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ERP a research & study paper by ejaz ahmed bhatti


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A paper covering all basics of ERP alongwith its pros and cons

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ERP a research & study paper by ejaz ahmed bhatti

  1. 1. 1 CHAPTER 1 WHAT IS ENTERPRISE RESOURCE PLANNING Introduction 1.Enterprise Resource Planning (ERP) is a term usually used in conjunction with ERP software or an ERP system which is intended to manage all the information and functions of a business or company from shared data stores or data bank. 2.An ERP system typically has modular hardware and software units and "services" that communicate on a local area network. The modular design allows a business to add or reconfigure modules (perhaps from different vendors) while preserving data integrity in one shared database that may be centralized or distributed. 3.Origin of the Term1 a. Manufacturing management systems have evolved in stages over the past 30 years from a simple means of calculating materials requirements to the automation of an entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing continual readjustments in production, as well as inflexible fixed system parameters, led MRP (Material Requirement Planning) to evolve into a new concept : Manufacturing Resource Planning (or MRP2) and finally the generic concept Enterprise Resource Planning (ERP). b. The initials ERP originated as an extension of MRP (Material Requirements Planning; later manufacturing resource planning) and CIM (Computer Integrated Manufacturing). It was introduced by research and analysis firm Gartner in 1990. ERP systems now attempt to cover all core functions of an enterprise, regardless of the organization's business or charter. These systems can now be found in non-manufacturing businesses, non-profit organizations and governments2. 1 2 Chang, SI; Guy Gable; Errol Smythe; Greg Timbrell (2000). "A Delphi examination of public sector ERP implementation issues". International Conference on Information Systems. Atlanta: Association for Information Systems. pp. 494-500. ISBN ICIS2000- X. Retrieved September 9, 2009
  2. 2. 2 c. The term "Enterprise resource planning" originally derived from manufacturing resource planning (MRP II) that followed material requirements planning (MRP). MRP3 evolved into ERP when "routings" became a major part of the software architecture and a company's capacity planning activity also became a part of the standard software activity. ERP systems typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. ERP software can aid in the control of many business activities, including sales, marketing, delivery, billing, production, inventory management, quality management, and human resource management. d. ERP systems saw a large boost in sales in the 1990s as companies faced the Y2K4 problem (real or imagined) in their "legacy" systems. Many companies took this opportunity to replace such information systems with ERP systems. This rapid growth in sales was followed by a slump in 1999, at which time most companies had already implemented their Y2K solution. e. ERP systems are often incorrectly called back office systems indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management (CRM) systems that deal directly with the customers, or the eBusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or supplier relationship management (SRM) systems. f. ERP systems are cross-functional and enterprise-wide. All functional departments that are involved in operations or production are integrated in one system. In addition to areas such as manufacturing, warehousing, logistics, and information technology, this typically includes accounting, human resources, marketing and strategic management. g. ERP II, a term coined in the early 2000s, is often used to describe what would be the next generation of ERP software. This new generation of software is web- based and allows both employees and external resources (such as suppliers and customers) real-time access to the system's data. 3 Andereg, Travis, MRP/MRPII/ERP/ERM — Confusing Terms and Definitions for a Murkey Alphabet Soup, retrieved 2007-10-25 4 Monk, Ellen; Wagner, Bret (2006), Concepts in Enterprise Resource Planning (Second ed.), Boston: Thomson Course Technology, ISBN 0-619-21663-8
  3. 3. 3 h. EAS — Enterprise Application Suite is a new name for formerly developed ERP systems which include (almost) all segments of business using ordinary Internet browsers as thin clients. 4.To be considered an ERP system5, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package. 5.Examples of modules in an ERP which formerly would have been stand-alone applications include: Official routine mail handeling, Product lifecycle management, Supply chain management (e.g. Purchasing, Manufacturing and Distribution), Warehouse Management, Customer Relationship Management (CRM), Sales Order Processing, Online Sales, Financials, Human Resources, Decision Support System and Operational Command Sys. 6.Ideally, ERP delivers multiple database sys that contains all data for the various software modules addressing areas such as: a. Command & Con Sys Defining and working on a channelized command & con sys in a pre-defined chain of command or tier concepts. b. Access control Management of user privileges for various processes c. Financials General ledger, cash management, accounts payable, accounts receivable, fixed assets d. Project management Costing, billing, time and expense, performance units, activity management e. Human resources Human resources, payroll, training, time and attendance, rostering, benefits f. Customer relationship management Sales and marketing, commissions, service, customer contact and call center support g. Manufacturing 5
  4. 4. 4 Engineering, bills of material, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow h. Supply chain management Order to cash, inventory, order entry, purchasing, product configurator, supply chain planning, supplier scheduling, inspection of goods, claim processing, commission calculation i. Data services Various "self-service" interfaces for customers, suppliers, and/or employees and tn of data to the decision makers via fastest media. 7.Gen visualisation6 of an ERP7 sys can be as given fol diagrams: 6 7
