Knowledge Base : Basics of ERP
What is ERP ?
How is ERP related with technology ?
What are typical characteristics of a modern ERP solution ?
How can ERP improve a company's business performance ?
How long will an ERP project take ?
How fast do I get returns ?
Will ERP fit the ways I do business ?
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Knowledge Base : Basics of ERP
What are the costs involved in implementing an ERP ?
Which ERP should I go for ?
What is ERP ?
Enterprise resource planning software, or ERP, aims at giving an integrated software solution to
all business aspects.When computers came in 60s, they were mighty and costly machines and
needed special skills to operate. Big companies used them for the purpose of handling business
data. Work like ledgering was performed on them. Next, the automobile industry used
computers for ‘Material Requirement Planning’ or MRP. MRP involved working on complex bill
of material to compute the material requirement considering production targets, stocks in hand,
ordering positions and so on.Once after having reasonable success in MRP runs, the
computers were used for planning of manufacturing resource (MRP II). This involved planning
for plant capacity requirements, labor and skill requirements, and estimation of fund flow. The
information technology industry by now offered cheaper hardware, ample expertise and easy to
use interfaces. It also provided a host of application development tools that made software
development much easier. With this,the usage of software extended to other business areas
like stores, purchase, inventory, sales, human resource management and so on.The term ERP
came to describe such a software solution that addressed all the business functions in an
integrated way. Once the business functions were handled electronically, a need was felt to
exchange relevant information to business associates – like suppliers, customers,shareholders
and so on. This meant extending information exchange beyond the boundaries of the business
establishment itself. So would it be called with some new name? No! The term ERP has by now
acquired a more generic status.Just like term ‘Transportation’. Tools and technologies will keep
on coming, and they will create more and more facilities to ERP offerings. The scope and
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purpose will ever expand its horizons.
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How ERP is related to technology ?
ERP keeps a fundamental objective of integrating digital technologies and to make them work
for a better business management. It thus attempts to integrate computers, networking,
communication, broadcasting, instrumentation, sound engineering, graphics, and control.
Advances in these technologies and their widespread usage have helped in reducing costs,
improving literacy and accelerating the growth again. Technology is making the computers and
peripherals more and more cheap, friendly, popular, and tempting. Internet revolution has made
‘Web enabling’ of the software as a norm. That means the business data can be accessed from
anywhere – of course with necessary protective measures. Faster and affordable
communication has made ‘Accessing Anywhere’ a mere routine. This is accompanied by spread
of digital communication. Affordability, ease of use, spread, and multifold computer literacy has
made use of ERP within the reach of small and medium businesses. Modern digital
instrumentation allows direct interfacing with computers. This allows flow of data from
instruments to the computer over standard cable and port. The data can be stored and
analyzed. Also, the instruments can be controlled or ‘Switched’ by sending ‘Digital command’ to
them over the same cable. This helps in flexible and synchronized automation. A number of
application areas other than manufacturing industries are now open to ERP. Thus there can be
an ERP for a college covering student registration, examination schedules, and result
processing. There are ERP solutions for application areas like hotel, hospitality, healthcare,
transport, services, and governance. Likewise, there have been fine-tuned solutions for specific
applications catering to ‘Vertical segments’. An ERP vendor offers such kind of variants for
‘Chemical Industry’ and ‘Automobile Industry’ and ‘Pharmaceutical Industry’.
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What are typical characteristics of a modern ERP solution ?
A modern ERP solution is characterized by following attributes that keep it in stride with
business requirements, technology
options, expandability, and scope.
1. It gives a central database that can be simultaneously shared by all users from within
company or over web (web enabled).
The transactions are completely integrated. There is no any duplication of data or need of
multiple entries. At best,
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data is entered directly to the system and not copied or retyped’ from somewhere else.The
data updates are on-line, and
effects of business transactions are immediately visible in various reports. Same set of
records is available to
everyone at same instant across the organization, and even beyond.
2. It covers all application areas of the business like finance, sales, materials management,
HR, payroll,
production planning and control, maintenance management, marketing, customer support,
costing, so on and so forth.
3. It covers for statutory requirements and related reporting. Accordingly it covers for the
procedures
of excise, sales tax, income tax, provident fund, local duties, import,export etc.
4. It offers password based security and a completely controlled access. Depending upon
identity, the
user is restricted on what options of the software he can (or cannot) access. Interfacing
with ‘Thumb-Pads’
or more advanced devices of identification too is possible. A tag of who has created or
approved the business
transaction is marked on every business transaction to ensure accountability.
