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FAQ

What is ERP?

Enterprise resource planning software, or ERP, doesnt live up to its acronym. Forget about planning it doesnt do much of that and forget Online ERP Software in Johannesburg about resource, a throw away term. But remember the enterprise part. This is ERPs true ambition. It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments particular needs.

That is a tall order, building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse. Each of those departments typically has its own computer system optimized for the particular ways that the department does its work. But ERP combines them all together into a single, integrated software program that runs off a single database so that the various departments can more easily share information and communicate with each other.

That integrated approach can have a tremendous payback if companies install the software correctly.

Take a customer order, for example. Typically, when a customer places an order, that order ERP Software System Services in Johannesburg begins a mostly paper-based journey from in-basket to in-basket around the company, often being keyed and rekeyed into different departments computer systems along the way. All that lounging around in in-baskets causes delays and lost orders, and all the keying into different computer systems invites errors. Meanwhile, no one in the company truly knows what the status of the order is at any given point because there is no way for the finance department, for example, to get into the warehouses computer system to see whether the item has been shipped. “You'll have to call the warehouse” is the familiar refrain heard by frustrated customers.

ERP vanquishes the old stand alone computer systems in finance, HR, manufacturing and the warehouse, and replaces them with a single unified software program divided into software modules that roughly approximate the old standalone systems. Finance, manufacturing and the warehouse all still get their own software, except now the software is linked together so that someone in finance can look into the warehouse software to see if an order has been shipped. Most vendors ERP software is flexible enough that you can install some modules without buying the whole package. Many companies, for example, will just install an ERP finance or HR module and leave the rest of the functions for another day.

How can ERP improve a companys business performance?

ERPs best hope for demonstrating value is as a sort of battering ram for improving the erp2 way your company takes a customer order and processes it into an invoice and revenue otherwise known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesnt handle the up-front selling process (although most ERP vendors have developed CRM software or acquired pure-play CRM providers that can do this); rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customers credit rating and order history from the finance module, the companys inventory levels from the warehouse module and the shipping docks trucking schedule from the logistics module, for example).

People in these different departments all see the same information and can update it. erp2 When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system and track it down. With luck, the order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer errors than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.

That, at least, is the dream of ERP. The reality is much harsher.

Lets go back to those inboxes for a minute. That process may not have been efficient, but it was simple. Finance did its job, erp2 the warehouse did its job, and if anything went wrong outside of the departments walls, it was somebody elses problem. Not anymore. With ERP, the customer service representatives are no longer just typists entering someones name into a computer and hitting the return key. The ERP screen makes them business people. It flickers with the customers credit rating from the finance department and the product inventory levels from the warehouse. Will the customer pay on time? Will we be able to ship the order on time? These are decisions that customer service representatives have never had to make before, and the answers affect the customer and every other department in the company. But its not just the customer service representatives who have to wake up. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. If they dont, customer service reps will see low inventory levels on their screens and tell customers that their requested item is not in stock. Accountability, responsibility and communication have never been tested like this before.

People dont like to change, and ERP asks them to change how they do their jobs. That is why the value of ERP is so hard to pin down. erp2 The software is less important than the changes companies make in the ways they do business. If you use ERP to improve the ways your people take orders, manufacture goods, ship them and bill for them, you will see value from the software. If you simply install the software without changing the ways people do their jobs, you may not see any value at all indeed, the new software could slow you down by simply replacing the old software that everyone knew with new software that no one does.

What will ERP fix in my business?

There are five major reasons why companies undertake ERP.

1. Integrate financial information, As the CEO tries to understand the companys overall performance, erp2 he may find many different versions of the truth. Finance has its own set of revenue numbers, sales has another version, and the different business units may each have their own version of how much they contributed to revenues. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system.

2. Integrate customer order information ERP systems can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance sends an invoice. By having this information in one software system, rather than scattered among many different systems that cant communicate with one another, companies can keep track of orders more easily, and coordinate manufacturing, inventory and shipping among many different locations at the same time.

3. Standardize and speed up manufacturing processes, Manufacturing companies especially those with an appetite erp2 for mergers and acquisitions often find that multiple business units across the company make the same widget using different methods and computer systems. ERP systems come with standard methods for automating some of the steps of a manufacturing process. Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce head count.