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  7. 7. 7 8.Emerging ERP vendors8 ERP is emerging as one of the largest fd in the IT world. Fol is the brief touch of its market volumes / revnue figures: a. ERP vendors by revenue9. The largest vendors worldwide in 2005 according to Gartner Dataquest: Market share 2005 according to Gartner Dataquest Revenue Market share S/No Vendor (million $) (%) 1 SAP 1949 30.33 2 Oracle Applications 1374 21.38 3 The Sage Group 1121 17.44 4 Microsoft Dynamics 916 14.25 5 SSA Global Technologies 464 7.22 b. Vendors of popular ERP Sorted roughly according to worldwide ERP related revenue: Revenue Revenue Vendor Year (Native currency) (million $) SAP 9.4 billion EUR 12401.4 2006 Oracle Applications 14.38 billion USD 14380.0 2006 Infor Global Solutions 2.1 billion USD 2100.0 2006 The Sage Group 935.6 million GBP 1832.0 2006 Microsoft Dynamics (Formerly Microsoft 44.2 billion USD 44200.0 2006 Business Solutions) Unit 4 Aggressor 352.6 million EUR 465.2 2005 CDC Software 409.1 million USD 409.1 2008 Lawson Software 390.776 million USD 390.8 2006 Epicor 384.1 million USD 384.1 2006 Visma 1,907 million NOK 305.5 2005 Industrial and Financial 288 million USD 288.0 2005 Systems (IFS) QAD 225 million USD 225.0 2006 Consona Corporation 130 million USD 130 2007 COA Solutions Ltd 50.5 million GBP 98.47 2007 8 9
  8. 8. 8 Net Suite 67.2 million USD 67.2 2006 ABAS Software 45 million EUR 62.6 2006 Ramco Systems 2,648 million INR 60.1 2006 SIV.AG 14.2 million EUR 18.7 unknown Technology One 108.8 million AUD 101 2008 Pronto Software 51.1 million AUD 54.9 2008 Plex Systems 22 million USD 22 2006
  9. 9. 9 CHAPTER 2 ERP SYSTEM IMPLEMENTATION MECHANICS “ Imagine that as a modern-day Robinson Crusoe, you are cast away at a remote tropical island. What would be the three things that you would take along with you?" I would guess that each person would give a distinct answer to this question. On the other hand, if we said "We are embarking on a journey of ERP implementation; what would be the three items that you would take along with you? The answers probably would not differ too much. First and foremost, a proper ERP product will be required. As the second requirement for your ERP implementation, you will be needing a competent project team. And of course, as the third and final item, you will need hardware on which you will be installing your ERP configuration, which will most likely be in the form of a server platform “ An ERP Guru 9.Businesses have a wide scope of applications and processes throughout their functional units; producing ERP software systems that are typically complex and usually impose significant changes on staff work practices. Implementing ERP software is typically too complex for "in-house" skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems. 10.ERP implementation10 is considerably more difficult (and politically charged) in organizations structured into nearly independent business units, each responsible for their own profit and loss, because they will each have different processes, business rules, data semantics, authorization hierarchies and decision centers. Solutions include requirements coordination negotiated by local change management professionals or, if this is not possible, 10
  10. 10. 10 federated implementation using loosely integrated instances (e.g. linked via Master Data Management) specifically configured and/or customized to meet local needs. 11.Markus and Tanis developed11 a four phase ERP phases for a smooth implementation process. Following are theses phases which drive the ERP implementation mechanics: a. Phase-I - The Chartering Phase12 Comprises the decisions leading up to the funding of an enterprise system and giving a kick start to the project. Key players are Vendors, Consultants, Company Executives and IT specialists. Key activities are Build a business case for ERP, Select a software package, identify a project manager, approve a budget and schedule. The complete set of activities in this phase are: (1) Decision to change over to ERP by Org / firm’s exectives. (2) Determine the need of this change and start of change process progressively in the org. (3) ERP Implementation Team Formation and assured aval of resources. (4) Selection of Methodolgy to take on the proj and requisite vendor. (a) Centeralized Apch (b) De- Centeralized Apch (c) Centeralized setups with ensured De-Centeralized con (d) Utilizing the concept of “ Best Practices ” (5) Determine the lvl of services req from the sel vendor. (6) Contract concl b. Phase-II - The Project Phase Comprises the activities performed to get the system up and running in one or more organizational units. Key players are Project Manager, Project team members, Internal IT specialists, Vendors and Consultants. Key activities are Software configuration, system integration, testing and data conversion. M.L. Markus and C. Tanis,list in this phase is as fol: – from adoption to success,” Working Possible activity “The enterprise systems experience (1) Identification of Areas as well as Data req to be put on ERP. (2) Demo of Scale Down Model (3) Hardware infrasture installation. 11 experience – from adoption to success,” Working Paper, Claremont Graduate University 12 h
  11. 11. 11 (4) Development and Deployment of Software modules. (5) Dry Tests (6) Application of Checks and counter Checks. c. Phase-III - The Shakedown Phase The organization’s coming to grips with the ERP System. Ends when “normal operations” have been achieved. (Or they give up and pull the plug on the system). Key players are Project Manager, Project team members, Operational Managers, and End users. Key activities are Bug fixing and rework, system performance tuning, retraining, staffing up to handle temporary inefficiencies. This is the phase in which the errors of prior phases are felt. New errors can arise in this phase also. (1) Trg of Users (Master Trainers / Indl Users) (2) Trial Basis running on selected venues / areas (3) Opening up of all connected venues (while parralel non ERP sys will continue) (4) Removal of bugs and discrepencies. (5) System’s course tuning and fine tuning exercises are conducted. (6) Sys Applications are redefined if req. (7) “ Here we go “ stage. d. Phase-IV - The Onward and Upward Phase Continues from normal operation until the system is replaced with an upgrade or a different system. This is where the organization is able to ascertain the benefits (if any) of its investment. Key players are Operational Managers, End-users and IT support personnel (Vendors and consultants may be involved – upgrades). Key activities Continuous business improvement, additional user skill building and post implementation benefit assessment. (1) User’s feed back (2) Dis-continuation of parralel Non-ERP syss (3) Customization as per user’s requirements. (4) Activation of “After Sales Protocols” (5) User’s problems and solutions are seeked. (6) Benefit assessment is made. 12.The ERP Implementation life cycle defined above is given in block diagram shape as fol:
  12. 12. 12 Company Management Pre-selection Process ERP Vendors Package Evaluation Project Planning Gap Analysis Reengineering Configuration Implementation Team Testing End- user Training Training Going Live Post-Implementation Phase ERP implementation Life Cycle
