Amity School of Business

Amity School of Business

BBA, Semester 1
Computer in Management
Ms Bhawana Gupta

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MODULE-5
ERP
(ENTERPRISE RESOURCE PLANNING)

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ERP

ERP is defined as a software package which integrates all the

department of an organization. Several department of an
organization are marketing, sales, finance, production etc. Since an
ERP package integrates these entire departments, thus the
performance of an organization will be improved. It is used to
manage the important part of business including product planning,
purchasing, maintaining inventories, customer service etc.

Every department has its own computer system optimized for their
particular work but an ERP system combines them all together into
a single computer through integrated system approach. In short
ERP system provides a single database where business transaction
are recorded, processed, monitored and reported.

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Data
Analysis

Service

Finance

ERP
Sales

Manufacturing
Inventory
& Supply
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Evolution of ERP

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Inventory control or Re-order point (1960): Historical data were used

to forecast future inventory demand. When an item falls below the
predetermined level additional inventory is ordered.
Material requirement planning (1970): The systems focused on
demand based approach for planning and manufacturing of product
and ordering inventory.
Manufacturing resource planning (1980): It was used for adding tool
for sales promotion, customer satisfaction, customer order processing,
production plan and focus on quality and reducing overhead cost and
detailed reporting.
Enterprise Resource Planning (ERP 1990): Increased complexity of
business and the need to integrate all the functions within an
enterprise to sustain in the dynamic environment lead to development
of what is called ERP. ERP was extension of MRP II to cover the
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range of activities within any enterprise.

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Benefits of ERP

Reduce paper documents by providing on-line formats for quickly

entering and retrieving information.
Improves timeliness of information by permitting posting daily
instead of monthly.
Greater accuracy of information with detailed content, better
presentation satisfactory for the auditors.
Improved cost control.
Faster response and follow up on customers.
Better monitoring and quicker resolution of queries.
More efficient cash collection, say, material reduction in delay in
payments to customers.
Improves information access and management throughout the
enterprise.
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Benefits of ERP
Improves supply-demand linkage with remote locations and
branches in different countries.
Helps to achieve competitive advantage by improving its
business process.
Provides a unifies customer database usable by all
applications.

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Disadvantage of ERP
The scope of customization is limited in several circumstances
The present business processes have to be rethought to make
them synchronize with the ERP
ERP systems can be extremely expensive to implement
There could be lack of continuous technical support
ERP systems may be too rigid for specific organizations that
are either new or want to move in a new direction in the near
future

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ERP Implementation Methodologies

Different companies may install the same ERP software in
totally different processes. The same company may implement
different ERP software in the same approach. There are three
commonly used methodologies for implementing ERP
systems.
The Big Bang
Modular Implementation
Process-Oriented Implementation

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The Big-Bang

The installation of ERP systems of all modules happens across the

entire organization at once. The big bang approach promised to
reduce the integration cost in the condition of thorough and careful
execution.
It partially contributed the higher rate of failure in ERP
implementation.
Today, not many companies dare to attempt it anymore.
Many parties involved in ERP software systems are not IT
professionals. ERP transforms the business processes.

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Modular Implementation
The method of modular implementation goes after one ERP module
at a time. This limits the scope of implementation usually to one
functional department. This approach suits companies that do not
share many common processes across departments or business units.
Independent modules of ERP systems are installed in each unit,
while integration of ERP modules is taken place at the later stage of
the project. This has been the most commonly used methodology of
ERP implementation.
Each business unit may have their own "instances" of ERP and
databases. Modular implementation reduces the risk of installation,
customization and operation of ERP systems by reducing the scope
of the implementation.
The successful implementation of one module can benefit the overall
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success of an ERP project.

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Process-Oriented Implementation
It focus on the support of one or a few critical business processes
which involves a few business units.

The process-oriented implementation may eventually grow into a

full-blown implementation of the ERP system.

The initial customization of the ERP system is limited to

functionality closely related to the intended business processes.