4. Reduce inventory ERP helps the manufacturing process flow more smoothly, and it improves visibility of the order fulfillment process inside the company. That can lead to reduced inventories of the stuff used to make products (work-in-progress inventory), and it can help users better plan deliveries to customers, reducing the finished good inventory at the warehouses and shipping docks. To really improve the flow of your supply chain, you need supply chain software, but ERP helps too.

5. Standardize HR information, Especially in companies with multiple business units, HR may not have a unified, simple erp2 method for tracking employees time and communicating with them about benefits and services. ERP can fix that.

In the race to fix these problems, companies often lose sight of the fact that ERP packages are nothing more than generic representations of the ways a typical company does business. While most packages are exhaustively comprehensive, each industry has its quirks that make it unique. Most ERP systems were designed to be used by discrete manufacturing companies (that make physical things that can be counted), which immediately left all the process manufacturers (oil, chemical and utility companies that measure their products by flow rather than individual units) out in the cold. Each of these industries has struggled with the different ERP vendors to modify core ERP programs to their needs.

To help address industry-specific problems and customization needs, ERP vendors have recently begun to offer specially tailored application sets to take care of each vertical segments needs. There still is customization work to do to satisfy each and every customer, but packaged applications now target such industries as: retail, media, utilities, high-tech, public sector, higher education and banking. In addition, ERP vendors have further tailored application to address the individual concerns within the broad manufacturing space. These range from consumer products to construction to HVAC to aerospace and defense companies.

Will ERP fit the ways I do business?

Its critical for companies to figure out if their ways of doing business will fit within a standard ERP package before the checks are erp2 signed and the implementation begins. The most common reason that companies walk away from multimillion-dollar ERP projects is that they discover the software does not support one of their important business processes. At that point there are two things they can do: They can change the business process to accommodate the software, which will mean deep changes in long-established ways of doing business (that often provide competitive advantage) and shake up important peoples roles and responsibilities (something that few companies have the stomach for). Or they can modify the software to fit the process, which will slow down the project, introduce dangerous bugs into the system and make upgrading the software to the ERP vendors next release excruciatingly difficult because the customizations will need to be torn apart and rewritten to fit with the new version.

Needless to say, the move to ERP is a project of breath taking scope, and the price tags on the front end are enough to make the most placid CFO a little twitchy. In addition to budgeting for software costs, financial executives should plan to write checks to cover consulting, process rework, integration testing and a long laundry list of other expenses before the benefits of ERP start to manifest themselves. Under estimating the price of teaching users their new job processes can lead to a rude shock down the line, and so can failure to consider data warehouse integration requirements and the cost of extra software to duplicate the old report formats. A few oversights in the budgeting and planning stage can send ERP costs spiraling out of control faster than oversights in planning almost any other information system undertaking.

What are the other stuff required for implementation of an ERP?

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

1. Training - Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. erp2 Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a curriculum yourself that identifies and explains the different business processes that will be affected by the ERP system. One enterprising CIO hired staff from a local business school to help him develop and teach the ERP business-training course to employees. Remember that with ERP, finance people will be using the same software as warehouse people and they will both be entering information that affects the other. To do this accurately, they have to have a much broader understanding of how others in the company do their jobs than they did before ERP came along. Ultimately, it will be up to your IT and business people to provide that training. So take whatever you have budgeted for ERP training and double or triple it up front. It will be the best ERP investment you ever make.

2. Integration and testing - Testing the links between ERP packages and other corporate software links that have to be erp2 built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on applic ations from the major e-commerce and supply chain to the minor sales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendor that are pre-integrated, youre better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order entry through shipping and receipt of payment the whole order-to-cash banana preferably with the participation of the employees who will eventually do those jobs.

3. Customization - Add-ons are only the beginning of the integration costs of ERP. Much more costly, and something to be erp2 avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software cant handle one of your business processes and you decide to mess with the software to make it do what you want. You're playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package no walk in the park under the best of circumstances becomes a nightmare because you'll have to do the customization all over again in the new version. May be it will work, maybe it wont. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain it.