  13. 13. 13 13.Elaboration of Implimentation Mechanics The maj implementation mechanics involed in ERP are briefly described as following: a. Need Establishment (1) An org has to dwell upon the fol decisions: (a) Whether it needs an ERP ? (b) If YES, then whats lvl of this need (aval off the shelf open sourced, customized or proprietry sys). (c) Budget concerns. (d) Across the board programme or through a pased programme. (2) Decision is made, funds are made aval and Competent Implementation Teams are formed. (3) Tentative Time frames are fomulated. b. ERP Vendors & Vendor Services (1) Sel of vendor and choice of vendor svcs. (2) There are three types of services that may be employed for - Consulting, Customization, Support. The length of time to implement an ERP system depends on the size of the business, the number of modules, the extent of customization, the scope of the change and the willingness of the customer to take ownership for the project. ERP systems are modular, so they don't all need be implemented at once. It can be divided into various stages, or phase-ins. The typical project is about 14 months and requires around 150 consultants. A small project (e.g., a company of less than 100 staff) can be planned and delivered within 3–9 months; however, a large, multi-site or multi-country implementation can take years. The length13 of the implementations is closely tied to the amount of customization desired. (3) To implement ERP systems, companies often seek the help of an ERP vendor or of third-party consulting companies. These firms typically provide three areas of professional services: consulting; customization; and support. The client organization can also employ independent program management, business analysis, change management, and IT 13
  14. 14. 14 specialists to ensure their business requirements remain a priority during implementation. c. Concept of Best practices14 (1) Inspite of going on Zero-Based techniques and asking for a complete new sys, metod of best practices is also a preferable option. For example, if Pak Army needs a C I ERP sys, intl bench mk of any developed country’s 4    army can be utilized as the same is time tested with min lvl of bugs. The same can be cutomized for our needs basing on the best practices concept. (2) Best practices are incorporated into most ERP vendor's software packages. When implementing an ERP system, organizations can choose between customizing the software or modifying their business processes to the "best practice15" function delivered in the "out-of-the-box" version of the software. (3) Prior to ERP, software was developed to fit individual processes of an individual business. Due to the complexities of most ERP systems and the negative consequences of a failed ERP implementation, most vendors have included "Best Practices" into their software. These "Best Practices" are what the Vendor deems as the most efficient way to carry out a particular business process in an Integrated Enterprise-Wide system. A study conducted by Ludwigshafen University of Applied Science surveyed 192 companies and concluded that companies which implemented industry best practices decreased mission-critical project tasks such as configuration, documentation, testing and training. In addition, the use of best practices reduced over risk by 71% when compared to other software implementations. (4) They can also help where the process is a commodity such as electronic funds transfer. This is because the procedure of capturing and reporting 14 15
  15. 15. 15 legislative or commodity content can be readily codified within the ERP software, and then replicated with confidence across multiple businesses who have the same business requirement. d. Data Deployment (1) Data migration16 is one of the most important activities in determining the success of an ERP implementation. Since many decisions must be made before migration, a significant amount of planning must occur. Unfortunately, data migration is the last activity before the production phase of an ERP implementation, and therefore receives minimal attention due to time constraints. The following are steps of a data migration strategy that can help with the success of an ERP implementation: (a) Identifying the data to be migrated (b) Determining the timing of data migration (c) Generating the data templates (d) Freezing the tools for data migration (e) Deciding on migration related setups (f) Deciding on data archiving e. Process Preparation17 (1) This is truly applied when the concept of best practices have been utilized and available ERP sys has been shorlisted for implementation. It is an exercise of cutomization by the vendor to full fill User’s specific needs. (2) ERP vendors have designed their systems around standard business processes, based upon best business practices. Different vendor(s) have different types of processes but they are all of a standard, modular nature. Firms that want to implement ERP systems are consequently forced to adapt their organizations to standardized processes as opposed to adapting the ERP package to the existing processes. Neglecting to map current business processes prior to starting ERP implementation is a main 16 17 Turban et al. (2008). Information Technology for Management, Transforming Organizations in the Digital Economy. Massachusetts: John Wiley & Sons, Inc., pp. 300-343. ISBN 978-0-471-78712-9
  16. 16. 16 reason for failure of ERP projects. It is therefore crucial that organizations perform a thorough business process analysis before selecting an ERP vendor and setting off on the implementation track. This analysis should map out all present operational processes, enabling selection of an ERP vendor whose standard modules are most closely aligned with the established organization. Redesign can then be implemented to achieve further process congruence. Research indicates that the risk of business process mismatch is decreased by: (a) Linking each current organizational process to the organization's strategy; (b) Analyzing the effectiveness of each process in light of its current related business capability; (c) Understanding the automated solutions currently implemented. f. Configuration Configuring an ERP system is largely a matter of balancing the way you want the system to work with the way the system lets you work. Begin by deciding which modules to install, then adjust the system using configuration tables to achieve the best possible fit in working with your company’s processes. 14.Modules Most systems are modular simply for the flexibility of implementing some functions but not others. Some common modules, such as finance and accounting are adopted by nearly all companies implementing enterprise systems; others however such as human resource management are not needed by some companies and therefore not adopted. A service company for example will not likely need a module for manufacturing. Other times companies will not adopt a module because they already have their own proprietary system they believe to be superior. Generally speaking the greater number of modules selected, the greater the integration benefits, but also the increase in costs, risks and changes involved. 15.Consulting Services18 Many organizations do not have sufficient internal skills to implement an ERP project. This results in many organizations offering consulting services for ERP implementation. Typically, a consulting team is responsible for the entire ERP implementation including: 18
