Friday 26 February 2016

UNIT V ERP material

UNIT-V
Enterprise Resource Planning (ERP)

Introduction

     In any industry, some of the demands managers face is to be cost effective. In addition to that, they are also faced with challenges such as to analyze costs and profits on a product or consumer basis, to be flexible to face ever altering business requirements, and to be informed of management decision making processes and changes in ways of doing business.
  However, some of the challenges holding managers back include the difficulty in attaining accurate information, lack of applications that mimic existing business practices and bad interfaces. When some challengers are holding a manager back, that is where Enterprise Resource Planning (ERP) comes into play.
  Over the years business applications have evolved from Management Information Systems with no decision support to Corporate Information Systems, which offer some decision support to Enterprise Resource Planning. Enterprise Resource Planning is a software solution that tackles the needs of an organization, taking into account the process view to meet an organization's goals while incorporating all the functions of an organization.
 Its purpose is to make easy the information flow between all business functions within the boundaries of the organization and manage the organization's connections with its outside stakeholders.
  In a nutshell, the Enterprise Resource Planning software tries to integrate all the different departments and functions of an organization into a single computer system to serve the various needs of these departments.
  The task at hand, of implementing one software program that looks after the needs of the Finance Department together with the needs of the Human Resource Department and the Warehouse, seems impossible. These different departments usually have an individual software program that is optimized in the way each department works.
 However, if installed correctly this integrated approach can be very cost effective for an organization. With an integrated solution, different departments can easily share information and communicate with one another.
  The following diagram illustrates the differences between non-integrated systems versus an integrated system for enterprise resource planning.
Enterprise Resource Planning

The Driving Force behind ERP

There are two main driving forces behind Enterprise Resource Planning for a business organization.
  • In a business sense, Enterprise Resource Planning ensures customer satisfaction, as it leads to business development that is development of new areas, new products and new services.
Also, it allows businesses to face competition for implementing Enterprise Resource Planning, and it ensures efficient processes that push the company into top gear.
  • In an IT sense: Most software’s does not meet business needs wholly and the legacy systems today are hard to maintain. In addition, outdated hardware and software is hard to maintain.
Hence, for the above reasons, Enterprise Resource Planning is necessary for management in today's business world. ERP is single software, which tackles problems such as material shortages, customer service, finances management, quality issues and inventory problems. An ERP system can be the dashboard of the modern era managers.
Evolution of ERP
Inventory Management &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 identifying
Inventory requirements ,setting targets, providing Replenishment techniques and options ,monitoring item
usages, reconciling the inventory balances, and  reporting inventory status.
1970s
Material Requirement Planning (MRP)
Materials Requirement Planning(MRP) utilizes software Applications for scheduling production processes.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.
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 multi-module application software for improving the performance of the Internal business processes. ERP system soften integrate
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.
                ERP systems are now ubiquitous in large businesses and the current move by vendors is to repackage them for small to medium enterprises (SMEs). This migration has many consequences that have to be addressed through understanding the history and evolution of ERP systems and their current architectures. The advantages and disadvantages of the ERP systems will impact their penetration n this new market. The market position and general strategy of the major systems providers in preparation for this push are described. The chapter concludes that the growth and success of ERP adoption and development in the new millennium ill depend on the legacy ERP system’s capability of extending to Customer relationship Management (CRM), Supply Chain Management (SCM) and other extended modules, and integration with the Internet-enabled applications.
  • Access control - user privilege as per authority levels for process execution Customization - to meet the extension, addition, change in process flow.
















                    Enterprise Resource Planning (ERP) is a business management system that integrates all facets of the business, including planning, manufacturing, sales and marketing. ERP systems are originated to serve the information needs of manufacturing companies. Over time though, they have grown to serve other industries, including financial services, customer good sector, supplier chain management and human resource sector. With this growth, ERP systems, which first ran on mainframes before migrating to client or server systems, are now migrating to the Web and include numerous applications. ERP is a product that helps automate a company's business process by employing an integrated user interface, an integrated data set, and an integrated code set.
              ERP business software integrates the information used by an organization's many different departmental functions into an unified computer system. It is designed to model and automate many of the basic processes of a business organization, from finance to the manufacturing management, with a goal of integrating information across the company and eliminating complex, expensive links between computer systems that were never meant to 'talk' to each other. It uses web as a platform to bring customers, vendors, suppliers, manufacturers and employees together.
          To be considered an ERP system, a software package must provide the function of at least two systems. For example, a software package that provides both payroll and accounting functions could technically be considered an ERP software package.
       Examples of modules in an ERP which formerly would have been stand-alone applications include: Product lifecycle management, Supply chain management (e.g. Purchasing, Manufacturing and Distribution), Warehouse Management, Customer Relationship Management (CRM), Sales Order Processing, Online Sales, Financials, Human Resources, and Decision Support System.
 Ideally, ERP delivers a single database that contains all data for the various software modules that typically address areas such as:
Manufacturing 
Engineering, bills of material, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow
Order to cash, inventory, order entry, purchasing, product configurator, supply chain planning, supplier scheduling, inspection of goods, claim processing, commission calculation
Financials 
General ledger, cash management, accounts payable, accounts receivable, fixed assets
Project management 
Costing, billing, time and expense, performance units.
Human resources 
Human resources, payroll, training, time and attendance
ERP
  The Boundary of an ERP System - The boundary of an ERP system is usually small than the boundary of the organization that implements the ERP system. In contrast, the boundary of supply chain systems and ecommerce systems extends to the organization's suppliers, distributors, partners and customers. In practice, however, many ERP implementations involve the integration of ERP with external information systems.