4. Data conversion - It costs money to move corporate information, such as customer and supplier records, erp2 product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated or inspired by the ERP implementation.

a. Data analysis - Often, the data from the ERP system must be combined with data from external systems erp2 for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget.

b. Consultants ad infinitum - When users fail to plan for disengagement, consulting fees run wild. To avoid this, erp2 companies should identify objectives for which its consulting partners must aim when training internal staff. Include metrics in the consultants contract; for example, a specific number of the user companys staff should be able to pass a project-management leadership test similar to what Big Five consultants have to pass to lead an ERP engagement.

c. Replacing your best and brightest - It is accepted wisdom that ERP success depends on staffing the project with the best erp2 and brightest from the business and IS divisions. The software is too complex and the business changes too dramatic to trust the project to just anyone. The bad news is a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was, consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford or that your HR policies permit. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. If you let them go, you'll wind up hiring them or someone like them back as consultants for twice what you paid them in salaries.

d. Implementation teams can never stop - Most companies intend to treat their ERP implementation as they would any other software project. erp2 Once the software is installed, they figure the team will be scuttled and everyone will go back to his or her day job. But after ERP, you cant go home again. The implementers are too valuable. Because they have worked intimately with ERP, they know more about the sales process than the sales people and more about the manufacturing process than the manufacturing people. Companies cant afford to send their project people back into the business because there's so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis and, one hopes, insight that companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post-ERP installation activity, and fewer still build it into their budgets when they start their ERP projects. Many are forced to beg for more money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.

e. Waiting for ROI - One of the most misleading legacies of traditional software project management is that the company expects to gain erp2 value from the application as soon as it is installed, while the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most of the systems dont reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.

f. Post-ERP depression - ERP systems often wreak cause havoc in the companies that install them. In a Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When people cant do their jobs in the familiar way and have'nt yet mastered the new way, they panic, and the business goes into spasms.

Why do ERP projects fail so often?

At its simplest level, ERP is a set of best practices for performing different duties in your company, including finance, HR, manufacturing erp2 and the warehouse. To get the most from the software, you have to get people inside your company to adopt the work methods outlined in the software. If the people in the different departments that will use ERP dont agree that the work methods embedded in the software are better than the ones they currently use, they will resist using the software or will want IT to change the software to match the ways they currently do things. This is where ERP projects break down. Political fights break out over how or even whether the software will be installed. IT gets bogged down in long, expensive customization efforts to modify the ERP software to fit with powerful business barons wishes. Customizations make the software more unstable and harder to maintain when it finally does come to life. The horror stories you hear in the press about ERP can usually be traced to the changes the company made in the core ERP software to fit its own work methods. Because ERP covers so much of what a business does, a failure in the software can bring a company to a halt, literally.

But IT can fix the bugs pretty quickly in most cases, and besides, few big companies can avoid customizing ERP in some fashion every business is erp2 different and is bound to have unique work methods that a vendor cannot account for when developing its software. The mistake companies make is assuming that changing peoples habits will be easier than customizing the software. Its not. Getting people inside your company to use the software to improve the ways they do their jobs is by far the harder challenge. If your company is resistant to change, then your ERP project is more likely to fail.

One cautionary tale that came to light in 2008 illustrates that sometimes there is a big difference between what an ERP vendor promises to deliver in its software and what actually is ready for prime-time enterprise use. Trash-disposal company Waste Management announced in March 2008 that it was suing SAP, seeking the recovery of $100 million in project expenses that related to a failed ERP implementation that had started in 2005. In the complaint, Waste Management alleges that SAP executives participated in a fraudulent sales scheme and that SAP’s Waste and Recycling ERP product was actually “fake software” that was still not ready for Waste Management’s use by spring 2008.

How do I configure ERP software?

Even if a company installs on-premise ERP software for the so-called right reasons and everyone can agree on the optimal definition of a erp2 customer, the inherent difficulties of implementing something as complex as ERP is like, well, teaching an elephant to do the hootchy-kootchy. The packages are built from database tables, thousands of them, that IS programmers and end users must set to match their business processes; each table has a decision “switch” that leads the software down one decision path or another. By presenting only one way for the company to do each task say, run the payroll or close the books a companys individual operating units and far-flung divisions are integrated under one system. But figuring out precisely how to set all the switches in the tables requires a deep understanding of the existing processes being used to operate the business. As the table settings are decided, these business processes are reengineered, ERPs way. Most ERP systems are not shipped as a shell system in which customers must determine at the minutia level how all the functional procedures should be set, making thousands of decisions that affect how their system behaves in line with their own business activities. Most ERP systems are preconfigured, allowing just hundreds rather than thousands of procedural settings to be made by the customer.

