Introduction to enterprise resource planning (erp)

Enterprise Resource Planning
SWETA KUMARI BARNWAL 1
Topics Covered: lntroduction to Enterprise Resource Planning (ERP ), Information System and
lts Components, Value Chain Framework, Organizational Functional Units, Evolution of ERP
Systems, Role of ERP in Organization, Three-Tier Architecture of ERP system
ERP - Enterprise Resource Planning
Enterprise resource planning (ERP) is business process management software that allows an
organization to use a system of integrated applications to manage the business and automate
many back office functions related to technology, services and human resources.
ERP software typically integrates all facets of an operation — including product planning,
development, manufacturing, sales and marketing — in a single database, application and user
interface.
ERP is an Enterprise Application
ERP software is considered to be a type of enterprise application, that is software designed to be
used by larger businesses and often requires dedicated teams to customize and analyze the data
and to handle upgrades and deployment. In contrast, Small business ERP applications are
lightweight business management software solutions, often customized for a specific business
industry or vertical.
Today most organizations implement ERP systems to replace legacy software or to incorporate
ERP applications because no system currently exists. In fact, a 2016 study by Panorama
Consulting Solutions, LLC, indicates that organizations implement ERP for the following
reasons:
• To replace out-of-date ERP software (49%)
• To replace homegrown systems (16%)
• To replace accounting software (15%)
• To replace other non-ERP systems / had no system (20%)
ERP Software Modules Explained
ERP software typically consists of multiple enterprise software modules that are individually
purchased, based on what best meets the specific needs and technical capabilities of the
organization. Each ERP module is focused on one area of business processes, such as product
development or marketing.
Some of the most common ERP modules include those for product planning, material
purchasing, inventory control, distribution, accounting, marketing, finance and HR. A business

will typically use a combination of different modules to manage back-office activities and tasks
including the following:
Distribution process management
Supply chain management
Services knowledge base
Configure prices
Improve accuracy of financial data
Facilitate better project planning
Automate the employee life-cycle
Standardize critical business procedures
Reduce redundant tasks
Assess business needs
Accounting and financial applications
Lower purchasing costs
Manage human resources and payroll
As the ERP methodology has become more popular, software applications have emerged to help
business managers implement ERP in to other business activities and may incorporate modules
for CRM and business intelligence, presenting it as a single unified package.
The basic goal of using an enterprise resource planning system is to provide one central
repository for all information that is shared by all the various ERP facets to improve the flow of
data across the organization.
Enterprise ERP Trends
The ERP field can be slow to change, but the last couple of years have unleashed new
technology trends which are fundamentally shifting the entire area. The following new and
continuing computing trends have an impact on the growth of enterprise ERP software:
• Mobile ERP: Executives and employees want real-time access to information, regardless
of where they are. It is expected that businesses will embrace mobile ERP for the reports,
dashboards and to conduct key business processes.
• Cloud ERP: The cloud has been advancing steadily into the enterprise for some time, but
many ERP users have been reluctant to place data in the cloud. Those reservations have
gradually been evaporating, however, as the advantages of the cloud become apparent.

• Social ERP: There has been much hype around social media and how important —or
not — it is to add to ERP systems. Certainly, vendors have been quick to seize the
initiative, adding social media packages to their ERP systems with much fanfare. But
some wonder if there is really much gain to be had by integrating social media with ERP.
• Two-tier ERP: Enterprises once attempted to build an all-encompassing ERP system to
take care of every aspect of organizational systems. But some expensive failures have
gradually brought about a change in strategy – adopting two tiers of ERP.
• ERP Vendors: Depending on your organization's size and needs there are a number of
enterprise resource planning software vendors to choose from in the large enterprise,
mid-market and the small business ERP market.
The Difference between CRM and ERP
CRM and ERP are two important technology acronyms that businesses need to know. Both are
valuable business software solutions but each system is used to manage and achieve very
different business goals.
What is CRM?
CRM is an abbreviation for Customer Relationship Management and is a phrase used to
describe all aspects of interaction that a company has with its customer, whether it is sales or
service-related. It's a business strategy that helps you to better understand your customer, retain
customers, provide excellent customer service, win new clients and increase profitably.
Many aspects of CRM rely heavily on technology. CRM software will collect, manage and link
information about the customer. You can use CRM software to create marketing campaigns,
view a customer's entire of history of interactions with your business and use it to streamline
daily business and sales tasks.
What is ERP?
ERP is an abbreviation for Enterprise Resource Planning. ERP software is used to manage the
business. It integrates all facets of an operation, including product planning, development,
manufacturing processes, human resources, financials and sales and marketing.
Today's ERP solutions are designed to help you to improve the operational efficiency of business
resources. Businesses use ERP systems to integrate all its business processes into a single system
to efficiently and effectively manage business goals.
The Differences between CRM and ERP
While specific features and capabilities differ between platforms and vendors, here's a quick list
of some of the many activities each type of business software can help you improve:

Use CRM Software to manage any of the following front-office activities:
Organize marketing efforts, manage the sales pipeline, calculate time spent on converting leads
to closing deals, streamline your sales processes, automates customer service, track a customer's
interactions with your business, share marketing and sales collateral, create data reports, learn
which products sell best and when, prioritize leads, manage inventory based on historical sales
data, collaborate to sell as a team, manage your business contacts, manage your business leads,
share customer profiles with co-workers and See where leads come from.
Use ERP Software to manage back-office activities and tasks including the following:
Distribution process management, supply chain management, services knowledge base,
configure, prices, improve accuracy of financial data, facilitate better project planning, automate
employee life-cycle, Standardize critical business procedures, reduce redundant tasks, assess
business needs, accounting and financial applications, lower purchasing costs, manage human
resources and payroll.
Integrating CRM and ERP Systems
There are many solutions available today that integrate ERP and CRM solutions to combine
financial, operational, customer relations and business intelligence in one management system.
Typically, CRM and ERP solutions are data silos in an organization, but when you integrate the
systems to share data it can further improve operations management.
Value Chain Framework:

ERP Functional Areas
ERP is designed to facilitate the sharing of information across functions to eliminate
inconsistency and duplication of effort. In selecting an enterprise resource planning platform,
organizations should consider the various ERP modules that align with their strategic, economic
and technical goals. Let’s take a closer look at some of those functional areas:
• Marketing/Sales – Sales and marketing departments can track the customer experience
from presale activities, which begin with contacting the customer, through the actual
dispatch of the customer’s order. Tasks related to customer visits, expenses, shipping,
invoicing, forecasting and competitor analysis can be automated and/or enhanced through an
ERP system. Employees can contact customers, follow up on invoices and track orders.
Additionally, sales and marketing personnel can monitor their individual goals, which also
can be collated and analyzed by managers and business partners.
• Customer Relationship Management – ERP platforms also can incorporate customer
relationship management (CRM) modules to focus on how a business communicates with its
customers. This may include departments such as sales and marketing, and call center
support, as well as functions such as customer interaction data, sales pipeline management,
lead prioritization and customer retention.
• Supply Chain Management – ERP modules supporting supply chain management may
feature functions for purchasing, product configuration, supplier scheduling, goods
inspections, claims processing, warehousing and more. There are also related modules to
manage order processing and distribution tasks.
• Manufacturing – Engineering, scheduling capacity, quality control, workflow and product
life management are among the core functions that can fall within an ERP system’s
manufacturing module.
• Accounting/Finance – By automating and streamlining tasks related to budgeting, cost and
cash management, activity-based costing and other accounting/finance functions, ERP
systems can provide businesses with real-time data and insights on performance while also
ensuring compliance with relevant financial regulations.
• Human Resources – Human resources modules within an enterprise resource planning
system may include tools and dashboards to gather and interpret data on training, recruiting,
payroll, benefits, 401(k), retirement and diversity management. HR managers also can
monitor and measure key performance indicators (KPIs) for individual employees, job roles
and departments.
As technology trends such as mobile, cloud computing, big data and the Internet of Things
continue to reshape the marketplace, ERP systems are evolving to provide businesses with the
competitive intelligence necessary to drive success across a variety of functional areas.
The Evolution of ERP
For many of today’s established companies the path to success and the evolution of business
management technology are closely interwoven. The advancement and diversification of ERP
software has enabled businesses to integrate new technologies into their supply chain processes

to drive forward their performance. The evolution of ERP is arguably a story akin to Hollywood.
A story of success and failure of escape and data capture of new systems versus old systems.
The story begins before the arrival of the term Enterprise Resource Planning. As early as the
1960s, software was coming into use for very specific applications, such as automating laborious
financial computations.
Materials Resource Planning (MRP I) systems were later developed for inventory control, linked
to production schedules. They evolved into MRP II and MRP III systems, which could optimize
manufacturing processes by starting to integrate accounting functions and customer ordering
data.
When hardware and software technology really took off, at the close of the 1980s, fully cross-
enterprise systems emerged and ERP – as we now know it – was born.

