ENTERPRISE RESOURCE PLANNING Course Material PDF

BA 7301 ENTERPRISE RESOURCE PLANNING A Course Material on ENTERPRISE RESOURCE PLANNING By Mr.S.ARUNKUMAR ASSISTANT PROFESSOR DEPARTMENT OF MANAGEMENT SCIENCE...

BA 7301 ENTERPRISE RESOURCE PLANNING A Course Material on ENTERPRISE RESOURCE PLANNING By Mr.S.ARUNKUMAR ASSISTANT PROFESSOR DEPARTMENT OF MANAGEMENT SCIENCE SASURIE COLLEGE OF ENGINEERING VIJAYAMANGALAM – 638 056 1 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING QUALITY CERTIFICATE This is to certify that the e-course material Subject Code : BA7301 Subject : ENTERPRISE RESOURCE PLANNING Class : II MBA being prepared by me and it meets the knowledge requirement of the university curriculum. Signature of the Author Name : S.Arunkumar Designation: Assistant Professor This is to certify that the course material being prepared by Mr.S.ARUNKUMAR is of adequate quality. se has referred more than five books amount them minimum one is from abroad author. Signature of HD Name : S.ARUNKUMAR SEAL : 2 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING CONTENTS CHAPTER TOPICS PAGE NO INTRODUCTION 1.1 Overview of enterprise systems 1.1.1 Introduction 1.1.2 What is ERP 1.1.3 Why ERP 1.1.4 Need for Enterprise Resource Planning 1.1.5 Definition of ERP 6-25 I 1.2 Evolution of Enterprise Resource Planning 1.2.1 Pre material requirement planning (MRP stage) 1.2.2 Material requirement planning 1.2.3 MRP- II 1.2.4 ERP 1.2.5 Extended ERP 1.2.6 ERP Planning –II 1.2.7 ERP-A manufacturing perspective 1.3 Risks and benefits – 1.3.1 Risk implementation 1.4 Fundamental technology of ERP 1.5 Issues to be consider in planning design and implementation of cross functional integrated ERP systems ERP SOLUTIONS AND FUNCTIONAL MODULES 2.1 Overview of ERP software solutions 2.2 Small, medium and large enterprise vendor solutions, 2.3 Business process Reengineering 2.4 Business process Management 2.4.1 Steps of BPM II 2.5 Functional Modules. 2.5.1 ERP Production planning module 2.5.2 ERP purchasing module 26-36 2.5.3 ERP Inventory control module 2.5.4 ERP Sales module 2.5.5 ERP Marketing module 2.5.6 ERP Financial module 2.5.7 ERP HR module 3 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING ERP IMPLEMENTATION 3.1 Planning Evaluation and selection of ERP systems 3.2 ERP Implementation life cycle 3.2.1 Pre-evaluation Screening 3.2.2 Package Evaluation 3.2.3 Project Planning Phase 3.2.4 Gap-Analysis 3.2.5 Reengineering 3.2.6 Configuration ERP Implementation 3.2.7 Implementation Team Training 3.2.8 Testing 3.2.9 Going Live 3.2.10 End-user training III 3.2.11 Post – implementation 37-49 3.3 ERP implementation, Methodology and Frame work- Training 3.4 Data Migration. 3.5 People Organization in implementation 3.5.1 Consultants and Vendors 3.5.2 Employees. POST IMPLEMENTATION 4.0 ERP Implementation IV 4.1 Maintenance of ERP 50-60 4.2Organizational and Industrial impact; 4.3Success factors of ERP Implementation 4.3.1 Key success factors 4.4 Failure factors of ERP Implementation. EMERGING TRENDS ON ERP 5.1 Extended ERP systems and ERP add-ons 61-68 5.2 CRM 5.2.1 Benefits of ERP Module 5.3 Supply Chain Management (SCM) 5.4 Business analytics & Intelligence 4 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 5.5 Wireless Technology used in ERP V 5.6 Future trends in ERP 5.7 Cloud Computing 5.7.1. SAP and the Internet QUESTION BANK 69-98 UNIVERSITY QUESTIONS 99-100 5 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING UNIT I INTRODUCTION Overview of enterprise systems – Evolution - Risks and benefits - Fundamental technology - Issues to be consider in planning design and implementation of cross functional integrated ERP systems. 1.1.1. Introduction ERP is an acronym that stands for Enterprise Resource Planning. ERP software saw phenomenal interest from the corporate sector during the period 1995-2000. The ERP market is estimated to be in excess of USD 80 Billion in the year 2000 Many analysts feel that today’s global business environment - products and services customized to suit the individual needs of millions of customers, delivered over multiple timelines in a 24X7 basis - would have been impossible without such enterprise software. Undoubtedly ERP represents one of the most complex and demanding application software in the corporate environment. 1.1.2 What is ERP? ERP is a package software solution that addresses the enterprise needs of an organization by tightly integrating the various functions of an organization using a process view of the organization. A. ERP software is ready-made generic software; it is not custom-made for a specific firm. ERP software understands the needs of any organization within a specific industry segment. Many of the processes implemented in an ERP software are core processes such as order processing, order fulfillment, shipping, invoicing, production planning, BOM (Bill of Material), purchase order, general ledger, etc., that are common to all industry segments. B. ERP does not merely address the needs of a single function such as finance, marketing, production or HR; rather it addresses the entire needs of an enterprise that cuts across these functions to meaningfully execute any of the core processes. C. ERP integrates the functional modules tightly. It is not merely the import and export of data across the functional modules. The integration ensures that the logic of a process that cuts across the function is captured genuinely. This in turn implies that data once entered in any of the functional modules (whichever of the module owns the data) is made available to every other module that needs this data. This leads to significant improvements by way of improved consistency and integrity of data. D. ERP uses the process view of the organization in the place of function view, which dominated the enterprise software before the advent of ERP. 6 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 1.1.3. Why ERP? In spite of heavy investments involved in ERP implementation, many organizations around the world have gone in for ERP solutions. A properly implemented ERP solution would pay for the heavy investments handsomely and often reasonably fast. Since ERP solutions address the entire organizational needs, and not selected islands of the organization, ERP introduction brings a new culture, cohesion and vigor to the organization. After ERP introduction the line managers would no longer have to chase information, check compliance to rules or conformance to budget. What is striking is that a well-implemented ERP can guarantee these benefits even if the organization is a multi- plant, multi- location global operation spanning the continents. In a sense ERP systems can be compared to the “fly-by-wire” operation of an aircraft. ERP systems similarly would relieve operating managers of routine decisions and leave them with lots of time to think, plan and execute vital long-term decisions of an organization. Just as “fly-by-wire” operation brings in amazing fuel efficiency to the aircraft operation by continuous monitoring of the airplane operation, ERP systems lead to significant cost savings by continuously monitoring the organizational health. The seemingly high initial investments become insignificant in the face of hefty long-term returns. At another level, organizations today face the twin challenges of globalization and shortened product life cycle. Globalization has led to unprecedented levels of competition. To face such a competition successful corporations should follow the best business practices in the industry. Shortened life cycles call for continuous design improvement, manufacturing flexibility and super efficient logistics control; in short a better management of the entire supply chain. This in turn presupposes faster access to accurate information both inside the organization and from the entire supply chain outside. The organizational units such as Finance, Marketing, Production and HRD need to operate with a very high level of integration without losing flexibility. ERP systems with an organizational wide view of business processes, business needs of information and flexibility meet these demands admirably. 1.1.4 Need for Enterprise Resource Planning Organizations today face twin challenges of globalization and shortened product life cycle. Globalization has led to unprecedented levels of competition. To face such competitions, successful corporations should follow the best business practices in the industry. Shortened life cycles call for continuous design improvements, manufacturing flexibility, super-efficient logistics control and better management of the entire supply chain. All these need faster access to accurate information, both inside the organization and the entire supply chain outside. The organizational units such as finance, marketing, 7 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING production, human resource development etc. need to operate with a very high level of integration without losing flexibility. ERP system with an organization-wide view of business processes, business need of information and flexibility meet these demands admirably. One of the developments in computing and communication channels is providing tighter integration among them. 1.1.5 Definition of ERP Researchers and practitioners have defined ERP in many different ways. Minahan (1998) defines ERP as a complex software system that ties together and automates the basic processes of a business. ERP has been defined by various authors but with few differences. Kumar et al. (2000) define enterprise resource planning (ERP) systems as “configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization” Al-Mashari and Zairi (2000) states that ERP represent an optimal enterprise-wide technology infrastructure. The basic architecture of an ERP system builds on one database, one application, and a unified interface across the entire enterprise. Nah et al. (2001) defines ERP as “An enterprise resource planning (ERP) system is typically defined as a packaged business software system that facilitates a corporation to manage the efficient and effective use of resources (materials, human resources, finance, etc.) by providing a total integrated solution for the organization’s information- processing requests, through a process-oriented view consistent across the company.” 1.4 Evolution of Enterprise Resource Planning Enterprise resource planning (ERP) has evolved as a strategic tool, an outcome of over four decades. This is because of continuous improvements done to the then available techniques to manage business more efficiently and also with developments and inventions in information technology field. 