  17. 17. 17 a. Selecting b. Planning c. Training d. Testing e. Implementation f. Delivery g. Examples of customization includes creating processes and reports for compliance, additional product training; creation of process triggers and workflow; specialist advice to improve how the ERP is used in the business; system optimization; and assistance writing reports, complex data extracts or implementing Business Intelligence. 16.For most mid-sized companies, the cost of the implementation will range from around the list price of the ERP user licenses to up to twice this amount (depending on the level of customization required). Large companies, and especially those with multiple sites or countries, will often spend considerably more on the implementation than the cost of the user licenses—three to five times more is not uncommon for a multi-site implementation. 17.Customization VS Configuration Increasingly, ERP vendors have tried to reduce the need for customization19 by providing built-in "configuration" tools to address most customers' needs for changing how the out-of-the-box core system works. Key differences between customization and configuration20 include: a. Customization21 is always optional, whereas some degree of configuration (e.g., setting up cost/profit centre structures, organisational trees, purchase approval rules, etc.) may be needed before the software will work at all. b. Configuration is available to all customers, whereas customization allows individual customer to implement proprietary "market-beating" processes. c. Configuration changes tend to be recorded as entries in vendor-supplied data tables, whereas customization usually requires some element of programming and/or changes to table structures or views. 19 20 21
  18. 18. 18 d. The effect of configuration changes on the performance of the system is relatively predictable and is largely the responsibility of the ERP vendor. The effect of customization is unpredictable and may require time-consuming stress testing by the implementation team. e. Configuration changes are almost always guaranteed to survive upgrades to new software versions. Some customizations (e.g. code that uses pre-defined "hooks" that are called before/after displaying data screens) will survive upgrades, though they will still need to be re-tested. More extensive customizations (e.g. those involving changes to fundamental data structures) will be overwritten during upgrades and must be re-implemented manually. 18.By this analysis, customizing an ERP package can be unexpectedly expensive and complicated, and tends to delay delivery of the obvious benefits of an integrated system. Nevertheless, customizing an ERP suite gives the scope to implement secret recipes for excellence in specific areas while ensuring that industry best practices are achieved in less sensitive areas.
  19. 19. 19 CHAPTER 3 ERP SYSTEM SELECTION METHODOLOGY Gen 19.Irrespective of whether the company is a multi national multi-million dollar organisation or a small company with single digit million turnover, the goal of system selection is to source a system that can provide functionality for all of the business processes; that will get complete user acceptance; management approval and, most importantly, can provide significant return on investment for the shareholders. Since the mid-1970s, when there was widespread introduction of computer packages into leading companies to assist in Material Requirements Planning software companies have strived, and for the most part succeeded, to create packages that assist in all aspects of running a business from Manufacturing; Supply Chain Management; Human Resources; through to Financials. This led to the evolution of ERP Systems. 20.Accordingly, a significant number of packages purporting to be ERP systems have entered into the marketplace since 1990. There are packages at the upper end of the market such as SAP; Oracle; Movex; and IFS among others in addition to medium enterprise systems such as Microsoft Navision; Axapta; Tropos; Great Plains, Dynamics; iRenaissance; Sage; and Epicor Vantage and a vast quantity of other packages that vendors claim to be ERP Systems. There are also packages that claim to be best of breed for certain processes [such as Planning] and sold merely as an add-on to an ERP System. The options are many and this, in reality, creates a problem for the company who has to make a decision. 21.Attempting to select an ERP system is further exacerbated by the fact that some systems are geared for discrete manufacturing environment where a distinct amount of items make up a finished product while others are more suited to process industries such as chemical and food processing where the ingredients are not exact and where there might be re-work and byproducts of a process. 22.Given all of the potential solutions, it is not uncommon for companies to choose a system that is not the best fit for the business and this normally leads to a more expensive
  20. 20. 20 implementation. Thus, it is understandable that "ERP Costs can run as high as two or three percent of revenues". A Proper ERP System Selection Methodology will deliver, within time and budget, an ERP system that is best fit for the business processes and the user in an enterprise. 23.An ERP system selection methodology22 is a formal process for selecting an Enterprise Resource Planning (ERP) system. Maj existing methodologies include: a. Kuiper's funnel method b. 3D decision support tool THE FUNNEL TECHNIQUE 24.This is a questioning technique, or rather a structure to use the technique within, that keeps you "on track" as you guide your prospect towards your service or product offering once you have uncovered the needs. The technique relies on you using the prospects own words back to them and you must take notes. You will need to remember what the prospect says both now and possibly well into the future so do not rely on your memory. 25.STEPS OF THE FUNNEL TECHNIQUE There are four steps to the technique but that does not necessarily mean that it will always be only four questions: a. STEP ONE The first step is to motivate the prospect. You are going to hit the prospect with a barrage of questions so you want to prepare them for it. The best way to do this is with motivation not justification. You might consider using something they said to provide some "positive stroking". For example "This is a substantial organization you are running Mr. Prospect." They will be on the edge of their chair waiting to tell you about it in more depth! Be careful not to sound too patronizing but top sales people are genuinely interested to learn as much as they can about their client/prospect's business. b. STEP TWO Now you have them relaxed, you can begin to probe for information - pegs to hang the sale on and "hot buttons". You want to find out as much as possible without leading or influencing the prospect. You want to encourage them to talk. You could ask, for instance, "How is your company structured?" or "What does the partnership do?" Never use closed questions or 22
