Enterprise Resource Planning (ERP)

 

     ERP is the integrated management of main business processes, often in real time and mediated by software and technology. ERP is usually referred to as a category of
business management software—typically
a suite of integrated applications—that an
organization can use to collect, store, manage, and interpret data from many
business activities.

ERP provides an integrated and
continuously updated view of core
business processes using common
databases maintained by a database
management system.

ERP systems track
business resources—cash, raw materials,
production capacity—and the status of
business commitments: orders, purchase
orders, and payroll. The applications that
make up the system share data across
various departments (manufacturing,
purchasing, sales, accounting, etc.) that
provide the data.

ERP facilitates information flow between all business
functions and manages connections to
outside stakeholders.

     Enterprise system software is a
multibillion-dollar industry that produces
components supporting a variety of
business functions. IT investments have
become the largest category of capital
expenditure in United States-based
businesses over the past decade. Though
early ERP systems focused on large
enterprises, smaller enterprises
increasingly use ERP systems.
The ERP system integrates varied
organizational systems and facilitates
error-free transactions and production,
thereby enhancing the organization’s
efficiency. However, developing an ERP
system differs from traditional system
development.

       ERP systems run on a
variety of computer hardware and network
configurations, typically using a database
as an information repository.

The Gartner Group first used the acronym
ERP in the 1990s to include the
capabilities of material requirements
planning (MRP), and the later
manufacturing resource planning (MRP
II), as well as computer-integrated
manufacturing. Without replacing these
terms, ERP came to represent a larger
whole that reflected the evolution of
application integration beyond
manufacturing.
Not all ERP packages are developed from
a manufacturing core; ERP vendors
variously began assembling their packages with finance-and-accounting,
maintenance, and human-resource
components. By the mid-1990s ERP
systems addressed all core enterprise
functions. Governments and non–profit
organizations also began to use ERP
systems.

ERP systems experienced rapid growth in
the 1990s. Because of the year 2000
problem many companies took the
opportunity to replace their old systems
with ERP.
ERP systems initially focused on
automating back office functions that did
not directly affect customers and the
public. Front office functions, such as
customer relationship management (CRM),
Expansion dealt directly with customers, or e-business systems such as e-commerce, e-government, e-telecom, and e-finance or
supplier relationship management (SRM)
became integrated later, when the internet
simplified communicating with external
parties.
It describes web–
based software that provides real–time
access to ERP systems to employees and
partners (such as suppliers and
customers).

Characteristics:

Installation of the system with elaborate
application/data integration by the
Information Technology (IT) department,
provided the implementation is not done
in small steps options include:  on premises, cloud hosted or SaaS
An ERP system covers the following
common functional areas. In many ERP
systems, these are called and grouped
together as ERP modules:

 

 

Functional areas

Financial accounting: general ledger,
fixed assets, payables including
vouchering, matching and payment,
receivables and collections, cash
management, financial consolidation
Management accounting: budgeting,
costing, cost management, activity
based costing
Human resources: recruiting, training,
roistering, payroll, benefits, retirement
and pension plans, diversity
management, retirement.

 

Separation Manufacturing : engineering, bill of
materials, work orders, scheduling,
capacity, workflow management, quality
control, manufacturing process,
manufacturing projects, manufacturing
flow, product life cycle management
Order processing: order to cash, order
entry, credit checking, pricing, available
to promise, inventory, shipping, sales
analysis and reporting, sales
commissioning.

   

GRP
Government resource planning (GRP) is the
equivalent of an ERP for the public sector
and an integrated office automation
system for government bodies. The
software structure, modularization, core
algorithms and main interfaces do not
differ from other ERPs, and ERP software
suppliers manage to adapt their systems
to government agencies.
Both system implementations, in private
and public organizations, are adopted to
improve productivity and overall business

   Supply chain management: supply chain
planning, supplier scheduling, product
configurator, order to cash, purchasing,
inventory, claim processing,
warehousing (receiving, put away, picking
and packing)
Project management: project planning,
resource planning, project costing, work
breakdown structure, billing, time and
expense, performance units, activity
management.