Even the new on-demand or software-as-a-service (SaaS) ERP offerings necessitate some system configuration and customization to each company’s individual requirements. This process, however, generally takes less time and resources than with an ERP application that’s installed on-premise.

How do companies organize their ERP projects?

Based on our observations, there are three commonly used ways of installing ERP.

The Big Bang - In this, the most ambitious and difficult of approaches to ERP implementation, companies cast off all their erp2 legacy systems at once and install a single ERP system across the entire company. Though this method dominated early ERP implementations, few companies dare to attempt it anymore because it calls for the entire company to mobilize and change at once. Most of the ERP implementation horror stories from the late 90s warn us about companies that used this strategy. Getting everyone to cooperate and accept a new software system at the same time is a tremendous effort, largely because the new system will not have any advocates. No one within the company has any experience using it, so no one is sure whether it will work. Also, ERP inevitably involves compromises. Many departments have computer systems that have been honed to match the ways they work. In most cases, ERP offers neither the range of functionality nor the comfort of familiarity that a custom legacy system can offer. In many cases, the speed of the new system may suffer because it is serving the entire company rather than a single department. ERP implementation requires a direct mandate from the CEO.

Franchising strategy - This approach suits large or diverse companies that do not share many common processes across business units. erp2 Independent ERP systems are installed in each unit, while linking common processes, such as financial book-keeping, across the enterprise. This has emerged as the most common way of implementing ERP. In most cases, the business units each have their own “instances” of ERP that is, a separate system and database. The systems link together only to share the information necessary for the corporation to get a performance big picture across all the business units (business unit revenues, for example), or for processes that don't vary much from business unit to business unit (perhaps HR benefits). Usually, these implementations begin with a demonstration or pilot installation in a particularly open-minded and patient business unit where the core business of the corporation will not be disrupted if something goes wrong. Once the project team gets the system up and running and works out all the bugs, the team begins selling other units on ERP, using the first implementation as a kind of in-house customer reference. Plan for this strategy to take a long time.

Slam dunk - ERP dictates the process design in this method, where the focus is on just a few key processes, such as those contained tsp in an ERP systems financial module. The slam dunk is generally for smaller companies expecting to grow into ERP. The goal here is to get ERP up and running quickly and to ditch the fancy reengineering in favor of the ERP systems “canned” processes. Few companies that have approached ERP this way can claim much payback from the new system. Most use it as an infrastructure to support more diligent installation efforts down the road. Yet many discover that a slammed-in ERP system is little better than a legacy system because it doesnt force employees to change any of their old habits. In fact, doing the hard work of process reengineering after the system is in can be more challenging than if there had been no system at all because at that point few people in the company will have felt much benefit.

The On-Demand Nibble You’re most likely to see this approach in a small or midsize business that’s lost its patience for Excel spreadsheets and the fax machine, and in large companies that either have massive operations and will never be able to standardize on one system or have been burned by costly and not-so-satisfying ERP rollouts in the past. In this instance, companies turn to a small but growing number of on-demand or Software-as-a-Service (SaaS) ERP vendors that can offer faster implementation times (there’s no software to install on-premise, and that literally shaves months off installation periods); easier and more frequent upgrades (they can happen automatically because the vendor manages the applications and can roll out patches and bug fixes more regularly); and cheaper up-front costs (the software price tag can be much cheaper than traditional on-premise applications because of subscription pricing that is on a “per user, per month” basis as well as big reductions in integration and consulting fees).

Why companies are just “dipping their toes” in the on-demand and SaaS waters right now is because those companies (and their vigilant IT departments) still have concerns about housing their mission-critical and highly sensitive ERP data (such as HR and financial) on a third party’s servers and not their own.

Does ERP fit with e-commerce?

