CHAPTER 1 INTRODUCTION TO ERP INTRODUCTION Information Technology is revolutionizing the way in which we live and work. It ischanging all aspects of our life and lifestyle. The amount of calculation power that isavailable to mankind is increasing at an exponential rate. Computers and communicationare becoming integral part of our lives. To survive, thrive and beat the competition in today’s world, one has to manage thefuture. Managing the future means managing the information. IT has many roles to play inthe organization. All organizations have certain objectives and goals to achieve. For anyorganization to succeed, all business units or departments should work towards thesecommon goal. But each department or business function in the organization will have itsown goals and procedures. The departmental objectives can sometimes be conflicting. Forexample the finance department might want to cut down the advertising budget, whereasthe marketing department might want more money. Similarly production-planningdepartment might want to reduce the inventory level, but the production people mightwant to reduce the inventory level, but the production people might want to have morestocks. To success of an organization rests in resolving the conflicts between the variousbusiness functions and making them do what is good for the organization as a whole. Forthis, information is critical. Everybody should know what is happening in other parts of theorganization. It is not enough that each department manages its activities efficiently, itshould also help other departments manage their functions efficiently. For these tohappen, the organization should cease to function of islands of information, each workingin isolation. Each and every employee should know what his/her counter-parts are doing,how his/her actions and decisions will affect the other departments. This kind ofinformation sharing was difficult in the early days. Now with the advancement inInformation Technology this is possible. IT has a crucial role to play, both at the organizational level and at the departmentallevel. At the organizational level, IT should assist in specifying objectives and strategies ofthe organization. IT should aid in developing and supporting systems and procedures toachieve them. At the departmental level, IT must ensure a smooth flow of informationacross departments, and should guide organizations to adopt the most viable businesspractices. At this level, IT ensures seamless flow of information across the differentdepartments and develops and maintains an enterprise-wide database. This database willeliminate the need of the isolated data islands that existed in each department and makethe organization’s data accessible across the departmental boundaries. The enterprise-wide data sharing has many benefits like automation of the procedures, availability ofhigh quality information for better decision making, faster response time and so on.1.1. EVOLUTION OF ERP When companies were small and all the different managerial functions managed by asingle person, the decisions were made, keeping in mind the overall company objectives.But as company grew, managing the entire operations become impossible for a singleperson. More and more people were brought in and the different business functions weregiven to different individuals. When organization become larger, each person hired peopleto assist him/her and the various departments as we see now, evolved. The size of thedepartment began to increase more and more people were required to do the job. As the departments become large, they become closed and water tight. Each had theirown set of procedures and hierarchy. People at most levels within a department, wouldjust collect and pass the information upward. Thus information was shared betweendepartments only at the top level. Most developers ended up developing need-based, isolated information systems thatwere incompatible and it is no wonder that IT implementations automated only theexisting applications and not the business functions.
The system has work around the core activities of the organization, and should facilitateseamless flow of information across departmental barriers. Such as systems can optimallyplan and manage all the resources of the organization and hence, they can be called asEnterprise Resources Planning (ERP) systems. An Enterprise is a group of people with a common goal, which has certain resources atits disposal to achieve that goal. The group has some key functions to perform in order toachieve its goal. Resources included are money, manpower, material, and all the other things that arerequired to run the enterprise. Planning is done to ensure that nothing goes wrong. Planning is putting necessaryfunctions in place and more importantly, putting them together. Therefore Enterprise Resources Planning or ERP is a method of effective planning of allthe resources in an organization. There are many misconceptions about ERP. The first one is that ERP is a computersystem. Yes, computer and IT are integral parts of an ERP system, but ERP is primarily anenterprise-wide system, which encompasses corporate mission, objectives, attitudes,beliefs, values, operating styles and people who make the organization. The secondmisconception is that ERP is for manufacturing organizations alone. This assumption isbasically due to the way in which ERP was historically developed from the manufacturingmethods such as MRP (Material Requirement Planning) and MRP II (ManufacturingResource Planning.)1.2. WHAT IS ERP? (OCT 04,10M) Enterprise Resource Planning (ERP) covers the techniques and concepts employed forthe integrated management of businesses by the effective use of management resources,to improve the efficiency of an enterprise. ERP packages are integrated (covering all business functions) software packages thatsupport the above ERP concepts. Originally ERP packages were targeted at themanufacturing industry, and consisted mainly of functions for planning and managingcore businesses such as sales management, accounting and financial affairs, etc.However in the recent years, adaptation not only to the manufacturing industry, but alsoto diverse type of industry has become possible and the expansion of implementation anduse has been progressing on the global level. ERP software is designed to model and automate many of the basic processes of acompany, from finance to the shop floor, with the goal of integrating information acrossthe company. Fig: Integration of information through ERP system
1.3. REASONS FOR THE GROWTH OF THE ERP MARKET (APR 07, 09, 10; 5M) There is no doubt that the market for the Enterprise Resource Planning (ERP) systems isin great demand. Industry analysts are forecasting growth rates of more than 30 % for atleast the next 3 years.Now why are so many companies replacing their key business systems? The answer is : • To enable improved business performance o Cycle time reduction : the time required to contact other department is reduced. o Inventory reduction: As the data is integrated there is no need to re enter the data and the paperless transaction is done using EDI (Electronic Data Interchange). o Order fulfillment improvement: There is no conflicts between the departments like sales and production so order can be made on time. • To support business growth requirements o New Products and New Customers : we can grow our organization by implementing new Products in the market and get the new customers for that product. o Globalize the product: We can Globalize the product for International customers • To provide flexible, integrated, real-time decision support o Managers gets the integrated data of different departments at any time to analyze and to take important decisions at the right time. • To eliminate limitations in the legacy system: o Integration of the isolated departments o Decision support system o Availability of the right data at right time o Flexibility to change o Supporting latest technologiesThere are some of the reasons for explosive growth rate of the ERP market and the ERPvendors. As more and more companies are joining the race, the ERP vendors are shiftingtheir focuses from big fortune 1000 companies to different market segments like mediumsized companies and small companies. The future will see the battle for market share andmergers and acquisitions for strategic and competitive advantage. The ultimate winner inthis race will be the customer, who will get the better products and better services ataffordable prices.1.4. THE ADVANTAGES OF ERP (OCT 04, 05, 07, 08, APR 08; 7M)Installing the ERP system has many advantages, some of the direct advantages includeimproved efficiency, information integration for better decision making, faster responsetime for customer queries, etc. And the indirect benefits include better corporate image,improved customer goodwill, customer satisfaction, and so on. The following are some ofthe direct benefits of the ERP systems. • Business Integration: The reason why the ERP packages are considered to be integrated, is the automatic data updation (automatic data exchange among departmental applications) that is possible among the related business components. Since conventional company information systems was isolated departmental functions, almost all were weak in terms of communication and integration of information. In the case of ERP packages, the data of related business functions is also automatically updated at the time of transactions occurs. For this reason, one is able to grasp business details in real time, carry out the various types of management decisions in a timely manner, based on that information. • Flexibility: o Multilanguage: It supports different languages so that the company can work in the language they want.