1.2.1 Pre Material Requirement Planning (MRP) stage Prior to 1960s businesses generally relied on traditional ways of managing inventories to ensure smooth functioning of the organizations. These theories are popularly known as ‘Classical Inventory Management or Scientific Inventory Control Methods’. Most 8 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING popularly used among them were Economic Order Quantity (EOQ); Bill of Material (BOM) etc. However these systems had very limited scope. ERP system has evolved from the Material Planning System of 1980’s. There are various phases through which this evolution process has gone through. The various phases of development of resource planning system in relation to time and evolution of concept of ERP. Figure 1.1 Stages of ERP Evolution 1.2.2. Material Requirement Planning (MRP) MRP was the fundamental concept of production management and control in the mid- 9 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 1970s and considered as the first stage in evolution of ERP. Assembly operations involving thousands of parts such as automobile manufacture led to large inventories. The need to bring down the large inventory levels associated with these industries led to the early MRP systems that planned the order releases. Such planned order releases ensured proper time phrasing and accurate planning of the sub-assembly items, taking into account complex sub-assembly to assembly relationships characterized by the Bill of Materials. Example: A typical example is a bicycle manufacture. To manufacture 100 units of bicycles, one needs 200 wheels, 100 foot-pedals, and several thousands of spokes. On a given day, a plant may have 40 units of complete bicycles in stock, 57 units of wheels, 43 units of foot-pedals and 879 units of spokes. If the plant is to assemble 20 units of bicycles for the next 4 days of production, wheels and spokes-is a non trivial problem. If the independent demand of the spare parts is also to be taken into account, one can visualize the complexity of it. A typical automobile plant with hundreds, if not thousands of parts, has to face problems that are in order of magnitude even more difficult. MRP systems address this need. Using the processing power of computers, databases to store lead-times and order quantities and algorithms to implement Bill-of-Material (BOM) explosion, MRP systems brought considerable order into the chaotic process of material planning in a discrete manufacturing operation. Essentially MRP addresses a single task in manufacturing alone. Material requirement planning (MRP) system was adopted by firms for creation and maintenance of master data and bill of material across all products and part within an organization. MRP on the other hand was an outgrowth of bill of material (BOM) processing, which is purchase order management that utilizes parts list management and parts development. 1.2.3 Manufacturing Resources Planning II (MRP- II) A natural evolution from the first generation MRP systems was the manufacturing planning systems MRP II that addressed the entire manufacturing function and not just a single task within the manufacturing function. MRP II went beyond computations of the materials requirement to include loading and scheduling. MRP II systems could determine whether a given schedule of production was feasible, not merely from material availability but also from other resource point of view. Typically, the resources considered from MRP II systems would include production facilities, machine capacities and precedence sequences. The increased functionality enabled MRP II systems provided a way to run the system in a loop. First it was used to check the feasibility of a production schedule taking into account the constraints; second to adjust the loading of the resources, if possible, to meet the production schedules; third 10 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING to plan the materials using the traditional MRP II systems. Both MRP system and MRP II systems were fairly successful in industry. Due to the power of information systems- databases, algorithms and their integration, organizations did find real support for efficiently managing the manufacturing function in the eighties. 11 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 1.2.4 Enterprise Resource Planning (ERP) The nineties saw unprecedented global competition, customer focus and shortened product life cycles. To respond to these demands corporations had to move towards agile (quick moving) manufacturing of products, continuous improvements of process and business process reengineering. This called for integration of manufacturing with other functional areas including accounting, marketing, finance and human resource development. Activity-based costing would not be possible without the integration of manufacturing and accounting. Mass customization of manufacturing needed integration of marketing and manufacturing. Flexible manufacturing with people empowerment necessitated integration of manufacturing with the HRD function. In a sense the 1990s truly called integration of all the functions of management. ERP systems are such integrated information systems build to meet the information and decision needs of an enterprise spanning all the functions of management4. 1.2.5 Extended ERP (E-ERP) Further developments in the enterprise resource planning system concept have led to evolution of extended ERP (E- ERP) or web - enabled ERP. With globalization on one hand and massive development in the internet technology on the other, need for web based IT solution was felt. Thus E- ERP is development in the field of ERP which involves the technology of Internet and World Wide Web (WWW) to facilitate the functions of an organization around the web. 1.2.6 Enterprise Resource Planning II (ERP- II) ERP II is the advanced step of E-ERP. It is the software package which has strengthened the original ERP package by included capabilities like customer relationship management, knowledge management, workflow management and human resource management. It is a web friendly application and thus addresses the issue of multiple office locations. 12 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 1.2.7 ERP – A Manufacturing Perspective ERP systems evolved out of MRP and MRP II systems. MRP systems addressed the single task of materials requirements planning. MRP II extended the scope to the entire manufacturing function. The manufacturing industry traditionally had a better climate to use computers. First of all the manufacturing community being dominated by engineers had no computer phobia. Second the extensive use of Computer Aided Drafting (CAD), Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM) had prepared the manufacturing function to use computers well, in fact exceptionally well. In fact manufacturing engineers contributed significantly to the theoretical computer science by way of contributions in the areas of graphics, computational geometry, significant visualization, feature recognition etc. Large corporations like General Motors (GM), Ford, Hewlett Packard (HP), and Digital primarily viewed themselves as manufacturing companies until the 1980s. Naturally complex MRP systems were considered the ultimate in enterprise information systems. The investments in hardware and software to manage such complex manufacturing solutions gave these systems a visibility unparalleled in the industry. Compared to these systems accounting systems, financial systems or personnel information systems were relatively inconsequential to the organization. With the globalization of operations and the proliferation of computer networks, it was important that the manufacturing organizations extend their information system across the supply chain. The supplier’s information system spread across continents with complex combinations of hardware and software need to be integrated. Similarly the dealer-distributor network had to be integrated with the manufacturing information systems. The reduction in product life cycle necessitated a quick response manufacturing system that had its ears tuned to the market. This forced manufacturing information systems to have a tighter integration with marketing information systems. The manufacturing flexibility had translated into mass customization calling for further integration of information systems. The opening up of several world economies including that of the Asian giants like China and India, the emergence of trade blocks and consolidated markets such as European Union paved the need for accounting and finance functions to be tightly integrated with manufacturing functions. It was not sufficient anymore just to manufacture and sell but organizations had to arrange for finance, comply with complex trade restrictions, barriers, and quotas. The balance sheets needed to account for multiple currencies, multiple export import rules and regulations, multiple accounting codes, practices, accounting periods. This necessitated further 13 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING integration of accounting and financial information systems with manufacturing systems. In fact with large capacities built around the world particularly in Asian countries, outsourcing and contract manufacturing became viable alternative even in the high-tech industries like semi conductor manufacturing. Suddenly the need was for an Enterprise Information System that looks beyond the manufacturing function to address inbound logistics, outbound logistics, manufacturing, materials managements, project management, quality management, accounting, finance, sales and personnel management. It was nearly impossible to integrate individual modules of information systems. What was necessary was a system that addressed the enterprise needs from the design stage. ERP systems were the natural choice in this changed scenario. 