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ERP

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What is an enterprise?

The term enterprise is often used in general business

situations to describe a corporate entity, anything from a

sidewalk espresso cart to an organization as large as

TELCO or Hindustan Lever.

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An enterprise is a group of people with a common goal,

which has certain resources at its disposal toachieve this goal.

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Traditional Approach

In the traditional approach:

The organization is divided into different units based

on the functions they perform.

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So we have a:

Production department

Purchasing department

Finance department etc.

These departments are compartmentalized and have their

own goals and objectives, which from their point of

view is in line with the organization’s objectives.

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These department function in isolation and have

their own systems of data collection and analysis.

So the information that is created or generated by the

various departments, in most cases are available only

to the top management and not to the other

departments.

The result is that instead of taking the organization

towards the common goal the various departments

tend to pull it in different directions since one

department does not know what the other does.

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Also, departmental objectives can sometimes be

conflicting e.g.

the sales and marketing people may want more product

variety to satisfy the varying needs of the customers

while

the production department will want to limit the

product variety in order to cut down production costs.

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So, unless all the other departments know:

what the others are doing and for what purpose, suchconflicts will arise and disrupt the normal

functioning of the organization.

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In the enterprise way, the entire organization is

considered as one system and all the departments

are its sub-systems.

Modern Approach or Enterprise Way

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Business functions and business processes

A business process is a collection of activities that takes

one or more kinds of input and creates an output that

is of value to the customer. Thinking in terms of business processes helps managers to

look at their organizations from a customer’s

perspectives.

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For example, the important considerations for a person who

wants to buy a car are:

the information about the product

the available choices

quick and efficient service

fast order-processing and delivery

availability of finance and completion of other formalities

such as registration, insurance etc. with ease.

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Customer is not concerned with:

who is speaking to him

the policies of the company with regards to employee

selection

where the raw material are purchased and at what price,an so on.

Customer is concerned with:

Quality product, delivered to him at a competitive priceas fast as possible with minimum hassles.

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For example, assume that a car is damaged during

delivery.

It is a business function of the customer service

department to accept the damaged item and to

replace or repair it depending upon the severity of thedamage.

The actual repair or replacement of the car is a business

process that involves several functional areas and

functions within those areas.

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Thus, the customer is looking across the company’s

functional areas in the process of buying and

obtaining a product.

In order to provide customer satisfaction, a company must

make sure that its functional areas of operations are

integrated.

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Role of the enterprise in implementing the ERP System

The company’s decision-makers have to do a detailed,

consistent and technically correct job of selecting a

software package.

They have to ensure that all the key personnel are involvedin one way or another and committed to the project’s

implementation.

The enterprise has to identify a consulting firm that posses

all the attributes necessary to conduct theimplementation project successfully – qualified

professionals, proven methodology and excellent

references.

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There are a group of people:

the company employees

the package vendors

the hardware vendors

the communications experts

the implementation consultants, and so on

all with a common goal namely, the successful

implementation of the project.

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An ERP implementation project does not depend solely on

the:

software vendor

the consultants

Success for a project of this magnitude and scope dependslargely on:

Each party playing its role well, because:

the roles are singular in nature

there can be no substitution

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The most important and critical activity the company

management has to perform is:

To designate the right people to lead the project.

These people should be high up in the corporate

ladder.

These people should be willing to dedicate themselves

to learning how to operate the package correctly in

order to provide for the needs of the business.

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A brief history of ERP

In the manufacturing industry, MRP (Material

Requirement Planning) became the fundamental

concept of production management and control in

the mid-1970s.At this stage BOM which is purchase order management

that utilizes parts list management and part development,

was mainstream.

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This concept unfolded from order inventory management

of materials to plant and personnel planning and

distribution planning, which in turn became MRP II.

This incorporated financial accounting, human resource

management functions, distribution management

functions and management accounting functions, andcame to globally cover all areas of the enterprise

mainstay business and eventually came to-be called

ERP.

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Materials Requirements Planning (MRP)

MRP is the outgrowth of bill of materials (BOM)processing.

MRP began its life in the 1960s and became prominent in

the 1970s.

The manufacturing and production planning people were

searching for better and more efficient methods of ordering

materials and components.

They found that MRP was a perfect answer for theirneeds.

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MRP asks the following questions:

What products are we going to make?

What are the materials needed to make these products?

What are the materials that are presently available in

stock?

What are the items that need to – be purchased?

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Manufacturing Resource Planning (MRP II)

It is the successor of MRP, it integrates planning of all

aspects of a manufacturing firm.