Sometimes business demands outweigh the ability to create your own custom ERP software solutions. Often, a new ERP system will have the solutions that you need or will be willing to work with you to develop supported solutions in the standard product that will fit the demand for less than the cost of doing it yourself.
ERP Purchasing Module
Advantages of ERP System
  • With Enterprise Resource Planning (ERP) software, accurate forecasting can be done. When accurate forecasting inventory levels are kept at maximum efficiency, this allows for the organization to be profitable.
  • Integration of the various departments ensures communication, productivity and efficiency.
  • Adopting ERP software eradicates the problem of coordinating changes between many systems.
  • ERP software provides a top-down view of an organization, so information is available to make decisions at anytime, anywhere.
Disadvantages of ERP System
  • Adopting ERP systems can be expensive.
  • The lack of boundaries created by ERP software in a company can cause problems of who takes the blame, lines of responsibility and employee morale.
WHY DO MANY ERP IMPLEMENTATIONS FAIL?
         ERP packages, if chosen correctly, implemented judiciously and used efficiently, will raise the productivity and profits of companies dramatically. But many a company fails in this because of a wrong product, incompetent and haphazard implementation and inefficient or ineffective usage.
          To work successfully, the ERP solutions need a lot of factors to click. There should be good people who know the business. The vendor should be good and his package should be the one best suited for the company's needs. The ERP consultants should be good. The implementation should be planned well and executed perfectly. The end-user training should be done so that the people understand the system, and the effect of their efforts on the overall success of the program.
   The introduction of the ERP system will dramatically change the job descriptions and functions of many employees. Employees who were earlier doing the work of recording information will, overnight, be transformed into decision-makers.
For example, in the past an order entry clerk's job was to enter the orders that came to him. With the implementation of a good ERP system, the order entry clerk becomes an action initiator. As soon as he enters the order into the system, the information is passed on to the sales, distribution and finance modules. The distribution module. Checks whether the item is in stock and if available, the item is dispatched and the information is sent to the finance module. If the items are not in stock, then the manufacturing module is given the information, so that production can start. The customer is informed about the status of his order. If the items are shipped, the finance module prepares the invoice and sends it to the customer. All these actions take place automatically as soon as the order entry clerk enters the information regarding the order into the system. Thus the order entry clerk is transformed from a data entry operator to a decision-maker whose actions can trigger a chain of actions. Many employees find this transformation difficult to accept. If the employees are not given proper training, well in advance, then the systems will fail. Another factor is the fear of unemployment. When procedures become auto-mated, the people who were doing those jobs become redundant. So it is quite natural to have resistance from the employees. But the same employees can be trained in the new system and can work in more challenging and stimulating environments. For this also, the employees have to be told, in advance, as to what will happen and should be given ample time and training to make the transformation. Without support from the employees, even the best system will fail. So it is very important that the management should take the necessary steps, well in advance, to alleviate the fears of, and provide necessary training to their employees.
WHY ARE ERP PACKAGES BEING USED NOW?
      In regard to the application packages, many products have been developed thus far and are selling well. So, how do conventional application packages and ERP packages differ? The first answer to this question is that ERP packages cannot only handle individual business functions such as accounts and inventory, but also the entire range of business functions necessary for the company's operations. The second difference is that ERP packages are targeted at everything from small businesses to the largest organizations, and that they can be composed of a highly flexible decentralized database and an information system cluster linked by a network. The third difference is global adaptation, represented by ERP packages' multilingual and multi-currency capacity. In the present day, when companies, irrespective of their size and market share, are manufacturing and selling in various areas of the world, the globalization of management platforms is being hastened, along with the global adaptation of enterprise information systems.
Review Questions
1. What is ERP?
2. Discuss the evolution of ERP?
3. What are the advantages of ERP systems?
4. How is business integration achieved by ERP systems?
5. Why are ERP systems said to be flexible?
6. Why do many ERP implementations fail?
7. What are the reasons for the growth of the ERP market?
ENTERPRISE
In ongoing collaborative efforts with NASA and various industry and educational partners, integrated information management systems technology is going from the research lab into widespread service across the agency and to industry, academia and other government agencies as well. Data translation and transformation algorithms are being used to integrate legacy information systems, relational database systems built on a variety of platforms, and unstructured data such as text documents, spreadsheets, PDF documents and presentations. Combined with advanced search algorithms that can perform searches based on both context and the content of data, these systems are offering an unprecedented look at information within NASA. The result is that data analysis, retrieval and reuse have been improved exponentially, while operational and support costs for system maintenance have been substantially decreased.
BUSINESS MODELING
             Business modeling or creating a business model is one of the first activities in any ERP project. As said earlier, the ERP systems should mirror the business processes. A business model is not a mathematical model, but it is a representation of the business as one large system showing the interconnections and interdependencies of the various subsystems and business processes as shown in Fig. 2.4. Based on the organization's goals, objectives and strategic plans, a business model consisting of the business processes is developed. These business processes are controlled by different individuals in the organization (the system is developed with the aim of providing the required information and necessary assistance to the various individuals, to help them perform their business processes more effectively and efficiently. In business modeling, we model the business as an integrated system, taking the processes managing its facilities and materials as resources. In-formation is a very important resource and is very critical in managing all the other resources. Thus, the business model is a representation of the actual business—what are the various business functions of the organization, how are they related, what are their interdependencies, and so on. The business model is usually represented in the graphical form using flow charts and flow diagrams. From the business model, the data model of the system is created.
INTEGRATED DATA MODEL
One of the most critical steps in the ERP implementation is the creation of an Integrated Data Model. As we have seen earlier, one of the advantages of having an ERP system is that all the employees from the different departments get access to the data—the integrated data. The company uses this integrated data for its analysis and decision-making. With the implementation of ERP systems, the departmental information systems and the departmental databases will have to go. There can no longer be isolated databases, which cater to the needs of a particular department. All the data has to be from the integrated database. This approach will reduce data redundancy and provide updated information about the entire organization to all employees. For the integrated database to be effective it should clearly depict the organization; it should reflect the day-to-day transactions and it should be updated continuously. At any given time, the database should give a snap-shot of the organization at that point in time. so if the sale is done and the goods are dispatched, then the database should reflect those changes. The inventory should be reduced and the account receivables should be increased. All these things have to happen instantaneously and automatically. That is the challenge and that is the advantage of the inte-grated database and the integrated data model. The integrated data model is derived from the business model as shown in Fig. 2.5. So, when designing the data model for the ERP system, the most important thing that should be kept in mind is the information integration and the process/procedure automation. The data model should reflect the entire organization and it should successfully depict and integrate the data structures of the entire organization.
Review Questions
1. What is an enterprise?
2. What is an integrated information system?
3. Why are integrated information systems important for the organization's
   success?
4. What is business modeling?
5. What is an integrated data model?
INTRODUCTION
DEFINITION:
  • Dr. Michael Hammer defines BPR as “ the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical, contemporary measures of performance such as cost, quality, services and speed.”
  • One of the main tools for making this change is the Information Technology (IT).
  • Any BPR effort that fails to understand the importance of IT, and goes through the pre-BPR analysis and planning phases without considering the various IT options available, and the effort of the proposed IT solutions on the employees and the organization is bound to crash during takeoff.
ADVANTAGES OF BPR
  1. It helps in integrating the various business processes of the organization.
  2. With good ERP package, the organization will be able to achieve dramatic improvements in areas such as cost, quality, speed, etc.
Hence, many BPR initiatives are used in ERP implementation.



MANAGEMENT INFORMATION SYSTEMS (MIS)
DEFINITION:
   MIS is a computer – based system that optimizes the collection, collation, transfer and presentation of information throughout an organization, through an integrated structure of databases and information flow.
The main characteristics of MIS are:
1. MIS supports data processing functions of transaction handling and record keeping.
2. MIS uses an integrated database and supports a variety of functional areas.
3. MIS provides operational, tactical and strategic levels of organization with timely, structured information.
4. MIS is flexible and can adapt to the changing needs of the organization.
DECISION SUPPORT SYSTEMS (DSS)
DEFINITION:
Decision support systems are interactive information systems that rely on an integrated set of user-friendly software and hardware tools, to produce and present information targeted to support management in the decision making process.
  • Managers spend a lot of time and effort in gathering and analyzing information before making decisions. Decision support systems were created to assist managers in this task.
  • A DSS can help close this gap and allow managers to improve the quality of their decisions.
  • To do this, the DSS hardware and software employ the latest technological innovations, planning and forecasting models, 4th generation languages and even artificial intelligence.
  • The main characteristics of a DSS are:
1. A DSS is designed to address semi-structured and unstructured problems.
2. The DSS mainly supports decision-making at the top management level.
3. DSS is interactive, user-friendly and can be used by the decision maker with little or no assistance from a computer professional.
              4. DSS makes general purpose models, simulation capabilities and other analytical tools available to the decision maker.
Comparison of DSS vs MIS


DSS

MIS
It focuses on decision – making.
1
It emphasizes on planning reports on a variety of subjects.
Quite unstructured and is available on request.
2
It is standard, scheduled, structured and routine.
It is immediate and user-friendly.
3
It is constrained by the organizational system.

EXECUTIVE INFORMATION SYSTEMS (EIS)
DEFINITION:
EIS is a decision support system especially made for senior level executives.
  • Top level executives and decision makers face many problems and pressures. They have to make the right decisions at the right time to take the company forward.
  • An EIS is concerned with how the decisions affect an entire organization.
  • An EIS takes the following into considerations:
    • The overall vision and mission of the company and the company goals.
    • Strategic planning and objectives.
    • Organizational structure.
    • Crisis management/ contingency planning.
    • Strategic control and monitoring of overall operations.
  • Successful EIS are easy to use, flexible and customizable and use the latest technological innovations.




DATA WAREHOUSING
  • If operational data is kept in the database of the ERP system, it can create a lot of problems.
  • As time passes, the amount of data will increase and this will affect the performance of the ERP system.
  • However once the operational use of the data is over, it should be removed from the operational databases.
IMPORTANCE OF DATA WAREHOUSING
  • The primary concept of the data warehousing is that the data stored for the business analysis can be accessed most effectively by separating it from the data in operational systems.
  • The most important reason for separating data for business analysis, from the operational data, has always been the potential performance degradation on the operational system that can result from the analysis processes.
  • High performance and quick response time is almost universally critical for operational system.
DATA MINING
Data mining is the process of identifying valid, novel, potentially useful and ultimately comprehensible
Information from databases that is used to make crucial business decisions.
  • The main reason for needing automated computer systems for intelligent data analysis is the enormous volume of existing and newly appearing data that require processing.
  • The amount of data accumulated each day by various businesses, scientific and governmental organizations around the world is daunting.
  • Research organizations, academic institutions and commercial organizations create and store huge amounts of data each day.
  • It becomes impossible for human analysts to cope with such overwhelming amounts of data.
  • Two other problems that surface when human analysts process data are:
i. The inadequacy of the human brain when searching for complex multi-factorial       dependencies in the data.
ii. The lack of objectiveness in analyzing the data
ADVANTAGES
  • A human expert is always a hostage of the previous experience of the investigating other system.
  • Sometimes this helps, sometimes this hurts, but it is almost impossible to get rid of this fact.
  • While data mining does not eliminate human participation in solving the task completely, it significantly simplifies the job and allows an analyst, who is not a professional in statistics and programming to manage the process of extracting knowledge from data.
ON-LINE ANALYTICAL PROCESSING (OLAP)
DEFINITION
OLAP can be defined in five words – Fast Analysis of Shared Multi-dimensional Information.
  • Fast : means that the system is targeted to deliver most responses to users within about 5 seconds, with the simplest analysis not taking more than one second and very few taking more than 20 seconds.
  • Analysis: means that the system can cope with any business logic and statistical analysis that is relevant for the application and the user, and keep it easy enough for the target user.
  • Shared: means that the system implements all the security requirements for confidentiality and if multiple write access is needed, concurrent update locking at an appropriate level.
  • Multi-dimensional: means that the system must provide a multi-dimensional conceptual view of the data, including full support for hierarchies and multiple hierarchies.
  • Information: is refined data that is accurate, timely and relevant to the user.
Importance
  • OLAP technology is being used in an increasingly wide range of applications.
  • The most common are sales and marketing analysis, financial reporting and consolidation and budgeting and planning.
  • OLAP is being used for applications such as product profitability and pricing analysis; activity based coating; manpower planning and quality analysis or for that matter any management system that requires a flexible, top down view of an organization.
SUPPLY CHAIN MANAGEMENT (SCM)
DEFINITION:
A supply chain is a network of facilities and distribution options that performs the function of procurement of materials, transformation of these materials into intermediate and finished products and the distribution of these finished products to the customers.
  1. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.
  2. Traditionally, marketing, distribution, planning, manufacturing and the purchasing organizations along the supply chain operated independently.
  3. These organizations have their own objectives which are often conflicting.
  4. There is a need for a mechanism through which these different functions can be integrated together.
  5. Supply chain management is a strategy through which such integration can be achieved.