1.3 Benefits of ERP: (a) Business integration: The first and the most important advantage lie in the promotion of integration. The reason ERP packages are called integrated is the automatic data up gradation between related business components, since conventional company information systems were aimed at the optimization of independent business functions in business units, almost all were weak in terms of the communication and integration of information that transcended the different business functions in the case of large companies in particular, the timing of system structure and directives differs from each product and department / functions and sometimes they are disconnected. For this reason, it has become an obstacle in the shift to new product and business classification. In the case of ERP packages the data of related business functions is also automatically updated at the time a transaction occurs. For this reason, one is able to grasp business details in real time, and carry out various types of management decisions in a timely manner based o that information. (b) Flexibility: The second advantage of ERP packages is their flexibility. Diverse multi functional environments such as language, currency, accounting standards and so on are covered in one system and functions that comprehensively managed multiple locations that span a company are packaged and can be implemented automatically. To cope with company globalization and system unification, this flexibility is essential, and one could say that it has major advantages, not simply for development and maintenance, but also in terms of management. (c) Better analysis and planning capabilities: Yet another advantage is the boosting of planning type functions. By enabling the comprehensive and unified management of related business and its data, it becomes possible to fully utilize many types of decision support 14 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING systems and stimulation systems. Furthermore, since it becomes possible to carry out flexibility and in real time the feeling and analysis of data from a variety of dimensions, one is able to give decision makers the information they want, thus enabling them to make better and informed decisions. (d) Use of latest technology: The fourth advantage is the utilization of latest developments in information technology (IT). The ERP vendors were very quick to realize that in order to grow and to sustain that growth: they have to embrace the latest developments in the field of information technology. So they quickly adopted their systems to take advantages of the latest technologies like open systems, client server technology, internet/ intranet, computer aided acquisition and logistics support, electronic commerce etc. It is this quick adaptation to the latest changes in information technology that makes the flexible adaptation to changes to future business environments possible. It is this flexibility that makes the incorporation of the latest technology possible during the system customization, maintenance and expansion phases. (e) Reduced inventory and inventory carrying cost: The manufacturing nature of many ERP users makes the issue of process and material costs savings paramount. The main factor behind these savings is that implementation of the ERP system allows customers to obtain information on cost, revenues and margins, which allow it to better, manage its overall material cost structure. This ability to manage costs is best seen in savings that organizations can obtain in their inventory systems. Customers can perform a more complete inventory planning and status checking with the ERP system. These checks and plans reveal existing surpluses or shortages in supplies. Improved planning and scheduling practices typically lead to inventory reductions to the order of 20 per cent or better. This provides not only a one time reduction in assets (cost of the material stocked), but also provides ongoing savings of the inventory carrying costs. The cost of carrying inventory includes not only interest but also the costs of warehousing, handling, obsolescence, insurance, taxes, damage and shrinkage. (f) Reduced manpower cost: Improved manufacturing practices lead to fever shortages and interruptions and to less rework and overtime. Typical labor savings from a successful ERP system are a 10 per cent reduction in direct and indirect labor costs. By minimizing rush jobs and parts shortages, less time is needed for expediting, material handling, extra setups, disruptions and tracking splits lots odd jobs that have been set aside. Production supervisors have better visibility of required work and can adjust capacity or loads to meet schedules. Supervisors have more time for managing, directing and training people. Production personnel have more time to develop better methods and improve quality. (g) Reduced material costs: Improves procurement practices lead to better vendor negotiations 15 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING for prices, typically resulting in cost reductions of 5 per cent or better. Valid schedules permit purchasing people to focus on vendor negotiations and quality improvements rather than spending their time on shortages and getting material at premium prices. ERP systems provide negotiation information, such as projected material requirements by commodity group and vendor performance statistics. Giving suppliers better visibility of future requirements help them achieve efficiencies that can be passed on as lower material costs. (h) Improves sales and customer service: Improved coordination of sales and production leads to better customer service and increased sales. Improvements in managing customer contacts, making and meeting delivery promises, and shorter order to ship lead times, lead to higher customer satisfaction, goodwill and repeat orders. Sales people can focus on selling instead of verifying or apologizing for late deliveries. In custom product environment, configurations can be quickly identified and prices, often by sales personnel or even the customer rather than the technical staff. Taken together, these improvements in customer service can lead to fewer lost sales and actual increase in sales, typically 10 per cent or more. ERP systems also provide the ability to react to changes in demand and to diagnose delivery problems. Corrective actions can be taken early such as determining shipment priorities, notifying customers of changes to promise delivery dates, or altering production schedules to satisfy demand. (i) Efficient financial management: Improves collection procedures can reduce the number of days of outstanding receivables, thereby providing additional available cash. Underlying these improvements is fast, accurate invoice creation directly from shipment transactions, timely customer statements and follows through on delinquent accounts. Credit checking during order entry and improved handling of customer inquires further reduces the number of problem accounts. Improved credit management and receivable practices typically reduce the days of outstanding receivables by 18 per cent or better. Trade credit can also be maximized by taking advantage by supplier discounts and cash planning, and paying only those invoices with matching recipients. This can lead to lower requirements for cash-on- hand. The benefits from ERP come in three different forms i.e. in the short-term, medium-term and long-term. When initially implemented, in a year of the organization going live with ERP, it helps in streamlining the operational areas such as purchase, production, inventory control, finance and accounts, maintenance, quality control, sales and distribution, etc. This benefit is in form of ‘automating’ the transactions which promises accuracy, reliability, availability and consistency of data. 1.3.1. RISK IMPLEMENTATION: 16 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Even in a single site, implementing ERP means "Early Retirement Probably." An ERP package is so complex and vast that it takes several years and millions of dollars to roll it out. It also requires many far-flung outposts of a company to follow exactly the same business processes. In fact, implementing any integrated ERP solution is not as much a technological exercise but an "organizational revolution." Extensive preparation before implementation is the key to success. Implementations carried out without patience and careful planning will turn out to be corporate root canals, not competitive advantage. Several issues must be addressed when dealing with a vast ERP system, and the following sections discuss each of them in detail. Top Management Commitment Implementing an ERP system is not a matter of changing softwaresystems, rather it is a matter of repositioning the company and transforming the business practices. Due to enormous impact on the competitive advantage of the company, top management must consider the strategic implications of implementing an ERP solution. Management must ask several questions before embarking on the project. Does the ERP system strengthen the company's competitive position? How might it erode the company's competitive position? How does ERP affect the organizational structure and the culture? What is the scope of the ERP implementation -- only a few functional units or the entire organization? Are there any alternatives that meet the company's needs better than an ERP system? If it is a multinational corporation, the management should be concerned about whether it would be better to roll the system out globally or restrict it to certain regional units? Management must be involved in every step of the ERP implementation. Some companies make the grave mistake of handing over the responsibility of ERP implementation to the technology department. This would risk the entire company's survival because of the ERP system's profound business implications. It is often said that ERP implementation is about people, not processes or technology. An organization goes through a major transformation, and the management of this change must be carefully planned (from a strategic viewpoint) and meticulously implemented. Many parts of the business that used to work in silos now have to be tightly integrated for ERP to work effectively. Cutting corners in planning and implementation is detrimental to a company. The top management must not only fund the project but also take an active role in leading the change. A review of successful ERP implementations has shown that the key to a smooth rollout is the effective changemanagement from top. Intervention from management is often necessary to resolve conflicts and bring everybody to the same thinking, and to build cooperation among the diverse groups in the organization, often times across the national borders. 