  21. 21. 21 be too specific - "Do you have a separate accounting office?" or "How do you handle civil cases?" is a definite no go at this stage. At the second step you will more likely than not get several pieces of valuable information. You must take notes because you may want to go through the "funnel" with each piece and maybe several times. c. STEP THREE Once you have started to gather information and uncovered the "hot buttons" you use open leading questions to pin point specific areas that you want to explore, exploit or lead the prospect into - "So you have a marketing division and a service division (use their words from Step 2 and follow with the open leading question) in what way do these departments interact?" Again at Step 3, do not use closed questions. d. STEP FOUR Now you summarize using their words and information, so as to get their commitment of your understanding of the situation or their needs - "Well, Mr. Prospect, you have outlined a substantial organization to me. You have a service group and a marketing group and they need to interact and communicate on a daily basis. Is that about the scope of things?" You then wait for the commitment and go back to step one. 26.Questioning using the funnel technique is one of the most powerful selling tools available to find out the correct / precise answer. The key to its success is to practice using it. First of all work on your open questions and then start to consciously differentiate between open neutral and open leading. 3D Decision Support Tool23 27.A Decision Support System (DSS) is a class of information systems (including but not limited to computerized systems) that support business and organizational decision-making activities. A properly designed DSS is an interactive software-based system intended to help decision makers compile useful information from a combination of raw data, documents, personal knowledge, or business models to identify and solve problems and make decisions. 28.Typical information that a decision support application might gather and present are: a. An inventory of all of your current information assets (including legacy and relational data sources, cubes, data warehouses, and data marts), 23
  22. 22. 22 b. Comparative sales figures between one week and the next, c. Projected revenue figures based on new product sales assumptions. Principles for Selection of Proper System Methodology 29.To address the common mistakes that lead to a poor system selection. It is important to apply key principles to the process, some of which are listed hereunder: a. Structured approach b. The first step in selection of a new system is to adopt a structured approach to the process. The set of practices are presented to all the stakeholders within the enterprise before the system selection process begins. Everyone needs to understand the method of gathering requirements; invitation to tender; how potential vendors will be selected; the format of demonstrations and the process for selecting the vendor. Thus, each stakeholder is aware that the decision will be made on an objective and collective basis and this will always lead to a high level of co-operation within the process. c. Focused demonstrations d. Demonstrations by potential vendors must be relevant to the business. However, it is important to understand that there is considerable amount of preparation required by vendors to perform demonstrations that are specific to a business. Therefore it is imperative that vendors are treated equally in requests for demonstrations and it is incumbent on the company [and the objective consultant assisting the company in the selection process] to identify sufficient demonstrations that will allow a proper decision to be made but will also ensure that vendors do not opt out of the selection process due to the extent of preparation required. e. Objective decision process f. Choosing which ERP to use is a complex decision that has significant economic [9] consequences, thus it requires a multi-criterion approach." . There are two key points to note when the major decision makers are agreeing on selection criteria that will be used in evaluating potential vendors. Firstly, the criteria and the scoring system must be agreed in advance prior to viewing any potential systems. The criteria must be wide-ranging and decided upon by as many
  23. 23. 23 objective people as possible within and external to the enterprise. In no circumstance should people with affiliations to one or more systems be allowed to advise in this regard. g. Full involvement by all personnel h. The decision on the system must be made by all stakeholders within the enterprise. "It requires top management leadership and participation… it involves virtually every department within the company".[6] Representatives of all users should: i. Be involved in the project initiation phase where the decision making process is agreed; j. Assist in the gathering of requirements; k. Attend the Vendor Demonstrations; l. Have a significant participation in the short-listing and final selection of a vendor. Implication of Poor System Selection 30.It is seldom that companies adopt a fully objective system selection methodology when choosing an ERP System. Some of the common mistakes that companies resort to are: a. Incomplete set of requirements b. When a new ERP has been implemented in an enterprise, Wallace & Kremzar state that "it requires people to do their job differently".[6] Therefore, it is very important to understand the requirements of each user for current processes and for future processes [i.e. before and after the new system is installed]. One can then review systems that have the best fit from a functionality perspective. It is also imperative that the requirements go into great detail for complicated processes or processes that may be unique to a particular business. c. Reliance on vendor demos d. Vendor Demonstrations tend to be focus on very simplistic processes. A typical demonstration will show an ideal order to cash process where a customer orders a quantity of product that is in stock. The reality in most businesses is that most customers have varying and more complicated commercial arrangements and products are not always in stock. e. Over-emphasis on system cost