ERP vendors were not prepared for the onslaught of e-commerce. ERP is complex and not intended for public consumption. It assumes that the erp2 only people handling order information will be your employees, who are highly trained and comfortable with the tech jargon embedded in the software. But now customers and suppliers are demanding access to the same information your employees get through the ERP system things like order status, inventory levels and invoice reconciliation except they want to get all this information simply, without all the ERP software jargon, through your website.

E-commerce means IT departments need to build two new channels of access in to ERP systems one for customers (otherwise known as business-to-consumer) erp2 and one for suppliers and partners (business-to-business). These two audiences want two different types of information from your ERP system. Consumers want order status and billing information, and suppliers and partners want just about everything else.

Traditional ERP vendors are having a hard time building the links between the Web and their software, though they certainly all realize that they erp2 must do it and have been hard at work at it for years. The bottom line, however, is that companies with e-commerce ambitions face a lot of hard integration work to make their ERP systems available over the Web. For those companies that were smart or lucky enough to have bought their ERP systems from a vendor experienced in developing e-commerce wares, adding easily integrated applications from that same vendor can be a money-saving option. For those companies whose ERP systems came from vendors that are less experienced with e-commerce development, the best and possibly only option might be to have a combination of internal staff and consultants hack through a custom integration.

But no matter what the details are, solving the difficult problem of integrating ERP and e-commerce requires careful planning, which is key to getting integration off on the right track.

One of the most difficult aspects of ERP and e-commerce integration is that the Internet never stops. ERP applications are big and complex and require maintenance. The choice is stark if ERP is linked directly to the Web take down your ERP system for maintenance and you take down your website. Most e-commerce veterans will build flexibility into the ERP and e-commerce links so that they can keep the new e-commerce applications running on the Web while they shut down ERP for upgrades and fixes.

The difficulty of getting ERP and e-commerce applications to work together not to mention the other applications that demand ERP information erp2 such as Supply Chain and CRM software has led companies to consider software known alternately as middleware and EAI software. These applications act as software translators that take information from ERP and convert it into a format that e-commerce and other applications can understand. Middleware has improved dramatically in recent years, and though it is difficult to sell and prove ROI on the software with business leaders it is invisible to computer users it can help solve many of the biggest integration that plague IT these days.

How do on-demand and software-as-a-service ERP applications work?

A small but growing number of vendors now offer on-demand or Software-as-a-Service (SaaS) ERP applications. These HR and finance applications erp2 are hosted by a third party, so there’s no software to install on your company’s servers and PCs. Instead, users access the ERP applications via a Web connection, and on-demand / SaaS vendors are trying to make their applications more “user friendly” than traditional on-premise applications. (Though, to be fair, traditional on-premise ERP vendors are also trying to make their applications easier to consume.) The three main selling points that on-demand/SaaS vendors employ are faster implementation times (there’s no software to install on-premise, and that literally shaves months off installation periods); easier and more frequent upgrades (they can happen automatically because the vendor manages the applications and can roll out patches and bug fixes more regularly); and cheaper up-front costs (the software price tag can be much cheaper than traditional on-premise applications because of subscription pricing that is on a “per user, per month” basis as well as big reductions in integration and consulting fees).

Many businesses and their ever vigilant IT departments still have concerns about keeping their mission-critical and highly sensitive ERP data on a erp2 third party’s servers rather than on their own. An October 2007 CIO magazine survey of IT executives who currently had an ERP system installed found that just 9 percent reported using a non-traditional on-premise model. Those alternatives included SaaS, open-source tools and various in-house applications. Nearly 54 percent of those responding to the CIO survey said they probably or definitely would not consider moving to an alternative ERP model. And while 35 percent of CIOs said they would probably or definitely consider trying something different, they’re not actually doing it yet.

The majority of early adopters of the on-demand / SaaS ERP alternative are small and midsize businesses, though large companies, perhaps burned by a costly or lengthy ERP rollout, have started to experiment with on-demand / SaaS rollouts in certain areas or departments at their companies.

How do I know my ERP data is any good?