Review Questions
1. What is ERP?
2. What are the limitations of ERP?
4. What is BPR?
5. What is MIS?
6. What is DSS and how is it different from MIS?
7. What is EIS?
8. What is data warehousing?
9. What is data mining?
10. What do you mean by OLAP?
11. Explain the concept of SCM?





                                                    ERP Modules
INTRODUCTION
All ERP packages contain many modules. The number and features of the modules vary with the ERP package. In this chapter, we will see some of the most common modules available in almost all packages. • Finance, • Manufacturing and Production Planning,• Sales and Distribution, • Plant Maintenance, • Quality Management, • Materials Management, etc.
        This is by no means a comprehensive list. Some packages will have a subset of this and some will have more modules and/or features. For detailed information, you will have to consult the product literature of the specific ERP system.
FINANCE
Introduction
       The entire concept of information technology is based on the premise that providing the right information, to the right people, at the right time can make a critical difference to the organization. Much of this key information could be taken from the financial data) But merely having the financial data is not enough. You need a set of processes and views of your data that provides up-to-the-minute financial information in exactly the form you need it to make that critical difference and help with that crucial decision. Accounting software needs access to information in each area of your organization, from R&D and market research through manufacturing, distribution and sales. Your financial solution must provide the management with information that can be leveraged for strategic decisions, in order to achieve competitive advantage.
           This section provides an overview of the financial solutions in most of the ERP packages. In today's business enterprise, you need to know that your financial decisions are based on today's data, not numbers from records closed a month ago, or even a week ago) And you need to know that this same 'today's' data represents every segment of your organization's activities, whether your enterprise stretches across a room or around the globe. This is essential, because the most efficient way to get your enterprise to where you want it tomorrow is to know exactly where it is today.
         
Whatever be the financial goals of your organization, the financial application components of the ERP solutions work hand-in-hand to improve the bottom line. This is true because the financial functionality is tightly integrated across all business areas and all geographic areas. This tight integration includes all the other different modules, from materials management to human resources to logistics. Because the ERP system automatically links related areas, it eliminates the need to repeat procedures. You enter your data only once. Within the ERP system, all areas work in concert, creating a new level of efficiency in handling your financial data.
        The finance modules of most ERP systems provide financial functionality and analysis support to thousands of businesses in many countries across the globe. These ERP systems include not only financial application components, but also Human Resources, Logistics, Business Workflow and links to the Internet. Hundreds of business processes are covered in these systems)
The finance modules of most ERP systems will have the following subs systems:
  • Financial Accounting (General Ledger, Accounts Receivable/Payable, Special Ledgers, Fixed Asset Accounting, and Legal Consolidation)
  • Investment Management (Investment Planning/Budgeting/Controlling, Depreciation Forecast/Simulation/Calculation)
  • Controlling (Overhead Cost Controlling, Activity-Based Costing, Product Cost Accounting, Profitability Analysis)
  • Treasury (Cash Management, Treasury Management, Market Risk Management, Funds Management)
  • Enterprise Controlling (Executive Information System, Business Planning and Budgeting, Profit Centre Accounting)
Financial Accounting
      The objective of a good financial accounting system is to provide company-wide control and integration of financial information that is essential to strategic decision-making. The Financial Accounting Module of an ERP system, gives you the ability to centrally track financial accounting data within an international framework of multiple companies, languages, currencies, and charts of accounts.) For example, when raw materials move from inventory into manufacturing, the system reduces quantity values in inventory and simultaneously, subtracts values for inventory accounts in the balance sheet. Most of the Financial Accounting modules comply with international accounting standards, such as GAAP and IAS. They also fulfill the local legal require-
General Ledger
     The General Ledger (GL) is essential both to the financial accounting system and to strategic decision-making. Through active integration with business processes in logistics and in the accounting sub-ledgers, the GL serves as a central pool of financial data for financial reporting as well as for other accounting areas) However, the origin of centrally stored data can still be traced at any time by drilling down on data from a given transaction. The General Ledger supports all the functions needed in a financial ac-counting system. This includes flexible structuring of the chart of accounts at the group and company level, distributed application scenarios, real-time simultaneous update of sub-ledgers and the general ledger, elimination of time-consuming reconciliation, and parallel views of data, in both the general ledger and the managerial accounting applications) The GL provides document parking, posting, reporting, and an integrated financial calendar for automating periodic activities. A typical general ledger is shown in Fig. 5.1. The system also provides summary information from other components at a user-defined level of detail. By creating combinations of entered data, you generate data summaries that can be used in planning, allocation, distribution and reporting.
Usually, the GL has features that allow you to take advantage of more functions in General Ledger and in Cost Centre Accounting. For example, you can create your own database tables and define non-standard fields, to suit specialised accounting or reporting requirements. Some ERP systems support features, like the option of grouping data selectively and then, updating it in only there ledgers which have been specified; provision for parallel charts of account and currencies; planning and allocation tools direct data entry in special purpose ledgers for adjustment postings; user-defined reporting,etc.
Accounts Receivable and Payable
      ERP systems offer a financial overview of global business partner relation-ships, in the Accounts Receivable and Payable functions. These sub-ledgers are integrated, both with the General Ledger and with, areas in Sales and Distribution and Materials Management, where financial data originates. Accounts Receivable and Payable transactions are performed automatically, when related processes take place in other modules. This module uses standard business rules for procedures ranging from data entry and reporting, to processing payments and bank transactions Accounts Receivable and Payable functions include Internet integration, document management, full sup-port for EDI processing, including automatic integration with cash management and flexible reporting using customer and vendor information systems. The module also provides, enterprise-wide credit management with workflow integration, payment automation with EFT and check processing, and document parking with various approval procedures.
Asset Accounting
     Asset accounting, manages the company's fixed assets. Within the Financial Accounting system, Asset Accounting serves as a sub-ledger to the General Ledger, providing detailed information on asset-related transactions. Significant features include country-specific charts of depreciation complying with local legal requirements, full support throughout the asset life cycle from acquisition to retirement, depreciation simulation and interest calculation, and integration with project management and order accounting for management of capital assets) Asset Accounting also provides integration with Plant Maintenance for management of machinery and equipment, management of leased assets and assets under construction, mass processing with workflow integration, and interactive reporting.
Legal Consolidation
         Consolidated financial statements peed to be integrated effectively with operational data at the individual company level. By using different valuation methods, you can plan balance sheet strategies to suit the company's requirements. The Legal Consolidation sub-system is closely linked to the Fi-and reduces data entry errors. In addition to the consolidated statements required by law, Legal Consolidation also allows you, to create multiple views of your consolidation data. With these views you can generate reports about legal entities or segments of your business.
Controlling
The controlling system gathers the functions required for effective internal cost accounting. It offers a versatile information system, with standard re-ports and analysis paths for the most common questions. In addition, there are features for creating custom reports to supplement standard reports)
Overhead Cost Controlling
Many organizations experience a significant increase in the percentage of indirect costs, which cannot be directly assigned to either the products , manufactured, or to the services rendered) While cost monitoring and optimisation may be quite advanced in production areas, transparency is often lacking in overhead cost areas. The Overhead Cost Controlling sub-system offers a wide variety of methods for allocating posted amounts and quantities. In particular, activity accounting permits, the allocation of great many costs to products, based on cost sources and enabling assignments, which were not previously possible.
Overhead Orders
     Overhead orders subsystem collects and analyses costs, based on individual internal measures. This system can monitor and automatically check budgets assigned to each measure.)
Activity-Based Costing
The goals of the entire organization, should come before the goals of individual departments, when it comes to business process reengineering. The Activity-Based Costing module, is a response to the growing need for monitoring and controlling cross-departmental business processes, in addition to - functions and products. Seeing costs from a new perspective, substantially enhances organizational transparency in overhead areas.)The system automatically determines the utilisation of business processes by products, customers, and other cost objects based on the cost drivers taken from the integrated accounting environment. This, significantly reduces the effort involved in maintaining a business process model in a separate system.
Product Cost Controlling
Product cost controlling module determines, the costs arising from manufacturing a product, or providing a service. Plan and standard values, serve in valuating warehouse stock and for contrasting revenues received with costs) In addition, the values in Product Cost Controlling, are crucial for determining the lowest price limit for which a product is profitable. Simulations illustrate the effects of changes in production methods on the cost of goods manufactured.