  24. 24. 24 f. According to Finlay and Servant “The differential in purchase price between packages is unlikely to be the dominant factor".[7] While the cost of an ERP system is very important for a company, there tends to be a lack of focus on the other important decision criteria such as functionality; future proofing; underlying infrastructure [network & database]; and e-commerce capability among others. g. Selection bias h. It is not unusual that the decision on which system to purchase is made by one individual or by one department within the company. In these situations, an ERP system that may be excellent at one function but weak at other processes may be imposed on the entire enterprise with serious consequences for the business. i. Failure to use objective professional services j. One of the main reasons for failure in system selection is the understandable lack of knowledge within the company. Experienced Consultants can provide excellent information on all of the packages that are available in the marketplace; the latest functionality available in the most common packages and, most importantly, can assist the user in deciding whether a specific requirement would provide added value to the user and to the business. However, it is worth noting that the professional help must be provided by objective consultants who have no affiliation with ERP System vendors. "If a consultancy has built up an expertise in the use of a particular package then it is in its interest to recommend that package to its client” k. Inability to understand offering by ERP vendor l. "It is estimated that approximately 90% of enterprise system implementations are late or over budget" . A plausible explanation for implementations being late and over budget is that the company did not understand the offering by the vendor before the contract was signed. A typical example of this would be the scenario where a vendor may offer 5 days of services for the purpose of data migration. The reality is that there is a huge amount of work required to input data onto a new system. The vendor will import the data into the new system but expects the company to put the data into a file that is easy to import into the system. The company are also expected to extract the data from the old system; clean the data and add new data that is required by the new system. "ERP, to be successful, requires levels of data integrity far higher than most companies have
  25. 25. 25 ever achieved – or even considered. Inventory records, bill of materials (BOM), formulas, recipes, routings, and other data need to become highly accurate, complete and properly structured". This typical scenario is one of many issues that cause implementations to be delayed and invariably lead to requests for more resources. 31.List of ERP software packages For ref / guiadance, fol are the gen aval ERP vendors / softwares in the market. These are Open Source as well as Proprietry softwares. Few of the software pamphlets have also been attached in the end of paper for ref. a. Free and Open Source ERP softwares24 ERP Language Developer License Other Info Package Base Country Started as a fork of Adempiere Java Ali GPL Compiere BlueErp PHP Compiere Java GPL Dolibarr PHP ERP5 Python GPL ERP for Fedena Ruby Ruby License India Schools/Universities GNU PHP/Python Enterprise 24
  26. 26. 26 J Fire Java LGPL from Night Labs Kuali Java Foundation Ledger Perl GPL SMB Apache OFBiz Apache, Java License 2.0 Open bravo Public License (OBPL), a free software Open bravo Java Spain license based on the Mozilla Public License (MPL) Python, Post Open ERP GPL formerly Tiny ERP Belgium, India gre SQL Open taps Java C++ Produced by XTuple, Post books JavaScript, CPAL uses Qt framework Post gre SQL
  27. 27. 27 SQL- Perl, Post gre GPL Ledger SQL started as a fork of Tryton Python GPLv3 Open ERP Web ERP PHP, My SQL GPLv2 LAMP based system xTuple ERP b. Proprietary ERP softwares (1) 1C:Enterprise from 1C Company (2) 24SevenOffice Start, Premium, Professional and Custom from 24SevenOffice (3) abas ERP from ABAS Software (4) Accpac from The Sage Group (5) Agresso Business World from Unit 4 Agresso (6) AMS Advantage from CGI Group (formerly American Management Systems) (7) BatchMaster ERP from BatchMaster Software (8) Bowen & Groves M1 by B&G (9) Business ByDesign from SAP (10) Business One from SAP (11) CGram Software (12) Clear Enterprise from Clear Objective (13) Compass ERP from Transtek (14) Compiere professional edition (15) Comprehensive Patient Administrator (16) COA Solutions Ltd - Smart Business Suite (17) Consona Corporation - Intuitive; Made2manage; AXIS; Cimnet; Encompix; DTR
  28. 28. 28 (18) Epicor Enterprise from Epicor (19) Global Shop Solutions One-System ERP Solutions (20) HansaWorld products (21) ERP Adage (aka Adage) from Infor Global Solutions (22) ERP LN (aka Baan) from Infor Global Solutions (23) ERP LX (aka BPCS) from Infor Global Solutions (24) ERP SL (aka SyteLine) from Infor Global Solutions (25) ERP Swan (aka Swan) from Infor Global Solutions (26) ERP SX.Enterprise (aka SX.Enterprise) from Infor Global Solutions (27) ERP VE (aka Visual Enterprise) Infor Global Solutions (28) ERP XA (aka MAPICS) from Infor Global Solutions (29) IFS Applications from Industrial and Financial Systems (30) JD Edwards EnterpriseOne & JD Edwards World from Oracle (31) based on Microsoft Dynamics NAV (32) kVASy4 from SIV.AG (33) Kingdee from Kingdee (34) Lawson M3 from Lawson Software earlier * Movex from Intentia (35) Lawson S3 from Lawson Software (36) Log-net from LOG-NET, Inc. (37) Maximo (MRO) from IBM (38) Microsoft Dynamics AX (formerly Axapta) from Microsoft (39) Microsoft Dynamics GP (formerly Great Plains) from Microsoft (40) Microsoft Dynamics NAV (formerly Navision) from Microsoft (41) Microsoft Dynamics SL (formerly Solomon) from Microsoft (42) Momentum from CGI Group (43) N from Sescoi (44) NetERP from NetSuite Inc. (45) Openda QX from Openda (46) OpenMFG from xTuple (47) Oracle e-Business Suite from Oracle (48) Paradigm from Consona Corporation (49) PeopleSoft from Oracle (50) Plex Online from Plex Systems
  29. 29. 29 (51) QAD Enterprise Applications (aka MFG/Pro) from QAD Inc (52) Ramco Enterprise Series 4.x from Ramco Systems (53) Ramco e.Applications from Ramco Systems (54) Ramco On Demand ERP from Ramco Systems (55) MAS 90, MAS 200 and MAS 500 from The Sage Group (56) Technology One from Technology One (57) SAGE ACCPPAC from The Sage Group (58) SAGE Pro ERP from The Sage Group (59) SAGE ERP X3 from The Sage Group (60) SAP Business Suite from SAP (61) TaskHub from Synergix Technologies (62) SYSPRO from Syspro (63) SYS-APPS from Exclusive Technologies (64) mySAP from SAP (65) from Visibility (66) WorkPLAN Enterprise from Sescoi CHAPTER 4 ERP - PROS AND CONS