When you start talking about data integrity and just how “clean” your enterprise data is, you’ll usually hear about the goal of getting erp2 to “one version of the truth” with your ERP data. As usually is the case, the bigger the company, the more systems it has with more employees that need to touch those systems, and the more complicated it becomes to keep data accurate and timely. Most of time, companies don’t want to know just how dirty their data is. But when companies do start “peeling back the onion” in an attempt to remedy their data ills, what they typically find is a hodge-podge of systems and anywhere from a dozen to hundreds of financial and HR data sources. Therefore, the job of new data management techniques, such as master data management (MDM), is to rectify those inconsistencies by creating an integrated and standards-laden system that automatically fixes data discrepancies. (Beware: It’s not easy). Because ERP systems are the backbones of most businesses, they are a key piece of any data-management overhaul. General ledgers, financial data repositories, reporting applications, purchase orders, invoices, customer contact information, inventory data, performance management tools they will all be apart of any company’s data management initiative.

Components of an ERP

Transactional Backbone

Financials

Distribution

Human Resources

Product lifecycle management

Advanced Applications

Customer Relationship Management (CRM)

Supply chain management

Purchasing

Manufacturing

Distribution

Warehouse Management System

Management Portal/Dashboard

Decision Support System

These modules can exist in a system or utilized in an ad-hoc fashion.

Just how important have ERP systems become?

An October 2007 CIO magazine survey of nearly 400 IT executives who had an ERP system installed found that more than 85 percent of them agreed or strongly agreed that their ERP systems were essential to the core of their businesses, and that they “could not live without them.” Though there has been recent IT scuttlebutt that ERP systems are now shrugged off as legacy inside 21st-century businesses, almost 80 percent of those surveyed disagreed or strongly disagreed with the statement, “My company views ERP systems as legacy systems and no longer invests in them.” And when asked if their company would be able to live without its ERP systems within the next five years, more than 80 percent disagreed or strongly disagreed. For better or worse, ERP systems are here to stay.

Commercial applications of an ERP

Manufacturing

Engineering, bills of material, work orders, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects, manufacturing flow.

Supply chain management

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, activity management.

Human resources

Human resources, payroll, training, time and attendance, rostering, benefits.

Customer relationship management

Sales and marketing, commissions, service, customer contact, call-center support.

Data services

Various “self-service” interfaces for customers, suppliers and /or employees.

Access control

Management of user privileges for various processes.

Implementation of the ERP

Businesses have a wide scope of applications and processes throughout their functional units; producing ERP software systems that erp2 are typically complex and usually impose significant changes on staff work practices. Implementing ERP software is typically too complex for “in-house” skill, so it is desirable and highly advised to hire outside consultants who are professionally trained to implement these systems. This is typically the most cost effective way. There are three types of services that may be employed for – Consulting, Customization, Support.[13] The length of time to implement an ERP system depends on the size of the business, the number of modules, the extent of customization, the scope of the change and the willingness of the customer to take ownership for the project. ERP systems are modular, so they don’t all need be implemented at once. It can be divided into various stages, or phase-ins. The typical project is about 14 months and requires around 150 consultants. A small project (e.g., a company of less than 100 staff) can be planned and delivered within 3 – 9 months; however, a large, multi-site or multi-country implementation can take years. The length of the implementations is closely tied to the amount of customization desired.

To implement ERP systems, companies often seek the help of an ERP vendor or of third-party consulting companies. These firms typically provide three areas of professional services: consulting; customization; and support. The client organization can also employ independent program management, business analysis, change management, and UAT specialists to ensure their business requirements remain a priority during implementation.

Data Migration of an ERP

Data migration is one of the most important activities in determining the success of an ERP implementation. Since many decisions must be made before migration, a significant amount of planning must occur. Unfortunately, data migration is the last activity before the production phase of an ERP implementation, and therefore receives minimal attention due to time constraints. The following are steps of a data migration strategy that can help with the success of an ERP implementation:

1. Identifying the data to be migrated.

2. Determining the timing of data migration.

3. Generating the data templates.

4. Freezing the tools for data migration.

5. Deciding on migration related setups.

6. Deciding on data archiving.

Consulting services

Many organizations do not have sufficient internal skills to implement an ERP project. This results in many organizations offering consulting services for ERP implementation. Typically, a consulting team is responsible for the entire ERP implementation including, Selecting, Planning, Training, Testing, Implementation, Delivery, of any customized modules. Examples of customization includes creating processes and reports for compliance, additional product training; creation of process triggers and workflow; specialist advice to improve how the ERP is used in the business; system optimization; and assistance writing reports, complex data extracts or implementing Business Intelligence.