   

Customer Relationship Management(CRM): sales and marketing, commissions, service, customer
contact, call center support – CRM
systems are not always considered part
of ERP systems but rather business
support systems (BSS)

 

   Data services: various “self–service”
interfaces for customers, suppliers
and/or employees performance in organizations, but
comparisons (private vs. public) of
implementations shows that the main
factors influencing ERP implementation
success in the public sector are
cultural.
Most ERP systems incorporate best
practices. This means the software
reflects the vendor’s interpretation of the
most effective way to perform each
business process. Systems vary in how
conveniently the customer can modify

       Direct integration—ERP systems have
connectivity (communications to plant
floor equipment) as part of their product
offering. This requires that the vendors
offer specific support for the plant floor
equipment their customers operate.

ERP Connectivity to plant floor
information vendors must be experts in their own
products and connectivity to other vendor
products, including those of their
competitors.

     Database integration— ERP systems
connect to plant floor data sources
through staging tables in a database. Plant
floor systems deposit the necessary
information into the database. The ERP
system reads the information in the table.
The benefit of staging is that ERP vendors
do not need to master the complexities of
equipment integration. Connectivity
becomes the responsibility of the systems
integrator.

Enterprise appliance transaction modules
(EATM)
— These devices communicate
directly with plant floor equipment and
with the ERP system via methods
supported by the ERP system. EATM can
employ a staging table, web services, or
system–specific program interfaces
(APIs). An EATM offers the benefit of being
an off–the–shelf solution.

 

 

Custom–integration solutions

 

Many system integrators offer custom solutions.
These systems tend to have the highest
level of initial integration cost, and can
have a higher long term maintenance and
reliability costs. Long term costs can be
minimized through careful system testing
and thorough documentation. Custom–
integrated solutions typically run on
workstation or server-class computers.
ERP’s scope usually implies significant
changes to staff work processes and
practices. Generally, three types of
services are available to help implement
such changes—consulting, customization, Implementation
Implementation time depends on business size, number of
modules, customization, the scope of
process changes, and the readiness of the
customer to take ownership for the
project. Modular ERP systems can be
implemented in stages.

The typical project
for a large enterprise takes about 14
months and requires around 150
consultants. Small projects can require
months; multinational and other large
implementations can take years.

 

Customization can substantially increase
implementation times. Besides that, information processing
influences various business functions e.g.
some large corporations like Wal-Mart use
a just in time inventory system. This
reduces inventory storage and increases
delivery efficiency, and requires up-to-date
data. Before 2014, Walmart used a system
called Inform developed by IBM to
manage replenishment.

     Process preparation Implementing ERP typically requires
changes in existing business
processes. Poor understanding of
needed process changes prior to starting
implementation is a main reason for
project failure. The difficulties could be
related to the system, business process,
infrastructure, training, or lack of
motivation.
It is therefore crucial that organizations
thoroughly analyze business processes
before they implement ERP software.
Analysis can identify opportunities for
process modernization. It also enables an
assessment of the alignment of current
processes with those provided by the ERP
system.

Research indicates that risk of
business process mismatch is decreased
by:
Linking current processes to the
organization’s strategy
Analyzing the effectiveness of each
process Understanding existing automated
solutions
ERP implementation is considerably more
difficult (and politically charged) in
decentralized organizations, because they
often have different processes, business
rules, data semantics, authorization
hierarchies, and decision centers. This
may require migrating some business units
before others, delaying implementation to
work through the necessary changes for
each unit, possibly reducing integration
(e.g., linking via Master data management)
or customizing the system to meet
specific needs.

A potential disadvantage is that adopting
“standard” processes can lead to a loss of
competitive advantage. While this has
happened, losses in one area are often
offset by gains in other areas, increasing
overall competitive advantage.

 

Configuration
Configuring an ERP system is largely a
matter of balancing the way the
organization wants the system to work
with the way it was designed to work. ERP
systems typically include many settings
that modify system operations. For
example, an organization can select the
type of inventory accounting—FIFO or LIFO
—to use; whether to recognize revenue by
geographical unit, product line, or
distribution channel; and whether to pay
for shipping costs on customer returns.

