CS507 - Information Systems - Lecture Handout 43

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Enterprise Resource Planning

Following are various modes of integration:

  1. Connect Existing modules/system
  2. Use Supply Chain Management (SCM) Software
  3. Use ERP Software

The material on first two modes is available in the handouts of lecture 42. The third way of integrating is using an ERP software. Before we start of with what ERP is, I would like to touch a previously discussed linkage between IT and business objectives.

Business Objectives and IT

The goals set by the business strategy are always of supreme importance. Some of these goals are meeting customer requirements, reaching customer where he is --- online, scattered locations, achieving distinctive competence and winning brand loyalty. IT function in an organization is set up in order to support the business goals set at all levels of the organization. IT objectives should be flexed according to the business needs of the organization. This helps in efficient use of IT resources for the achievement of business objectives.

Text in above clips related to IT objectives

Technology for the sake of it serves no purpose. It needs to be driven by objectives and these need to be cleared ahead of time if any organization wants to embark on the journey of advancement in technology. So we were very clear and we have been very clear in our business objectives and tools that are required for advancement e.g. equipment, technology. So that objectives which are profitable can be constantly managed. The objective of any business is to operate in a manner to create value, to create value for itself and for the company. There are of course other subsidiary objectives like social responsibility. And I fully concur that whatever the available technology that must be used in an economic manner so that it can create value for the company as a whole.

Gist of the clips

The corporate objectives define the IT objectives. The IT objectives should be of help in achieving business objectives as IT is tool being used for the purpose of achieving the corporate objectives. It is not as end by itself. Technology for the sake of technology is futile.

Using ERP Software

ERP is an abbreviation for Enterprise Resource Planning. In this three word term, resource and planning may seem as least relevant, but the most relevant part is “Enterprise” since the software aims to take an enterprise level view of the entire organization. ERP can be defined as

“ERP (enterprise resource planning) is an industry term for the broad set of activities supported by multi-module application software that helps a manufacturer or other business manage the important parts of its business, including product planning, parts purchasing, maintaining inventories, interacting with suppliers, providing customer service, and tracking orders.”

There are some reasons attracting companies to take up ERP.

  1. Planning the operations
  2. Integrated customer related information – order tracking with customer database, inventory and shipment at different locations.
  3. Standardized HR information – A company with multiple business units will require a comprehensive and all-encompassing method of locating employees and communicating with them.
  4. Integrated financial information and analysis
  5. Monitoring the operations including those of sub-vendors and manufacturers
  6. Standardization analysis of financial and non financial information for decision making control/regulation.
  7. We will now listen to the views of the State Bank Of Pakistan’s CIO on the subject.

Gist of the clips

The CIO, State Bank is talking about how they came to the decision of having an integrated system to help the institution provide a modern environment for not only conducting its business but also by using the latest in technology, achieve the corporate objectives through better speedier accumulation of data, analysis, thereof to assist in the regulatory function. The system being used by them not only had to cater for data relating to the central bank’s own activities but also data of all commercial banks in Pakistan. This necessitated a system of data warehousing.

ERP Compared to integrated Software

The concept of ERP is that of an integrated software. An integrated software can be defined as a software package that combines many applications in one program. Previously, the user needed various utilities to operate the program and provide suitable interfaces. Today these utilities are an integral part of the software. Thus the receipt of a confirmed customer order should provide the start of a number of activities that are essential to complete and deliver the order. There is no need to separately enter data for each of the other related activities.
Integrated packages can move data among several programs utilizing common commands and file structures. In effect, there are multiple applications using the same data simultaneously. An integrated package is recommended when identical source information is to be used for varying purposes and activities.

Most of the software modules can be integrated to provide a complete picture. Generally, customized integrated software/lays stress on meeting the needs of an organization without causing change or too much change in the business processes. ERP’s on the other hand incorporate industry best practices. Thus ERP’s are a generic solution requiring business process chances. The presence of best industry practices makes ERP a highly generic software.
ERP though can be customized for a business, but at very high costs. Hence the benefits are better earned in implementing the ERP as a generic software and spending time realigning the business processes and synchronize with it.

Gist of the clips

Once the decision to adopt the ERP route is made and a product selected, it is imperative to establish what is demanded by the software, what is the requirement the business and how the two above can be reconciled for the benefit of organization. Thus a gap analysis is conducted and the realignment of the existing procedures with the requirements of the ERP have to be undertaken. There may be some element of customization of the ERP, but it is generally minimal. Stress is therefore on the realignment of the business process.

Text in the clips (Packages)

When we compare an ERP with an integrated software, an ERP offers much more than just being an integrated software. The reason behind it is that it has been developed after studying hundreds of different industries and based on best practices. ERP standardizes in itself the best practices that are available.-and practiced the world over. So a customized integrated software may be serving the needs of the organization very well. There business information flows and efficiencies adopting good practices of the best ERP is indeed very helpful. An ERP gives you the flexibility to add on new functionalities and modes of doing business.