17 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Top management needs to constantly monitor the progress of the project and provide direction to the implementation teams. The success of a major project like an ERP implementation completely hinges on the strong, sustained commitment of top management. This commitment when percolated down through the organizational levels results in an overall organizational commitment. An overall organizational commitment that is very visible, well defined, and felt is a sure way to ensure a successful implementation. Reengineering Implementing an ERP system involves reengineering the existing business processes to the best business process standard. ERP systems are built on best practices that are followed in the industry. One major benefit of ERP comes from reengineering the company's existing way of doing business. All the processes in a company must conform to the ERP model. The cost and benefits of aligning with an ERP model could be very high. This is especially true if the company plans to roll out the system worldwide. It is not very easy to get everyone to agree to the same process. Sometimes business processes are so unique that they need to be preserved, and appropriate steps need to be taken to customize those business processes. An organization has to change its processes to conform to the ERP package, customize the software to suit its needs, or not be concerned about meeting the balance 30 percent. If the package cannot adapt to the organization, then organization has to adapt to the package and change its procedures. When an organization customizes the software to suit its needs, the total cost of implementation rises. The more the customization, the greater the implementation costs. Companies should keep their systems "as is" as much as possible to reduce the costs of customization and future maintenance and upgrade expenses. Integration There is a strong trend toward a single ERP solution for an entire company. Most companies feel that having a single vendor means a "common view" necessary to serve their customers efficiently and the ease of maintaining the system in future. Unfortunately, no single application can do everything a company needs. Companies may have to use other specialized software products that best meet their unique needs. These products have to be integrated along with all the homegrown systems with the ERP suite. In this case, ERP serves as a backbone, and all the different software are bolted on to the 18 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING ERP software. There are thirdparty software, called middleware, which can be used to integrate software applications from several vendors to the ERP backbone. Unfortunately, middleware is not available for all the different software products that are available in the market. Middleware vendors concentrate only on the most popular packaged applications and tend to focus on the technical aspects of application interoperability rather than linking business processes. Many times, organizations have to develop their own interfaces for commercial software applications and the homegrown applications. Integration software also poses other kinds of problems when it comes to maintenance. It is a nightmare for IS personnel to manage this software whenever there are changes and upgrades to either ERP software or other software that is integrated with the ERP system. For every change, the IT department will be concerned about which link is going to fail this time. Integration problems would be severe if the middleware links the ERP package of a company to its vendor companies in the supply chain. Maintaining the integration patchwork requires an inordinate and ongoing expenditure of resources. Organizations spend up to 50 percent of their IT budgets on application integration? It is also estimated that the integration market (products and services) equals the size of the entire ERP market.When companies choose bolt-on systems, it is advisable to contact the ERP vendor for a list of certified third-party vendors. Each year, all the major ERP vendors publish a list of certified third-party vendors. There are several advantages to choosing this option, including continuous maintenance and upgrade support. One of the major benefits of ERP solutions is the integration they bring into an organization. Organizations need to understand the nature of integration and how it affects the entire business. Before integration, the functional departments used work in silos and were slow to experience the consequences of the mistakes other departments committed. The information flow was rather slow, and the departments that made the mistakes had ample time to correct them before the errors started affecting the other departments. However, with tight integration the ripple effect of mistakes made in one part of the business unit pass onto the other departments in real time. Also, the original mistakes get magnified as they flow through the value chain of the company. For example, the errors that the production department of a company made in its bill of materials could affect not only the operations in the production department but also the inventory department, accounting department, and others. The impact of these errors could be detrimental to a company. For example, price errors on purchase orders could mislead financial analysts by giving a distorted view of how much the company is spending on materials. Companies must be aware of the potential risks of the errors and take proper steps, such as monitoring the transactions and taking immediate steps to rectify the problems should they 19 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING occur. They must also have a formal plan of action describing the steps to be taken if an error is detected. A proper means to communicate to all the parties who are victims of the errors as soon as the errors are detected is extremely important. Consider the recent example of a manufacturing company that implemented an ERP package. It suddenly started experiencing a shortage of manufacturing materials. Production workers noticed that it was due to incorrect bills of materials, and they made necessary adjustments because they knew the correct number of parts needed to manufacturer. However, the company did not have any procedures to notify others in case any errors were found in the data. The domino effect of the errors started affecting other areas of business. Inventory managers thought the company had more material than what was on the shelves, and material shortages occurred. Now the company has mandatory training classes to educate employees about how transactions flow through the system and how errors affect the activities in a value chain. It took almost eight weeks to clean up the incorrect bills of materials in the database. Companies implementing electronic supply chains face different kinds of problems with integration of information across the supply chain companies. The major challenge is the impact automation has on the business process. Automation changes the way companies deal with one another, from planning to purchase to paying. Sharing and control of information seem to be major concerns. Companies are concerned about how much information they need to share with their customers and suppliers and how to control the information. Suppliers do not want their competitors to see their prices or order volumes. The general fear is that sharing too much information hurts their business. Regarding controlling information, companies are aware that it is difficult to control what they own let alone control what they do not own. Companies need to trust their partners and must coordinate with each other in the chain. The whole chain suffers if one link is slow to provide information or access. The management also must be concerned about the stress an automated supply chain brings within each organization. For instance, a sales department may be unhappy that electronic ordering has cut it out of the loop, while manufacturing may have to adjust to getting one week's notice to order changes and accommodate those changes into its production orders. ERP Consultants Because the ERP market has grown so big so fast, there has been a shortage of competent consultants. The skill shortage is so deep that it cannot be filled immediately. Finding the right people and keeping them through the implementation is a major challenge. ERP implementation demands multiple skills -- functional, technical, and interpersonal skills. Again, consultants with 20 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING specific industry knowledge are fewer in number. There are not many consultants with all the required skills. One might find a consultant with a stellar reputation in some areas, but he may lack expertise in the specific area a company is looking for. Hiring a consultant is just the tip of the iceberg. Managing a consulting firm and its employees is even more challenging. The success or failure of the project depends on how well you meet this challenge. Implementation Time ERP systems come in modular fashion and do not have to be implemented entirely at once. Several companies follow a phase-in approach in which one module is implemented at a time. For example, SAP R/3 is composed of several "complete" modules that could be chosen and implemented, depending on an organization's needs. Some of the most commonly installed modules are sales and distribution (SD), materials management (MM), production and planning, (PP), and finance and controlling (FI) modules. The average length of time for a "typical" implementation is about 14 months and can take as much as 150 consultants. Corning, Inc. plans to roll out ERP in ten of its diversified manufacturing divisions, and it expects the rollout to last five to eight years. The length of implementation is affected to a great extent by the number of modules being implemented, the scope of the implementation (different functional units or across multiple units spread out globally), the extent of customization, and the number of interfaces with other applications. The more the number of units, the longer implementation. Also, as the scope of implementation grows from a single business unit to multiple units spread out globally, the duration of implementation increases. A global implementation team has to be formed to prepare common requirements that do not violate the individual unit's specific requirements. This involves extensive travel and increases the length of implementation. 