MRP-II includes functions such as:Business planning

Production planning and scheduling

Capacity requirement planning

Job costingFinancial management and forecasting

Order processing

Performance measurement

Sales and operations planning.

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Thus, MRP II is a method for the effective planning of all the

resources of a manufacturing company.

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ERP

The final step in the evolution is the emergence of ERP.

The fundamentals of ERP are the same as that of MRP II.

The ERP system is also capable of integrating with othertools like;

Customer Relationship management

Supply chain management and so on,

Thereby supporting business across company

boundaries.

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The goals of ERP includes:

High-levels of customer service

Productivity

Cost reduction and inventory turnover, and it provides

the foundation for effective supply chain management

and e-commerce.

It does this:

By developing plans and schedules so that the right

resources – manpower, materials, machinery, and money – are available in the right amount when needed.

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The primary purpose of implementing ERP is:

To run the business efficiently and effectively in thisbrutally competitive and rapidly changing business

environment.

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Roadmap for successful ERP

implementationThe most important step of ERP implementation is the phase

called

It is the step of negotiations between the companyrequirements and the functions a package possesses.

Gap analysis

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It is effective to invite outside consultants with wideexperience in package implementation to the user guide, suchpersons can be assigned the role of Coordinator between thepackage vendors and the system integrators.

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Consultant

This consultant can act as a neutral person to resolve

conflicts and can push the project ahead, while givingdirection on the whole.

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Points to be considered for ERP Implementation.

The first important point is:

clearly defining company objectives and targets, and

making these known and recognized throughout the

entire company.

Secondly, the manner in which the companymanagement involved in the project and the speed of

decision-making is important.

Last is the selection of experienced consultants.

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Benefits of ERP

1. Reduction of Lead-time:

The elapsed time between an order and receiving it is

known as the lead-time.

Most purchasing departments urge the managers toanticipate material demands well ahead of actual need.

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All inventory systems have safety mechanisms like:

safety stock,

re-order level and so on built into them, to avoid thesituation where the material is out of stock.

The consequences of the non-availability of an item canresult in a lot of problems like:

missing the delivery schedules

losing the customer goodwill due to delayed delivery.

In order to reduce the lead-times:

the organization should have an efficient inventorymanagement system, which is integrated with thepurchasing, production planning and productiondepartments.

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The ERP systems help in automating this task and thus,

make the inventory management more efficient and

effective.

Since the ERP system is integrated and the materialsmanagement module is integrated with other modules like:

Sales

Marketing

Purchasing

Manufacturing and production planning

The demand for a particular item can be known as early

as an order is received.

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For example;

Consider that an order is received for supplying, say 100

cars with air conditioners.

As soon as the order details are entered into the system, a lot

of actions are triggered.

The system will check whether the items are available in

the finished goods inventory.

Then it will generate a BOM for the order and will

check whether all the items are available in the

inventory.

Since all the records are kept in the system’s databaseand since every thing is up-to-date, finding out the parts

that are to be ordered takes no time.

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2. On time Shipment:

Today, companies must be able to deliver customer-

specific products (made-to-order) with the lead-time of

standard.

The companies must be able to change the mode of

production from make-to-stock to make-to-order, yet

retain the cost and time advantage.

Today, the ERP systems, businesses are not limited to a single

manufacturing methods, such as make-to-stock or make-

to-order.

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Many manufacturing and planning methods can be combined

within the same operation, with unlimited flexibility to

choose the best method for each product at each stagethroughout its life cycle.

ERP systems are designed to help your company trim data

transfer, reduce errors and increase design productivity by

providing an automated link between engineering and

production information.

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Thus, by integrating the various business functions and

automating the procedures and tasks, the ERP systems

ensure on-time delivery of goods to the customers.

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3. Reduction in Cycle Time:

Cycle time is the time between receipt of the order and

delivery of the product.

At one end of the manufacturing spectrum is the make-to-

order operation, where the cycle time and cost of

production are high.

This is because in a make-to-order situation the

manufacturer starts making the product only after

receiving the order.

On the other end of the manufacturing operations is the

make-to-stock approach, where the products are

manufactured before the order is placed.

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In both the cases:

The cycle time can be reduced by the ERP systems, but the

reduction time will be more in the case of make-to-order

systems.

In the case of make-to-stock, the items are already

manufactured and kept in warehouses or with distributors

for the sales. Here, the cycle time is reduced during orderfulfillment.

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For example;

Suppose a customer places an order.