INVENTORY MANAGEMENT AND CONTROL
In an organization there are stock of finished products, semi finished products, in process
materials raw materials, spare parts, operating parts, fuels, and consumables. The collective
name of these entire items is inventory.
Inventory occupies the most strategic position in the structure of working capital of the
organization. It constitutes the largest component of current asset. The turnover of working
capital is largely dependent on the turnover of inventory. It is therefore quite natural that
inventory which helps in the maximization of profit occupies the most significant place among
current assets.
The maintenance of inventory means blocking of funds and so it involves the interest and
opportunity cost to the organization. The inventory cost is not only interest on stocks but also
cost of store building for storage, insurance and obsolesce. Hence it is necessary that a great
emphasis is placed on inventory management and control. The primary objectives of the
management and control of inventory are as given below.
• To minimize the possibility of disruption in the production schedule for want of raw materials,
consumables, spares and other stores items.
• To keep down the capital investment in inventories.
• To ensure sufficient stock of semi finished products so that there is no disruption in the
production schedule.
• To ensure adequate stock of finished product to meet the delivery requirement of the
customer.

The aim of inventory management thus is to avoid both the excessive as well as insufficient
inventory and also to maintain adequate inventory so that the organizational operations can be
run in a normal way. The effective inventory management has the following features.
• Maintenance of sufficient stock of materials to take care of the requirement during the period
of short supply.
• To ensure a continuous supply of materials to the production departments for facilitating
uninterrupted production.
• To minimize the carrying cost of the materials.
• Maintenance of sufficient stock of finished goods for smooth sales operations.
• To protect the inventory against deterioration, obsolescence and unauthorized use.
• Inventory management must strike a balance between too much inventory and too little
inventory. The efficient management and effective control of inventories help in achieving
better operational results and reducing investment in working capital. It has a significant
influence on the profitability of the organization. Main features of inventory control are given
in Fig.
The inventory management and control techniques are important due to the following reasons.
• A mismanaged inventory can lead to an unnecessary increase in the working capital. The
excess funds can be fruitfully directed to fuel the organizational growth initiatives or
research and development efforts.
• Effective inventory management leads to low storage costs, which in turn leads to an
increase in the organizational profits. If the organization is able to manage the inventory
well and is able to reduce the quantities that need to be stored, then the organization
requires not only less storage space, but it also leads to lower store operational costs.
• It can help to satisfy the customers by providing them with the products they need in the
swiftest manner. Poor inventory management leads to lower availability of the products
and higher delivery time. Hence, for the sake of high customer satisfaction the
organization needs to manage the inventory well.
• Item stored in inventory over a long period may spoil. This leads to unnecessary increase
in the operational costs. Proper inventory management can help reduce these costs
greatly.
• If the organization has inventories scattered in various locations, it need to have a proper
system to manage these inventories on the basis of demand and supply. Inventory

management techniques can help the organization go a long way in managing multiple
inventories.
MATERIAL REQUIREMENTS PLANNING (MRP I)
Material requirements planning (MRP) is a system for calculating the materials and components
needed to manufacture a product. It consists of three primary steps: taking inventory of the
materials and components on hand, identifying which additional ones are needed and then
scheduling their production or purchase.
MRP is one of the most widely used systems for harnessing computer power to automate the
manufacturing process.
IBM engineer Joseph Orlicky developed MRP in 1964 after he studied the Toyota Production
System, which was the model for the lean production methodology. Power tool maker Black &
Decker built the first computerized MRP system that same year, according to several sources.
It's important to note, however, that MRP and lean production are not the same and are
considered by some practitioners to be antithetical, though some say MRP can help with lean
production. MRP is considered a "push" system -- inventory needs are determined in advance,
and goods produced to meet the forecasted need -- while lean is a "pull" system in which nothing
is made or purchased without evidence of actual -- not forecasted -- demand.
MRP I basics
MRP uses information from the bill of materials (a list of all the materials, subassemblies and
other components needed to make a product, along with their quantities), inventory data and the
master production schedule to calculate the required materials and when they will be needed
during the manufacturing process.
MRP is useful in both discrete manufacturing, in which the final products are distinct items that
can be counted -- such as bolts, subassemblies or automobiles -- and process manufacturing,
which results in bulk products -- such as chemicals, soft drinks and detergent -- that can't be
separately counted or broken down into their constituent parts.
MRP vs. ERP
An extension of MRP, developed by management expert Oliver Wight in 1983 and called
manufacturing resource planning (MRP II), broadened the planning process to include other
resources in the company, such as financials and added processes for product design, capacity
planning, cost management, shop-floor control and sales and operations planning, among many
others.
In 1990, the analyst firm Gartner coined the term enterprise resource planning (ERP) to denote a
still more expanded and generalized type of MRP II that took into account other major functions
of a business, such as accounting, human resources and supply chain management, all of it