SALES AND DISTRIBUTION
INTRODUCTION
              In today's global business environment, the one thing companies can count on is rapid change-and the new opportunities and challenges that change is sure to bring. New competition pushes businesses to achieve higher levels of service, while evolving technology compresses product life cycles and forces companies to adopt new technologies or risk losing market share. In this ever-changing environment, keeping a competitive edge means being able to anticipate and respond quickly to changing business conditions. To keep pace with these rapid changes, companies need an integrated and flexible enterprise system that supports all aspects of their business with state-of-the-art functionality. This innovative solution should upgrade effortlessly and interface easily with third-party applications, as well as have the ability to incorporate existing systems while extending its reach to the Internet and e-commerce.
                 With today's business environment characterised by growing competition, shrinking cycle times and the accelerating pace of technological innovation, companies are increasingly being forced to streamline business processes. In a world in which it is no longer enough to simply have the best product, these companies are focusing on core competencies and closer partnerships over the whole supply chain. Here, increased efficiency in sales and distribution is a key factor to ensure that companies retain a competitive edge and improve both profit margins and customer service. In helping business to `beat them on delivery', the sales and distribution modules of many ERP vendors offer a comprehensive set of best-of-breed components for both order and logistics management. Many of these systems are tightly integrated with the Distribution Requirements Planning (DRP) engine of the Tor just-in-time' deliveries. This integration enables the mapping and supply of single-site or multi-site organizations and the definition of relationships in a company's internal supply chains. Developing precise logistics planning for just-in-time deliveries, this system can also generate replenishment orders by using de-fined warehouse requirements.
  The following are the sales related business transactions:
• Sales queries, such as inquiries and quotations
• Sales orders
• Outline agreements, such as contracts and scheduling agreements
• Delivery/ Shipment
• Invoicing/ Billing
• After sales support During sales order processing, the following basic functions are carried out:
• Inquiry handling
• Quotation preparation and processing
• Contracts and contract management (order management)
• Monitoring the sales transactions
• Checking for availability
• Transferring requirements to materials planning (MRP)
• Scheduling the delivery
• Calculating pricing and taxes
• Checking credit limits
• Invoicing /Billing
• Creating printed or electronically transmitted documents (confirmations, and so on)   
       Depending on how your particular system is configured, these functions may be completely automated or may also require some manual processing. The data that results from these basic functions (for example: shipping dates, confirmed quantities, prices and discounts) is stored in the system where it can be displayed and, in some cases, changed manually during subsequent processing. The sales and distribution module very actively interacts with the Material Management and Financial Accounting modules for delivery and billing.
Figure 5.2 shows sales and distribution and its associated processes.
Typically, a Sales and Distribution module will contain the following sub-systems:
• Master Data . Management
• Order Management
• Warehouse Management
• Shipping
• Billing
• Pricing
• Sales Support
• Transportation
• Foreign Trade
Master Data Management
Every company will have products, customers, and will require raw materials and will have suppliers. The task of the Master Data management module is to keep information about all these entities, so that these can be made available to the decision-makers and also for the automatic generation of reports, contracts, invoices and so on.
        In sales and distribution, products are sold or sent to business partners, or services are performed for them. Data about the products and services as well as about the business partners forms the basis for sales processing.
              Automatic sales processing, using an ERP system, requires that the master data has been stored in the system. In addition to sales and distribution, other departments of the company, such as accounting or materials management access the master data.
Order Management
               This module usually includes Sales Order Management and Purchase Order Management and supports the entire sales and purchase processes from start to finish. With companies today being confronted with increasingly demanding customers and increasingly complex buying and selling organizations, both internally and externally, Order Management combines the provision of efficient management solutions with the possibility of anticipating and responding quickly to changes in global business conditions.
Sales Order Management
           Applications in sales order management (Fig. 5.3) represent a company's most important point of contact with the customer. These applications allow a company to manage sales operations quickly and efficiently and provide comprehensive solutions for the management of quotes, orders, contracts, prices and customer discounts. Through the use of templates, the system streamlines order entry procedures to manage products ranging in complexity from standard stocked items to those that are engineered-to-order. The system can also customise and streamline order entry procedures to the specific requirements of both an individual business and its customers. Intelligent pricing and discount strategies that are accompanied by simulation capabilities to support 'what-if scenarios and are available for multi-currency environments.
                 On-line Available-to-Promise calculations ensure that there is sufficient product availability for a specific customer and, if so, to identify exactly where and when that product is available. Built-in contract and release management system evaluates whether or not customer contract agreements are being met with and incorporates multilevel customer credit reviews and substantial order blocking functionality. Evaluation of sales performance is possible through extensive report capabilities that retrieve both current and past information that concern orders, cancellations, budgets and revenues. Rebate and commission control enables the automatic calculation of employee and supplier commissions to reward achieved targets based on pre-defined agreements and customer bonuses, or rebates to reward customers for purchasing certain quantities. Electronic Data Interchange (EDI), stream-lines communication throughout a company's entire supply-chain, from customer to supplier. The system should support standard business documents such as orders and invoices, along with general information such as project information and product specifications.
             A good system will have tools and features for Sales Force Automation (SFA) and customer service. These tools include the tracking and tracing of appointments , schedules and follow -ups, plus product and sales feasibility information.
Purchase Order Management
         Purchase order management is increasingly essential in today's ever more competitive business environment because it enables a company to make the correct purchase decisions about quality and price, where quality refers to supply lead-time as well as to the (to be purchased) product itself. Purchase order management (Fig. 5.4) includes online requisitioning, centralised con-tract management, just-in-time schedules and vendor management. Offering access to an approved supplier list, purchase order management enables a purchase quotation to be sent to multiple suppliers. The purchase contract information is made available to the people in the purchasing department. This information will help in supplier selection and provide an insight as to which suppliers can supply items with the right specifications, in the shortest period of time. The system will have facility to generate purchase contracts. Purchase requisition is a function that is used in the purchase process.
              Purchase requisitions allow companies to enter non-system-planned requirements for various types of items. Requisitioning can be linked to workflow for authorization  purposes and to approve suppliers. Schedules can be used, instead of orders; to provide detailed purchase and delivery information.
                 These schedules are generated in contracts in just-in-time environments in which customer service, in-time delivery and cost reduction are all-impor-tant—and can be sent through the supply chain by means of EDI commu-nication. In addition, schedules are fully linked with other modules of the system.                                                 
               Sophisticated vendor management tools allow companies to check the re-liability and performance of vendors. The vendor rating system can handle both objective and subjective criteria. Objective criteria are tracked and traced automatically by the system and can include information about receipts, quality approval, invoicing and purchase-order confirmation. Subjective cri-teria are determined by the user. Together, these criteria enable companies to make the right purchase decisions with regard to quality, price and deliv-ery. Purchase Order Analysis enables historical as well as statistical data to be used to assist in the analysis of purchase activities.