5. It has ‘Audit trail’ – or a log of every change made in confirmed transactions. This
captures who and when
changed the electronic record for every such change.
6. It has data query facilities that allow user to give ad-hoc queries to the database and dig
into its records
to be able to take benefit of its huge information contents. There can be query on
‘Earlierrates of purchase’,
‘Sale of Sub-Optimal Quantities’, a ‘A scrutiny of extra discounts’, or ‘Above Average
Downtimes of a roduction machine’.
7. It has interfacing capabilities that, with some localization, allow capture of data directly
from digital instruments,
barcodes, swap cards, programmable logic controllers (PLC) etc.
8. It has integrated workflow facilities that allow users to view and execute the transactions
pending for their action.
Once executed, the ‘Tasks’ move as per the configured workflow chart to their next places
of action. This reduces business
cycle times dramatically. There are no ‘Missed out’ or ‘Forgotten’ tasks. Follow-up is
electronic. There can be
‘Pre-Set Alert Mechanisms’ that inform appropriate users to perform some action based on
an event – like alert to
maintenance engineer on registering of breakdown of an equipment. Workflow is an
important facility. Essentially, It
synchronizes the organizational functions from end-to-end. This cannot be achieved by
shared and integrated database alone.
9. It has configurable business rules in-built, and execution of business transaction is not
permitted by the system
without compliance to the set policies and procedures.
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Knowledge Base : Basics of ERP
10. It is adaptive to emerging tools and technologies, and the product developers are on
their toes to incorporate them into the interfaces of the solution through constant innovation.
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How can ERP improve a company's business performance ?
1. Shared, central, and validated data ensures that there is no any reconciliation
requirement and a lot of internal communications
and confusions are saved that are common in companies not having integrated system
2. Business rule module ensures adherence to set business rules. Thus a purchase order
will just not be possible to release if it is exceeding budgetary constraints. No manual efforts are
needed to observe this.
3. ‘Instant Reporting’ and ‘Visibility into operations’ make operational decisions proactive
and in time.
4. Workflow and synchronization across departments reduce business cycle times. No
‘Follow-up’ or ‘Chasing’is needed for a task.
A time-based control on tasks can highlight delayed tasks immediately to seniors.
5. Connecting from anywhere makes transactions and business flows faster.
6. Extended interfaces allow better communication and ‘Self service’ to business associates.
Thus a customer can view his own
pending orders, dispatch details, statement of accounts etc. A field officer can log a new
order or a complaint over Internet.
Inquiry, quotation, ordering, supply, purchase, - all can be done on web with instant
validation. This end-to-end synchronized approach
puts the business operations at speeds like never before. There is no back and forth
communication.
7. Capability to interface with compliant digital instruments facilitates easy capture of
process data and assists in automation.
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How long will an ERP project take ?
Below are the factors that affect the project period: Scope of the modules that are undertaken
for the implementation
1. Size of the organization and number of locations of operation
2. Complexity of business operations
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3. Level of systems literacy and adaptability of the staff
4. Customization requirements – or the changes needed to be done in the software to meet
specific business needs of the company
5. Competence of the implementing staff to understand customer’s business and to make
appropriate interfaces available
6. Resource mobilization and project control that is true for execution of any project
Averaging out, a typical scenario is
1. 6 to 8 weeks of start-off time during which implementation team understands business
processes of customer and
necessary infrastructure is arranged for.
2. 10 to 12 weeks of implementation for basic standard systems that are readily provided for
by the software, are
more or less standard, and demand low level of customization.
3. Additional 10 to 12 weeks of implementation for customized part of systems that are tailor
made to meet close
business specific requirements of the customer. This part, understandably involves
additional coding, testing,
and training.
4. 12 weeks of monitoring. This period also involves revising certain responsibilities, setting
up of work-flows,
setting up of business rules, exception reporting, and objective oriented top level MIS
development.
5. 6 to 8 weeks of closing, handover, and maintenance phase.
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How fast do I get returns from ERP?