 

 

Two-tier enterprise resource
planning
Two-tier ERP software and hardware lets
companies run the equivalent of two ERP
systems at once: one at the corporate
level and one at the division or subsidiary
level. For example, a manufacturing
company could use an ERP system to
manage across the organization using
independent global or regional distribution,
production or sales centers, and service
providers to support the main company’s
customers. Each independent center (or) subsidiary may have its own business
models, workflows, and business
processes

Given the realities of globalization,
enterprises continuously evaluate how to
optimize their regional, divisional, and
product or manufacturing strategies to
support strategic goals and reduce timeto-market while increasing profitability and
delivering value. With two-tier ERP, the
regional distribution, production, or sales
centers and service providers continue
operating under their own business model
—separate from the main company, using
their own ERP systems. Since these
smaller companies’ processes and
workflows are not tied to main company’s
processes and workflows, they can
respond to local business requirements in
multiple locations.
Factors that affect enterprises’ adoption
of two-tier ERP systems include:
Manufacturing globalization, the
economics of sourcing in emerging
economies Potential for quicker, less costly ERP
implementations at subsidiaries, based
on selecting software more suited to
smaller companies Extra effort, (often involving the use of
Enterprise application integration) is
required where data must pass between
two ERP systems.

Two-tier ERP strategies give enterprises agility in
responding to market demands and in
aligning IT systems at a corporate level
while inevitably resulting in more
systems as compared to one ERP
system used throughout the
organization.

 

 

Extensions
ERP systems can be extended with third–
party software, often via vendor-supplied
interfaces. Extensions offer features
such as:
product data management
product life cycle management
customer relations management
data mining
e-procurement

 

 

 

 

Data migration
Data migration is the process of moving,
copying, and restructuring data from an
existing system to the ERP system.
Migration is critical to implementation
success and requires significant planning.
Unfortunately, since migration is one of the
final activities before the production
phase, it often receives insufficient
attention. The following steps can
structure migration planning
Identify the data to be migrated.
Determine the migration timing.

Generate data migration templates for
key data components
Freeze the toolset.
Decide on the migration-related setup of
key business accounts.
Define data archiving policies and
procedures.

Often, data migration is incomplete
because some of the data in the existing
system is either incompatible or not
needed in the new system. As such, the
existing system may need to be kept as an
archived database to refer back to once
the new ERP system is in place.

 

 

 

Advantages
The most fundamental advantage of ERP
is that the integration of a myriad of
business processes saves time and
expense. Management can make
decisions faster and with fewer errors.
Data becomes visible across the
organization. Tasks that benefit from this
integration include:
Sales forecasting, which allows
inventory optimization.
Chronological history of every
transaction through relevant data

Benefits
       ERP creates a more agile company that
adapts better to change. It also makes a
company more flexible and less rigidly
structured so organization components
operate more cohesively, enhancing the
business—internally and externally.
ERP can improve data security in a
closed environment. A common control
system, such as the kind offered by ERP
systems, allows organizations the ability
to more easily ensure key company data
is not compromised. This changes,
however, with a more open environment,
requiring further scrutiny of ERP security
features and internal company policies
regarding security.
ERP provides increased opportunities
for collaboration. Data takes many
forms in the modern enterprise,
including documents, files, forms, audio
and video, and emails. Often, each data
medium has its own mechanism for
allowing collaboration.

ERP provides a
collaborative platform that lets
employees spend more time
collaborating on content rather than
mastering the learning curve of
communicating in various formats
across distributed systems.
ERP offers many benefits such as
standardization of common processes,
one integrated system, standardized
reporting, improved key performance
indicators (KPI), and access to common
data. One of the key benefits of ERP; the
concept of integrated system, is often
misinterpreted by the business.

ERP is a
centralized system that provides tight
integration with all major enterprise
functions be it HR, planning,
procurement, sales, customer relations,
finance or analytics, as well to other
connected application functions. In that
sense ERP could be described as
“Centralized Integrated Enterprise
System (CIES)”

 

 

 

 

 

 

Disadvantages
Customization can be problematic.
Compared to the best-of-breed
approach, ERP can be seen as meeting
an organization’s lowest common
denominator needs, forcing the
organization to find workarounds to
meet unique demands.
Re-engineering business processes to fit
the ERP system may damage competitiveness or divert focus from other critical activities.