o Multi currency: It also support different currencies so that if the company is globalize (multinational) then it could have branches in many countries and for this it should support different currencies. o Multiple accounting Standards: Organization can have multiple products and it can have extremely different way of business and information flow for different products, so there should be different accounting for calculation of profits, wages, general ledger and so on. Here ERP provide Multiple Accounting Standards for this type of company. To cope with company globalization and system unification, this flexibility is essential. • Better Analysis and planning capabilities: With the Integration of Information, one can get any information from the enterprise system. Because of this it became possible to utilize the decision support system and analysis of data from a variety of dimensions, one is able to give the decision maker the information they want thus enabling them to make better decisions. FOR Example: Problem: In 2007, our organization has made 35% more profit then the year 2006, now in 2010 the company want same 35% increment in the profit margins, this is the important task of the managers to cope with. Solution: Manager will first analyze the data of 2007 from the Archive such that he will get the information on the tasks to achieve 35% increment, he will analyze all the departmental duties assigned that time, To analyze all these information the manager can take a help of DSS (Decision Support System) system to take the departmental decision and EIS (Executive Information System) to take the decision at the organizational level. So the system will help the manager to do the Planning and also to take better decision to achieve the company’s goal. • Use of the latest technology: The ERP vendors are very quick to realize that in order to grow and sustain that growth, they had to embrace the latest developments in the field of IT. Therefore, they quickly adapted their systems to take the advantage of the latest technologies like open systems, client/server technology, Internet/Intranet, e-commerce, etc. It is this quick adaptation to the latest change in information technology that makes the flexible adaptation to change in future business environments possible. It is this flexibility that makes the in-corporation of the latest technology possible during system customization, maintenance and expansion phases.1.5. REASONS FOR THE FAILURE OF ERP IMPLEMENTATIONERP packages if chosen correctly, implemented judiciously and used efficiently, will raisethe productivity and profits of companies dramatically. But many companies fails in thisbecause of a wrong product, incompetent and haphazard implementation and inefficientand ineffective usage.There should be good people who know the business. The vendor should be good and hispackage should be the one best suited for the company’s needs. The ERP consultantsshould be good. The implementation should be planned well and executed perfectly. Theend-user training should be done so that the people understand the system, and theeffect of their efforts on the overall success of the program.The introduction of the ERP system will dramatically change the job descriptions andfunctions of many employees. Employees who were earlier doing the work of recordinginformation will, overnight, be transformed into decision makers. For example, in the pastan order entry clerk’s job was to enter the order that came to him. With theimplementation of the good ERP system, the order entry clerk became an action initiator.As soon as he enters the order into the system, the information is passed onto sales,distribution and finance modules. The distribution module checks whether the item is instock and if available, the item is dispatched and information is sent to the financemodule. If the items are not in stock, then the manufacturing module is given theinformation, so that the production can start. The customer is informed about the statusof his order. If the items are shipped, the finance module prepares the invoice and sendsit to the customer. All these action takes place automatically as soon as the order entryclerk enters the information regarding the order into the system. Thus order entry clerk istransformed from data entry operator to a decision maker whose action can trigger achain of action.
Many employees find this transformation difficult to accept. If the employees are notgiven proper training, well in advance, then the system will fail. Another factor is the fearof unemployment. When procedures become automated, people who were doing thosejobs become redundant. So it is quite natural to have resistance from the employees. Butthe same employees can be trained in the new system and can work in more challengingand stimulating environments. For this also, the employees have to be told, in advance,as to what will happen and should be given ample time and training to make thetransformation. Without support from the company, even the best system will fail. So it isvery important that the management should take the necessary steps, well in advance, toremove the fear of, and provide necessary training to their employees.
CHAPTER 2 ENTERPRISE – AN OVERVIEW INTRODUCTION (OCT 04, 6M)What is an enterprise? An enterprise is a group of people with a common goal, which hascertain resources at its disposal to achieve that goal. In the traditional approach theorganization is divided into different units based on the functions they perform such asmanufacturing or production department, the production planning department, thepurchasing department, the sales and distribution department, the finance department,the R&D department and so on. Each of these departments are compartmentalized andhave their own goals and objectives, which from their point of view are in line with theorganization’s objectives.Each of these departments function in isolation and have their own systems of datacollection and analysis. So the information that is created or generated by the variousdepartments, in most cases, are available only to the top management as a summaryreports which is not available to other departments. The result is that instead of takingthe organization towards the common goal, the various departments end up pulling it indifferent directions. This is because one department does not know what the other does.Also sometimes the departmental objectives can be conflicting. For example the sales andmarketing people will want product variety to satisfy the varying needs of the customer.But the production department will want to limit the product variety to cut down theproduction costs. So unless all the departments know what the others are doing and forwhat purpose, these kinds of conflicts will arise, thus disrupting the normal functioning ofthe organization.But in enterprise, the entire organization is considered as a system and all thedepartments are its subsystems. The information about all the aspects of the organizationis stored centrally and is available to all the departments.This transparency and information access ensures that the departments no longer work inisolation pursuing their own independent goals. Each sub system knows what the otherare doing why they are doing it and what should be done to move company towards thecommon goal.The ERP system helps to accomplish this task by integrating the information systems,enabling smooth and seamless flow of information across departmental barriers,automating business process and functions and thus, helping the organization to work andmove forward as a single entity.2.1. INTEGRATED MANAGEMENT SYSTEMS (OCT 07; 7M)An Information Systems is an open system that produces information using the input-process-output cycle. The minimal information system consist of three elements People,procedures and data. People follow procedures to manipulate data to produceinformation. Today Information system is defined as an organized combination of people,hardware, software, communication networks and data resources that collects, collates,transforms disseminate(spread information) in an organization.2.1.1. Management Information Systems (APR 08; 7M)It is also called as Information-Reporting systems produce information products thatsupport many of the day to day decision making needs of the management. Reports,charts, graphs, displays and responses produced by such systems provide information
that managers have specified in advance. Each department will have its own databaseand information systems. These systems will produce different reports of varying detailthat were specified when the system were built. This method of information gathering has two major disadvantages. One people in onedepartment do not have any information about what is happening in the otherdepartments. May be at the top management level the summary reports are beingcirculated to other departments also, but these summary reports often fail in capturingthe real picture. The second drawback is that these system gives only the information thatthey were designed to produce at the time they were built. These systems lack the integrated approach. There will be an accounting system for anfinance department, a production planning system for the manufacturing department, aninventory management system for the stores department, and so on. All these system willperform in isolation. So if a person wanted some information which has to be derived fromany of these two systems, he has to get the necessary reports from both systems andthen correlate and combine the data. Because the system works in isolation, collecting and analyzing the data can be difficulttask, since getting information on more than one department can be tedious. No businessexecutives or decision makers can take good decisions with the isolated data that he getsfrom the various reports produced by each department. Even if he collates the data andproduces the information that he requires, he would have lost the valuable time thatcould have been better spent in decision making. An organization cannot function as islands of different departments. The productionplanning data is required for the purchasing department. The purchasing details arerequired for the finance department and so on. So if all the information islands, whichwere functioning in isolation, were integrated into a single system, then the impact of thatwould be dramatic. The three fundamental characteristics of information are accuracy, relevancy andtimeliness. The information had to be accurate, it must be relevant for the decision makerand it must be available to the decision maker when he need it. Today the time availablefor an organization to react to the changing market trends is very short. To survive, theorganization must always be on its toes.2.2. BUSINESS MODELLING (OCT 05, 06, 07, 08, 09, APR 08, 09; 5M) Business Modeling is a representation of the business as one large system showing theinterconnections and interdependencies of the various subsystems and businessprocesses. Based on the organizations goals, objectives and strategic plans, a businessmodel consisting of the business processes is developed. These business processes arecontrolled by different individuals in the organization to achieve common goals. Based onthe business model the ERP system is developed with the aim of providing the requiredinformation and necessary assistance to the various individuals, to help them performtheir business processes more effectively and efficiently. In business modeling, we model the business as an integrated system, taking theprocesses managing its facilities and materials as resources. Information is very importantresource and is very critical in managing all the other resources. Thus business model is a representation of the actual business—what are the variousbusiness functions of the organization, how they are related, what are theirinterdependencies, and so on. The business model is usually represented in graphicalform using flowcharts and flow diagrams. From the business model, the data model iscreated.2.3. INTEGRATED DATA MODEL (APR 09, OCT 09; 6M) One of the most critical steps in the ERP implementation is the creation of an IntegratedData Model. As we have seen earlier, one of the advantageous of having ERP systems isthat all the employees from the different departments get access to the data i.e. theintegrated data. The company uses these integrated data for its analysis and decisionmaking. With the implementation of the ERP systems, the departmental information system andthe departmental databases will have to go. There can no longer be isolated databases,which cater to the needs of a particular department. All the data has to be from the
integrated database. This approach will reduce the data redundancy and provide updatedinformation about the entire organization to all employees. For the integrated database to be effective, it should clearly depict the organization,reflect the day-to-day transactions and should be updated continuously. At a given time,the database should give a snapshot of the organization. So if the order is entered, thesale is done and the goods are dispatched, then database should reflect those changes.The inventory should be reduced and the account receivable should be increased. Allthese thing have to happen instantaneously and automatically. That is the challenge andthat is the advantage of integrated database and the integrated data model. Theintegrated data model is derived from the business model.So when designing the data model for the ERP system, the most important thing thatshould be kept in mind is the information integration and the process or proceduresautomation. The data model should reflect the organization and it should successfullydepict and integrate the data structure of the entire organization.
