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Enterprise Resource Planning
(ERP)
And
Integrationwww.a2zmba.com
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ERP: What Is It?
“Enterprise resource planning software, or ERP,
doesn't live up to its acronym. Forget about
planning—it doesn't do that—and forget about
resource, a throwaway term. But remember the
enterprise part. This is ERP's true ambition. It
attempts to integrate all departments and
functions across a company onto a single
computed system…”
Darwin’s “Executive Guide”www.a2zmba.com
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The Basic Idea
Deliver value added product and services in
shortest possible time.
Optimizing the resources
available.
Integration of specialized
modules; all under one
Roof.
Real time management
.
Automatic discovery, pre
configured control panels, and automatic
alerts .
The Basic Idea
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Characteristics
An ERP system should be flexible to respond to the changing needs of an
enterprise. The client server technology enables ERP to run across
various data base back ends through Open Data Base Connectivity
(ODBC).
ERP system has to have an open system architecture. This means that
any module can be interfaced or detached whenever required without
affecting the other modules. It should support multiple hardware
platforms for the companies having heterogeneous collection of systems.
It must support some third party add-ons also.
Fle
xib
ility
Mod
ula
r &
Op
en
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Bey
ond
Th
e C
omp
any
Characteristics ( Contd…)
It should not be confined to the organizational boundaries, rather
support the on-line connectivity to the other business entities of the
organization.
It must have a collection of the best business processes applicable world-
wide.
Last but not the least, it must simulate the reality of business processes
on the computers. In no way it should have the control beyond the
business processes and it must be able to assign accountabilities to the
users controlling the system.
Bes
t B
usi
nes
s P
ract
ices
Sim
ula
tion
of
Rea
lity
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Major Suppliers
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Some of the Modules
Sales and Distribution
Human Resource
Finance and Costing
Time and labour
Reporting
Material Management
Supply Chain Management
Asset Management
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Implementation
Complex process of configuration of fit business
Entering rules and
preferences
Loading and standardizing existing data
Hooking up to remaining
applications
Writing custom code
where needed
Also human parts
Retraining users Redesigning
business processes
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Benefits : Operational Efficiency
Lower cost
Better customer service
Allows management of processes across organizational
boundariesData entered only once, used by all
processes and Departments
Current data accessible to all participants. E.g. customer
service rep can see stock levels in other divisions, progress on order, etc.
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Benefit: Lower IT cost
ERP is very
expensive
Future maintenance and upgrades
cheaper
Biggest saving in
integration
Spread costs over a large
base
But expect long term savings from
Elimination of legacy systems
Upgrades, maintenance and
licensing costs
Huge costs for ad-hoc integration of aging applications
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Benefit: Standard Process
ERP is managerial means
to force global standardization in
processes
Centralization of control over
proceduresTechnological enforcement coded into software
Local variation,
workarounds eliminated
May bring efficiency
Will sacrifice
flexibility
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Benefit: Managerial Data
Standardizing processes requires standardization of
Product codes Accounting methods
And Human Resources systems This allows comparisons
between divisions Especially using
financial measures of effectiveness –e.g. Economic Value Added (EVA) analysis
and On global basis
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Issue: Cost
Project cost is 2 to 10 times
software price
High profile implementation
failures
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Issue: Complexity
Inherent complexity of global project
ERP team is permanent
fixture
•Training costs for users easy to underestimate•Existing data often in
worse shape than admit
• Rely on to keep business running
•Will need further work on analysis to
deliver promised benefits
New system gives short-
term efficiency
slump
•Like any major reorganization•But may afflict
whole business at once
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Issue: Inflexibility
ERP standardizes business processes
Possible Problemsnon-standard
modules
•Will be running business the same way
as competitors•Sees its processes as
core competence
•Can’t find better ways to do things
•Tied to capabilities of software
•Limits scope for reengineering, etc except as
software requires and supports
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Issue: Dependence
ERP is not just a new program, it’s a new way of doing business” How
to deal with things it won’t support?
Long-term commitment
•Can users lobby for new features?•What if supplier is taken over?• What if supplier raises prices?
• What if supplier shifts direction of product?
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Issue: Integration
When doesn’t work well in one area
Problems in integrating into other
systems
•Can try to patch the ERP software
•Can rely on external application and links
•Can alter business to fit the software
•Create & maintain custom interfaces
•Not well suited for data warehouses
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Issue: Upgrades
Like all software,
frequent new releases
Can be a year long project, cost 30% of original
installation price
Can cause major
disruption
Users resent having to upgrade
just because vendor is pulling support
Likely to break custom code &
interfaces to other applications
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Trends in ERP
•Increased modularization of suites•Reduces scale of commitment
•Supposed to work better with other applications•Shift to web based front ends
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Consolidation of suppliers
People Soft buys J.D. Edwards
Succeeds, just in time
SAP profits from chaos Market share continues
to rise
Oracle tries to buy People SoftInitially to prevent merger with J.D. Edwards
Announces customers will have to migrate to Oracle applications
Still trying to acquire merged firm
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CRMCustomer Relationship
Management Idea: centralize all processes and data related to interaction with customers
Often offered by ERP suppliers Sold as “next big thing”, though
problems set Hit by slump in IT spending from 2001
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