1.4 Fundamental Technology of ERP: When it comes time for your organization to evaluate ERP systems, whether you are replacing a small business accounting package or an aging ERP, It is important to clarify the components. Each piece (often called module) of the ERP system delivers different value for your organization. To get the most from the full system, make sure your evaluation team understands the fundamentals. Financial Management 21 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING At the core of ERP are the financial modules, including general ledger, accounts receivable, accounts payable, billing and fixed asset management. If your organization is considering the move to an ERP system to support expansion into global markets, make sure that multiple currencies and languages are supported. Other functionality in the financial management modules will include budgets, cash-flow, expense and tax reporting. The evaluation team should focus on areas that are most important to support the strategic plans for your organization. Business Intelligence Business Intelligence (BI) has become a standard component of most ERP packages. In general, BI tools allow users to share and analyze the data collected across the enterprise and centralized in the ERP database. BI can come in the form of dashboards, automated reporting and analysis tools used to monitor the organization business performance. BI supports informed decision making by everyone, from executives to line managers and accountants. Supply Chain Management Supply Chain Management (SCM), sometimes referred to as logistics, improves the flow of materials through an organization by managing planning, scheduling, procurement, and fulfillment, to maximize customer satisfaction and profitability. Sub modules in SCM often include production scheduling, demand management, distribution management, inventory management, warehouse management, and procurement and order management. Any company dealing with products, from manufacturers to distributors, needs to clearly define their SCM requirements to properly evaluate an ERP solution. Human Resource Management Human resource management ERP modules should enhance the employee experience – from initial recruitment to time tracking. Â Sub modules can include payroll, performance management, time tracking, benefits, compensation and workforce planning. Self-service tools that allow managers and employees to enter time and attendance, choose benefits and manage PTO are available in many ERP solutions. Manufacturing Operations Manufacturing modules make manufacturing operations more efficient through product configuration, job costing and bill of materials management. ERP manufacturing modules often 22 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING include Capacity Requirements Planning, Materials Requirements Planning, forecasting, Master Production Scheduling, work-order management and shop-floor control. Integration Key to the value of an ERP package is the integration between modules, so that all of the core business functions are connected. Information should flow across the organization so that BI reports on organization-wide results. 1.5 Issues to be consider in planning design and implementation of cross functional integrated ERP systems: The problem with ERP packages is that they are very general and need to be configured to a specific type of business. This customization takes a long time, depending on the specific requirements of the business. The extent of customization determines the length of the implementation. The more customization needed, the longer it will take to roll the software out and the more it will cost to keep it up-to-date. For small companies, SAP recently launched Ready-to-Run, a scaled-down suite of R/3 programs preloaded on a computer server. ERP vendors are now offering industry-specific applications to cut the implementation time down. SAP has recently outlined a comprehensive plan to offer 17 industry-specific solutions, including chemical, aerospace and defense, insurance, retail, media, and utilities industries. Even though these specific solutions would able to substantially reduce the time to implement an application, organizations still have to customize the product for their specific requirements. Implementation Costs Even though the price of prewritten software is cheap compared with in-house development, the total cost of implementation could be three to five times the purchase price of the software. The implementation costs would increase as the degree of customization increases. The cost of hiring consultants and all that goes with it can consume up to 30 percent of the overall budget for the implementation. Once the selected employees are trained after investing a huge sum of money, it is a challenge to retain them, especially in a market that is hungry for skilled SAP consultants. Employees could double or triple their salaries by accepting other positions. Retention strategies such as bonus programs, company perks, salary increases, continual training and education, and appeals to company loyalty could work. Other intangible strategies such as flexible work hours, telecommuting options, and opportunities to work with leading-edge technologies are also being used. Many companies simply strive to complete the projects quickly for fear of poaching by head-hunting agencies and other companies. 23 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING ERP Vendors As there are about 500 ERP applications available and there is some company consolidation going on, it is all the more important that the software partner be financially well off. Selecting a suitable product is extremely important. Gartner Group has BuySmart program, which has more than 1700 questions to help a company choose a suitable ERP package. Top management input is very important when selecting a suitable vendor. Management needs to ask questions about the vendor, such as its market focus (for example, midsize or large organization), track record with customers, vision of the future, and with whom the vendor is strategically aligned. For a global ERP rollout, companies need to be concerned about if the ERP software is designed to work in different countries. Also, the management must make sure the ERP vendor has the same version of the software available in all the countries the company is implementing the system. Vendor claims regarding global readiness may not be true, and the implementation team may need to cross-check with subsidiary representatives regarding the availability of the software. Vendors also may not have substantial presence in the subsidiary countries. It is important to evaluate if the vendor staffers in these countries are knowledgeable and available. If there is a shortage of skilled staff, bringing people from outside could solve the problem, but it would increase the costs of implementation. Selecting the Right Employees Companies intending to implement an ERP system must be willing to dedicate some of their best employees to the project for a successful implementation. Often companies do not realize the impact of choosing the internal employees with the right skill set. The importance of this aspect cannot be overemphasized. Internal resources of a company should not only be experts in the company's processes but also be aware of the best business practices in the industry. Internal resources on the project should exhibit the ability to understand the overall needs of the company and should play an important role in guiding the project efforts in the right direction. Most of the consulting organizations do provide comprehensive guidelines for selecting internal resources for the project. Companies should take this exercise seriously and make the right choices. Lack of proper understanding of the project needs and the inability to provide leadership and guidance to the project by the company's internal resources is a major reason for the failure of ERP projects. Because of the complexities involved in the day-to-day running of an organization, it is not uncommon to find functional departments unwilling to sacrifice their best resources toward ERP project needs. However, considering that ERP system implementation can be a critical step in forging an organization's future, companies are better off dedicating their best internal resources to the project. 24 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Training Employees Training and updating employees on ERP is a major challenge. People are one of the hidden costs of ERP implementation. Without proper training, about 30 percent to 40 percent of front- line workers will not be able to handle the demands of the new system. The people at the keyboard are now making important decisions about buying and selling -- important commitments of the company. They need to understand how their data affects the rest of company. Some of the decisions front-line people make with an ERP system were the responsibility of a manager earlier. It is important for managers to understand this change in their job and encourage the front-line people to be able to make those decisions themselves. Training employees on ERP is not as simple as Excel training in which you give them a few weeks of training, put them on the job, and they blunder their way through. ERP systems are extremely complex and demand rigorous training. It is difficult for trainers or consultants to pass on the knowledge to the employees in a short period of time. This "knowledge transfer" gets hard if the employees lack computer literacy or have computer phobia. In addition to being taught ERP technology, the employees now have to be taught their new responsibilities. With ERP systems you are continuously being trained. Companies should provide opportunities to enhance the skills of the employees by providing training opportunities on a continuous basis to meet the changing needs of the business and employees. Employee Morale Employees working on an ERP implementation project put in long hours (as much as 20 hours per day) including seven-day weeks and even holidays. Even though the experience is valuable for their career growth, the stress of implementation coupled with regular job duties (many times employees still spend 25 to 50 percent of their time on regular job duties) could decrease their morale rapidly. Leadership from upper management and support and caring acts of project leaders would certainly boost the morale of the team members. Other strategies, such as taking the employees on field trips, could help reduce the stress and improve the morale. 25 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING UNITII ERP SOLUTIONS AND FUNCTIONAL MODULES 10 Overview of ERP software solutions- Small, medium and large enterprise vendor solutions, BPR, and best business practices - Business process Management, Functional modules. 