This approach is utilized by many small to mid-sized companies

which tend to have less complex internal business processes.
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ERP Implementation Life Cycle

ERP lifecycle is which highlights the different stages in
implementation of an ERP.

Pre Evaluation Screening

Package evaluation
Project Planning phase
Gap Analysis
Reengineering
Implementation team training
Testing
Going Live

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Pre evaluation screening

Decision for perfect package
Number of ERP vendors

Screening eliminates the packages that are not at all suitable

for the companys business processes.
Selection is done on best few package available.

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Package Evaluation
Package is selected on the basis of different parameter.
Test and certify the package and also check the coordination
with different department
Selected package will determine the success or failure of the
project.
Package must be user friendly
Regular up gradation should available.
Cost

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Project Planning
Designs the implementation process.
Resources are identified.
Implementation team is selected and task allocated.

Special arrangement for contingencies.

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Gap analysis
Most crucial phase.
Process through which company can create a model of where
they are standing now and where they want to go.
Model help the company to cover the functional gap

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Reengineering
Implementation is going to involve a significant change in
number of employees and their job responsibilities.

Process become more automated and efficient.

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Team Training
Takes place along with the process of implementation.

Company trains its employees to implement and later, run the

system.

Employee become self sufficient to implement the software

after the vendors and consultant have left.

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Testing
This phase is performed to find the weak link so that it can be
rectified before its implementation.

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Going Live
The work is complete, data conversion is done, databases are
up and running, the configuration is complete & testing is done.
The system is officially proclaimed.
Once the system is live the old system is removed
An organization can get the maximum value of these inputs if it
successfully adopts and effectively uses the system.

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ERP & Related Technologies

ERP systems have three significant limitations:
1. Managers cannot generate custom reports or queries without help
from a programmer.

2. 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.
3. The data in the ERP application is not integrated with other
enterprise or division systems and does not include external
intelligence.
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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 a standalone
ERP system and thus, help the employees to make better
decisions. Some of these technologies are:

Business Process Reengineering (BPR)

Management Information System (MIS)
Decision Support Systems ( DSS)
Executive Information Systems (EIS)
Data warehousing
Supply Chain Management
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Business Process Re-engineering

BPR stand for Business Process Re-engineering. It can be
define as a management approach aiming at improvement by
means of elevating efficiency and effectiveness of process that
exits within and across the organization.
Its main focus is on better business processes. It is a radical
transition that a company must make to keep pace with todays
ever changing global market and to achieve dramatic
improvement in critic contemporary measures of performance
such as quality, cost, service etc. s
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Management Information System

MIS is a computer based system that optimizes the collection,
transfer and presentation of information throughout an
organization through an integrated structure of data bases and
information flow.
The main characteristics of MIS are :
1. MIS supports the data processing functions of transactions
handling and record keeping.
2. MIS uses an integrated database and supports a variety of
functional areas.
3. MIS provides operational, tactical and strategic levels of the
organization with the timely, but for the most part structured
information.
4. MIS is flexible and can be adapted to the changing needs of the
organization.

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Decision Support System (DSS)

Managers spend a lot of time and effort in gathering and analyzing

the information before making the decisions. DSS were created to
assist managers in this task. DSS are interactive information systems
that rely on integrated set of user-friendly soft wares and hardware
tools.
To produce and present information targeted to support management
in the decision making process. DSS facilitates the decision making
process, helping the decision makers to choose between alternatives.
Some DSS can automatically rank the alternatives, based on the
criteria given by the decision maker.
Characteristics of DSS are:
1. A DSS is designed to address semi structured and unstructured
problems.
2. The DSS mainly supports decision making at the top management
level.
3. DSS is interactive; user friendly can be used by the decision maker27
with little or no assistance from a computer professional.