CHAPTER 3 ERP AND RELATED TECHNOLOGIES INTRODUCTION ERP is an abbreviation for Enterprise Resource Planning and means, thetechniques and concepts for the integrated management of businesses as a whole, fromthe viewpoint of the effective use of management resources, to improve the efficiency ofan enterprise.ERP systems serve an important function by integrating separate business functions—materials management, product planning, sales, distribution, finance and accounting andothers—into a single application. However, ERP systems have three significantlimitations: • Managers cannot generate custom reports or queries without help from a programmer and this inhibits them from obtaining information quickly, which is essential for maintaining a competitive advantage. • ERP systems provide current status only, such as open orders. Managers often need to look past the current status to find trends and patterns that aid better decision-making. • The data in the ERP application is not integrated with other enterprise or division systems and does not include external intelligence.There are many technologies that help to overcome these limitations. These technologies,when used in conjunction with the ERP package, help in overcoming the limitations of astandalone ERP system and thus, help the employees to make better decisions. Some ofthese technologies are: • Business Process Reengineering (BPR) • Management Information System (MIS) • Decision Support System (DSS) • Executive Information Systems (EIS) • Data Warehousing • Data Mining • On-line Analytical Processing (OLAP) • Supply Chain Management Out of the above technologies MIS, DSS and EIS are forerunners of the ERP systems.Once the ERP system and the other technologies (like Data Warehousing, Data Mining,OLAP, etc.) are integrated, the MIS or DSS will become redundant as their functions will betaken care of by the new systems and they will be slowly phased out from the scene. With the competition in the ERP market getting hotter and hotter, and ERP vendorssearching for ways to penetrate new market segments and expand the existing ones,tomorrows, ERP systems will have most of these technologies integrated into them. In thissession we will see how each of these technologies are related to ERP systems.3.1. BUSINESS PROCESS REENGINEERING (BPR) (OCT.04, 05, 06, 07, 08, APR.08, 09; 7M)
Dr Michael Hammer defines BPR as "... the fundamental rethinking and redesign ofbusiness processes to achieve improvements in performance such as cost, quality, serviceand speed." Information technology is one of the most important tools, which can be used formaking changes in business process. While undergoing BPR, any business organizationshould consider the effects of I.T. solution on employees, if the organization will notbother for these effects then no doubt organization will crash during the initial phaseitself. In enterprise the reengineering offers advantages like information technologies,computer network, telecommunication and interfacing of computers at different locations,powers of DBMS. Business engineering makes the organization more customer focusedand responsive to changes in the market. This is achieved by reshaping corporatestructure around business process.3.2. MANAGEMENT INFORMATION SYSTEM (MIS) (OCT 05, 06, 08, 09, APR 10; 7M) In the past, most payroll systems were data processing systems that did little morethan process time sheets, print payroll checks and keep totals of annual wages anddeductions. This was the case with most other departmentalinformation systems. As managers began to demand more and better information aboutthe working of the organization, the data processing systems evolved into managementinformation systems. For example, a human resource MIS system is capable of predicatingthe average number of worker sick days, the amount that must be given as bonus, theovertime allowances, and so on. MIS is a computer-based system that optimizes the collection, transfer andpresentation of information throughout an organization, through an integrated structureof databases and information flow.The major differences between a management information system and a DataProcessing system are:(OCT 07, APR 10;5M) • The integrated database of the MIS enables greater flexibility in meeting the information needs of the management. • The MIS supports many functional areas (accounting, marketing, manufacturing, etc.) whereas data processing systems tend to support a single functional area. • MIS caters to the information needs of all levels of management whereas data processing systems focus on departmental-level support. • Managements information needs are supported on a more timely basis with the MIS (with its on-line query capability) than with a data processing system.The main characteristics of the Management Information System are: • The MIS supports the data processing functions of transaction handling and record keeping. • MIS uses an integrated database and supports a variety of functional areas. • MIS provides operational, tactical and strategic levels of the organization with timely, but for the most part structured information (ad-hoc query facility is not available). • MIS is flexible and can be adapted to the changing needs of the organization.3.3. DECISION SUPPORT SYSTEM (DSS) (OCT 04, 06,; 6M)
Managers spend a lot of time and effort in gathering and analyzing information beforemaking decisions. Decision support systems were created to assist managers in this task.Decision support systems are interactive information systems, to produce and presentinformation targeted to support management in the decision-making process. However, decision-makers, especially at the top management levels, are often con-fronted with complex decisions. The analysis of such complex decisions which involvemany factors can be difficult for a human being. These types of decisions, and the needfor complex information analysis required for such decision-making, led to the evolution ofdecision support systems. A DSS can help close the information gap and allow managers to improve the qualityof their decisions. To do this, the DSS hardware and software employ the latesttechnological innovations, planning and forecasting models, 4th generation languagesand even artificial intelligence. In many cases, DSS facilitates the decision-makingprocess, helping the decision-makers to choose between alternatives. Some decisionsupport systems can automatically rank the alternatives, based on the criteria given bythe decision-maker. DSS also help in removing the monotony and tedium of gathering andanalyzing data. DSS are designed to support decision-making processes involving semi-structured andunstructured problems. Here, the role of the DSS is to help managers in getting theinformation they want in the way they want. For example, a manager wants to reducecycle time. He might look at various facts like the availability of raw materials, skilledpersonnel, the average machine down time, and so on. So there is no way the system cananticipate what the manager wants. DSS’s are capable of helping the managers inmaking such decisions.The main characteristics of a DSS are: • A DSS is designed to address semi-structured and unstructured problems. • The DSS mainly supports decision-making at the top management level. • DSS is interactive, user-friendly can be used by the decision-maker with little or no assistance from a computer professional. • DSS makes general-purpose models, simulation capabilities and other analytical tools available to the decision-maker. A DSS does not replace the MIS; instead a DSS supplements the MIS. There are distinct differences between them. MIS emphasizes on planned reports on a variety of subjects; DSS focuses on decision-making. MIS is standard, scheduled, structured and routine; DSS is quite unstructured and is available on request. MIS is constrained by the organizational system; DSS is immediate and user-friendly.3.4. EXECUTIVE INFORMATION SYSTEM (EIS) (OCT 05, 06, 07; 5M) The line dividing DSS and EIS is very thin. EIS can be considered as a better andsophisticated DSS. Top-level executives and decision-makers face many problems andpressures. They have to make the right decisions at the right time to take the companyforward. In todays competitive world, reaction times are shrinking and time to makedecisions is very less. EIS is a decision support system especially made for senior-levelexecutives. An EIS is concerned with how decisions affect an entire organization. An EIS takes the following into consideration: • The overall vision and mission of the company and the company goals • Strategic planning and objectives • Organizational structure • Crisis management/Contingency planning • Strategic control and monitoring of overall operations
Executive decision-making also requires access to outside information fromcompetitors, governmental regulations, trade groups, news gathering agencies, and soon. A high degree of uncertainty and a future orientation is involved in most executivedecisions. Successful EIS are easy to use, flexible and customizable and use the latesttechnological innovations.3.5. DATA WAREHOUSING (OCT 05, 06, 08, 09, APR 09; 8M) If operational data is kept in the databases of the ERP system, it can create a lot ofproblems. As time passes, the amount of data will increase and this will affect theperformance of the ERP system. So it is better to archive the operational data once its useis over. When I say the use is over, it does not mean that, the archived data is useless.On the contrary, it is one of the most valuable resources of the organization. Howeveronce the operational use of the data is over, it should be removed from the operationaldatabases. For example, once the financial year is over, the daily transactional data canbe archived. Figure 3.1 shows what happens if the data is not archived. It is evident from the figure that even though the operational data volume is nearlythe same each year, since the data is not archived, the total amount of data that is stored > Fig. 3.2 Data volume vs. performancein the operational database will go on increasing. Figure 3.2 shows the effect of keepingthis huge amount of data in the operational database. It is clear from the above graph that as the volume of the data in the databaseincreases, the performance of the database and the related applications decreases. Fromthe above discussions, it is evident that we should separate the operational data from the