2.1 Overview of ERP software solutions: Enterprise resource planning is now gaining lots of importance among the business economy. It is now being seen as an important tool for managing resources of a company both internally and externally. It is being used both for many business applications and also for many manufacturing industries. Previously, enterprise resource planning was used only of large business companies. It required lots of money to be invested. Small scale and medium sized companies were not ready to invest a large amount for buying software and employing staffs for managing ERP software. Keeping this in mind, ERP vendors started diversifying their enterprise resource planning software by releasing many versions of the software which could assist small companies too. Also, small sized companies might not require all the tools and customizations available for the big companies. The ERP software got tailored particularly to meet the small sized companies and for increasing the productivity. After this, small sized business people also started buying ERP software which matched their investment amount. From the early 1990’s ERP helped the companies in driving down their cost and also helped them in operating more efficiently. Effective data management also helped streamlining the business process effectively. Planning, manufacturing, marketing, sales and quoting services kept on improving. Stock control, financial tracking and customer service also got better with ERP. Many time consuming and labor related processes were eliminated by the small business with the usage of enterprise resource planning software. Figure 2.1: ERP FUNCTION: 26 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 2.2 SMALL, MEDIUM AND LARGE ENTERPRISE VENDOR SOLUTIONS: The flexibility which ERP offers is definitely a very big advantage which interests the small business. Flexibility and the real time control over the price and the jobs are the key features for a small sized company. Concise reporting is also a main factor which decides the quality of the company. Based on these needs, ERP vendors have made installation of the related software as very less complex with much less manual job needed. The user friendliness of the applications also got improved. Adding more users or customers will no way affect the functionality of ERP. Many small businesses are already enjoying the benefits after successful ERP implementation. The profit of the company has certainly increased after the usage of ERP provided the implementation procedures are followed perfectly. Business which implemented ERP successfully saw their business profit increasing within one year itself. A good ERP system comes with essential features that will provide the functionality of comparing the hours of working of the professionals and the actual hours of work which was paid as a salary. In fact, many small businesses just doubled their return on income with just using this service effectively. With this ERP, they were able to monitor the time of production, cost, employee activity, overall performance of the company and many more crucial information. Before setting up ERP systems, small business must first identify the business requirements. The impact which the ERP is going to have on the business should be well analyzed. Cost factor involved in implementation should be set aside initially. Once the requirements are well planned, then comparison can be made on different vendors available and the vendor which provides cost effective service and be opted. 27 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Organizations are implementing Enterprise Resource Planning system to streamline their internal business process and for smooth flow of data between the different functional departments like inventory, purchase, production, accounts, etc. The different functional modules of the ERP software look after the respective functional department. Some of the functional modules in the ERP are as follows: 1. Production Planning Module: The Enterprise Resource Planning system has evolved from Material Resource Planning which was used for the manufacturing requirements of the companies. ERP is more robust software for production planning as it optimizes the utilization of the manufacturing capacity, material resources and the parts using production data and sales forecasting. 2. Purchasing Module: This module aids in streamlining the procurement of required raw materials. It is integrated with the inventory control and production planning modules and often with the supply chain management software. This module automates the process of identifying potential suppliers, supplier evaluation. It is used for automation and management of purchasing. 3. Inventory Control Module: This module aids in managing the company's resource inventory and the product inventory. It helps in handling the replenishment of the product and maintenance of the stock levels of the products. The inventory control module monitors the inventory stock present at the different locations like at the warehouse, office and stores. The module can manage the inventory of raw materials used for product planning. It enables the company to plan the future production and keep a stock of products which go below critical level. 4. Sales Modules: This module automates the sales tasks, customer orders, invoicing and shipping of products. It is integrated with the company's ecommerce websites and many vendors provide with online storefront as a part of this module. The sales department is an important area for the organization. 5. Accounting and Finance Modules: Accounting and finance are the core areas of an organization. This module interacts with the other functional modules to collect the financial data for the general ledger and other financial statements of the company. 6. Human Resource Module: This can be used as an independent module. It is used for integrating the recruitment process, payroll, training and the performance evaluation process. The module handles the history of the employee, tracks the employees laid off and aids in 28 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING rehiring of the employees. 7. Manufacturing Module: This module includes product designing, bills of material, cost management, workflow, etc. 8. Marketing Module: The ERP marketing module supports lead generation and the promotional activities. Each of these above functional modules of ERP software plays an important role. The organizations can choose to implement some of the modules or all according to their requirements. The companies opt for the modules which are technically and economically feasible to them. These modules streamline the flow of the communication across the company by integrating the various functional departments. The enterprise resource system is bound with all these functional modules. These distinct yet seamlessly integrated modules cover most of the functional needs of an organization. The functional modules of ERP software help to achieve efficiency of operations, cost savings and help to maximize the profits. Processes, organization, structure and information technologies are the key components of BPR, which automates business processes across the enterprise and provides an organization with a well-designed and well-managed information system. While implementing ERP, the organizations have two options to consider. Either the organization must reengineer business processes before implementing ERP or directly implement ERP and avoid reengineering. 2.3 Business Process Reengineering: In the first option of reengineering business processes, before implementing ERP, the organization needs to analyze current processes, identify non-value adding activities and redesign the process to create value for the customer, and then develop in-house applications or modify an ERP system package to suit the organizations requirements. In this case, employees will develop a good sense of process orientation and ownership. This would also be a customized solution keeping with line of the organization's structure, culture, existing IT resources, employee needs and disruption to routine work during the change programmer likely to be the least. It could have a high probability of implementation. The drawback of this option is that the reengineered process may not be the best in the class, as the organization may not have access to world-class release and best practices. Moreover, this may be the only chance to radically improve in the near future and most attention should be paid 29 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING while choosing the right ERP. Also, developing an in-house application or implementing a modified ERP is not advisable. The second option of implementing ERP package is to adopt ERP with minimum deviation from the standard settings. All the processes in a company should conform to the ERP model and the organization has to change its current work practices and switch over to what the ERP system offers. This approach of implementation offers a world-class efficient and effective process with built-in measures and controls, and is likely to be quickly installed. But if the employees do not have good understanding of their internal customer needs or current processes, or if these processes are not well defined and documented, then it is quite possible that while selecting the standard process from the ERP package, employees may not be able to perceive the difficulties likely to be encountered during the implementation stage. Employees would lack process ownership and orientation. Other than technical issues, issues like organization structure, culture, lack of involvement of people etc. can lead to major implementation difficulties, and full benefits of standard ERP package may not be achieved. It may lead to a situation where the organization may have to again reengineer its processes. This could be a very costly mistake. There is also a third option of reengineering business process during implementation of ERP. But it does not considered to be a practical option and is likely to cause maximum disruption to existing work. It should not be forgotten that during BPR and ERP initiatives, routine work is still to be carried out and customers need to be served. Enterprise resource planning (ERP) is a software platform that helps business owners determine how to best use their available resources. Business process re-engineering (BPR) involves observing and analyzing how the business works to determine changes that may streamline operation at the business. ERP and BPR can go hand-in-hand. An organization's management might use BPR as a means of looking at the current operations of a business to determine how to best proceed when designing or choosing a new ERP. The goal of business process re-engineering is to determine what changes can be made in the way the business operates to improve aspects of a business. Often, BPR will focus on a specific part of the business, like costs, customer service or marketing and advertising. Using BPR does not necessarily lead to ERP. Though ERP and BPR are related, a well-conducted BPR may find that there is no need for an ERP platform in the business. A business conducting BPR may determine to drop an ERP method for reasons including cost, effectiveness, or maintenance. 