries: Customers and vendors are located in various countries for which
country code need to be defined. This is very important due to necessity of tax calculation
and reporting.

8. Assigning Tax codes: Needed to be defined for sales, purchase, service, project
transactions.
Conclusion
Even if a pre-configured package for a specific vertical is chosen, the base configurations as
mentioned above is needed to be done with extreme care, during implementation. This base
configuration affects all the modules which form part of the implementation.
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 Master Data Management
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5. Master Data Management of an ERP System
Master Data Management of an ERP
System
ERP packages contain several modules, such as finance, sales and distribution, materials
management, manufacturing and production control, human resources, plant maintenance and
quality management. Main characteristics of ERP system is that all its modules function in an
integrated manner. Due to integrated nature of functioning, a few master tables are referenced
frequently all across the system and databases, and shared by different applications, functional
areas and sites. Data incorporated thereon need to be accurate, complete, timely and consistent.
The quality of data as inputted in master tables, is a major reason for success or otherwise of an
ERP system.
Collection and maintaining of master data
1. Clear cut process and procedure for maintenance of master data.
2. Ownership of data is properly defined.
3. In built workflow and authorization for adding and modifying data.
4. Documentation of the process.
5. Audit trails of master tables are activated and modifications are logged in the system.
6. Proper excel templates or data mapping with legacy system, for initial collection of data.
Classification of Master data
Collection of master data may be broadly classified under the following categories.
1. Business Partner MasterData:
a. Customer role-Delivery, shipment, invoicing, payment method, parent company of
customer, country location (for tax and statistical purpose), status (active, inactive,
potential), credit rating, financial groups, contact name and address, default
currency, prices and discount, sales channel, sales office.
b. Supplier Role-Receiving, transport, payment term, prices and discount, invoicing
method, country location (for tax and statistical purpose), status (active, inactive,
potential etc.), financial groups, contact name and address, default currency,
purchase office.
2. Item Base Data:
a. Product category- whether purchase, manufacture, service or cost item with
specialized management separately for each category.
b. , Measurement unit and alternate unit for the item with conversation factor.

c. item ordering system (manual, SIC or MRP), reordering factors (service level, safety
stock, ordering interval, minimum ordering quantity, forecasting mode, seasonal
pattern etc)
d. Item costing data (cost component, surcharges, standard cost, transfer cost etc.),
automatic process for generation of cost.
e. Status of the item (running or obsolete), alternate and reversible item, list item (with
user defined components).
f. Rates- applicable price, price limit, rules for applying prices to purchasing and sales.
g. Adding up segments to item code, such as project segment that assigns the item to a
project, cluster segment used for planning and distribution.
h. Vendors by item, freight categories and transportation services.
3. Employee base data: Name, ID, personal details, service centre, service point, skill, hourly
rate, overtime rate etc.
4. Finance MasterData: In addition to master data requirement for specific financial
modules such as general ledger, accounts payable, accounts receivable, cash management,
budgeting etc, following finance master data are having impact across non financial
modules:
a. Basic finance parameters for the parent organization and individual company.
b. Chart of accounts, periods, dimensions and transaction type.
c. Integration parameter and mapping accounts for logistical transactions (originating
from sales, procurement, manufacturing, service, subcontracting).
d. Integration parameter and mapping accounts for warehouse orders such as inventory
adjustment, inventory revaluation and warehouse transfers.
It may be reiterated that the above list is not exhaustive. The process and terminology used for
maintaining master data in different packages, also differ.
Conclusion
Master data management is not a one time affair of data take on. Data quality for master tables is
needed to be persistent on a long term basis. Discipline, ownership and process of master data
governance are a critical success factor for sustainability of the system.
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