non-operational data. I am not using the term archive data, because if the non-operationaldata is archived, there is little or no use for it. But this data is a very valuable resourceand is too precious to be kept in some archive. It is in this situation that a data warehousecomes in handy. The reasons to separate the operational data from the analysis data have notsignificantly changed with the evolution of the data warehousing systems, except thatnow they are considered more formally during the data warehouse building process.Advances in technology and changes in the nature of business have made many of thebusiness analysis processes much more complex and sophisticated. In addition toproducing standard reports, todays data warehousing systems support very sophisticatedonline analysis, including multi-dimensional analysis.3.6. DATA MINING (OCT.06, 07, APR.09; 8M) Powerful systems for collecting data and managing it in large databases are availablein most organizations. However, the major bottleneck of converting this data into effectiveinformation is the difficulty faced in extracting knowledge about the system from thecollected data. Modeling the investigated system discovering relations that connectvariables in a database are the subjects of data mining. Data mining is the process of identifying valid, novel, potentially useful and ultimatelycomprehensible information from databases that is used to make crucial businessdecisions.Research organizations, academic institutions and commercial organizations create andstore huge amounts of data each day. It becomes impossible for human analysts to copewith such overwhelming amounts of data. Two other problems that surface when human analysts process data are: • The inadequacy of the human brain when searching for complex multifactorial dependencies in the data • The lack of objectiveness in analyzing the data.One additional benefit of using automated data mining systems is that this process has amuch lower cost than hiring an army of highly trained (and paid) professional statisticians.While data mining does not eliminate human participation in solving the task completely,it significantly simplifies the job and allows an analyst, who is not a professional instatistics and programming, to manage the process of extracting knowledge from data.3.7. ON-LINE ANALYTICAL PROCESSING (OCT.06, 09, APR.10; 6M)OLAP can be defined in five words—Fast Analysis of Shared MultidimensionalInformation.FAST means that the system is targeted to deliver most responses to users within aboutfive seconds, with the simplest analysis taking no more than one second and very fewtaking more than 20 seconds. ANALYSIS means that the system can cope with anybusiness logic and statistical analysis that is relevant for the application and the user, andkeep it easy enough for the target user. SHARED means that the system implements all
the security requirements for confidentiality (possibly down to cell level) and, if multiplewrite access is needed, concurrent update locking at an appropriate level.MULTIDIMENSIONAL means that the system must provide a multidimensionalconceptual view of the data, including full support for hierarchies and multiple hierarchies.INFORMATION is refined data that is accurate, timely and relevant to the user.Simply put, OLAP describes a class of technologies that are designed for live ad-hoc dataaccess and analysis. While transaction processing (OLTP) generally relies solely onrelational databases, OLAP has become synonymous with multidimensional views ofbusiness .data. These multidimensional views are supported by multidimensionaldatabase technology and provide the technical basis for calculations and analysisrequired by Business Intelligence applications.3.8. SUPPLY CHAIN MANAGEMENT (OCT.08, APR.08, 10; 7M) A supply chain is a network of facilities and distribution options that performs thefunction of procurement of materials, transformation of these materials into intermediateand finished products, and the distribution of these finished products to customers.Supply chains exist in both service and manufacturing organizations, although thecomplexity of the chain may vary greatly from industry to industry and firm to firm. Traditionally, marketing, distribution, planning, manufacturing, and the purchasingorganizations along the supply chain operated independently. These organizations havetheir own objectives which are often conflicting. Marketings objective of high customerservice and maximum sales revenue conflict with manufacturing and distribution goals.Many manufacturing operations are designed to maximize throughput and lower costswith little consideration for the impact on inventory levels and distribution capabilities.Purchasing contracts are often negotiated with very little information beyond historicalbuying patterns. The result of these factors is that there is not a single, integrated plan forthe organization—there are as many plans as businesses. Clearly, there is a need for amechanism through which these different functions can be integrated*together. Supplychain management is a strategy through which such integration can be achieved.
CHAPTER 4 MANUFACTURING PERSPECTIVE4.1. MATERIALS REQUIREMENT PLANNING (MRP)Initially, manufacturers viewed MRP as a better method for ordering components than theindependent demand inventory models they had been using during the 1950s and 1960s.However, it has evolved into a comprehensive priority planning system. MRP provides amethod that helps keep order due dates valid, even after the orders have been releasedto the shop floor or outside vendor. MRP systems can detect when the due date of anorder—the date the order is scheduled to arrive—is out of alignment with its need date—the date the order is actually required. During the 1970s and 1980s, techniques for helping to plan capacity requirementswere tied up with MRP. Tools were developed to support the planning of aggregateproduction levels and the development of anticipated production schedules. Systems toaid in executing the plans were incorporated—shop floor control for the in-house factoryand vendor scheduling for the outside factories. The expanded MRP system becameknown as closed loop MRP, because it provided feedback from the execution function tothe planning functions, so manufacturers could change plans when necessary. Eventually,practitioners expanded closed loop MRP to provide the ability to translate the operating
plan—expressed in manufacturing terms such as units and kilograms—into financial terms—rupees—and have the capability to simulate the effects of various plans in terms of bothunits and rupees. The new system, which was called Manufacturing Resource Planning(MRP-II), was a comprehensive approach for the effective planning of all the resources of amanufacturing organization. An MRP system requires 3 types of information: • Master Production Schedule (MPS) • Bill of Material (BOM) • Inventory Records (IR) The MPS is a detailed production schedule for finished goods or end items thatprovides the major input to the materials requirement planning process. Associated witheach finished product is a BOM, which describes the dependent demand relationshipsthat exist among the various components—raw materials, parts, subassemblies, etc.—comprising the finished product. The entire set of BOMs for the companys finishedproducts is called the BOM file. Inventory status data for each product or component suchas stock-on-hand, stock-on-order, etc. are provided by the inventory records, which alsocontain planning factors like lead-time, safety stock, re-order level, and so on. MRP logic uses the MPS, the BOM file and the inventory records to determinethe following for all components: • Planned order quantities • Planned order release dates (to shop floor/suppliers) • Planned order due dates The MRP system calculates the release dates and the due dates taking intoconsideration the lead-times required to produce or procure the components and byrecognizing the order in which they are assembled into the finished product. If the MRPprocess is carried out in conjunction with capacity planning, the production facility shouldhave the capacity to complete the orders on time.4.2. BILL OF MATERIAL (BOM)A BOM defines the relationship of components to end items. The BOM identifies allcomponents used in the production of an end item, the quantity required, and the order inwhich the components are assembled. For example, consider an office chair. The chair iscomposed of a seat cushion, back cushion, adjuster mechanism, base unit, wheels, andfasteners. To manufacture the chair the wheels, base unit, and adjuster mechanism areassembled into a chair frame, to which the base cushion and back cushion are attached.All the fasteners are identical, there are 11 of them for this chair. Fig : Bill of material for a chair
All items appearing below the final product (office chair in this case) in a BOM, arereferred to as components, whether they are raw materials or component parts orsubassemblies. In the above figure, all items with the exception of the Office chair, arecomponents. The term- parent component describes a component at one level in theBOM, that is composed of components from the next lower level in the BOM. The lowerlevel components are called child components.4.3. MANUFACTURING RESOURCE PLANNING (MRP-II)MRP was originally developed as a computer system that was limited to materialsplanning. As computer technology and MRP systems developed, it became clear that MRPsystems maintain extensive information that can be used for other company functions.For example, MRP systems maintain accurate inventory information. Combining thisinformation with cost data, allows accounting personnel to have accurate inventoryinformation, in meaningful financial terms. Rather than having separate production andaccounting systems, a company can expand MRP to meet the requirements of both thesystems. MRP-II is an expansion of closed loop MRP for managing an entire manufacturingcompany. MRP-II systems provide information that is useful to all functional areas andencourage cross-functional interaction. MRP-II supports sales and marketing by providingan order-promising capability. Order promising is a method of tying customers orders tofinished goods in the MPS. This allows sales personnel to have accurate information onproduct availability and gives them the ability to give customers accurate delivery dates.MRP-II supports financial planning by converting materials schedules into capitalrequirements. A company can use MRP-II to simulate the effects of different masterproduction schedules on material usage, labor, and capital requirements. MRP-II providesthe purchasing department with more than just purchase requisitions. The long-rangeplanned order release schedules can be used to provide the purchasing department withinformation for developing long-range buying plans. It is now common for suppliers todirectly access a customers MRP-II system to receive up-to-date information on thecustomers planned material needs. Information in the MRP-II system is used to provideaccounting with information on material receipts to determine accounts payable. Shopfloor control information is used to track workers hours for payroll purposes. Manufacturing is the central function in a manufacturing company. The informationrequired to successfully plan and schedule production is valuable to the other (supporting)functions in the company. MRP-II systems increase a companys efficiency by providing acentral source of management information.4.4. MAKE-TO-ORDER (MTO) AND MAKE-TO-STOCK (NITS)One way to classify the manufacturing operations is by the amount of processing theproduct requires, after the company receives an order from a customer. At one end of theprocessing spectrum is the make-to-order (MTO) company. This company does not beginprocessing the material for the component or product until it has received an order fromthe customer. In some cases, the company may not even procure the material andcomponents until after it receives the order. This type of manufacturing operations ispracticed when the company competes on the basis of product customization and servesits customer base by providing unique and/or highly specialized items. The MTO companyalso bases its production planning on firm customer orders. At the opposite end of the spectrum is the make-to-stock (MTS) company, whichmanufactures products and places them in inventory before it receives customers orders.Either the customer purchases the products directly from the inventory at a retail outlet,or the company ships the product off-the-shelf from the finished goods inventory at thefactory or at a distribution centre. MTS companies rely heavily on market analysis and