 

Inventory Management


      Inventory management software is a
software system for tracking inventory
levels, orders, sales and deliveries. It can
also be used in the manufacturing industry
to create a work order, bill of materials
and other production-related documents.
Companies use inventory management
software to avoid product overstock and
outages. It is a tool for organizing
inventory data that before was generally
stored in hard-copy form or in
spreadsheets.
Inventory management software is made
up of several key components working
together to create a cohesive inventory of
many organization’s systems. These
features include:
Features

Reorder point
Should inventory reach a specific
threshold, a company’s inventory
management system can be programmed
to tell managers to reorder that product.
products or tying up too much capital in inventory.
Asset tracking
When a product is in a warehouse or store,
it can be tracked via its barcode and/or lot number or revision number.
Systems. for Business, Encyclopedia of
Business, 2nd ed. Nowadays, inventory
management software often utilizes
barcode, radio-frequency identification
(RFID), and/or wireless tracking
technology. other tracking criteria, such as serial
number

,

Service management
Companies that are primarily service
oriented rather than product-oriented can
use inventory management software to
track the cost of the materials they use to
provide services, such as cleaning supplies.

This way, they can attach prices
to their services that reflect the total cost
of performing them.

 

 

 

 

 

Product identification
Barcodes are often the means whereby
data on products and orders are inputted
into inventory management software. A
barcode reader is used to read barcodes
and look up information on the products
they represent. Radio-frequency
identification (RFID) tags and wireless
methods of product identification are also
growing in popularity.

 

Modern inventory software programs may
use QR codes or NFC tags to identify
inventory items and smartphones as
scanners. This method provides an option
for businesses to track inventory using
barcode scanning without a need to
purchase expensive scanning hardware.

 

Inventory optimization
A fully automated demand forecasting and
inventory optimization system to attain key
inventory optimization metrics such as:

Reorder point: the number of units that
should trigger a replenishment order
Order quantity: the number of units that
should be reordered, based on the
reorder point, stock on hand and stock
on order
Lead demand: the number of units that
will be sold during the lead time
Stock cover: the number of days left
before a stockout if no reorder is made
Accuracy: the expected accuracy of the
forecasts

 

Supplier relationship management

Supplier relationship management (SRM)
is the discipline of strategically planning
for, and managing, all interactions with
third party organizations that supply
goods and/or services to an organization
in order to maximize the value of those
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In practice, SRM entails
creating closer, more collaborative
relationships with key suppliers in order to
uncover and realize new value and reduce
risk of failure.
Supplier relationship management is the
systematic, enterprise-wide assessment
of suppliers’ assets and capabilities with
respect to overall business strategy,
determination of what activities to engage
in with different suppliers, and planning
and execution of all interactions with
Overview suppliers, in a coordinated fashion across
the relationship life cycle, to maximize the
value realized through those interactions.
The focus of SRM is to develop two-way,
mutually beneficial relationships with
strategic supply partners to deliver greater
levels of innovation and competitive
advantage than could be achieved by
operating independently or through a
traditional, transaction purchasing
arrangement.
In many fundamental ways, SRM is
analogous to customer relationship
management. Just as companies have
multiple interactions over time with their
customers, so too do they interact with
suppliers – negotiating contracts,
purchasing, managing logistics and
delivery, collaborating on product design,
etc.

The starting point for defining SRM is
a recognition that these various
interactions with suppliers are not discrete
and independent – instead they are
accurately and usefully thought of as
comprising a relationship, one which can
and should be managed in a coordinated
fashion across functional and business
unit touch-points, and throughout the
relationship life-cycle.
SRM necessitates a consistency of
approach and a defined set of behaviors
that foster trust over time. Effective SRM
requires not only institutionalizing new
ways of collaborating with key suppliers,
but also actively dismantling existing
policies and practices that can impede
collaboration and limit the potential value
that can be derived from key supplier
relationships.

At the same time, SRM
should entail reciprocal changes in
processes and policies at suppliers.
Components of SRM listening, influencing and managing
change are critical to developing
strong and trusting working relations.