managed in a centralized database. Both MRP and MRP II are considered direct predecessors of
ERP.
ERP quickly expanded to other industries, including services, banking and retail that did not
need an MRP component. However, MRP is still an important part of the ERP software used by
manufacturers.
Objectives of material requirements planning
Not surprisingly, the primary objective of MRP is to make sure that material and components are
available when needed in the production process and that manufacturing takes place on schedule.
Effective inventory management and optimization is another goal of MRP. While MRP is
designed to ensure adequate inventory at the required times, a company can be tempted to hold
more inventory than is necessary, thereby driving up inventory costs.
MRP can also improve manufacturing efficiency by using accurate scheduling to optimize the
use of labor and equipment.
Proponents of MRP and DDMRP say these approaches can help achieve a better matching of
supply and demand. This achievement, in turn, can reduce product costs and increase revenues as
customer demand is fully met and no revenue opportunities are lost from missed ship dates or
inventory shortfalls.
MANUFACTURING RESOURCE PLANNING (MRP II)
Manufacturing Resource Planning (MRP II) is an integrated information system used by
businesses. Manufacturing Resource Planning (MRP II) evolved from early Materials
Requirement Planning (MRP) systems by including the integration of additional data, such as
employee and financial needs. The system is designed to centralize, integrate and process
information for effective decision making in scheduling, design engineering, inventory
management and cost control in manufacturing.
Both MRP and MRP II are seen as predecessors to Enterprise resource planning (ERP), which is
a process whereby a company, often a manufacturer, manages and integrates the important parts
of its business. An ERP management information system integrates areas such as planning,
purchasing, inventory, sales, marketing, finance and human resources. ERP is most frequently
used in the context of software, with many large applications having been developed to help
companies implement ERP.
The Basics of Manufacturing Resource Planning (MRP II)
MRP II is a computer-based system that can create detail production schedules using real-time
data to coordinate the arrival of component materials with machine and labor availability. MRP
II is used widely by itself, but it's also used as a module of more extensive enterprise resource
planning (ERP) systems.
MRP II is an extension of the original Materials requirements planning (MRP I) system.
Materials requirements planning (MRP) is one of the first software-based integrated information
systems designed to improve productivity for businesses. A materials requirements
planning information system is a sales forecast-based system used to schedule raw

material deliveries and quantities, given assumptions of machine and labor units required to
fulfill a sales forecast.
By the 1980s, manufacturers realized they needed software that could also tie into their
accounting systems and forecast inventory requirements. MRP II was provided as a solution,
which included this functionality in addition to all the capabilities offered by MRP I.
For all intents and purposes, MRP II has effectively replaced MRP I software. Most MRP II
systems deliver all of the functionality of an MRP system. But in addition to offering master
production scheduling, bill of materials (BOM) and inventory tracking, MRP II provides
functionality within logistics, marketing and general finance. For example, MRP II is able to
account for variables that MRP is not – including machine and personnel capacity – providing a
more realistic and holistic representation of a company’s operating capabilities. Many MRP II
solutions also offer simulation features that allow operators to enter variables and see the
downstream effect. Because of its ability to provide feedback on a given operation, MRP II is
sometimes referred to as a closed-loop system.
MRP I included the following three major functionalities:
• Master Production Scheduling;
• Bill of Materials; and
• Inventory Tracking.
MRP II includes those three, plus the following:
• Machine Capacity Scheduling
• Demand Forecasting
• Quality Assurance
• General Accounting
Real World Examples of MRP II Software
• The following are a small sampling of some popular MRP II software providers, as of
early 2019:
• IQMS
• Fishbowl
• FactoryEdge
• Prodsmart
• abas
• Oracle Netsuite Manufacturing Edition
• Epicor
• S2K Enterprise
Role of ERP Software in an Organization
What is ERP and how does it Work?
o Enterprise Resource Planning (ERP) is business process management software.

