Enterprise Resource Planning


By

Deepika. R
I Year MBA (Batch 2007-09)
R.L. Institute of Management Studies
Madurai-625 022
 


INTRODUCTION

Enterprise Resource Planning is the latest high-end solution, information technology has lent to business application. The ERP solutions seek to streamline and integrate operation processes and information flows in the company to synergies the resources of an organization namely men, material, money and machine through information. Initially implementation of an ERP package was possible only for very large Multi National Companies and Infrastructure Companies due to high cost involved. Today many companies in India have gone in for implementation of ERP and it is expected in the near future that 60% of the companies will be implementing one or the other ERP packages since this will become a must for gaining competitive advantage.


What is ERP?

It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs.

Each of those departments typically has its own computer system optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.

ERP vanquishes the old standalone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Most vendors' ERP software is flexible enough that you can install some modules without buying the whole package.

ERP can be defined as a " software solution that addresses the enterprise needs taking the process view of the organization, to meet the organizational goals tightly integrating all functions of an enterprise " It is an industry term for the broad set of activities supported by multi-module application software that help a manufacturer or other business manage the all the parts of its business . ERP facilitates integration of company-wide information systems with the potential to go across companies.

ERP is an acronym for Enterprise Resource Planning, which is a category of business systems forming the primary transaction processing across multiple business functions or business units. Typical functionality may include systems such as, accounting, human resources , customer order processing, purchasing, inventory management, manufacturing/operations, and order fulfillment.


EVALUATION OF ERP

*
  1960's - Systems Just for Inventory Control
*  1970's  - MRP – Material Requirement Planning
(Inventory with material planning & procurement)
*  1980's - MRP II – Manufacturing Resources Planning
(Extended MRP to shop floor & distribution Mgnt.)
*   Mid 1990's - ERP – Enterprise Resource Planning
(Covering all the activities of an Enterprise)
*  2000 onwards – ERP II – Collaborative Commerce
(Extending ERP to external business entities)

In the ever-growing business environment the following demands are placed on the industry:

  • Aggressive Cost control initiatives
  • Need to analyze costs / revenues on a product or customer basis
  • Flexibility to respond to changing business requirements
  • More informed management decision making
  • Changes in ways of doing business

Difficulties in getting accurate data, timely information and improper interface of the complex natured business functions have been identified as the hurdles in the growth of any business. Time and again depending upon the velocity of the growing business needs, one or the other applications and planning systems have been introduced into the business world for crossing these hurdles and for achieving the required growth. They are :

  • Management Information Systems (MIS)
  • Integrated Information Systems (IIS)
  • Executive Information Systems (EIS)
  • Corporate Information Systems (CIS)
  • Enterprise Wide Systems (EWS)
  • Material Resource Planning (MRP)
  • Manufacturing Resource Planning (MRP II)
  • Money Resource Planning (MRP III)

NEED FOR ERP

Most organizations across the world have realized that in a rapidly changing environment, it is impossible to create and maintain a custom designed software package, which will cater to all their requirements, and also be completely up-to-date. Realizing the requirement of user organizations some of the leading software companies have designed Enterprise Resource Planning software which will offer an integrated software solution to all the functions of an organization.

FEATURES OF ERP

  • ERP facilitates company-wide Integrated Information System covering all functional areas like Manufacturing, Selling and distribution, Payables, Receivables, Inventory, Accounts, Human resources, Purchases etc.
  • ERP performs core corporate activities and increases customer service and thereby augmenting the Corporate Image.
  • ERP bridges the information gap across the organization.
  • ERP provides for complete integration of Systems not only across the departments in a company but also across the companies under the same management.
  • ERP is the only solution for better Project Management.
  • ERP allows automatic introduction of latest technologies like Electronic Fund Transfer (EFT), Electronic Data Interchange (EDI), Internet, Intranet, Video conferencing, E-Commerce etc.
  • ERP eliminates the most of the business problems like Material shortages, Productivity enhancements, Customer service, Cash Management, Inventory problems, Quality problems, Prompt delivery etc.
  • ERP not only addresses the current requirements of the company but also provides the opportunity of continually improving and refining business processes.
  • ERP provides business intelligence tools like Decision Support Systems (DSS), Executive Information System (EIS), Reporting, Data Mining and Early Warning Systems (Robots) for enabling people to make better decisions and thus improve their business processes.

MRP vs. ERP — Manufacturing management systems have evolved in stages over the past 30 years from a simple means of calculating materials requirements to the automation of an entire enterprise. Around 1980, over-frequent changes in sales forecasts, entailing continual readjustments in production, as well as the unsuitability of the parameters fixed by the system, led MRP (Material Requirement Planning) to evolve into a new concept : Manufacturing Resource Planning (or MRP2) and finally the generic concept Enterprise Resource Planning (ERP)

Advantage

Some security features are included within an ERP system to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data tampering scenario might involve a disgruntled employee intentionally modifying prices to below the breakeven point in order to attempt to take down the company, or other sabotage. ERP systems typically provide functionality for implementing internal controls to prevent actions of this kind. ERP vendors are also moving toward better integration with other kinds of information security tools.

Limitations of ERP include:

Success depends on the skill and experience of the workforce, including training about how to make the system work correctly.

Personnel turnover; companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP.

Customization of the ERP software is limited. Some customization may involve changing of the ERP software structure which is usually not allowed.

Re-engineering of business processes to fit the "industry standard" prescribed by the ERP system may lead to a loss of competitive advantage.

ERP systems can be very expensive to install often ranging from 30,000 US Dollars to 500,000,000 US Dollars for multinational companies.

ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability.

Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards.

ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies—this is cited as one of the main causes of their failure.

Systems can be difficult to use.

Systems are too restrictive and do not allow much flexibility in implementation and usage.

The system can suffer from the "weakest link" problem—an inefficiency in one department or at one of the partners may affect other participants.

Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications.

Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).

The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.

Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

Some large organizations may have multiple departments with separate, independent resources, missions, chains-of-command, etc, and consolidation into a single enterprise may yield limited benefits.

There are frequent compatibility problems with the various legacy systems of the partners.

The system may be over-engineered relative to the actual needs of the customer.


 


Deepika. R
I Year MBA (Batch 2007-09)
R.L. Institute of Management Studies
Madurai-625 022
 

Source: E-mail February 27, 2008

 

       

 

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