From returns point of view, benefits of ERP can start flowing in after 10 to 12 weeks. It is
important to define proceedings in such a way that areas offering more benefits are selected
first. For example, a ‘Single Customer’ company may not be benefited much by comprehensive
sales accounting system. Appropriate sequencing not only gives faster returns but also oils the
way of implementation in other areas. Within first 3 months of its partial implementation, the
immediate beneficiaries are operating staff members who are otherwise frustrated with daily
work-load, follow-up, digging out of information, reporting to seniors, reconciling mismatching
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figures, and questioning and answering on various fronts for all above purposes. Its real
benefits across the organization come in 4 to 6 months of complete implementation, and they
are more strategic. They mean assisting middle management in improving operations, and
assisting top management in making objective strategic decisions. Usage of ERP is by then a
habit and not an extra burden. By then the organization undergoes through learning and
fine-tuning phases and has maturity of usage of the sophisticated tool. It is the change
management that takes time for the organization. Not the working software and data alone. In
real sense, an organization may actually digest complete ERP in transformational sense over a
span of 1 to 3 years. Go to Top
Will ERP fit the ways I do business?
There is possibility of discovering that the software does not support one of the crucial business
processes. Many ERP installations fail at this point, as users cannot transact business process
that is crucial to performance in a roundabout manner. Changing the business process to match
the way that is offered by the software is an awkward option. In some cases, companies end up
working in a compromised mode typically using some external patch of software that is tailor
made to run the critical business process. This, however, leads to duplicated work and has all
the disadvantages of not having the ERP in the first place. ERP vendors offer options of
customization. The level to which an ERP can be customized or ‘Tailored’ differs from solution
to solution and from vendor to vendor. Sometimes customization is possible only to a limited
extend. It is not always that a complete match to the business process can be delivered by
ERP. It also may lead to problems when vendor upgrades the ERP version itself. Revised
customization in the upgraded version is again a cost by itself in terms of time, money, and
adoption. It is best for the company to assess critical business processes while selecting an
ERP. The selection process should ensure that the ERP under consideration is capable of
delivering them without any functional compromise.
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What are the costs involved in implementing an ERP?
Up to implementation
Hardware – servers
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Knowledge Base : Basics of ERP
Hardware – nodes
Networking
Communication infrastructure
Web spaces and Internet services
Operating system
Database management system
Office automation products
Mail server
Anti-virus tools
Application software or the ERP itself
Implementation charges - professional fees
Time investment of staff in selection, interaction, and implementation
Training
Data migration
Post implementation
Systems administration
Maintenance – the company has a complex and costly animal to look after
Upgrades
Running rentals and communication costs
Systems staff salaries
Turnover of trained manpower – as their resume looks like never before
Post implementation lull – staff takes time to run effectively in the new way
Organizational restructuring as per the new working style
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Which ERP should I go for?
Options are
1.
2.
3.
4.
ERP of a multinational brand
ERP developed by a local company
In-house development
A mixed mode
1. ERP of a multinational brand
Multinational ERP solutions are very comprehensive and mature. They have structured
implementation procedures. They also have long market standing. They have a very large
number of standard business processes readily covered under its umbrella, and are very fast
adaptive to technology options.
They have high price tags – not in terms of licensing cost, but more in terms of
infrastructure requirements, installation, implementation, maintenance, and upgrades.
Because of being large and complex, they usually are not in position to offer customization
and localization to the fullest extent – not beyond what is allowed within its own framework.
Project management and delivery is a complex process as more than one large
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organizations are involved in development and implementation. Many a times they are larger
than the customer’s organization.
2. ERP developed by a local company
It comes at a lower price tag as against multinational brand in terms of total cost of
ownership. It also offers much higher level of customization because of smaller installation
base, and more flexibility on vendor’s part. Local vendor is willing to be more adaptive to closely
address business specific needs of the customer. Commitment to a successful implementation
of a smaller company is more as against slightly indifferent approach of multinational brands.
Spectrum of standard processes offered by the local company is much lower than that
offered by the multinational brand. If there is deficient part that is really needed by the
customer’s business, then it comes as a troublesome drawback.
A small size company in the business of software is more unstable and vulnerable to
business calamities. A few key persons departing or a couple of project executions turning red
may put the company off its operations. At this juncture, the customer who has put his business
on a new ERP also suffers.
3. In-house development
In-house development offers complete customized solution and a long continuously
maturing enhancement.Level of comfort felt by users is quite good as they have an internal
service department.
The solution is usually inferior in terms of quality, maintainability over long term,
adaptability, and incorporation of technological enhancements.
The solution is too person dependent, and a couple of resignations stagnate the software.
4. A mixed mode
A mixed mode of purchasing ERP from a small vendor with source code, and maintaining
that with internal staff subsequently may give benefits of both the options above. Here, the
vendor should be willing to extend services of training and assistance over the source code to
internal staff of customer.
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