ERP [Enterprise Resource Planning]

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

Every department has its own computer system optimized for their particular work but an ERP
system combines them all together into a single computer through integrated system approach. In
short ERP system provides a single database
where business transaction are recorded,
processed, monitored and reported.
ERP system does not replace the computer of a particular department rather it integrates all the
department of an organization into a single computer and provides a flexible database.

Benefits of an ERP System or reasons for growth of ERP

 Effective utilization of resources

 Improvement in business performance
 Reduction of inventory due to JIT approach
 Integration of information i.e. integration of all the department of an organization.
 Sharing of common data and information
 Global Adaptation
 Improvement in the quality of the product at the same price
 ERP targeted all types of business organization whether large business or small business
organization
 Lowers the total cost in supply chain management through JIT approach.
 Eliminate limitation in legacy system i.e. traditional system
 Order fulfillment improvement
 Improvement in customer service.

Evaluation of ERP

Inventory control or Re-order point (1960): In 1960’s most of the ERP system was
concentrate on the inventory control ability also called re-order point system. Historical data
were used to forecast future inventory demand. When an item falls below the predetermined
level additional inventory is ordered.

Material requirement planning (1970): In 1970’s this system was introduced and it focused on
demand based approach for planning and manufacturing of product and ordering inventory.

Manufacturing resource planning (1980): In 1980’s this approach was introduced. It was used
for adding tool for sales promotion, customer satisfaction, customer order processing, production
plan and focus on quality and reducing overhead cost and detailed reporting.
Manufacturing resource planning-II with manufacturing executive system (MES) (1990):
In 1990 this system was introduced. It provides ability to adapt production schedules to meet
customer needs. Main focused was on ability and adopt new products and services to meet
customer needs.

ERP in late 1990 

Hidden Cost of ERP System:

 Training expenses
 Customization: Core of ERP system is actual customization of ERP system itself.
 Integration and testing
 Replacing the staff
 Implementation team can never stop
 Wait for ROI

Integrated System Approach

ERP package integrate the different department of an organization with the help of integrated
system approach. Integrated system approach requires successful implementation of re-
engineering process for better result of an ERP system. Business re-engineering revolves around
the IT and continues change. It is a fundamental rethinking of business process to improve the
quality and output of the product or service.

Designing Phase:

The fundamental decision in the designing phase is whether re-engineering the business process
or customize the ERP package. When the business process is re-engineered then team select
commercial ERP package from the shelf and install it. The process is re-engineered in such a
manner that it will:

 Reduce the cycle time

 There is no unnecessary to and fro of information

In customizing team select a commercial ERP package and customize it according to their
unique requirements. However poor customization is one of the reasons of the failure of ERP
system while re-engineering of the business process will give the full benefits of the ERP system.

Customization has to take the following parameters:

 End user requirement

 Vision of the top management
 Technical requirements of the products

The higher the degree of customization lower will be the benefit of ERP system because
packaged software purchased and installed mainly to refine existing business process and to
improve overall performance of the organization. Or we can say that higher the customization
will not give the full benefits of ERP system.

Implementation phase and steps of implementation

Implementation includes addressing and configuration as it involves the migration the data from
old system to new system, building interface, order processing, implementing reports and testing
of package. Many companies take the help of expert from software supplier to assist
implementation.

The unwritten rule of implementation is synchronizing the existing company package with ERP
package rather than changing the source code and customizing the ERP system to suit the
company.

Features that are to be considered for configuring ERP system:

Data ownership: It includes that, which will be responsible for data integrity. Whether it is
centralized responsibility or local responsibility.

Distribution of procedures: It includes that which is to be centralized.

Data management: Will ERP support centralized data management or local data management.

Steps in implementation of an ERP package

 Establishing securities
 Migrating the data from old system to new system and ensure that data to be migrated is
accurate and authentic.
 Building interfaces to other system like office system.
 User training: Training of the user can be started at the tine of test run and user of
different department are to be trained in there respective areas. It includes: logging in and
out, getting to know the system, trying sample transaction in the entire department.
 Parallel run: Under this business transaction are carried on both new system as well as
old system and the implementation team take care of any problem or errors which comes
to the light of parallel run.
 User documentation: It is different from general documentation. It includes how to carry
out transaction.
 Post implementation: It generally involves queries from user and minor changes can be
possible in the formats.
 System monitoring and fine tuning: IT peoples monitors system closely to see
performance aspects so that end user can get the full benefits of ERP system.  