MANUFACTURING
Introduction
Competition in the next millennium places an increased emphasis upon time, as expressed by speed, quality, service and global focus. Agility is the watchword.
Manufacturers are measured by their ability to react quickly to sudden, often unpredictable change in customer demand for their products and services. To compete successfully beyond the year 2000 requires manufacturing appli-cations that are time and activity based and above all else, focused on the customer. Increasingly, these manufacturing applications are a centre point within the spectrum of a supply chain, running from the customer to a supplier and encompassing the entire enterprise.
          A good manufacturing system should provide for multi-mode Manufactur-ing applications that encompass full integration of resource management. These manufacturing applications should allow an easier exchange of infor-mation throughout the entire global enterprise, or at a single site within a company. Regardless of how big or small an enterprise is, these applications should provide a wealth of feature/function, broad scope of coverage, opera-tional stability and a platform-independent architecture. These capabilities empower an enterprise to achieve productivity gains, adopt forward-thinking technologies and implement process reengineering. As a company's internal processes become more sophisticated or as market forces change, these solutions should be capable of meeting the challenge. The manufacturing system should be integrated with the other modules of the package.
        A robust system of manufacturing planning business process, and execu-tion must satisfy a variety of business practices and production methods. These business practices and production methods place stringent demands on the manufacturer. Regardless of how manufacturers view their internal operations, to the customer, it boils down to quick response to customer demand in two fundamental ways—Manufacturers either make products to stock prior to receipt of a customer order, or they make and ship the prod-ucts upon receipt of a customer order. Manufacturers must accomplish this task quickly, efficiently and cost effectively to remain profitable and competi-tive. These two fundamental ways of responding to customer demand are as shown in Fig. 5.6.
              Today, companies must be able to deliver customer-specific products with the lead-time of standard, off-the-shelf products. To help manage product and market shifts, the Manufacturing module provides the freedom to change manufacturing and planning methods, as and when they need a change. The Manufacturing modules of most ERP vendors, do not limit businesses to a single manufacturing method, such as make-to-stock or makerto-order (Fig. 5.7). Instead, many manufacturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method—or combination of methods—for each product, at each stage throughout its life cycle.


        In addition, this control and visibility comes without having to sacrifice the functionality needed to efficiently manage different types of production. These systems support the entire range of production strategies—only one system is needed to manage all manufacturing activities. Engineer-to-order products can be planned using the system, while the system's forecasting and distribution planning features handle make-to-stock items. Products that are assembled-to-order can be planned using advanced features available in the Manufacturing module. All demands can be aggregated into user-definable plans at a detail or summary level. Enterprise requirements then flow into consolidated production schedules and material and capacity, plans, and all production activity can be scheduled and tracked through shop floor control systems.


The manufacturing module should enable an enterprise to marry technology with business processes to create an integrated solution. It must provide the information base upon which the entire operation should be run. It should contain the necessary business rules to manage the entire supply chain process, whether within a facility, between facilities, or across the entire supply chain. Control and execution can be performed at strategic, tactical and operational levels within the business. These require effective planning to support contract commitments throughout the supply chain, control over intermediate range planning horizons and time fences, and execution over the short range of frozen scheduling required by the shop floor. Whether a single-site implementation, several sites within one country, or hundreds covering the globe, the manufacturing system should provide the foundation for creating concurrent business processes across the supply chain and achieving Return on Assets (ROA) improvement.                          
PLANT MAINTENANCE
Introduction
          The achievement of world class performance demands delivery of quality· products expeditiously and economically. Organizations simply cannot achieve excellence with unreliable equipment. The attitude towards maintenance management has changed as a result of quick response manufacturing; Just-in-Time reduction of work in process inventory and the elimination of wasteful manufacturing practices. Machine breakdown and idle time for repair was once an accepted practice. Times have changed. Today when a machine breaks down, it can shut down the production line. and the customer's entire plant. The Preventive Maintenance module provides an integrated solution for supporting the operational needs of an enterprise-wide system. The Plant Maintenance module includes an entire family of products covering all aspects of plant/equipment maintenance and becomes integral to the achievement of· process improvement.
The major subsystems of a Plant Maintenance module are:
  1. Preventive Maintenance Control
  2. Equipment Tracking
  3. Component Tracking
  4. Plant Maintenance Calibration Tracking
  5. Plant Maintenance Warranty Claims Tracking
Preventive Maintenance Control
Preventive Maintenance Control provides planning, scheduling and control of facilities and equipment. Equipment lubrication, component replacement and safety inspection can be planned scheduled, and monitored. Maintenance tasks can be tracked for each machine, or piece of equipment, by two user defined modes, as well as calendar day frequency. These modes could include tracking by hours of operation, units of production produced, gallons of fuel consumed, or the number of days in operation since the last service interval. Preventive Maintenance Control enables organizations to lower repair costs by avoiding downtime, machine breakage and process variability. Companies achieve higher machine utilisation and improved machine reliability and tolerance control, along with higher production yields.
Equipment Tracking
Equipment is an asset that needs to be monitored and protected. In many situations.. equipment maintenance costs constitute the single largest controllable expenditure of an organization. All facets of plant location history and utilisation history are described and tracked. This history includes acquisition and disposition information and associations between different pieces of equipment to pinpoint operational dependencies. Running totals for operation units to date (miles, hours, days, units of production, etc.) are also provided. Each piece of equipment is defined by a model and serial number. User-defined data sheets can be developed which allow for the grouping of user data into formats that can be linked to equipment records. All of this information can be used to create equipment specifications, which provide detailed information for technical specialists working in equipment operations, maintenance and transportation control.
Component Tracking
Components are, typically, subsets of larger equipment and deserve the same amount of cost controlling scrutiny. Component tracking enables equipment managers to identify components with chronic repair problems. They can determine whether a repair or replacement should be covered by warranty. Planning component replacements, rather than waiting for component failures to occur, reduces unscheduled equipment downtime. Component tracking includes repair/exchange history and component service life.
Plant Maintenance Calibration Tracking
Plant Maintenance Calibration Tracking allows organizations to leverage their investment in the Plant Maintenance module by providing for the tracking of "equipment calibration in support of IS09000 requirements.
Plant Maintenance Warranty Claims Tracking
Plant Maintenance Warranty Claims Tracking is an administrative system designed to provide control of all items covered by manufacturer and vendor warranties. It enables plant management to recover all of the warranty; reimbursements to which they are entitled but have not been able to recover in the past. Features include the ability to establish the type and length of warranty, for example, elapsed day, months, mileage stipulation, or operating units. A complete history is performed for each item covered by the warranty, and complete information regarding the warranty service provider is generated.

QUALITY MANAGEMENT
Introduction
The ISO 9000 series of standards defines the functions of quality management and the elements of a quality management system, The functions in the Quality Management module support the essential elements of such a system. The other integrated modules in the system complement this functionality. The ISO standards require that quality management systems penetrate all processes within an organization. The task priorities, according to the quality loop, shift from production (implementation phase) to production planning and product development (planning phase),' to procurement and sales and distribution, as well as into the entire usage phase. In the area of production, quality assurance is no longer viewed in terms of inspection and the elimination of defects alone. Instead, the production process itself becomes the focus of attention.


CAQ and CIQ
      Just as the requirements for quality management systems have changed as a result of the ISO 9000 standards, the term Computer-Aided Quality Management (CAQ) must also be-redefined. Computer-Integrated Quality Management (CIQ) is a more appropriate term because an isolated CAQ system cannot carry out the comprehensive tasks of a quality management system. The ERP system takes this into consideration by integrating the quality management functions into the affected applications themselves (for example, procurement, warehouse management, production and sales/distribution), instead of delegating them to isolated CAQ systems. As a result of this approach, the processes described in the quality manual can be implemented and automated in the electronic data processing (EDP) system.
The representation of the elements of a quality management system within the ERP system is not only the responsibility of the Quality Management module. Instead, the ERP system must be considered as a whole, in which all integrated modules contribute their part. Within the framework of the system, for example, the Human Resources module handles personnel-related matters, the Controlling module handles the management of quality related costs and the Plant Maintenance module handles the monitoring of test equipment. As a part of the Logistics application, the Quality Management module handles the traditional tasks of quality planning, quality inspection and quality control. For example, it supports quality management in procurement, product verification, quality documentation and "in the processing of problems.
The Quality Management module's internal functions do not directly interact with the data or processes of other modules.
Quality Management Module-Functions
The Quality Management module fulfills the following functions:
  1. Quality Planning (Management of basic data for quality planning and inspection planning, Material specifications, Inspection planning)
  2. Quality Inspection (Trigger inspections, Inspection processing with inspection plan selection and sample calculation, Print shop papers for sampling and inspection, Record results and defects, Make the usage decision and trigger follow-up actions)
3. Quality Control (Dynamic sample determination on the basis of the quality level. history, Application of statistical process control techniques using quality control charts, Quality scores for inspection lots, Quality notifications for processing internal or external problems and initiating corrective action to correct the problems, Inspection lot processing and problem processing, Quality Management Information System for inspections and inspection results and quality notifications)