demand forecasting in planning the production of their products with respect to theproduct mix and volume.4.5. ASSEMBLE-TO-ORDER (ATO)Another variation of the manufacturing operations is the assemble-to-order (ATO)company. The assemble-to-order company manufactures standardized, option modulesaccording to the forecasts it has made and then assembles a specific combination, orpackage of modules, after receiving the customers order. The classic example is theautomobile manufacturer. After receiving orders from a host of dealers, the manufacturerspecifies the exact production schedule for the automobiles. The schedule is based on theoptions ordered by the customers—automatic transmission or manual transmission, airconditioning, standard or digital control panel, leather, cloth or vinyl seating, and so on.Many components for assembling the automobiles would have been ordered or startedinto production before receiving the customers order, based upon demand forecasts.Thus, the major processing that remains when the orders come in is assembly. Thisapproach shortens the time between placement of the order and delivery of the product—cycle time4.6. ENGINEER-TO-ORDER (ETO)Yet another variation of the manufacturing operations is the engineer-to-order (ETO)company. The engineer-to-order company is the ultimate in product variety, productcustomisation and flexibility. In this mode of operation, anything will be manufactured asper order—but at a price. The expensive clothing of the bold and beautiful is an exampleof this kind of production. Products are made for each customer and even the minutedetails, for example, the texture and feel of the cloth, the color of the threads, the size ofthe collar and so on will differ from one customer to another, depending upon thecustomers preferences. So the manufacturer cannot keep anything in inventory, he willhave to order only once the customer has given his/her specifications. Obviously, the costof production will be highest in this mode of production.4.7. CONFIGURE-TO-ORDER (CTO)Along the broad spectrum of make-to-order manufacturing, there is a growingconvergence between strictly assemble-to-order (limited options and features) andcompletely engineer-to-order (just about anything goes, at a cost) environments. Thisevolving environment is often referred to as configure-to-order. Using a rules-basedproduct configuration system, configure-to-order (CTO) manufacturers are able to simplifythe order entry process and retain engineer-to-order (ETO) flexibility, without maintainingbills of materials for every possible combination of product options.
CHAPTER 5 ERP MODULES INTRODUCTION All ERP packages contain many modules. The number and feature of the modules varywith the ERP package. The most common module we will see are: • Finance • Sales & Distribution • Human Resources • Plant Maintenance • Quality Management • Material management • Manufacturing management, etc5.1. FINANCE MODULE
This section provides an overview of the financial solutions in most of the ERPpackages. In todays business enterprise, you need to know that your financial decisionsare based on todays data, not numbers from records closed a month ago, or even a weekago. And you need to know that this same todays data represents every segment ofyour organizations activities, whether your enterprise stretches across a room or aroundthe globe. This is essential, because the most efficient way to get your enterprise towhere you want it tomorrow is to know exactly where it is today. Whatever be the financial goals of your organization, the financial applicationcomponents of the ERP solutions work hand-in-hand to improve the bottom line. This istrue because the financial functionality is tightly integrated across all business areas andall geographic areas. This tight integration includes all the other different modules, frommaterials management to human resources to logistics. Because the ERP systemautomatically links related areas, it eliminates the need to repeat procedures. You enteryour data only once. Within the ERP system, all areas work in concert, creating a newlevel of efficiency in handling your financial data. The finance modules of most ERP systems provide financial functionality and analysissupport to thousands of businesses in many countries across the globe. These ERPsystems include not only financial application components, but also Human Resources,Logistics, Business Workflow and links to the Internet. Hundreds of business processes arecovered in these systems. The finance modules of most ERP systems will have the following sub-systems: □ Financial Accounting (General Ledger, Accounts Receivable /Payable, Special Ledgers, Fixed Asset Accounting, Legal Consolidation) □ Investment Management (Investment Planning/Budgeting/Controlling, Depreciation Forecast/Simulation/Calculation) □ Controlling (Overhead Cost Controlling, Activity-Based Costing, Product Cost Accounting, Profitability Analysis) □ Treasury (Cash Management, Treasury Management, Market Risk Management, Funds Management) □ Enterprise Controlling (Executive Information System, Business Planning and Budgeting, Profit Centre Accounting)5.1.1. Financial AccountingThe objective of a good financial accounting system is to provide company-wide controland integration of financial information that is essential to strategic decision-making. TheFinancial Accounting Module of an ERP system, gives you the ability to centrally trackfinancial accounting data within an international framework of multiple companies,languages, currencies, and charts of accounts. For example, when raw materials movefrom inventory into manufacturing, the system reduces quantity values in inventory andsimultaneously, subtracts values for inventory accounts in the balance sheet. Most of theFinancial Accounting modules comply with international accounting standards, such asGAAP and IAS. They also fulfill the local legal requirements of many countries.5.1.1.a. General Ledger (OCT.04, 05, 06, APR.10; 6M)The General Ledger (GL) is essential to the financial accounting system and to strategicdecision-making. Through active integration with business processes in logistics and inthe accounting sub-ledgers, the GL serves as a central pool of financial data for financial
reporting as well as for other accounting areas. However, the origin of centrally storeddata can still be traced at any time by drilling down on data from a given transaction. The General Ledger supports all the functions needed in a financial accounting system.This includes flexible structuring of the chart of accounts at the group and company level,distributed application scenarios, real-time simultaneous update of sub-ledgers and thegeneral ledger, elimination of time-consuming reconciliation, and parallel views of data, inboth the general ledger and the managerial accounting applications. The GL providesdocument parking, posting, reporting, and an integrated financial calendar for automatingperiodic activities. The system also provides summary information from other componentsat a user-defined level of detail. By creating combinations of entered data, you generatedata summaries, that can be used in planning, allocation, distribution and reporting.5.1.1.b. Accounts Receivable and PayableThis module provides financial information about all outstanding credits that we havegiven to our customers the due dates for the credits and also the credit limit to particularcustomer. It also provides the information about all outstanding debits (amount to begiven) should be return to the supplier after purchase of raw material, it also storesinformation on due dates to credit the suppliers account.ERP systems offer a financial overview of global business partner relationships, in theAccounts Receivable and Payable functions. These sub-ledgers are integrated, both withthe General Ledger and with, areas in Sales and Distribution and Materials Management,where financial data originates. Accounts Receivable and Payable transactions areperformed automatically, when related processes take place in other modules. Thismodule uses standard business rules for procedures ranging from data entry andreporting, to processing payments and bank transactions. Accounts Receivable and Pay-able functions include Internet integration, document management, full support for EDIprocessing, including automatic integration with cash management and flexible reportingusing customer and vendor information systems. The module also provides, enterprise-wide credit management with workflow integration, payment automation with EFT andcheck processing, and document parking with various approval procedures.5.1.1.c Asset AccountingAsset accounting, manages the companys fixed assets. Within the Financial Accountingsystem, Asset Accounting serves as a sub-ledger to the General Ledger, providingdetailed information on asset-related transactions. Asset Accounting also providesintegration with Plant Maintenance for management of machinery and equipment,management of leased assets and assets under construction, mass processing withworkflow integration, and interactive reporting.5.1.1.d Legal ConsolidationConsolidated financial statements need to be integrated effectively with operational dataat the individual company level. By using different valuation methods, you can planbalance sheet strategies to suit the companys requirements. The Legal Consolidationsub-system is closely linked to the Financial Accounting system, permitting direct datatransfer, from individual statements into the consolidated report. This eases the workloadof the staff and reduces data entry errors. In addition to the consolidated statementsrequired by law, Legal Consolidation also allows you, to create multiple views of yourconsolidation data. With these views you can generate reports about legal entities orsegments of your business.5.1.2 Controlling