The order entry clerk has to check whether the order is

available in the warehouse nearest to the customer.

If it is not available there, he will have to check whether it

is available in any other warehouse or with any of the

distributors.

Then he will have to process the order, inform the

concerned warehouse or distributor to ship the item,

inform the finance department to raise the invoice and so

on.

All this used to take a lot of time few days or sometimes

even weeks.

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But with an ERP system;

As soon as the order is entered into the system, the system

checks the availability of the items. If it is not available with the nearest manufacturer, then

the warehouse that is closest to the customer and which

has the item in stock is identified.

The warehouse is informed about the order and theshipment details are sent to the distribution module.

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4. Improved Resource Utilization:

Manufacturers place emphasis upon planning and controlling

capacity because: Manufacturing process become more sophisticated

Philosophies of elimination of waste achieve broader

acceptance.

The creation of an accurate, achievable productionschedule requires the availability of both material and

capacity.

Waste not only raises costs, it also affects customer service

levels and customer good will.

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ERP Systems offers the:

Capacity Planning feature.

It is the process of determining the production capacity

needed by an organization to meet changing demands.

Capacity is the maximum amount of work that an

organization is capable of completing in a given period of

time.

Capacity definitions are provided from work centre and

machine records.

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The ERP systems also have simulation capabilities that helpthe capacity and resource planners to simulate the variouscapacity and resource utilization scenarios and choose the

best option.The efficient functioning of the different modules in the ERP

system like manufacturing, materials management, plantmaintenance, sales and distribution ensures that the:

Inventory is kept to a minimum level

The machine down time is minimum

The goods are produced only as per the demand

The finished goods are delivered to the customer in themost efficient way.

Thus, the ERP system help the organization in drasticallyimproving the capacity and resource utilization.

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5. Better customer satisfaction:

Customer satisfaction means meeting or exceeding

customers requirements for a product or service.Assessment of the degree of satisfaction is usually made

on at least three measures:

a. Whether the product or service includes the features thatare most important to the customer?

b. Whether the company can respond to the customers

demands in a timely manner?

c. Whether the product or service is free of defects andperforms as expected?

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ERP systems have proved that they can produce goods at

the flexibility of make-to-order approach without

loosing the cost and time benefits of made-to-orderoperations.

This means that customer will get individual attention

and the features that he/she wants.

With the introduction of web-enabled ERP systems, the

customers can:

Place the order

Track the status of the order

Make the payment sitting at home

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The customer could get technical support by either:

Accessing the company’s technical support knowledge

base.

By calling the technical support.

Since all the details of the product and the customer are

available to the person at the technical supportdepartment, the company will be able to provide better

support to the customer.

All this is possible because of the use of the latest

developments in IT by the ERP systems.

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6. Improved Supplier Performance:

The quality of the raw materials or components The capability of the vendor to deliver them on time

are of critical importance for the success of any organization.

So, an organization needs to choose its suppliers, or vendors

very carefully and monitor their activities closely, so that:

problems can be corrected before it can disrupt the

functioning of the company.

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The ERP systems provide vendor management and

procurement support tools designed to coordinate all

aspects of the procurement process.

They support the organization in its efforts to effectively

negotiate, monitor, and control procurement costs and

schedules while assuring superior product quality.

The supplier management and control processes are

comprised of features that will help the organization in

managing the supplier relations.

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7. Increased flexibility:

Because competition are growing:

Companies must learn to respond more rapidly tocustomers wishes as well as changes in the market.

They will need to design new products or redesign old

products quickly and efficiently.

The manufacturing process must be flexible enough toaccommodate new product designs with minimal

disruption or time loss.

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Product flexibility is the:

Ability of the operation to efficiently produce highly

customized and unique products. Manufactures tried to introduce some amount of flexibility

by using the assemble-to-order approach.

This provided some amount of flexibility without

increasing the production cost, but could not be applied toall situations.

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ERP systems not only:

improve the flexibility of the manufacturing operations,

but also:

the flexibility of the organization as a whole.

A flexible organization is one that can adapt to the changes

in the environment rapidly. New competitors are emerging each day.

New and complex problems have to be tackled every day.

To stay in business, new marketing strategies have to be

devised and implemented at very short notices.

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8. Reduced Quality Costs:

Quality is defined in many different ways:

ExcellenceConformance to specifications

Fitness for use

Value for the price an so on.

Whereas manufacturing and design engineers are typically

responsible for some of the technological issues in the

quality assurance for products.

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In the design phase of a new product or service,

The cost of correcting a defect may be minimal.