  30. 30. 30 32.Implementation Facts Few of the facts regarding ERP are: a. 65% of executives believed that ERP could be harmful to their organizations b. 51 percent of ERP projects are considered failures, a full 30 percent far exceed budget and miss their completion dates by a wide margin. c. 25% of organizations adopting ERP systems faced significant resistance from staff and that 10% of the organizations also encountered resistance from managers. d. The U.S. Navy's Enterprise Resource Planning software project is the largest SAP public-sector implementation in the world. The ERP system now integrates with a Marine Corps Intranet for all authentication and information security functions as well as 12 related Navy information systems and 18 Department of Defense (DOD) software applications. The ERP application manages accounting, distribution, HR, purchasing and maintenance across the Navy’s aviation, maritime, nuclear and supply chain management business functions. The project implementation timeframe spans from 2004 through 2013 and is budgeted at $1.4 billion. 25 33.Advantage In the absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another. Tasks that need to interface with one another may involve: a. ERP systems connect the necessary software in order for accurate forecasting to be done. This allows inventory levels to be kept at maximum efficiency and the company to be more profitable. b. Integration among different functional areas to ensure proper communication, productivity and efficiency c. Design engineering (how to best make the product) d. Order tracking, from acceptance through fulfillment e. The revenue cycle, from invoice through cash receipt f. Managing inter-dependencies of complex processes bill of materials g. Tracking the three-way match between purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced) 25
  31. 31. 31 h. The accounting for all of these tasks: tracking the revenue, cost and profit at a granular level. i. ERP Systems centralize the data in one place. Benefits of this include: (1) Eliminates the problem of synchronizing changes between multiple systems (2) Permits control of business processes that cross functional boundaries (3) Provides top-down view of the enterprise (no "islands of information") (4) Reduces the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure. 34.Some security features are included within an ERP system to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data- tampering scenario, for example, might involve a disgruntled employee intentionally modifying prices to below-the-breakeven point in order to attempt to interfere with the company's profit or other sabotage. ERP systems typically provide functionality for implementing internal controls to prevent actions of this kind. ERP vendors are also moving toward better integration with other kinds of information security tools. 35.Disadvantages26 Problems with ERP systems are mainly due to inadequate investment in ongoing training for the involved IT personnel - including those implementing and testing changes - as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and the ways in which it is used. Few of the disadvantages are:- a. Customization of the ERP software is limited. b. Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage. c. ERP systems can be very expensive (This has led to a new category of "ERP light" solutions) d. ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure. 26
  32. 32. 32 e. Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications. f. Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level). g. The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale. h. Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software. i. Some large organizations may have multiple departments with separate, independent resources, missions, chains-of-command, etc, and consolidation into a single enterprise may yield limited benefits. j. A disadvantage usually attributed to ERP is that business process re-design to fit the standardized ERP modules can lead to a loss of competitive advantage. While documented cases exist where this has indeed materialized, other cases show that following thorough process preparation ERP systems can actually increase sustainable competitive advantage. 36.ERP implementations Analogies ERP implementation, some times feel like pulling teeth. Keeping alive this spirit of suffering, fol is the list of seven analogies for ERP. a. Truth be told, I suspect the dude has a bit too much time on his hands, but here you go: b. The implementation will be like open heart surgery while the patient is still alive and working. c. An ERP implementation is like the corporate equivalent of a brain transplant. d. I think of ERP implementations like mountain climbing: No two are the same. e. ERP is like my marriage…In good times and in bad, in sickness and in health… f. ERP implementation is like warfare, make it quick and fast, don’t drag too long. g. ERP implementation is like a soccer team, where the coach, physiotherapist and substitutes have roles that are equal to those of the players themselves (explaining the role of top management).
  33. 33. 33 h. An ERP implementation is like a 9 month root canal.
  34. 34. 34 CHAPTER 5 ANALYSIS AND RECOMMENDATIONS 37.The implementation of an ERP system takes a significantly longer time and level of resource than the selection process. However, the extent of the implementation will be profoundly influenced by the level of resource and objectivity during the entire commissioning process of an ERP by the organization. Correct deployment ogf ERP will not only be cost effective but also it will beenficiary for organization’s productivity. 38.Analysis The successful implementation of various enterprise resource planning (ERP) systems has provoked considerable interest over the last few years. Management has recently been enticed to look toward these new information technologies and philosophies of manufacturing for the key to survival or competitive edges. After analyzing the complete chronology of ERP sys, fol aspects have come come up as focal points for ERP viz a viz organizational success: a. Although there is no shortage of glowing reports on the success of ERP installations, many companies have tossed millions of dollars in this direction with little to show for it. Since many of the ERP failures today can be attributed to inadequate planning prior to installation. b. This study also identifies new windows of opportunity as well as challenges facing companies / organizations today as enterprise systems continue to evolve and expand. c. Manufacturing Industry ERP has helped to increase the efficiency and quality of the manufacturing process. The manufacturing process experienced slumps quiet often because of improper communication, miscommunication, wrong communication and even lack of communication. ERP provided solutions to those troubles by coordinating the actions of supply chains, ware house and logistics.