The controlling system gathers the functions required for effective internal costaccounting. It offers a versatile information system, with standard reports and analysispaths for the most common questions. In addition, there are features for creating customreports to supplement standard reports.5.1.2.a Overhead Cost ControllingMany organizations experience a significant increase in the percentage of indirect costs,which cannot be directly assigned to either the products manufactured, or to the servicesrendered. While cost monitoring and optimization may be quite advanced in productionareas, transparency is often lacking in overhead cost areas. The Overhead CostControlling subsystem focuses on the monitoring and allocation of overheads.5.1.2.b Cost Centre AccountingCost centre accounting analyses where overheads occur within the organization. Costs areassigned to the sub-areas of the organization where they originated. The system offers awide variety of methods for allocating posted amounts and quantities. In particular,activity accounting permits, the allocation of great many costs to products, based on costsources and enabling assignments, which were not previously possible.5.1.2.c. Overhead OrdersOverhead orders subsystem collects and analyses costs, based on individual internalmeasures. This system can monitor and automatically check budgets assigned to eachmeasure.5.1.2.d. Activity-Based CostingThe goals of the entire organization, should come before the goals of individualdepartments, when it comes to business process reengineering. The Activity-BasedCosting module, is a response to the growing need for monitoring and controlling cross-departmental business processes, in addition to functions and products. Seeing costs froma new perspective, substantially enhances organizational transparency in overhead areas.The system automatically determines the utilization of business processes by products,customers, and other cost objects based on the cost drivers taken from the integratedaccounting environment. This, significantly reduces the effort involved in maintaining abusiness process model in a separate system.5.1.2.e. Product Cost ControllingProduct cost controlling module determines, the costs arising from manufacturing aproduct, or providing a service. Plan and standard values, serve in valuating warehousestock and for contrasting revenues received with costs." In addition, the values in ProductCost Controlling, are crucial for determining the lowest price limit for which a product isprofitable. Simulations illustrate the effects of changes in production methods on the costof goods manufactured.5.1.2.f. Cost Object ControllingCost object controlling helps you monitor manufacturing orders. Integration with thelogistics components results in a logistical quantity flow, that provides instant informationon actual cost object costs, allowing ongoing costing calculations at any time. Follow-upcalculations determine and analyze the variances between actual manufacturing costs,and the plan costs resulting from Product Cost Planning.
5.1.2.g. Profitability AnalysisProfitability analysis subsystem examines the sources of returns. As part of salescontrolling, Profitability Analysis is the last step in cost-based settlement, where revenuesare assigned to costs according to the market segment. You can define any marketsegment—distinguishing, for example, between products, customers, orders, salesorganizations, distribution channels and business areas—and evaluate it, according tocontribution and revenue margins. Information from Profitability Analysis, framesimportant decisions in areas such as determining prices, selecting customers, developingconditions and choosing distribution channels.5.1.3. Investment Management (OCT.07; 7M)Investment management provides extensive support for investment processes right fromplanning through settlement. Investment management facilitates investment planningand budgeting at a level higher than that needed for specific orders or projects. You candefine an investment program hierarchy using any criteria—for example, department-wise. As a result of subsequently assigning specific investment measures (internal ordersor projects), to positions in the hierarchy, you are kept up-to-date about available funds,planned costs, and actual costs already incurred from internal and external activities. Theinvestment program allows you to distribute budgets^ which are used during the capitalspending process. The system helps you monitor, and thereby avoid, budget overruns. Investment Management provides tools, enabling you to plan and manage your capitalspending projects right from the earliest stage. In the initial stage of the capital spendingprocess, you enter the application for the spending project as an appropriation request.You define your own evaluation and approval process, during which the system keeps adetailed history of the status of the appropriation request. You transfer the data from theappropriation request, to the investment measure, when the request is approved forimplementation. You enter detailed plan values in the appropriation request, and itsdifferent variants, for use in the pre-investment analysis. Depending on their complexity, investment measures that need to be monitoredindividually can be represented either as internal orders or projects. These internal ordersor projects, provide the means for actually carrying out the capital investment; that is,they serve as the objects for collecting primary and secondary costs, for calculatingoverhead and interest, for managing down payments and commitments, and for handlingother related tasks. As the result of having an asset under construction assigned to it, theinvestment measure also benefits from all of the required asset accounting functions.Settlement is both flexible and almost fully automatic. This kind of settlement ensures acomplete integration with business planning and control, and provides consistently up-to-date values. Investment Management module recognizes the importance of the assetaccounting aspects of investment measures. The system automatically separates costsrequiring capitalization from costs that are not capitalized, debiting the correct costs tothe asset under construction. For different accounting needs, the system can use differentcapitalization rules for making the split. At its completion, the investment measure can besettled to various receivers by line item. Asset accounting provides precise proof of originfor all transactions affecting acquisition and production costs. Budgeted balance sheets and cost planning are always based on current values.Planned depreciation values for investment measures and appropriation requests, can betransferred directly to ongoing overhead cost planning. The system recalculates expecteddepreciation amounts whenever planning data is updated.5.1.4. Treasury Module (OCT.04, 06; 8M)You can gain a significant competitive advantage by efficiently managing the short,medium, and long-term payment flows and the resulting risk exposure. Tasks such as
short-term monitoring and concentration of bank account balances, medium-termplanning, and forecasting of incoming and outgoing resources in accounts receivable andpayable, to a long-term view of areas such as materials management and sales, underlinethe importance of integrating information from various company divisions. Linking theseoperating divisions to realized and planned financial transactions and positions inTreasury, has a significant impact on the companys success. Such integration alsofacilitates management and control of cash flows, and risk positions through all thedivisions in the company. The Treasury component provides you with a basis for effectiveliquidity, portfolio and risk management.5.1.4.a. Cash ManagementThe cash management subsystem, allows you to analyse financial transactions for a givenperiod. Cash Management also identifies, and records future developments for thepurposes of financial budgeting. The companys payment transactions are grouped intocash holdings, cash inflows and cash outflows. Cash Management provides information onthe sources and uses of funds to secure liquidity inorder to meet payment obligationswhen they become due. Cash Management also monitors and controls incoming andoutgoing payment flows, and supplies the data required for managing short-term moneymarket investments and borrowing. Depending on the time period under review, adistinction is made between cash position, short-term cash management and medium andlong-term financial budgeting. The Cash Management component thus ensures that allinformation relevant to liquidity is available to you for analysis purposes, creating a basisfor the necessary cash management decisions.5.1.4.b. Treasury ManagementIn your role as treasurer, you> take the results of your current liquidity, currency, and riskpositions and consider the conditions prevailing on the money and capital markets, beforeimplementing concrete decisions in the form of financial instruments in TreasuryManagement. The Treasury Management component offers functions for managingfinancial deals and positions, from trading to transferring data to Financial Accounting.Treasury Management also supports flexible reporting and evaluation structures foranalysing financial deals, positions and portfolios. For short-term liquidity and riskmanagement, you can use the money market, or foreign exchange transactions, tosmooth out liquidity squeezes and gluts, or to eliminate currency risks. Securities andloans come into play in the medium and long-term. Derivative financial instruments facilitate active management of interest rate andcurrency risks. The trading area contains functions for recording financial deals, exercisingrights, performing evaluations and calculating prices (for example, option pricecalculator). In back office processing, you enter the additional data required forprocessing deals (such as account assignment and payment details) and generateautomatic confirmations. Position management functions, such as securities accounttransfers or corporate actions relating to securities, are also supported in the back officearea. The general ledger is updated in the accounting area, which also offers flexiblepayment processing functions in addition to valuation and accrual/ deferral methods. Byusing common organizational elements throughout, various organizational structures canbe represented in the system, such as a central enterprise-wide treasury department orin-house banks. This also ensures full integration of Treasury ir*to other modules of thesystem.5.1.4.c. Market Risk ManagementMarket risk management plays a vital role within Treasury, in ensuring your companyscompetitiveness. The process involves a complex feedback loop encompassing datacollection, risk measurement, analysis and simulation as well as active planning offinancial instruments. This process dovetails closely with other treasury and corporatefunctions. Market Risk Management acts as an integrated, central risk control station withmonitoring and management functions. Access to information on current and future cashflows and on financial deals already processed, is an absolute must. As a result, CashManagement, which pools all cash flows from the business sectors, such as sales and