MATERIALS MANAGEMENT
Introduction
The Materials Management module optimises all purchasing processes with workflow-driven processing functions, enables automated supplier evaluation, lowers procurement and warehousing costs with accurate inventory and warehouse management and integrates invoice verification. The main modules of the Materials Management module are:
  1. Pre-purchasing Activities
  2. Purchasing
  3. Vendor Evaluation
  4. Inventory Management
  5. Invoice Verification and Material Inspection
Pre-purchasing Activities
                     This system supports the complete cycle of bid invitation, award of contract and acceptance of services. The pre-purchasing activities include maintaining







a service master database, in which the descriptions of all services that are to be procured can be stored. The system also keeps a separate set of service specifications that can be created for each concrete procurement project or proposed procurement in the purchasing document. Sets of service specifications may include, both items with services and items with materials. When creating such specifications, the user does not have to list individual services manually. Instead, the data is simply copied from the master data. Use of this technique means that data' only has to be entered once. The manual entry effort is reduced to a minimum.
There are two ways of entering service specifications-planned and unplanned. Planned service specifications mean that service whose precise nature and intended scope are already known at the beginning of a procurement project. At the time they are requested for, they are either entered with the aid of a service master record, or set out in service specifications as short or long texts. Prices and quantities are stipulated in both cases. A procurement project may constitute or' include a number of individual services, which you initially cannot or do not wish to specify in detail (for example, the construction of an office building). Such initial undefined services specifications are termed 'unplanned service specifications' and thus, have no descriptions. They are entered in the form of money value limits. Service specifications may be specified in terms of an upper limit. This allows you to exercise a degree of cost control in such situations. You can set a value limit at the uppermost level (for example,5 crores for the construction of the office building). In addition, you can set limits for individual contracts within the project (for example, Rs 100,000 for masonry works and Rs 150,000 rupees for electrical installations). The system checks adherence to both these sublimits and the overall limit. When the services have been performed, they are recorded in entry sheets and then accepted. The accepted service entry sheet constitutes the basis for subsequent invoice verification in the case of services. The pre-purchasing activities are shown in fig. 5.9.
Purchasing
Purchasing is a very important component of the Materials Management module. The Materials Management module is fully integrated with other. modules in the system. It supports all phases of materials management: materials planning and control, purchasing, goods receiving, inventory management and invoice verification. Good communication between all participants in the procurement process is necessary for purchasing to function smoothly. Purchasing communicates with other modules in the system to ensure a constant now of information. For example, it works side by side with the following modules:
  1. Cost Accounting System Orders for materials and services consumed directly illustrate the interface to the cost accounting system. This is because they can be assigned to a cost centre directly.