If that defect goes undetected and the company releases theproduct or service to the public, it will incur a much

greater cost to resolve the problems that result.

The Quality Management Systems in ERP packages supportthe benchmarking and use of optimal product design,

process engineering, and quality assurance data by all

functional departments within the manufacturing

enterprise.

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The American Society for Quality Control (ASQC) has

developed a typology of quality related costs.

This typology has four categories:1. Internal failure costs:

It includes costs of re-work, re-inspection

2. External failure costs:

It includes warranty claims, repairs, and service costs

3. Appraisal costs:

It includes cost of inspecting upon arrival, during

manufacture, in laboratory tests and by outside

inspectors.

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4. Prevention costs:

It includes design and development of new quality

equipment, evaluation costs of a new product or service

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9. Improved Information Accuracy and Decision-Making Capability:

To survive, thrive and beat the competition in today’sbrutally competitive world, one has to manage the future.

Managing the future means managing the information.

In order to manage the information.In order to deliver high quality information to the decision-

makers at the right time.

In order to automate the process of data collection, collation

and refinement,

Organization have to make IT an ally, harness its full

potential and use it in the best way.

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TOP ERP Vendors

1. SAP (System Application Product)

2. Oracle Corp.

3. J.D. Edwards

4. PeopleSoft5. The Baan Co.

6. System Software Assistant (SSA)

7. MK Group/Acacia Technologies

8. JBA International9. Marcam Corp.

10. Intentia

11. QAD Inc.

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Marketing of ERP

A study of the dynamics of the ERP market,

How they evolve through a number of stages

The characteristics of competitive behavior

Provides a basis for assessing market attractiveness and

assists the ERP marketing personnel to choose a market,

the market segment and to position themselves

competitively.

Managing the ERP Marketing Strategy

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Managing the ERP Marketing StrategyProcess

The competitive marketing manager should have the

following:

1. Deep understanding of the market and the product

2. know all about the process of managing marketing

strategy from the organization’s point of view.

The marketing managers foremost job is to:

Manage the marketing strategy process. This means making

the correct choice of markets and industry segments.

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Analysis for competitive positioning:

To make a competitive decision the manager must know

1. Customer purchase criteria2. Customer preference concerning service or product

performance

3. Customer perceptions of competing vendor and their

products on each criterion.

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1. Customer purchase Criteria

There are several important purchase criteria involved in the

buying pattern.

1. Price related criteria

2. Performance related

3. Quality

4. Delivery schedule

5. Multisite discounts offered

6. Warranty provided7. After Sales Service

8. Credit terms

9. Implementation Strengths

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2. Customer Preferences

After the criteria have been identified, the next step is to:

Identify customer preferences concerning ERP

performance.

Customer preference is of enormous importance because:

It documents explicitly an ideal service from the

Customer’s viewpoint.

3 Customer perceptions of competing

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3. Customer perceptions of competingproducts

The next step is to detail the perceived position of each

competing product on each criterion.

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Competitive positioning decision

The marketing team decides:

How to position its ERP offering in the market.

It makes marketing sense in so far as it is chosen relative to

the identified customer preferences and competitor

performance on each important criterion and relative to

the company’s capabilities.

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It becomes very necessary before launching anypromotion, to establish the identity of the ERP.

Identity is based on characteristics that make an ERP:

What it is

What it is intended to provide.

Once the identity is established, it is time to decide the unique

selling proposition (USP).

Promotion

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Understanding the advantages and the limitations of the

ERP,

the company should target those prospects that willpossibly look at what it is offering.

Those companies do best:

which define their target markets carefully and

prepare a tailored marketing programme.

Target market

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A company can define its target market but fail to fully

understand customer needs.

For example,

a customer says he wants an “inexpensive” car. The marketermust probe further. We can distinguish among five types

of needs.

Customer Needs

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1. Stated needs (the customer wants an inexpensive car)

2. Real needs (the customer wants a car of which the

operating cost, not the initial price, is low)3. Unstated needs (the customer expects good service from

the vendor)

4. Delight needs (the customer buys a car which would earn

him complements)5. Secret needs (the customer wants to be seen by friends as

a value oriented savvy consumer)

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Relationship marketing

To understand customer relationship marketing, firstly Examine the process involved in attracting and keeping

customers.

The first point is:

Suspect everyone who might conceivably buy your ERP andimplementation service.

The company looks hard at the suspects to determine who

the most likely prospects may be:

The people who have a strong potential interest in theproduct.