distribution or purchasing, forms the basis. Consequently, all cash flows from thecompanys operating business can be accessed for the purposes of risk management.Furthermore, all financial transactions managed in Treasury Management can beevaluated together witlTthe cash flows generated by the various operating divisions. Thecomponent provides various measurements for analysing and assessing interest rate andcurrency risks. Mark-to-market, effective rate and effective yield calculations are based onup-to-the-minute market data, uploaded via data feed, and financial transactions orpositions. By simulating market data, you can determine the risk structure of what-ifanalyses (such as crash scenarios or worst case scenarios). You can also measure andcompare the impact of alternative hedging strategies, using simulated transactions.5.1.4.d. Funds ManagementFunds management subsystem supports your funds management process from budgetingall the way through to payments, including monitoring expenditures, activities, resourcesand revenues. Budgets are entered for areas of responsibility that can cover as manymanagement levels, as you require. Funds centres and their hierarchical structure providea base for top-down budgeting and represent responsibility areas within budget control.The system enables you to control your various funds commitments and determine howmuch of your budget has already been utilized via availability checking. The informationsystem can supply you with information at any time, on when, where, and how your fundscommitments arose. Analyses by responsibility area and commitment items allow you toidentify any budget bottlenecks.5.1.5. Enterprise ControllingEnterprise controlling comprises of those functions that will optimise shareholder value,while meeting internal objectives for growth and investment. This modules usually includeexecutive-Information System, Business Planning and Budgeting, Consolidation, and ProfitCentre Accounting.5.1.5.a. Executive Information SystemThe executive information system provides an overview of the critical informationnecessary to manage the organization. This component integrates data from other ERPcomponents, and non-ERP data sources both inside and outside the enterprise. Drill-downreporting and report portfolio are available to evaluate and present the data. In drill-downreporting, you can analyze the data interactively. Exceptions can be defined in order tohighlight areas of concern. The drill-down reports can also be made available in thegraphical report portfolio for less experienced users. The report portfolio is aimed at userswith basic knowledge of the system who wish to access information put together for theirspecific needs.5.1.5.b. Business Planning and BudgetingBusiness planning and budgeting supports the management teams of business units andgroups in the calculation c "■ business targets, such as return on investment. Thismodule also supports central investment planning, budget release and tracking. Thismodule automatically transfers data about investment requirements from transactionapplications, and provides extensive analysis functions for budget monitoring.5.1.6. Profit Centre Accounting
Profit centre accounting analyses the profitability of internal responsibility centers. Acompanys organizational structure is represented in the form of a profit centre hierarchy,with the profit centre as the smallest unit of responsibility. All business transactions inFinancial Accounting, Materials Management, Asset Management, and Sales andDistribution, which affect profits, are automatically reflected in Profit Centre Accounting. Itis also possible to analyze selected balance sheet items by profit centre and use them forcalculation of ratios (such as ROI). Profit centre planning is part of total corporateplanning. Profit centers, in particular, emphasize the integration aspect of corporateplanning, as plans from other application areas can be combined, extended and altered inthis module. Profit centre related postings can be analyzed through the systems standardreports and facility, to create custom reports for special analyses. There is also a provisionto provide profitability information to appropriate management and controlling depart-ments.5.2. SALES AND DISTRIBUTIONIn todays global business environment, the one thing companies can count on is rapidchange—and the new opportunities and challenges that change is sure to bring. Newcompetition pushes businesses to achieve higher levels of service, while evolvingtechnology compresses product life cycles and forces companies to adopt newtechnologies or risk losing market share. In this ever-changing environment, keeping acompetitive edge means being able to anticipate and respond quickly to changingbusiness conditions. To keep pace with these rapid changes, companies need anintegrated and flexible enterprise system that supports all aspects of their business withstate-of-the-art functionality. This innovative solution should upgrade effortlessly andinterface easily with third-party applications, as well as have the ability to incorporateexisting systems while extending its reach to the Internet and e-commerce. Inquiry Quotation Sales Contract Order MATERIAL Shipping Delivery MANAGEMENT Billing Invoice FINANCIAL ACCOUNTING Fig: Sales and Distribution Module With todays business environment characterized by growing competition, shrinkingcycle times and the accelerating pace of technological innovation, companies are
increasingly being forced to streamline business processes. In a world in which it is nolonger enough to simply have the best product, these companies are focusing on corecompetencies and closer partnerships over the whole supply chain. Here, increasedefficiency in sales and distribution is a key factor to ensure that companies retain acompetitive edge and improve both profit margins and customer service. In helpingbusiness to beat them on delivery, the sales and distribution modules of many ERPvendors offer a comprehensive set of best-of-breed components for both order andlogistics management. Many of these systems are tightly integrated with the DistributionRequirements Planning (DRP) engine of the for just-in-time deliveries. This integrationenables the mapping and supply of single-site or multi-site organizations and thedefinition of relationships in a companys internal supply chains. Developing preciselogistics planning for just-in-time deliveries, this system can also generate replenishmentorders by using defined warehouse requirements. The following are the sales related business transactions: • Sales queries, such as inquiries and quotations • Sales orders • Outline agreements, such as contracts and scheduling agreements • Delivery/Shipment • Invoicing/Billing • After sales support During sales order processing, the following basic functions are carried out: • Inquiry handling • Quotation preparation and processing • Contracts and contract management (order management) • Monitoring the sales transactions • Checking for availability • Transferring requirements to materials planning (MRP) • Scheduling the delivery • Calculating pricing and taxes • Checking credit limits • Invoicing /Billing • Creating printed or electronically transmitted documents (confirmations, and so on) Depending on how your particular system is configured, these functions may becompletely automated or may also require some manual processing. The data that resultsfrom these basic functions (for example: shipping dates, confirmed quantities, prices anddiscounts) is stored in the system where it can be displayed and, in some cases, changedmanually during subsequent processing. The sales and distribution module very activelyinteracts with the Material Management and Financial Accounting modules for deliveryand billing. Typically, a Sales and Distribution module will contain the following sub-systems: • Master Data Management • Order Management • Warehouse Management • Shipping • Billing • Pricing • Sales Support • Transportation • Foreign Trade
5.2.1. Master Data ManagementThis is module which keeps all the information about products, customers, required rawmaterial and suppliers. This information is made available to the decision makerswhenever required. Master data management system also provide the automaticgeneration of reports, contracts and billing. The data about products, services andbusiness partners provides the basis for sales processing. Automatic sales processingusing ERP system, like accounting and material management also can access masterdata.5.2.2. Order ManagementThis module usually includes Sales Order" Management and Purchase Order Managementand supports the entire sales and purchase processes from start to finish. With companiestoday being confronted with increasingly demanding customers and increasingly complexbuying and selling organizations, both internally and externally, Order Managementcombines the provision of efficient management solutions with the possibility ofanticipating and responding quickly to changes in global business conditions.5.2.2.a. Sales Order Management (OCT.07, 09; 7M) Credit Checking, Inventory Availability Pricing & Checking Discounting Material Sales Management, Order Quotation/ Warehousing Entry Contracts and Invoicing Change Order Order History Management/ Statics return handlingApplications in sales order management (Fig. 5.3) represent a companys most importantpoint of contact with the customer. These applications allow a company to manage salesoperations quickly and efficiently and provide comprehensive solutions for themanagement of quotes, orders, contracts, prices and customer discounts. Through theuse of templates, the system streamlines order entry procedures to manage productsranging in complexity from standard stocked items to those that are engineered-to-order.The system can also customize and streamline order entry procedures to the specificrequirements of both an individual business and its customers. Intelligent pricing anddiscount strategies that are accompanied by simulation capabilities to support what-ifscenarios and are available for multi-currency environments. On-line Available-to-Promisecalculations ensure that there is sufficient product availability for a specific customer and,if so, to identify exactly where and when that product is available. Built-in contract andrelease management system evaluates whether or not customer contract agreements arebeing met with and incorporates multilevel customer credit reviews and substantial order