  35. 35. 35 d. Insurance Enterprise Resource planning has played a vital role in this business by covering three vital areas. Firstly it has provided a common platform for insurers and his agents. This has helped in easing the transactions and keeping an eye on the performance of the agent. This has addressed the difficulties of both the agents and insurers and thus facilitated coordination in the better interests of the business. e. Healthcare The sharing of databases among hospitals seemed to be a great advantage for doctors and patients. This even makes one to exaggerate that a person need not maintain a collection of his medical problems provided that his/her choice of hospital/hospitals has a database of patient records(or commonly shares them by any other means).Even though it is not practical to follow those practices, ERP has been a lifesaving measure to patients who are admitted in a hospital in an emergency condition irrespective of the fact that the doctor in charge is aware of his medical history as ERP provides everything. f. An ERP 'system' is comprised of a number of modules that are combined (in Lego like fashion) to create something that meets your needs. Typical modules include Human Relations (HR), Accounts Payable (AP), Payroll, Accounts Receivable (AR), Asset Management, General Ledger (GL), Shipping / Receiving, etc, etc. The number of combinations possible is dizzying (as can the price be for acquisition, implementation, and maintenance). Therefore, a care full combination can only serve the best purpose for an organization. g. The consultants are the individuals who are responsible for the implementation of the software, and it is also their responsibility to make sure the employees are properly trained on how to use it. When the ERP software is sold to the company, it will usually be sold in a generic form. The functions will be the most important part of it. Most companies will need to modify the software so that it can be useful. h. Change management is the other most widely cited critical success factor. This concept refers to the need for the implementation team to formally prepare a change management program and be conscious of the need to consider the implications of such a project. One key task is to build user acceptance of the
  36. 36. 36 project and a positive employee. This might be accomplished through education about the benefits and need for an ERP system. Part of this building of user acceptance should also involve securing the support of opinion leaders throughout the organization. There is also a need for the team leader to effectively negotiate between various political turfs / stake holders interests. 39.Recommendations . Fol are the possible recommendations for a successful deployment of an ERP sys:- a. ERP systems inherently present unique risks due to tightly linked interdependencies of business processes, relational databases and process reengineering, and so on. Knowledge of such factors is important in the design of system and programme management as they contribute to the overall success of the system. b. To ensure the success of any ERP implementation project, a project team consisting of an ERP consultant, internal auditing, and IT staff familiar with the company's business operations should be established before the system's implementation. c. Auditors provide the function of analyzing Master data sets, which are synchronized copies of core data elements and associated attributes. These data sets are used in analytical applications, which are often subject to governance policies. Because every organization uses master data differently, internal auditors can help the project team identify how data sets are used, digitized, and maintained. d. As a general rule, master data needs to be identified with its corresponding database to facilitate the generation of business documentation, while data maintenance should be assigned to a particular function depending on the data's purpose. e. Every organization has its own set of internal controls for organizational requirements. As part of the implementation process, as set of internal controls must be defined. f. ERP project management team members should be involved in ERP selection, monitoring during implementation and management of outside consultants.
  37. 37. 37 g. The project team needs to communicate all system and compliance requirements to the consultant as soon as possible to determine whether the right consultant was hired for the job or otherwise. h. Organizations should be committed to the idea of implementing the “vanilla” version of an ERP which is the basic version with no or minimal customization. i. The need for an implementation team that spans the organization as well as one that possesses a balance of business and IT skills is another significant critical success factor. j. Communication among various functions/levels and specifically between business and IT personnel is another identified critical area. This requires a communication plan to ensure that open communication occurs within the entire organization, including the shop-floor employees as well as with suppliers and customers. k. There must also be consideration of the current legacy system in place as this will be a good indicator of the nature and scale of potential problems. This could directly affect the technical and organizational change required. l. It is critical to assess the IT readiness of the organization, including the architecture and skills. If necessary, infrastructure might need to be upgraded or revamped. m. The selection of the specific ERP package is one that requires careful attention. It is also necessary to keep in mind that the system must match the business processes. n. It is necessary to consider the impact of the change on the nature of work and the specific job descriptions. It is recommended that the training should encompass the development of IT skills and that it should be hands-on through a comprehensive training plan which must part of master implementation plan. o. Any project is not complete without the allowance for some kind of post- evaluation. It is recommended that there should b an allowance for a feedback network for focused performance measures. p. ERP software technology should not be very old. q. What kind of warranty and guarantee is provided by the ERP system provider. Safeguards must be ensured to achieve perceived results.
  38. 38. 38 r. Hardware requirements for the new system must be visualized in the planning stage. Conclusion 40.ERP provide a mechanism for implementing systems where a high degree of integration between applications is required. The Business Case or Value Proposition for implementation must be outlined to successfully implement - a proper mix of people, processes and technology should be maintained. The growing information needs of an enterprise make it imperative to improve or replace old systems. Especially under the present business environment, where the globalization has been initiated, full convertibility is coined, it is expected that the whole business system will undergo a major shift. To summarize, ERP has a great importance and ERP systems have become the biggest need of today's organizations to survive. They provide tremendous benefits in terms of speed, economy, efficiency, effectiveness and comprehensive decision making.
  39. 39. 39 REFERENCES 1.Frédéric Adam, David Sammon, The enterprise resource planning decade, p. 94, 2.Orlicky's material requirements planning by By Joseph Orlicky, George W. Plossi 1994 ISBN 0070504598 3.Daniel Edmund O'Leary, Enterprise resource planning systems: systems, life cycle, electronic commerce, and risk, Cambridge University Press, 2000. ISBN 0521791529. 4.Thomas E. Vollman, William L. Berry, D. Clay Whyberk, F. and Robert Jacobs, Manufacturing Planning and Control Systems for Supply Chain Management, 2005, page 96. ISBN 007144033X. 5.C. Escalle, M. Cotteleer, and R. Austin, Enterprise Resource Planning (ERP), Report No 9-699-020, Harvard Business School, Cambridge, MA, USA, 1999. 6.Thomas F. Wallace and Michael H. Kremzar, ERP: Making it Happen. ISBN 0471392014. 7.Paul N. Finlay and Terence Servant, Financial Packaging Systems, 1987. ISBN 0850125847. 8.Martin, M., 'An ERP Strategy', Fortune, 2 February 1998, pages 95–97. 9.Oyku Alanbay, 'ERP Selection using Expert Choice Software', ISAHP 2005, Honolulu, Hawaii, July 8–10, 2005.