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Executive Information Systems (EIS)

The line dividing DSS and EIS is very thin. EIS can be considered
as a better and sophisticated DSS. Top level executives and
decision makers face many problems and pressures. They have to
make the right decision at the right time to take the company
forward. In today's competitive world reaction times are shrinking
and time to make decisions is very less.
EIS is a decision support system especially made for senior level
executives and EIS concerned with how a decision affects an entire
organization and EIS takes the following into consideration:
1. The overall vision and mission of the company and the company
goals.
2. Strategic planning and objectives.
3. Organizational structures.
4. Crisis management / contingency planning.
5. Strategic control and monitoring of overall operations.
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Data Warehousing Systems

Since operational data cant be kept in the database of ERP system

because as time passes volume of data will increase and this will
affect the performance of ERP system, thus need arise to save this
data.
The primary concept of data warehouse is that data stored for
business analysis can be accessed most effectively by separating it
from the data in operational system. Thus Data warehouse provides
the analytical tools. It combines data from sales, marketing, finance,
and other departments.
If operational data is kept in database then it will create a lot of
problem by affecting the performance of ERP system. So it is better
to archive operational data once its use is over. Use is over does not
mean that archived data is useless rather it is one of the most
valuable resources of organization.
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Data Warehousing Systems

However once the operational use of data is over it should be
removed from operational database. Once the data is imported
into Data warehouse it becomes non-volatile i.e. no
modification can be made afterward once data has been
imported in data warehouse.

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Supply Chain Management

A supply chain is a network of facilities and distribution options that
performs the functions of procurement of materials, transformation of
these materials to intermediate and finished products, and the
distribution of these finished products to customers.
Supply chains exists in both service and manufacturing organizations
although the complexity of chain may vary greatly from industry to
industry and firm to firm

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Critical Successful Factors of ERP

Implementation
Implementation of an ERP system is a major investment and
commitment for any organizations.
The size and complexity of the ERP projects are the major factors
that impact the cost of ERP implementations.
Different companies may implement the same ERP software in
totally different approaches and the same company may integrate
different ERP software applications by following the same
procedures.
However, there are factors common to the success of ERP
implementation regardless the ERP systems they implement and the
methodologies they use.
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Critical Successful Factors of ERP

Implementation

Project Planning
Architectural Design
Data Requirements
Phased Approach
Data Conversion
Organization Commitments
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Project Planning
ERP implementation starts with project planning - setting
project goals, identifying high level business requirements,
establishing project teams and estimating the project costs.
The project planning offers the opportunity to re-evaluate the
project at great details.

If the ERP project is not justified at the planning phase,

organizations shouldn't hesitate to cancel the project.
For every successful ERP projects, there're projects that are
canceled before implementation.
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Architectural Design
While high level architectural decision is made in the process
of ERP vendor selection, it remains a critical successful factor
in integrating ERP with other e-business applications,
ecommerce applications or legacy systems.
Choice of middleware, interface software or programming
languages considerably impact the implementation cost and
release date.

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Data Requirements
Unlike in-house e-business applications, much of the packaged
ERP implementation involves the integration of ERP systems
with existing e-business software and legacy information
systems.
Appropriate level of data requirements is critical for an ERP to
interact with other applications. Data requirements usually
reflect details of business requirements.

It costs ten times to correct a mistake at later phase of ERP

implementation than the effort to correctly define requirements
at analysis and design phase.

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Phased Approach
It is important to break an ERP project down to manageable
pieces by setting up pilot programs and short-term milestones.

Dependent on the IT experience, some organizations choose

the easiest piece as the pilot project, while others may
implement a mission-critical application first.
The pilot project can both demonstrate the benefits of ERP and
help gain hands-on ERP implementation experience.

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Data Conversion
Second generation ERP systems use relational database
management systems (RDBMS) to store enterprise data.
If a large amount of data are stored in other database systems
or in different data formats, data conversion is a daunting tasks
which is often underestimated in ERP implementations.

A two-hour data conversion task could be turned into to a twomonth efforts as the result of DBA group's lack of technical
experience and management's in competency or ignorance
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Organization Commitments
The involvement of ERP implementation goes far beyond IT
department to many other functional departments.

The commitment and smooth coordination from all parties is

the key to the success of ERP project.

The commitments come from the understanding of how ERP

can benefit each functional department. For example, if the
warehouse staff isn't completely sold on the inventory control
module's benefits, they may not input the kind of usage data
that is essential to the project's success.