blocking functionality. Evaluation of sales performance is possible through extensivereport capabilities that retrieve both current and past information that concern orders,cancellations, budgets and revenues. Rebate and commission control enables theautomatic calculation of employee and supplier commissions to reward achieved targetsbased on predefined agreements and customer bonuses, or rebates to reward customersfor purchasing certain quantities. Electronic Data Interchange (EDI), streamlinescommunication throughout a companys entire supply-chain, from customer to supplier.The system should support standard business documents such as orders and invoices,along with general information such as project information and product specifications. Agood system will have tools and features for Sales Force Automation (SFA) and customerservice. These tools include the tracking and tracing of appointments, schedules andfollow-ups, plus product and sales feasibility information.5.2.2.b. Purchase Order Management (OCT.08, APR.08; 7M) Schedule Planning/ Source Requisition Definition Shop Floor Information Request For Quotation Purchase Order Purchase Schedule Purchase Contract Warehouse Orders Fig: Purchase flowPurchase order management is increasingly essential in todays ever more competitivebusiness environment because it enables a company to make the correct purchasedecisions about quality and price, where quality refers to supply lead-time as well as tothe (to be purchased) product itself. Purchase order management includes onlinerequisitioning, centralized contract management, just-in-time schedules and vendormanagement. Offering access to an approved supplier list, purchase order managementenables a purchase quotation to be sent to multiple suppliers. The purchase contractinformation is made available to the people in the purchasing department. Thisinformation will help in supplier selection and provide an insight as to which suppliers cansupply items with the right specifications, in the shortest period of time. The system willhave facility to generate purchase contracts. Purchase requisition is a function that isused in the purchase process. Purchase requisitions allow companies to enter non-system-planned requirements for various types of items. Requisitioning can be linked to workflowfor authorization purposes and to approve suppliers. Schedules can be used, instead oforders,- to provide detailed purchase and delivery information. These schedules aregenerated in contracts in just-in-time environments—in which customer service, in-timedelivery and cost reduction are all-important—and can be sent through the supply chainby means of EDI communication. In addition, schedules are fully linked with othermodules of the system. Sophisticated vendor management tools allow companies tocheck the reliability and performance of vendors. The vendor rating system can handleboth objective and subjective criteria. Objective criteria are tracked and traced
automatically by the system and can include information about receipts, quality approval,invoicing and purchase-order confirmation. Subjective criteria are determined by the user.Together, these criteria enable companies to make the right purchase decisions withregard to quality, price and delivery. Purchase Order Analysis enables historical as well asstatistical data to be used to assist in the analysis of purchase activities.5.2.3. Warehouse ManagementThis module provides real-time information about inventory levels across the enterpriseand tools to manage the daily operational needs of single-site or multiple-site four-wallwarehouses. Coordination of an organizations warehouse network is one of todays mostimportant business needs and requires an understanding of the relationship between thedifferent organizational units such as warehouses, production facilities, sales offices, andpurchase offices. The actual transfer of goods can be handled through the WarehouseManagement application. The various components of a good Warehouse Managementapplication will be designed to meet a wide range of warehousing needs, such as themapping of internal goods flow within warehouses and the monitoring of all warehouseinventory transactions. In addition, these components are centralized for- areas thatinclude production, sales, purchase projects and service and provide companies with thetools to inform customers about where (the companys or the customers) goods arelocated, the number of goods on hand, current storage conditions and projected deliveryschedules. Components of a good Warehouse Management Application include thefollowing: □ Inventory Planning Comprises all planned inventory movements, which enable the accurate forecasting of trends and the consequent adjustment of reordering points, safety stock, lead-times for orders and service levels. Inventory planning also allows the commitment of inventory to a specific customer order—hard allocation—so that customers receive the right order in the right quantity at the right time. □ Inventory Handling Allows for monitoring of all warehouse order scenarios such as the receipt, issue and transfer of inventory. Functions include the previously mentioned expanded capabilities such as cross-docking, receipt by back-flushing, rules-based replenishment of inventory, picking and wave-picking optimization, assembly and multi-level packaging. To ensure fast communication with suppliers and customers, advanced shipping notifications can be received or sent by means of Electronic Data Interchange (EDI), which enables shipments to be received and allocated ahead of time. □ Intelligent Location Assignment Used to create intelligent storage put-away lists, which enable the storage of goods that are automatically inspected for quality and the detection of dedicated locations by criteria such as item, storage conditions, packaging definitions, size restrictions and location availability. □ Inventory Reporting This function permits full visibility of inventory at single or multiple sites and provides a company with the tools to give customers accurate delivery dates. The systems extensive reporting capabilities also enable consigned" goods management. □ Inventory Analysis This module enables the analysis of information that result from warehousing activities and the use of feedback in process optimization. In addition, inventory analysis supports inventory forecasting, inventory valuation, ABC analysis and slow-moving analysis. □ Lot Control This facility offers lot tracking and tracing, so that a company can trace all the raw materials and finished goods that its products require. In a business world where customers demand product responsibility, lot control helps to store product quality data and meet ISO9001 certification standards. □ Distribution Data Collection This is an essential element in paperless warehousing that provides the communications link between storage and shipping systems and warehousing equipment like bar-coding scanners.5.2.4. Shipping (APR.09; 6M)
The shipping module supports the following functions: • Monitoring dates of orders due for delivery • Creating and processing deliveries • Planning and monitoring work lists, for shipping activities. • Monitoring material availability and processing outstanding orders. • Picking (can be linked to the Warehouse Management System) • Packing deliveries. • Information support for transportation planning. • Support for foreign trade requirements. • Printing and sending shipping output Data update in goods issue.The Delivery note is the central shipping document. When a delivery is created (at theshipping point), shipping activities such as picking and delivery scheduling are initiatedand monitored, and the data generated during shipping processing is recorded Dependingon your requirements, you can create deliveries automatically using work lists, ormanually. You can make agreements with your customers for complete and partialdeliveries and for order combinations. The monitoring functions allow you to monitorcreated deliveries and outstanding sales activities.5.2.5. BillingA business transaction is completed for Sales and Distribution once it has been billed. TheERP systems support billing functions like issuing of invoices on the basis of goods andservices, issuing of credit and debit memos based on corresponding requests andPerforma invoices, canceling billing transactions, giving rebates, transferring billing datato Financial Accounting, Purchasing and so on. The billing system is integrated with theother modules like Financial Accounting, so that the documents are automatically gener-ated.5.2.6. PricingThe term pricing is used broadly to describe the calculation of prices (for external use bycustomers or vendors) and costs (for internal purposes, such as cost accounting). Thepricing module keeps the information about the prices of the various items, the detailsabout the quantity discounts, the discounts to the different customer categories and so onand enables the organization to generate documents like quotations, delivery notes,invoices and so on. Also, since this information is available to all the sales people, theycan make better decisions thus improving the sales performance.5.2.7. Sales SupportThe Sales Support component helps the sales and marketing department to support yourexisting customers and, at the same time, to develop new business. Sales Supportprovides an environment where all sales personnel— both the field sales people and thestaff in the sales office—can contribute to and access valuable information aboutcustomers, sales prospects, competitors and their products, and contact people. The Sales Support function has a rich tool set that will help in creating direct mailings todevelop new business as well as to consolidate the existing customer base. On the basisof the sales information already stored in the system, you can create address lists of thecustomers and sales prospects whom you wish to target with your direct mailingcampaign.5.2.8. TransportationTransportation is an essential element of the logistics chain. It effects both inward andoutward movement of goods. Effective transportation planning is required to ensure thatshipments are dispatched without delay and that they arrive on schedule. Transportationcosts play a considerable role in determining the price of a product. It is important thatthese transportation costs are kept to a minimum, in order to keep the price of a productcompetitive. Efficient planning and processing of transportation contributes to keepingthese costs down. The aim of the transportation element of the SD System is to providebasic functions for*transportation, like transportation planning and processing, freight