Text in the clips (State Bank)

The concept of ERP started in Early 90’s when we had MRP-I and MRP-II which purely focused on manufacturing side. Then later on, the financials were added to it. Then the rest of the business i.e. sales, inventory, receivables, payables all were added as part of the software. ERP is across the enterprise, that is why they call is Enterprise Resource Planning System. The other thing is that it has a central database. What ever you are dealing with, be it sales or manufacturing, the data base is the same. So the paradigm of the way you use the system is the same. The look and feel is the same, though the training issues should be taken care of. The programming and parameterization of the system is quite similar across the board and those benefits don’t come in if let us say we are having integration at a limited scope. There are interfaces for each module which help to reconnect with other modules, so if we don’t have a system implemented across the board, benefits don’t start coming in as expected.

Gist of the clips

Standardization of processes based on best practices makes an ERP a more effective tool. The generic characteristic of an ERP with all-inclusive tools turns it into an effective means of doing business efficiently.

Evolution of ERP

The current form and version of ERP has evolved over time. It took nearly four decades for the ERP model to mature. Let’s take a look at the brief history of ERP development.

Timeline System Description
1960s Inventory
Manageme
nt & Control
  • Inventory Management and control is the combination of information technology and business processes of maintaining the appropriate level of stock in a warehouse.
  • The activities of inventory management include
    o identifying inventory requirements,
    o setting targets, providing replenishment techniques and options,
    o monitoring item usages, reconciling the inventory balances, and reporting inventory status.
1970s Material
Requirem
ent
Planning
(MRP)
  • Materials Requirement Planning (MRP) utilizes software applications for scheduling timely material procurement.
  • MRP generates schedules for the operations and raw material purchases based on the production requirements of finished goods, the structure of the production system, the current inventories levels and the lot sizing procedure for each operation.
1980s Manufacturing
Requirements
Planning
(MRP II)
  • Manufacturing Requirements Planning or MRP utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution.
1990s Enterprise
Resource
Planning
(ERP)
  • Enterprise Resource Planning or ERP uses multimodule application software for improving the
    performance of the internal business processes.
  • ERP systems often integrates business activities across functional departments, from product planning, parts purchasing, inventory control, product distribution, fulfillment, to order tracking.
  • ERP software systems may include application modules for supporting marketing, finance, accounting and human resources.

Attributes of an ERP software
ERP applications address the complete business process. ERP applications are modular generally covering all aspects of the business as each aspect is dependant upon the other. Thus you will generally find certain standard modules as part of ERP software which are manufacturing, supply chain, financials, CRM, human resources and warehouse management. It may also be stated that depending upon business size , phased approach may be opted to implement the ERP. A phased approach becomes necessary because of business process realignment and implementation issues particulars relating to change in habits of the users.

During the past, the software laid greater stress on financial transactions and their cumulative result with information for other department being provided as a secondary objective. ERP is extended to the enterprise level, encompassing not only the organization but also the entities external to organization i.e. suppliers and customer.

Text in the clips (Packages)

The perception was correct in the past. But as economy is growing, finance is not the only important field. Supply chain, production, marketing they all are very important parts of industry whether in form of goods or services. So for this purpose information should be available as soon as possible through out the company e.g. about the stock levels, processes used to produce finished goods till packing and dispatching it to customers and recovering.
ERP is a system that helps in making information available live throughout the system at one time and it is available to all. So now a days it is no longer a finance driven. It is basically a company driven idea and the idea is to serve the customer well.

Gist of the clips

ERP is across the enterprise in its literal sense. ERP is a package that builds in itself at facets of a business.

ERP & Customer relationship management

Integration involves a broader view of various soft wares being used by the organization. Now CRM is also being used in connection with the ERP for efficient planning and effective control.

Text in the clips (Packages)

Some of the world’s good ERP system, they do have planning and interpretation methodology embedded in them. When we went under the procedure of implementing, we were told that there are two modes to do the same: long procedure and short procedure. The long procedure is spread over two years. The short procedure is spanned over nine month’s time. The short procedure can also be termed as the quick methodology. In short procedure, the organization needs to have a certain time line, certain procedures and certain things are to be done. The logic of having this short implementation procedure is that the human natures if it is too long people lose interest, things change, people change, processes change, so we need to do it in a very quick implementation mode. For this we have to form what we call a project team. The project team is further headed by the steering committee in which members are taken from various functions. We don’t need to have all people present at the same time but at a time we need to have four or five people to be present for every function which is being configured to align with the ERP system and connected by the ERP consultants.

Gist of the clips

ERP should be seen as an independent project. Like with every other project, this must have an independent project team. The project team is made up of generally heads of departments of various functions. This team is led by a steering committee comprising those charged with policy making to ensure that any decisions are taken expeditiously.