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Top 8 Pitfalls of ERP Implementations

Implementing an Enterprise Resource Planning, or ERP system in

any company is filled with promise and fraught with danger.
Along with the many benefits that ERP systems bring, the chief
among these being rapid access to customer and supplier
information, there are also pitfalls. One pitfall that can be so very
costly is a poorly executed ERP implementation, and this can
cripple a company and cause a loss of jobs.
In order to avoid costly mistakes, an ERP implementation needs to
be thoroughly planned with a great deal of care. Then, once all is
in place and the critical path is identified, rapid implementation is
the key to success.
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The Top 8 Pitfalls of ERP Implementations are:

1. When there is no executive sponsor. ERP crosses functions within
a company. Therefore, the program needs someone with the
authority to bring various functional managers together. People must
devote time and resources to the project, and if they don't think that
doing so is in their best interest or important enough to the
organization, they will undoubtedly find something else to do.
2. When the project is viewed as being of interest to only one
department. If the project is seen as being important to just the
finance department, or the IS department, or just the manufacturing
department, it will fail. It applies to all departments not just one and
people need to understand that.
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The Top 8 Pitfalls of ERP Implementations are:

3. When there is no full-time project manager. ERP implementations
are important enough to warrant at a minimum, one full time person to
manage the project.
4. When, because of the hardware/software/communications
intensity, the IS people make the decisions. The problem here is that
the IS people may not have a good understanding of functional
requirements of the other departments and how others will use the
ERP system. Input from all departments is needed for the system to be
most effective and to create a sense of buy-in.
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The Top 8 Pitfalls of ERP Implementations are:

5. When there is a lack of internal resources applied to the project.
Implementing an ERP systems take a good amount of time and
effort from the people within the company. This project is work on
top of the tasks that people currently are responsible for performing.
If the implementation constantly put aside to do important day to
day work the schedule will slip and the project risks failure. The
question on priorities should not be an either/or question. Work
and task planning must take into account the increased time
demands of the project for all participants.

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The Top 8 Pitfalls of ERP Implementations are:

6. When there is no documentation of the implementation
procedure. Most ERP implementation will constitute different
degrees of business re-engineering. It is imperative for companies to
document their current processes "as is" and reflect the re-engineering
effort in a documented "to be" process. This approach will maximize
the input from company resources and bring the need to revamp
legacy practices to the forefront.

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The Top 8 Pitfalls of ERP Implementations are:

7. Lack of training. Companies often overlook the importance of
training in enabling the success of enterprise implementation. Training
should be delivered in stages. At first, company team leaders should
be trained during different stages of the implementation. The training
should be delivered by a product and process expert. It should follow
a methodical approach which maps the company's way of doing
business, performed on company data. The second tier of training
should be rolled out and populated to the rest of the company staff
prior to the enterprise application "going live."

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The Top 8 Pitfalls of ERP Implementations are:

8. If there is a massive change of everything. From experience,
companies embarking on massive re-engineering in their core
processes, subject the company enterprise implementation to higher
risk with greater probability of failure. It is our recommendation that
companies should implement less re-engineering effort and more
process enhancement. This will expedite the implementation and will
have less disruption on a company's culture.

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Online Analytical Processing

OLAP: OLAP stands for Online Analytical Processing. According
to business intelligence ltd. OLAP can be define in five words i.e. fast
analysis of shared multidimensional information.
Fast: fast mans that system is targeted to deliver most fast response to
user within a few seconds.
Analysis: IT means that system can cope with any business logic and
statistical analysis that is relevant for application and user.
Shared: It means that system implements all security requirements for
confidentiality i.e. system is prevent from unauthorized person and
competitors.
Multidimensional: It means that system must provide
multidimensional conceptual view of data.
Information: It means that data is refined i.e. data is accurate, timely
and relevant to user.
OLAP can be used in variety of business area including sales,
marketing, financial reporting, profitability analysis budgeting and
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planning and many others.