ERP & Related Technology

BPR: BPR stand for Business Process Re-engineering. It can be define as a

management approach aiming at improvement by means of elevating efficiency and
effectiveness of process that exits within and across the organization. Its main focus is on
better business processes. It is a radical transition that a company must make to keep pace
with today’s ever changing global market and to achieve dramatic improvement in critic
contemporary measures of performance such as quality, cost, service etc. One of the main
tools for making this change is IT. IT and BPR goes together and merger of these two
concepts is known as business engineering.

ERP system helps in integrating various business processes with the help of modern
development in IT and with a good ERP system an organization will be capability of
greater achievement in improvement in cost, quality, and service. The main requirement
of BPR decentralize decision making to decision maker to be responsive to customer
needs and also use of IT, facilitating newly re-engineering process.

Principles of BPR:

 It assumes that current process is irrelevant and does not work.

 To break away from outdated rules.
 Linking of parallel activities.
 Capture information once and at source. 

Elements of BPR:

 Business Process
 Integration of business process
 Technology to redesign business process
 Cross functional coordination
 Timing improvement process continuously
 Complement market driven strategies designed to provide a competitive edge

OLAP: OLAP stands for Online Analytical Processing. According to business

intelligence ltd. OLAP can be define in five words i.e. fast analysis of shared
multidimensional information.
Fast: fast mans that system is targeted to deliver most fast response to user within a few
seconds.
Analysis: IT means that system can cope with any business logic and statistical analysis
that is relevant for application and user.
Shared: It means that system implements all security requirements for confidentiality i.e.
system is prevent from unauthorized person and competitors.
Multidimensional: It means that system must provide multidimensional conceptual view
of data.
Information: It means that data is refined i.e. data is accurate, timely and relevant to
user.
OLAP can be used in variety of business area including sales, marketing, financial
reporting, profitability analysis budgeting and planning and many others.
Data Warehouse: Since operational data can’t be kept in the database of ERP system
because as time passes volume of data will increase and this will affect the performance
of ERP system, thus need arise to save this data.

The primary concept of data warehouse is that data stored for business analysis can be
accessed most effectively by separating it from the data in operational system. Thus Data
warehouse provides the analytical tools. It combines data from sales, marketing, finance,
and other departments.
In other words it can be define as copy of business transaction data specially structured
for query and analysis.
If operational data is kept in database then it will create a lot of problem by affecting the
performance of ERP system. So it is better to archive operational data once its use is
over. ‘Use is over’ does not mean that archived data is useless rather it is one of the most
valuable resources of organization. However once the operational use of data is over it
should be removed from operational database. Once the data is imported into Data
warehouse it becomes non-volatile i.e. no modification can be made afterward once data
has been imported in data warehouse. Data warehouse is a blending of technologies
including multidimensional and relational databases because it is integrated data from
different sources and is transformed into a single data format which make it possible to
analyze data in a consistent way.

A well implemented data warehouse is key for understanding business decisions so care
must be taken in entering data into data warehouse otherwise invalid data will produce
the wrong results.

Advantages of Data warehouse:

 Increased quality and flexibility of enterprise analysis as multidimensional

database is used.
 More cost effective decision making.
 Enhanced customer service by maintaining better customer relationship.
 Better enterprise intelligence.

Data Mining: Data mining can be defines as extraction of hidden predictive information
from large databases and is a new powerful technology with great potential to help
company’s focus on most important information in data warehouse. It uses advance
algorithms, multiprocessor computations, massive database etc.

Today, for a business organization quality decision making is very important for its
success and decision making is depend upon availability of information. Data mining is
the process of identifying valid, novel, potentially useful and ultimately comprehensible
information from database that is used to make crucial business decision.

Advantages of data warehouse:

 Automated prediction of tends and behavior: It automate process of finding
predictive information in large databases.
 It has a much lower cost than hiring highly trained professional statistician.
 It can be incorporated with DSS (Decision Support System) which helps the
manager to take wise and quality business decision.