Vendor Evaluation
                   The vendor evaluation component has been completely integrated into the Materials Management module. Information such as delivery dates, prices and quantities can be taken from purchase orders. Vendor Evaluation also uses data from Quality Management, such as the results of incoming inspections or quality audits. It also accesses basic data in Materials Management, such as goods receipt data from Inventory Management.
                The Vendor Evaluation System supports the optimisation of the procurement processes in the case of both materials and services. In the case of procurement of materials, the system helps you select sources of supply and facilitates the continual monitoring of existing supply relationships. It pro-vides you with accurate information on prices, and terms of payment and delivery. By evaluating vendors, you can improve your enterprise's competitiveness. You can quickly determine and resolve any procurement problems that may arise on the basis of detailed information and in collaboration with the relevant vendors. In the case of procurement of services, you can check the reliability of the vendors from which you procure services on a plant by plant basis. You can determine whether the vendors perform the services within the specified timeframes and appraise the quality of the work carried out.
                  Most of the vendor evaluation systems offer you a point-based evaluation system, based on certain selection criteria. Most systems have their own pre-defined set of criteria, but will allow the user-defined criteria also. Using these criteria, the performance of the vendors is measured and points are given. You can determine and compare the performance of the vendors by reference to their overall scores. The main criteria that are usually used are price, quality, delivery,, service and support, replacement of returns, lead-times, and so on. The Vendor Evaluation System ensures that evaluation of vendors is objective, since all vendors are assessed according to uniform criteria and the scores are computed automatically.
Review Questions
  1. What are the popular modules in an ERP system?
  2. What are the various subsystems of the financial module?
  3. What are the major functions of the manufacturing module?
  4. What are the major functions of the materials management module?
Benefits of ERP
Introduction
             Installing an ERP system has many advantages—both direct and indirect. The direct advantages include improved efficiency, information integration for better decision-making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction, and so on. In this chapter we will see some of the benefits of the ERP systems. They are:
• Reduction of lead-time
• On shipment
• Reduction in cycle time
• Better customer satisfaction
• Improved supplier performance
• Increased. flexibility
• Reduction in quality costs
• Improved resource utility
• Improved information accuracy and decision-making capability
REDUCTION OF LEAD-TIME
        The elapsed time between placing an order and receiving it is known as the lead-time. It plays a significant role iri purchasing and inventory control. Most purchasing departments urge the managers to anticipate material de-mands well ahead of actual need. All inventory systems have safety mecha-nisms like safety stock, re-order level and so on built into them, to avoid the  Situation where the material is out of stock. The consequences of the non availability of an item that is required for production can result in a lot of problems like missing the delivery schedules, losing the customer goodwill due to delayed delivery or even losing the customer to the competition. One can avoid this situation by requesting for the materials well in advance rather than when they are actually needed (early requests), or by keeping a large buffer stock, or by maintaining a very high re-order level. But all this means that larger inventories must be kept, which blocks the money. Also, the practical consequence of allowing longer times for delivery seems to be that the present lead-times just grow to take up whatever slack is allowed. Perhaps this is due to the 'squeaky wheel principle'-buyers who expect the shortest lead-times complain the loudest when deliveries are late and thereby receive the most attention from suppliers. So the company should find out the minimum lead-time and should attempt to correct supplier's delivery delays instead of automatically increasing existing lead-times.
     In order to reduce the lead-times, the organization should have an efficient inventory management system, which is integrated with the purchasing, production planning and production departments. In this era of just-in-time manufacturing, the knowledge of the exact lead-times for each and every item is of paramount importance for uninterrupted production. For a company dealing with hundreds and thousands of raw materials and components, keeping track of the lead-times for each and every individual item manually, is practically an impossible task.
     The ERP systems help in automating this task and thus, make the inventory management more efficient and effective. Also, since the ERP system is integrated and the materials management 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. 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 80M 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 database and since everything is .up-to-date, finding out the parts that are to be ordered takes no time (a task which could have taken days in the case of a manual or nonintegrated system). Once the items that are to be manufactured are identified, and once the production planning system prepares a production plan, the material management module will prepare purchase orders for each and every item taking into account the lead-times and when the items are required for production. If the purchasing process has to go through the 'invitation of quotations, vendor selection, etc.' the system also does that.
Since most suppliers are also connected to the organization's system as soon as a purchase order or requisition is issued, the supplier's system is updated with that information. So the supplier knows what items are to be supplied and when. Since the activities like preparation of contracts, issuing of purchase orders and payments happen through. the system electronically, the time saved is phenornenal.. ERP systems, by virtue of their integrated nature and by the use' of latest technologies [(like Electronic Funds Transfer (EFT), Electronic Data Interchange (EDI)], reduce the lead-times and make it possible for the organizations to have the items at the time they are needed (just-in-time inventory systems).
ON-TIME SHIPMENT
                         Today, companies must be able to deliver customer-specific products (madeto-order) with the lead-time of standard, off-the-shelf products. 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 advantages of off-the-shelf products.
                Today, the ERP systems provide the freedom to change manufacturing and planning methods as needs change, without modifying or reconfiguring the workplace or plant layouts. With ERP systems, businesses are not limited to a single manufacturing method, such as make-to-stock or make-to-order. Instead, many manufacturing and planning methods can be combined within the same operation, with' unlimited flexibility to choose the' best method-or combination of methods for each product at each stage throughout its life cycle. In addition, this control and visibility comes without having to sacrifice the functionality needed to efficiently manage different types of production. Because these systems support the entire range of production strategies, only one system is needed to manage all manufacturing activities . Engineer-to-order products are planned using these systems, while the forecasting and distribution-planning features handle make-to-stock items. Products that are assembled to order can be planned using the extensive production planning capabilities of these' ERP packages. Various production scenarios' can be simulated using the simulation features' and the best one can' then be selected. Also, since the different functions involved in the timely delivery of the finished goods, to the customer-purchasing, materials management, production, production planning, plant maintenance, sales and distribution-are integrated and the procedures automated, the chances of errors are minimal and the production efficiency will be high. Since all the information is available to the management at the desired level of detail, and since the system has exceptional handling features (which will issue warnings if things are going out of control), the management can keep track of things and can take corrective actions at the appropriate time.
Another step to shorter product development, cycles is increased efficiency in design and development activities. ERP systems are designed to help your company trim data transfer time, reduce errors and increase design productivity by providing an automated link between engineering and production information. Most of these systems allow smooth integration with popular CAD packages to simplify the exchange of information' about drawings, items, BOMs and routings. Using the Engineering Change Control (ECC) system, businesses can gain effective control over engineering change orders. The company can define the authorisation steps for approving and implementing an Engineering Change Order (ECO). When these steps are completed, the ERP system automatically implements the change in the production database. 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.
REDUCTION IN CYCLE TIME
       Cycle time is the time between receipt of the order and delivery of the prod-uct. At one end of the manufacturing spectrum is the make-to-order opera-tion, 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 or designing the product only after receiving the order. He will procure the materials and components required for production only after getting the or-der. On the other end of the manufacturing operations is the make-to-stock approach, where the products are manufactured and kept in the finished goods inventory before the order is placed. In both cases the cycle time can be reduced by the ERP systems, but the reduction 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 not in the shop floor, but during the order fulfillment. In the earlier days, even for the made-to-stock items, the cycle time used to be high. This was because the process was manual and if computerised, not integrated. Suppose a cus-tomer 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. 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 the shipment details are sent to the distribution module, which will perform the necessary tasks like packaging and picking so that the delivery is effected. The finance module is also alerted about the order so that they can raise the invoice. All these actions are triggered by the click of a button by the order entry clerk. Since all the data, updated to the minute, is available in the centralised database and since all the procedures are automated, almost all of these activities are done without human intervention. This efficiency of the ERP systems helps in reducing the cycle time.
          In the case of make-to-order items, the ERP systems save time by integrat-ing with CAD/CAM systems. Dramatic time and cost reductions are possible when CAD-engineered designs are converted automatically into software pro-grams for computerised production machines using CAD/CAM systems. This automatic conversion eliminates the costly and time consuming steps of having a person convert design drawings into a computer program for com-puter-controlled production equipment, such as robots or machine tools. These systems reduce cycle times by 30-50%. Combined with this, the au-tomation achieved in material procurement, production planning and the efficiency achieved through the plant maintenance and production systems of the ERP packages go a long way in reducing the cycle times.
IMPROVED RESOURCE UTILISATION
As manufacturing processes become more sophisticated and as the philoso-phies of elimination of waste and constraint management achieve broader acceptance, manufacturers place increased emphasis upon planning and controlling capacity. The creation of an accurate, achievable production schedule requires the availability of both material and capacity. It is useless, and indeed wasteful, to have financial resources tied up in material, if the capacity is insufficient or improperly planned. Waste not only raises costs, it also affects customer service levels and customer good will.
             The capacity planning features of most ERP systems offer, both rough-cut and detailed capacity planning. The system loads each resource with produc-tion requirements from Master Production Scheduling, Material Requirements Planning, and Shop Floor Control (detailed capacity planning). All planned, firm planned, and released production is evaluated and loaded against capac-ity definitions for each resource, and all capacity requirements are pegged back to the orders comprising the load. Capacity definitions are provided from work centre and machine records. Work centres can be facility-specific or enterprise-wide. Any work centre can be designated as a critical work centre for evaluation by rough-cut capacity planning. This capability provides an easy and efficient way to designate bottleneck operations that act as system constraints. As the constraints change over time, the user can re-designate the work centres as critical or non-critical. High volume repetitive environments are further supported with both 'from and to' material movement location aesignations. These locations are usea ioi pun. oyoccin backflushing/replenishment and can be designated by individual machines within the work centre. These systems provide further refinement of available capacity by providing definition for specific machines or pieces of equipment. Each work centre also has user-defined input/output control tolerance fac-tors to control the level of action message sensitivity, a factor for average efficiency, separate speed factors for labour and machine, designation of shift/hours schedule, and maximum desired load percentage (with 100% as the default). Capacity minimums can also be designated for processes involv-ing vessel size constraints and fixed cycle constraints (heat treating, pickling, plating, sand blasting, paint dipping, etc.).
                The ERP systems also have simulation capabilities that help the capacity and resource planners to simulate the various capacity and resource utilisation scenarios and choose the best option. The efficient functioning of the different modules in the ERP system like manufacturing, materials man-agement, plant maintenance, sales and distribution ensures that the inven-tory is kept to a minimum level, the machine down time is minimum, the goods are produced only as per the demand and the finished goods are delivered to the customer in the most efficient way. Thus, the ERP systems help the organization in drastically improving the capacity and resource utilisation.
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:
• Whether the product or service includes the features that are most important to the customer
• Whether the company can respond to the customers' demands in a timely manner, a criterion     that is especially important for custom prod-ucts and services
• Whether the product or service is free of defects and performs as expected.
                 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-order operations. This means that the customer will get individual atten-tion and the features that he/she wants, without spending more money or waiting for long periods. Also, with the introduction of the web-enabled ERP systems, the customers can place the order, track the status of the order and make the payment sitting at home. The customer could get technical support by either accessing the company's technical support knowledge base (help desk) or by calling the technical support. Since all the details of the product and the customer are available to the person at the technical support depart-ment, the company will be able to better support the customer. All this is possible because of the use of the latest developments in information tech-nology by the ERP systems, and this will go a long way in improving the customer satisfaction.
IMPROVED SUPPLIER PERFORMANCE
          The quality of the raw materials or components and 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. To realise these benefits, corporations rely heavily on supplier management and control systems to help plan, manage, and control the complex processes associated with global supplier partnerships.
          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, monitoring the vendor activities and managing the supplier quality.
             There is a growing trend for organizations to establish partnership agree-ments with their suppliers. Through such business relationships, mutually beneficial results have been achieved in the areas of quality, delivery, and cost. To realise these benefits, companies rely heavily on procurement sup-port systems to help manage and control processes associated with supplier partnership agreements. Request for quotations, contract negotiation and control, purchase order release, and delivery are process steps considered when formalising such partnerships. Complexities arise in the areas of types of products or services being procured, quantity and price breaks, terms of the agreement, and methods employed for tracking and controlling the pro-cess. The procurement support system that provides immediate feedback, flexibility, and comprehensiveness in managing supplier partnerships will provide a clear, competitive advantage to the enterprise.
                The ERP systems have features that will enable the companies to realise the benefits associated with established partnership agreements. Supplier quotations and contracts can be created to support the procurement of all products and services required by the enterprise. Examples of this include both inventory and non-inventory products, office supplies, and services, as well as products requiring direct shipment to customers. Since each agree-ment must stand on its own merit, multiple quantity and price breaks, along with terms specifying when the quotation or contract becomes effective and when it expires, are supported. To address the methods companies employ when tracking and controlling these agreements, these systems provide a number of alternatives.
                 First, after contracts are established, purchase ordcrs and requisitions are tracked as they are released against a corresponding contract. The ERP system searches for the best-fit supplier contract and automatically assigns it to the corresponding purchase order or requisition. If changes are neces-sary, the user can override the contract selection made by the system. Be-cause it is imperative to know the status of a supplier quotation or contract, the system provides immediate feedback to the organization. Detailed history provides for the deployment of in-depth procurement analysis tools. The supplier management professional can easily compare total quotation or contract commitments to actual purchasing activities.
                With the flexibility and comprehensiveness of the system's supplier quota-tion and contract management capabilities, organizations can efficiently manage their supply-side trading partners and, as a result, gain significant cost and delivery procurement benefits for their business.
               Also, since most suppliers have their systems connected to the company's system, the information regarding an order is transmitted to the supplier's systems almost instantaneously. This saves a lot of time and gives the sup-plier more time in fulfilling the orders.
            Businesses generally classify their suppliers into certified, approved, and probationary categories for quality management and auditing purposes. Ad-ditionally, supplier certification programs must be capable of distinguishing between suppliers and original manufacturers. The objective Of supplier auditing and classification programs is to ensure maximum conformance of purchased materials and services to specification, while minimising lead-times and costs.
                        The Quality Management System in the ERP systems, provides all the tools needed to implement Total Quality Management programs within an organization's procurement function. Using the system, organizations can establish and manage highly effective supplier certification programs which • ensure maximum conformance of purchased material to specification, while maintaining lead-times and costs. The quality control program can be man-aged on the basis of original manufacturer leaving the buyers free to seek the best possible price and delivery terms from a variety of qualified distributors or brokers.
INCREASED FLEXIBILITY
               Because competition is growing, companies must learn to respond more rapidly to customers' wishes as well as changes in the market. They will need to design new products or redesign old products quickly and efficiently. Only then will companies have the chance to capitalise on opportunities while they are available. The window of opportunity is often quite small. The manufac-turing process must be flexible enough to accommodate new product designs with minimal disruption or time loss.
                 Flexibility is a key issue in the formulation of strategic plans in companies. Sometimes, flexibility means quickly changing something that is being done,or completely changing to adjust to new product designs. At other times, flexibility is the ability to produce in small quantities, in order to produce a product mix that may better approximate actual demands and reduce work-in-progress inventories. Regardless of the definition of flexibility, traditional fixed automation manufacturing facilities, while efficient, are often inflexible. Similarly, extremely flexible operations are often inefficient. An argument can be made for the relative merits of both efficiency and flexibility. Actually, both are desirable.
                       Product flexibility is the ability of the operation to efficiently produce highly customised and unique products. Manufacturers 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 to all situations. Along the broad spectrum of make-to-order manufacturing, there is a growing convergence between strictly assemble-to-order (limited options and features) and completely engineer-to-order (just about anything goes, at a cost) environments. This evolving environment is often referred to as configure-to-order. Most ERP systems have now also added this technique to their systems. Using a rules-based product configu-ration system, configure-to-order (CTO) manufacturers are able to simplify the order entry process and retain engineer-to-order (ETV) flexibility, without maintaining bills of materials for every possible combination of product op-tions. How this is done and how this improves flexibility is explained in the chapter 'ERP—A Manufacturing Perspective."
                   ERP systems not only improve the flexibility of the manufacturing opera-tions, but also the flexibility of the organization as a whole. A flexible orga-nization is one that can adapt to the changes in the environment rapidly. With the technological revolution, the rules of the marketplace are changing at a rapid pace. New competitors are emerging each day. New and complex problems have to be tackled every day. New market segments have to be penetrated not to succeed, but to stay in business. New marketing strategies have to be devised and implemented at very short notices. Companies have to constantly find new ways to keep the customer satisfied. For doing all these, the company has to be flexible. The old methods of functioning will no longer work. ERP systems help the companies to remain flexible by making the company information available across the departmental barriers and by automating most of the process, the processes and procedures, thus enabling the company to react quickly to the changing market conditions.
REDUCED QUALITY COSTS
                       Quality is defined in many different ways—excellence, conformance to speci-fications, fitness for use, value for the price, and so on. Whereas manufac-turing and design engineers are typically responsible for some of the techno-logical issues in the quality assurance for products, operations managers often conduct the analysis of quality-related costs which is an important task. Strategic opportunities, or threats, frequently motivate the launch of aggressive quality management initiatives. Analysing the cost of quality can provide the financial justification for implementing them. Typically, the qual-ity costs are in the range of 20% of the cost of goods sold. Carefully planning quality improvement activities not only improves quality, but lowers quality-related costs.
                  The American Society for Quality Control (ASQC) has developed a typology of quality related costs that are based on the work of several quality masters. Operations managers have found the classification system useful for collect-ing data that are consistent and for identifying the opportunities for control-ling quality costs that will have the greatest effect on efficiency.