 

 

 

Organizational structure
While there is no one correct model for
deploying SRM at an organizational level,
there are sets of structural elements that
are relevant in most contexts:
1.  A formal SRM team or office at the
corporate level. The purpose of such
a group is to facilitate and coordinate
SRM activities across functions and
business units. SRM is inherently
cross-functional, and requires a good
combination of commercial, technical
and interpersonal skills. These
“softer” skills around communication,

 

  1. A formal Relationship Manager or
    Supplier Account Manager role. Such
    individuals often sit within the
    business unit that interacts most
    frequently with that supplier, or may
    be filled by a category manager in the
    procurement function. This role can
    be a full-time, dedicated positions,
    although relationship management
    responsibilities may be part of
    broader roles depending on the
    complexity and importance of the
    supplier relationship (see Supplier
    Segmentation). SRM managers
    understand their suppliers’ business
    and strategic goals, and are able to
    see issues from the supplier’s point
    of view while balancing their own
    organization’s requirements and
    priorities.
  2. An executive sponsor and, for
    complex, strategic supplier
    relationships, a cross-functional
    steering committee. These
    individuals form a clear link between
    SRM strategies and overall business
    strategies, serve to determine the
    relative prioritization among a
    company’s varying goals as they
    impact suppliers, and act as a
    dispute resolution body.

 

 

 

Governance
The SRM office and supply chain function
are typically responsible for defining the
SRM governance model, which includes a
clear and jointly agreed governance
framework in place for some top-tier
strategic suppliers. Effective governance
should comprise not only designation of
senior executive sponsors at both
customer and supplier and dedicated

Relationship managers, but also a face-off
model connecting personnel in
engineering, procurement, operations,
quality and logistics with their supplier
counterparts; a regular cadence of
operational and strategic planning and
review meetings; and well-defined
escalation procedures to ensure speedy
resolution of problems or conflicts at the
appropriate organizational level.
Effective supplier relationship
management requires an enterprise-wide
analysis of what activities to engage in
with each supplier. The common practice
of implementing a “one size fits all”
approach to managing suppliers can
stretch resources and limit the potential
value that can be derived from strategic
supplier relationships.

Supplier segmentation, in contrast, is about
determining what kind of interactions to
have with various suppliers, and how best
to manage those interactions, not merely
as a disconnected set of siloized
transactions, but in a coordinated manner
across the enterprise.

Suppliers can be
segmented, not just by spend, but by the
total potential value (measured across
multiple dimensions) that can be
realized through interactions with them.
Further, suppliers can be segmented by the
degree of risk to which the realization of
that value is subject.

 

 

Joint activities
Joint activities with suppliers might
include;
Supplier summits, which bring together
all strategic suppliers together to share
the company’s strategy, provide
feedback on its strategic supplier
relationship management program, and

 

Solicit feedback and suggestions from
key suppliers. Executive-to-executive meetings
Strategic business planning meetings,
where relationship leaders and technical
experts meet to discuss joint
opportunities, potential roadblocks to
collaboration, activities and resources
required, and share strategies and
relevant market trends.

Joint business
planning meetings are often
accompanied by a clear process to
capture supplier ideas and innovations,
direct them to relevant stakeholders,
and ensure that they are evaluated for
commercial suitability, and developed
and implemented if they are deemed
commercially viable.
Operational business reviews, where
individuals responsible for day-to-day
management of the relationship review
progress on joint initiatives, operational
performance, and risks.

 

Value measurement
SRM delivers a competitive advantage by
harnessing talent and ideas from key
supply partners and translates this into
product and service offerings for end
customers. One tool for monitoring

Performance and identifying areas for
improvement is the joint, two-way
performance scorecard. A balanced
scorecard includes a mixture of
quantitative and qualitative measures,
including how key participants perceive the
quality of the relationship.

These KPIs are
shared between customer and supplier
and reviewed jointly, reflecting the fact that
the relationship is two-way and
collaborative, and that strong performance
on both sides is required for it to be
successful.

Advanced organizations
conduct 360 degree scorecards, where
strategic suppliers are also surveyed for
feedback on their performance, the results
of which are built into the scorecard.