o This is used by an organization to manage the office and automate the business functions.
These systems make the data easily accessible and more usable in terms or organization of
files.
o This allows accurate planning by the company and has result oriented approach.
o The company can also schedule the daily activities with the help of ERP software solutions. It
also helps in managing the finances well.
o This software plays a very crucial role in the development of a company.
o ERP solutions also help in managing the records of the employees and allow the employer to
plan the growth accordingly.
o This also allows the company to have fluent communication with the clients.
o It is a very cost effective system and the benefits are always greater than investment. This
helps in long-term planning and management.
o This eliminates the need of multiple management software. It helps to integrate the interaction
between marketing, sales, quality control, product processes, supply lines, stocks, human
resource module, customer relationship management, information technology, and many other
functions in a single database.
o It reduces the chances of typing errors and re-entry.
o Enables the company to use single software and maintain one database for the whole
company.
Why is Important for Business?
o ERP tools help in managing accounts, employee records and internal and external factor
affecting the company.
o It reduces cost in the long term by increasing the productivity.
o Reduces the time and effort of managing records as compared to the paper records.
o The merger of financial and operational information allows the company to analyse the
business needs and act in a more effective manner.
o By combining all the records in one whole, ERP makes the management of data easier and
more productive.
o Apart from records, ERP also helps in the management of material and ensures that no
material is lost or stolen. It would also automate the process of buying and maintaining
material after analyzing the stock.
o Helps the company to predict market trends and decide the course of action accordingly.
o Allows the company to expand business using the internet.
The list of top benefits of ERP on supply chain management
Enterprise resource planning is the full form of ERP. This is extremely beneficial for the supply
chain management due to a variety of reasons. It has a great role to play in bringing the better
results when it comes to supplying chain management. Below mentioned are some of the
benefits of ERP for managing the supply chain.
1. Improved efficiency.
2. You can track your orders which will further help you a lot in managing the accounts.
3. It helps in the decision-making process.
4. This helps in minimizing the delay.

5. One of the best benefits of using ERP for supply chain management is that it helps in
improving the productivity of the whole business.
6. Also, one of the other advantages is that it helps in reducing the errors and mistakes.
7. Inventory optimization also helps a lot for the business to grow in the right direction.
8. This is easy to use and also reduces the cost which further helps your business to get the
best results and profits on the efforts made.
Conclusion
ERP has now become an important part of the businesses and almost every sector for all the
good reasons. People are insanely using it for the many benefits it has to provide to the people.
Aforementioned are the best benefits and role of the ERP in supply chain management. So, go
ahead and now use ERP to take your business to the next level.
Three-Tier Architecture of ERP system
Three-tier Architecture is a client–server architecture where the user interface, functional process
logic (“business rules”), computer data storage and data access are developed and maintained as
independent modules.
Improving on the usual advantages of modular software, Three-Tier architecture allows any of
the three tiers to be upgraded or replaced independently in response to changes in requirements
or technology. For example, changing the operating system in the Presentation Tier would only
affect the user interface code.
Three-tier architecture has the following three tiers:
Presentation Tier

This is the topmost level of the application. The Presentation Tier displays information related to
such services as Order Entry and Accounting applications. It communicates with other tiers by
outputting results to the browser/client tier and all other tiers in the network. (In simple terms it’s
a layer which users can access directly via a mechanism such as a web page, or an operating
systems GUI.)
Application or Logical Tier
The Application Tier (middle tier) controls the business logic and processes based on Service
calls from the Presentation Tier (User Interface).
The Application Tier is separate from the presentation tier and, as its own layer, controls an
application’s functionality by performing detailed processing.
Database Access Tier
This tier consists of database servers. Here information is stored and retrieved. This tier keeps
data neutral and independent from application servers and business logic. Giving data its own
tier also improves scalability and performance.
3 Tier Architecture Rules
The code for each layer must be contained with separate files which can be maintained
separately.
Each layer may only contain code which belongs in that layer. Thus business logic can only
reside in the Business layer, presentation logic in the Presentation layer, and data access logic in
the Data Access layer.
Each layer should be totally unaware of the inner workings of the other layers. The Business
layer, for example, must be database-agnostic and not know or care about the inner workings of
the Data Access layer. It must also be presentation-agnostic and not know or care how its data
will be handled. It should not process its data differently based on what the receiving component
will do with that data. The presentation layer may take the data and construct an HTML
document, a PDF document, a CSV file, or process it in some other way, but that should be
totally irrelevant to the Business layer.

The Presentation layer can only receive requests from, and return responses to, an outside agent.
This is usually a person, but may be another piece of software.
The Presentation layer can only send requests to, and receive responses from, the Business layer.
It cannot have direct access to either the database or the Data Access layer.
The Business layer can only receive requests from, and return response to, the Presentation layer.
The Business layer can only send requests to, and receive responses from, the Data Access layer.
It cannot access the database directly.
The Data Access layer can only receive requests from, and return responses to, the Business
layer. It cannot issue requests to anything other than the DBMS which it supports.
Extended ERP
ERP, or enterprise resource planning, is software that enables business processes in the finance,
manufacturing, distribution, sales and other areas. Extended ERP includes other software and
business processes. Integration with ERP is usually required to eliminate redundant information
and processes. Software sold and supported as integrated may reduce ongoing maintenance costs.

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