Those who have ability to pay

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Disqualified prospects are those:

Whom the company rejects because they have poor credit

or would be unprofitable.

The company hopes to convert many of its qualified prospects

into:

First-time customers and then to convert those satisfied first-time customers

into repeat customers.

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The next challenge is:

To turn clients into advocates, customers who praise the

company and encourage others to buy it.

The ultimate challenge is:

To turn advocates into partners, where the customer and

the company actively work together.

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Planning Marketing Programmes

To transform marketing strategy into marketingprogrammes:

Marketing managers must take basic decisions on:

Marketing expenditures

Marketing mix

Marketing allocation

Fi tl i M k ti E dit

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Firstly in Marketing Expenditure,

The organization must decide the level of their marketing

expenditures.

A particular company may spend more than the normal

percentage ratio in the hope of achieving a higher market

share.

Secondly in Marketing Mix,

The company has to decide:

How to divide the total marketing budget among the

various tools in the marketing mix.

Finally in Marketing Allocation

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Finally in Marketing Allocation,

Marketers must decide on the allocation of the marketing

budget to the:

ERP

Channels

Promotion media

Sales areas

Direct versus distributor sales

M k i S

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Marketing Strategy

The product manager now outlines the broad marketingstrategy or “game plan” that the person will use to

accomplish the plan’s objectives.

T t k t T id tif i d t t

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Target market: To identify industry sectors

Positioning: Define and emphasize USP the product

Product Line: Add-on products

Price: Competitive price

Distribution: Synergy with hardware/softwarevendors.

Sales force: To expand by 10% andintroduce a national account-management system.

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Service: To provide widely available and quick service by

competent professionals.

Advertising: To develop a new advertising campaign that

supports the positioning.

Seminars/Trade shows: To participate in trade shows and

seminars.

Strategy: To emphasize USP in the advertisements andcommercials

P i i i h ERP b i

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Participants in the ERP buying process

1. Those who request that some ERP must be purchased.They may be users who initiate the proposal and help

define the ERP requirements.

2. Those who will use the software or service.

3. Technical personnel

4. People who decide on ERP requirements and/or on

vendors.

5. People who have formal authority to select the vendor

and arrange the purchase terms.

Within any organization, the buying centre will vary in the

number and type for different classes of products.

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According to a Pentagon research survey, the average

number of people involved in a buying decision ranges

between three and four. There is a trend towards team-

based buying.

Wh ill i ERP?

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Who will require ERP?

1. Organizations with a vision for leadership. To be aleader, it is necessary that the organizations make the

best use of the available resources.

2. Organizations that are customer-service driven

3. Organizations that are under tremendous pressure to becompetitive.

4. Organizations that enter an already crowded market.

5. An organization in which the business processes are too

complex and which, therefore, requires the highest levelof coordination among the employees.

Th A t l S l C l

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The Actual Sales Cycle

Step 1: Prospecting:

Generate a pipeline of prospects to assess the ERP

automation needs of the organization.

The pipeline should include the top 500 companies:

Companies which are willing to embrace the latest in

the technology and have the approved budget.

St 2 Q lifi ti f t

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Step 2: Qualification of prospect:

In Step 2:The identification and assessment of the prospect is carried

out and understood at this point.

If proper qualification is not done, then the salesperson may

end up wasting his/her time talking to the wrong prospect.

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Step 3: Corporate marketing presentation:

The first step towards proving your strength either in termsof the organization or in terms of the ERP product is

through a:

Jazzy presentation.The presentation should cover details about:

The company

Its corporate mission

Philosophy

Culture

List of customer organizations.

Step 4: Demonstration of the key features of the software:

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Step 4: Demonstration of the key features of the software:

This is the most crucial process in the entire sales cycle as

most of the decision-makers and user groups will

participate in this demonstration.

Its success is directly related to the:

Ability of the technical staff to effectively relate and

map the business processes of the organization to the

features available on the ERP software.

This requires the technical consultants to understand the

various business processes of an organization.

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Step 5: Simulation:

After the demonstration is successfully carried out, it will beideal on the part of the vendor to be more proactive by way

of talking to various user groups and getting some of their

business processes mapped onto the ERP software.

This will help in gaining confidence of the customer byproving that the ERP can deliver what is expected.

S 6 Cl i h l

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Step 6: Closing the sale:

This is the ultimate and most tricky step in the entire salescycle.

If the above mentioned steps are successfully carried out,

80% of the selling is done.

The final 20% depends on the:Price

The discounts offered

The track record of the organization in successful

implementation of the ERP.

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