The typology has four categories:
• Internal failure costs (costs of scrap, rework, re-inspection and low production yields for non-conforming items that are 'detected before they leave the company)
• External failure costs (warranty claims, repairs, and service costs that result when the failure is detected in the market place)
• Appraisal costs (cost of inspecting upon arrival, during manufacture, in laboratory tests and by outside inspectors)
• Prevention costs (design and development of new quality equipment, evaluation costs of a new product or service, training of quality person-nel).
                 An extremely important truism is that the further along in the process an item is, the more a defect costs. For example, 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 the product or service to the public, it will incur a much greater cost to resolve the problems that result. Elimination of defects in standard product designs and manufacturing methods before production, is just as important as eliminating defects during production. In fact, to achieve quality levels, manufacturers must focus on identifying and correcting defects in underlying product designs and production methods, not simply inspect incoming material or finished goods. The Quality Management Systems in ERP packages support the benchmarking and use of optimal product design, process engineering, and quality assurance data by all functional departments within the manufacturing enterprise, thereby facilitating definition of repeatable processes, root cause analysis, and the continuous improvement of manufacturing methods. This documentation supports the job functions of the quality assurance and production managers in validating the manufacturer s conformance to 1509000, Good Manufacturing Practices (GM?) worldwide, and a variety of country specific standards of quality assurance.
                      Specification Control Systems in ERP packages offer a state-of-the-art approach for documenting specifications and enable an organization to standardise and simplify its quality assurance and control functions. Sample types, sample rules, and testing levels are completely user-defined for maxi-mum flexibility and ease of use. Maintenance of standard specifications, detailed sampling instructions and testing procedures are performed on-line. Cyclic, subsequent, and repeat testing options are available to support the material acceptance function, with provision for the breakdown of test procedures into multiple dispositions, to improve inventory turnover and reduce inspection lead-times. The ERP system's central database eliminates redundant specifications and ensures that a single change to standard procedures takes effect immediately throughout the organization. The ERP systems also provide tools for implementing Total Quality Management programs within an organization. Original manufacturers may be defined independently from vendors, so that businesses can strictly adhere to quality assurance and control functions, without preventing their buyers from seeking the best possible price and delivery terms. Each item supplied by an original manufacturer may be linked to a standard product specification. Actual test results and material disposition histories are retained by item, lot, original manufacturer, and specification for in-depth quality performance review and analysis. Material Inspection Systems offer a wide range of capabilities for process supervision and control. These capabilities are fully integrated with other modules like purchasing, inventory management, and shop floor control functions to ensure that the right quality control procedures arc followed. Thus, by ensuring that the company has an efficient and effective quality assurance and management system, the ERP systems play a vital role in reducing the cost of quality.
IMPROVED INFORMATION ACCURACY AND DECISION-MAKING CAPABILITY
     To survive, thrive and beat the competition in today's brutally 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 ,organizations have to make information Technology (IT) an ally, harness its full potential and use it in the best way possible.
We have seen that in Today's competitive business environment, the key resource of every organization is information. If the organization does not have an efficient and effective mechanism that enables it to give the decision makers the right information at the right time, then the chances of the organization succeeding in the next millennium are very remote.
The three fundamental characteristics or information are accuracy, relevancy and timeliness. The Information has to be accurate, it must be relevant for the decision-maker and it must be available to the decision-maker when he needs it. Any organization that has the mechanism to collect, collate. analyse and present high quality information to its employees, thus enabling them to make better decisions, will always be one step ahead or the competition. Today. the time available for an organization to react to the changing market trends is very short. To survive, the organization must always be on its toes, gathering and analysing the data-both internal and external. Any mechanism that will automate this information gathering and analysis process will enhance the chances of the organization to beat the competition.
One of the major drawbacks of the legacy systems was that it did not have an integrated approach. There would be an accounting system for the finance department. a production planning system for the manufacturing department  an inventory management system for the stores department and so on. All these systems would perform in isolation. So if a person wanted some information which had to be derived from any or these two systems, he had to get the necessary reports from both systems and then correlate and combine the data.
But in reality an organization cannot function as islands of different departments. The production planning data is required for the purchasing department. The purchasing details are required for the finance department and so on. So if all the information islands, which were functioning in isolation, were integrated into a single system. then the impact of that would be dramatic. For example, if the purchase department can see the production planning details, it can make the purchasing schedule. If the finance department can see the details of the purchase us soon as it is entered in the system. it can plan for the cash Dow that will be necessary for the purchases.
Because the systems work in isolation, collecting and analysing the data needed for the functioning departments, as well as getting information about some aspect that is dependent on more than one department, becomes a difficult task. But no business executive or decision-maker can take good decisions with the isolated data. that he will get from the various reports produced by each department. Even if he collates the data and produces the information that he requires. he would have lost valuable time that would have been better spent in decision-making for that process.
So what is needed is a system that treats the organization as a single entity and caters to the information needs of the whole organization. If this is possible, and if the information that is generated is accurate, timely and relevant, then these systems will go a long way in helping the organization to realize its goals. This is the strength of ERP systems-integration and automation-and that is why implementation of ERP systems will help in improving the accuracy of information and thus help in better decision-making,
Review Questions
1.What are the benefits of an ERP system?
2. What is lead-time and how is it reduced by using an ERP system?
3. How does an ERP system reduce cycle time
4. What are the intangible benefits of an ERP implementation?
5. How does an ERP system facilitate better decision-making?





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