2.4 Business Process Management (BPM): 30 SCE DEPARTMENT OF MANAGEMENT SCIENCE  BA 7301 ENTERPRISE RESOURCE PLANNING The term business process management covers how we study, identify, change, and monitor business processes to ensure they run smoothly and can be improved over time. Often framed in terms of the daily flow of work. BPM is best thought of as a business practice, encompassing techniques and structured methods. It is not a technology, though there are technologies on the market that carry the descriptor because of what they enable: namely, identifying and modifying existing processes so they align with a desired, presumably improved, future state of affairs. It is about formalizing and institutionalizing better ways for work to get done. Successfully employing BPM usually involves the following:  Organizing around outcomes not tasks to ensure the proper focus is maintained  Correcting and improving processes before (potentially) automating them; otherwise all you’ve done is make the mess run faster  Establishing processes and assigning ownership lest the work and improvements simply drift away – and they will, as human nature takes over and the momentum peters out  Standardizing processes across the enterprise so they can be more readily understood and managed, errors reduced, and risks mitigated  Enabling continuous change so the improvements can be extended and propagated over time  Improving existing processes, rather than building radically new or “perfect” ones, because that can take so long as to erode or negate any gains achieved BPM should not be a one-time exercise. It should involve a continuous evaluation of the processes and include taking actions to improve the total flow of processes. This all leads to a continuous cycle of evaluating and improving the organization. 2.4.1 STEPS OF BPM :  Analyze  Re-design and model  Implement  Monitor  Manage  Automate Getting information to where it needs to go, when it needs to go there, is only part of the solution – much of the rest involves first requesting the insights you need, and then having those insights 31 SCE DEPARTMENT OF MANAGEMENT SCIENCE  BA 7301 ENTERPRISE RESOURCE PLANNING communicated to you in an immediately usable format. This is what reporting and querying software is all about. Success depends in large measure on how well you label the data in your repositories so it can be identified and included when an appropriate query comes along. A major boost toward accomplishing this goal exists in the form of the Common Warehouse Metamodel (CWM), a complete specification of syntax and semantics that data warehousing and business intelligence tools can leverage to successfully interchange shared metadata. Released and owned by the Object Management Group (OMG), the CWM specifies interfaces that can be used to enable the interchange of warehouse and business intelligence metadata between warehouse tools, warehouse platforms, and warehouse metadata repositories in distributed heterogeneous environments. It is based on three standards:  UML - Unified Modeling Language, an Object Management Group (OMG) modeling standard  MOF - Meta Object Facility, an OMG metamodeling and metadata repository standard  XMI - XML Metadata Interchange, an OMG metadata interchange standard CWM models further enable users to trace the lineage of data by providing objects that describe where the data came from and when and how it was created. Instances of the metamodel are exchanged via XML Metadata Interchange (XMI) documents. The simplest of these is cleverly known as routing or simple workflow. It moves content – very often in the form of conventional documents – from one place or person to another, and when task A is complete, it allows for task B to begin. Routing tends to be ad-hoc, without any automated rules processing, and with little or no integration between the process management and the affected applications. Instead, it is pretty much person-to-person. Workflow is more than just simply moving things from A to B to C to D because it allows tasks to be carried out in parallel, saving time and increasing productivity. Able to manage multiple processes taking place at the same time, it accommodates exceptions and conditions by applying user-defined rules. BPM itself is perhaps the "ultra" process improvement technique because it explicitly addresses the complexity of inter-application and cross-repository processes, and incorporates data-driven, as well as, content-driven processes – all on an ongoing basis. Usually driven by business rules, it involves a lot of operational analysis and flow charting, and the more sophisticated offerings in the space include not only process designers, but also simulation tools so processes can be run virtually to identify bottlenecks or other issues related to either people or underlying infrastructure. 32 SCE DEPARTMENT OF MANAGEMENT SCIENCE  BA 7301 ENTERPRISE RESOURCE PLANNING We must bear in mind that business processes should include the mobile workforce and how mobile device factor into the accomplishment of the overall organizational goals. BPM is a systematic approach to improving a company's business processes. For example, a BPM application could monitor receiving systems for missing items, or walk an employee through steps to troubleshoot why an order did not arrive. It is the first technology that fosters ongoing collaboration between IT and business users to jointly build applications that effectively integrate people, process and information. BPM gives an organization the ability to define, execute, manage and refine processes that: BPM is a systematic approach to improving a company's business processes. For example, a BPM application could monitor receiving systems for missing items, or walk an employee through steps to troubleshoot why an order did not arrive. It is the first technology that fosters ongoing collaboration between IT and business users to jointly build applications that effectively integrate people, process and information. BPM gives an organization the ability to define, execute, manage and refine processes that:  involve human interaction, such as placing orders work with multiple applications  Handle dynamic process rules and changes, not just simple, static flows, (think tasks with multiple choices and contingencies). Important components include process modeling (a graphical depiction of a process that becomes part of the application and governs how the business process performs when you run the application), and Web and systems integration technologies, which include displaying and retrieving data via a Web browser and which enable you to orchestrate the necessary people and legacy applications into your processes. Another important component is what's been termed business activity monitoring, which gives reports on exactly how (and how well) the business processes and flow are working. Optimizing processes that involve people and dynamic change has been difficult historically. One barrier to optimization has been the lack of visibility and ownership for processes that span functional departments or business units. In addition, the business often changes faster than IT can update applications that the business relies on to do its work, thus stifling innovation, growth, and performance and so on. 2.5 Functional Modules of ERP Software ERP software is made up of many software modules. Each ERP software module mimics a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, 33 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible. However, it is not necessary that every enterprise system application will have all modules mentioned above. Some organizations intending to use customized ERP software generally implement specific ERP modules that are technically feasible and also economical to implement. Such business organizations approach ERP Software Company with their enterprise resource planning software requirements and ask them to study and design enterprise system software as per their business requirements. Let’s take a look at some main functional modules of Enterprise resource planning system in detail. FIGURE:2.2 FUNCTIONAL MODULE 2.5.1 ERP Production Planning Module In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting. 34 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 2.5.2 ERP Purchasing Module Purchase module streamline procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software. 2.5.3 ERP Inventory Control Module Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports. 2.5.4 ERP Sales Module Revenues from sales are live blood for commercial organizations. Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module. 2.5.5 ERP Market in Module ERP marketing module supports lead generation, direct mailing campaign and more. 2.5.6 ERP Financial Module Both for-profit organizations and non-profit organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements. 2.5.7 ERP HR Module HR (Human Resources) is another widely implemented ERP module. HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. Advanced HR module is integrated with knowledge 35 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING management systems to optimally utilize the expertise of all employees. Each of these above functional modules of ERP software plays an important role. The organizations can choose to implement some of the modules or all according to their requirements. The companies opt for the modules which are technically and economically feasible to them. These modules streamline the flow of the communication across the company by integrating the various functional departments. The enterprise resource system is bound with all these functional modules. These distinct yet seamlessly integrated modules cover most of the functional needs of an organization. The functional modules of ERP software help to achieve efficiency of operations, cost savings and help to maximize the profits. 36 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING UNIT III ERP IMPLEMENTATION 10 Planning Evaluation and selection of ERP systems - Implementation life cycle - ERP implementation, Methodology and Frame work- Training – Data Migration. People Organization in implementation-Consultants, Vendors and Employees. 3.1 Planning Evaluation and Selection of ERP systems: A successful ERP project requires selecting an ERP solution, implement the solution, manage changes and examine the practicality of the system, Wei and Wang, (2004). Wrong ERP solution choice would either fail the implementation or weaken the system to a greater impact on the enterprise, Hicks, (1995); Wilson, (1994). Most enterprises often jump into looking at ERP functions and features rather than examining the strategy and business processes. It is important for management to know the current strategy, processes and supporting systems compared to what they could be with the new systems, Donovan, (2001). For most enterprises, the decision to implement ERP functionalities will require buying a software package from one of the more popular vendors on ERP market like SAP and Oracle. But the selection process is not a straightforward task, hence thorough understanding of what ERP packages are to offer, differences in each of them and what might be at stake in selecting one package over the other should be well examined. Evaluating and selecting an ERP system can be a very complex process on the other hand, but it should be a 'fact-based' process that will bring the enterprise to the point where comfortable & well-informed decisions can be made. Therefore, a research carried out by Management Agility Inc, (2005), revealed that it is imperative to adopt a thorough evaluation and evaluation process before adopting any ERP solution in SMEs. Planning RFP Solution Evaluation Negotiation 37 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Selection and Agreement ERP Software & Hardware (Solution) Evaluation and Selection Steps Define Requirements Shop Round for Product Clarify Requirements Evaluation Vendor Inquiry Interact with Vendors Negotiate Agreement Action Agreement Define business case/need and spell-out required values. Be specific. Ensure the business sponsor is willing to push through business case for change. Look round the market for what product is available. Identify vendors that operates and their general approaches to technologies the take. Discuss with others in the same industry as you are etc. Clarify your requirements and be sure of what you are looking for in line with you business case. Refine requirements if possible and be specific too. Find out what product is looking promising in line with the business need and from which vendor. Identify which vendor and their products and invite interesting ones for demo etc. Request for proposal (RFP). Invite each shortlisted vendor over for a chat and find out more about the product. List out expectations based heavily on business requirements. At this point evaluate this approach. Can you afford to change your current process? Can you afford the change the new product will bring and many more? Initiate Negotiation for the selected product with the selected vendor. Agree on who does what, when are they to be done. Negotiate deliverables, timelines, cost & payments schedules and terms, support inclusive. 38 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Review all legal terms, finalise the contract and select product for onward implementation. Alignment of business requirement to what the software/hardware can provide. This is the core of the whole exercise else stop the evaluation. Evaluate the product capabilities in line with the business requirement. Evaluate the impact of this product on the business requirement. Stage 5 Fig. 2: Detailed flowchart for ERP Software, Hardware Evaluation and Selection Processes Analyse Gaps For effective ERP Solution evaluation and selection process, the above steps are categorised into 5 phases as explained below; Stage 1 - Plan Requirement Business need is defined, along with areas in business that required technical approach. Develop a specific business case with business value for a solution. Ensure that the project sponsor is willing to articulate the business case for change. Indentify vendors that operate in the line of products you are looking for. Get familiar with the software and hardware infrastructure presence for the solution seeking. Get general view of investment needed, considering software, hardware, other related infrastructure and ongoing support. Based on the survey, evaluate the organisation readiness for the investment and decide whether to continue or not. Now define priorities under "must-have" and "nice-to-have" accordingly. Stage 2 - Request for Proposals (RFP) Shortlist interesting vendor based on the outcome of market survey for products. Invite interesting vendors for interaction/demonstration of their products. 39 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING Collects facts/functionalities in line with the business need from various products demonstrations for the developments of unbiased RFP for vendors. Set-up a neutral body to develop RFP using all facts gathered during products demonstration aligned to the business requirements. Distribute out RFP that addresses the vendor as a company and the products they offer. Generate basic expectations from an ideal proposal in line with the business need for onward selection of the ideal software vendor. Stage 3 - Solution Evaluation Identify and prioritise remaining gaps between software capabilities as demonstrated and business requirements. Sample form in fig. 3; below. Identify how the gaps will be bridge in terms of configuration, configuration, process change or combination of all these. If the gaps can be bridge consider reengineering of those affected business processes affected and continue with the evaluation. Stage 4 - Contract Negotiation Negotiate with each vendor. Establish software, hardware and other infrastructure agreement requirements, which include version, components, maintenance and support. Also negotiate participation in user groups, license costs, maintenance fees and many others. Establish service provider agreement which also include deliverables, timelines, resources, costs and payment schedules. Establish other legal requirements. Stage 5 - Selection and Agreement Upon successful negotiation with the right vendor; Review all legal terms on privacy protection, operation guidance and data manipulation etc. Approve agreements with the selected vendors. 40 SCE DEPARTMENT OF MANAGEMENT SCIENCE  BA 7301 ENTERPRISE RESOURCE PLANNING Agree on implementation plan. 3.2 ERP IMPLEMENTATION LIFE CYCLE: 1. During the pre-evaluation phase, ERP vendors available in the market are screened based on business requirements. ERP packages that don’t suit the business requirements are eliminated. 2. During the package evaluation phase, selected package is evaluated against requirements across departments. 3. A detailed requirement analysis is done, involving different managers from across the departments. Requirement analysis helps list down all the functionalities required to ensure efficient processes across the organization. 4. Based on the analysis of requirements and functionalities, a detailed project plan is laid out. This involves senior management team and ERP experts. Designs are finalized; key resources to be involved in the project are identified in various departments; special arrangement is also made to tackle contingencies. 5. Once the planning is done, business process re-engineering takes place. Implementing ERP will impact the job responsibilities of lot of employees. So, new roles and responsibilities are to be assigned to employees. Processes are to be re-structured and integrated with ERP tools. 6. Post implementation and integration, staff and managers are to be trained properly so that they get good practice. Consultants will help employees to get hands on experience of the ERP tools. 7. At last, the tools that are implemented are tested rigorously. Issues arising during the testing phase are fixed and required changes are made. Thus ERP Implementation process can be explained. ERP Implementation Lifecycle  ERP Implementation  ERP implementation lifecycle focus on the ERP project which is carried out to make ERP up and running.  ERP project is likely to go through different phases like any other project.  Most often these phases do not necessarily depend on one another in a sequence, i.e. one phase might start before previous phase has finished.  Also all phases that will be discussed may not be applicable in all cases.  The different phases of ERP implementation are:- 3.2.12 Pre-evaluation Screening 3.2.13 Package Evaluation 41 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING 3.2.14 Project Planning Phase 3.2.15 Gap-Analysis 3.2.16 Reengineering 3.2.17 Configuration ERP Implementation 3.2.18 Implementation Team Training 3.2.19 Testing 3.2.20 Going Live 3.2.21 End-user training 3.2.22 Post – implementation 3.2.1 Pre-Evaluation Screening When the company has decided to implement the ERP the search for the convenient and suitable ERP package begins. Refers to the discussed previous lecture (“ERP Selection”) to understand the criteria used in selecting particular ERP package. 3.2.2 Package Evaluation The objective of this phase is to find the package that is flexible enough to meet the company’s need or in other words, software that could be customized to obtain a ‘good fit’. Once the packages to be evaluated are identified, the company needs to develop selection criteria that will permit the evaluation of all the available packages on the same scale To choose the best system, the identification of the system that meets the business needs, and that matches the business profile. Some important points to be kept in mind while evaluating ERP software include: a) Functional fit with the company’s business process. b) Degree of integration between the various components of the ERP system. c) Flexibility and scalability d) Complexity e) User friendliness f) Quick implementation g) It is better to have a selection committee that will do the evaluation process. 3.2.3 Project Planning Phase 42 SCE DEPARTMENT OF MANAGEMENT SCIENCE BA 7301 ENTERPRISE RESOURCE PLANNING a. This is the phase that designs the implementation process. Time schedules, deadlines, etc. for the project are arrived at. b. The project plan is developed in this phase. c. In this phase the details of how to go about the implementation are decided. The project plan is developed, roles are identified and responsibilities are assigned. d. The organizational resources that will be used for the implementation are decided and the people who are supposed to head the implementation are identified. e. The implementation team members are selected and task allocation is done. f. The phase will decide when to begin the project, how to do it and when the project is supposed to be completed. g. The phase will also plan the ‘What to do’ in case of contingencies; how to monitor the progress of the implementation; h. The phase will plan what control measures should be installed and what corrective actions should be taken when things get out of control. i. The project planning is usually done by a committee constituted by the team leaders of each implementation group headed by CIO. 3.2.4 Gap Analysis This is the most crucial phase for the success of the ERP implementation. Simply it is the process through which companies create a complete model of where they are now, and in which direction they want to head in the future.The trick is to design a model which both anticipates and covers any functional gaps. Some companies decide to live without a particular function. Other solutions include: a. Upgrade b. Identify the third party product that might fill the gap c. Design a custom program d. Altering the ERP source code, (the most expensive alternative; usually reserved for mission-critical installation) 3.2.5 Reengineering This phase involves human factors. a. In ERP implementation settings, reengineering has two connotations. The first connotation is the controversial one, involving the use of ERP to aid in downsizing efforts. b. In this case ERP is purchased with aim of reducing the number of employees. c. Every implementation will involve some change in job responsibilities as processes become more automated and efficient. d. How