For most mid-sized companies, the cost of the implementation will range from around the list price of the ERP user licenses to up to erp2 twice this amount (depending on the level of customization required). Large companies, and especially those with multiple sites or countries, will often spend considerably more on the implementation than the cost of the user licenses three to five times more is not uncommon for a multi-site implementation.

Unlike most single-purpose applications, ERP packages have historically included full source code and shipped with vendor-supported team IDEs for customizing and extending the delivered code. During the early years of ERP the guarantee of mature tools and support for extensive customization was an important sales argument when a potential customer was considering developing their own unique solution in-house, or assembling a cross-functional solution by integrating multiple "best of breed" applications.

Core system” customization vs configuration

Increasingly, ERP vendors have tried to reduce the need for customization by providing built-in “configuration” tools erp2 to address most customers’ needs for changing how the out-of-the-box core system works. Key differences between customization and configuration include:

Customization is always optional, whereas some degree of configuration (e.g., setting up cost/profit centre structures, organisational trees, purchase approval rules, etc.) may be needed before the software will work at all.

Configuration is available to all customers, whereas customization allows individual customer to implement proprietary “market-beating” processes.

Configuration changes tend to be recorded as entries in vendor-supplied data tables, whereas customization usually requires some element of programming and/or changes to table structures or views.

The effect of configuration changes on the performance of the system is relatively predictable and is largely the responsibility of the ERP vendor. The effect of customization is unpredictable and may require time-consuming stress testing by the implementation team.

Configuration changes are almost always guaranteed to survive upgrades to new software versions. Some customizations (e.g. code that uses pre-defined “hooks” that are called before/after displaying data screens) will survive upgrades, though they will still need to be re-tested. More extensive customizations (e.g. those involving changes to fundamental data structures) will be overwritten during upgrades and must be re-implemented manually.

By this analysis, customizing an ERP package can be unexpectedly expensive and complicated, and tends to delay delivery of the obvious benefits of an integrated system. Nevertheless, customizing an ERP suite gives the scope to implement secret recipes for excellence in specific areas while ensuring that industry best practices are achieved in less sensitive areas.

Extensions

In this context, “Extensions” refers to ways that an ERP environment can be “extended” (supplemented) with third-party programs. It is technically easy to expose most ERP transactions to outside programs that do other things, e.g.

archiving, reporting and republishing (these are easiest to achieve, because they mainly address static data);

performing transactional data captures, e.g. using scanners, tills or RFIDs (also relatively easy because they touch existing data);

However, because ERP applications typically contain sophisticated rules that control how data can be created or changed, some such functions can be very difficult to implement.

Advantages of an ERP

In the absence of an ERP system, a large manufacturer may find itself with many software applications that cannot communicate or interface effectively with one another. Tasks that need to interface with one another may involve:

ERP systems connect the necessary software in order for accurate forecasting to be done. This allows inventory levels to be kept at maximum efficiency and the company to be more profitable.

Integration among different functional areas to ensure proper communication, productivity and efficiency.

Design engineering (how to best make the product).

Order tracking, from acceptance through fulfillment.

The revenue cycle, from invoice through cash receipt.

Managing inter-dependencies of complex processes bill of materials.

Tracking the three-way match between purchase orders (what was ordered), inventory receipts (what arrived), and costing (what the vendor invoiced).

The accounting for all of these tasks: tracking the revenue, cost and profit at a granular level.

ERP Systems centralize the data in one place. Benefits of this include:

Eliminates the problem of synchronizing changes between multiple systems – consolidation of finance, marketing and sales, human resource, and manufacturing applications.

Permits control of business processes that cross functional boundaries.

Provides top-down view of the enterprise (no “islands of information”), real time information is available to management anywhere, anytime to make proper decisions.

Reduces the risk of loss of sensitive data by consolidating multiple permissions and security models into a single structure.

Shorten production leadtime and delivery time.

Facilitating business learning, empowering, and building common visions.

Some security features are included within an ERP system to protect against both outsider crime, such as industrial espionage, and insider crime, such as embezzlement. A data-tampering scenario, for example, might involve a disgruntled employee intentionally modifying prices to below-the-breakeven point in order to attempt to interfere with the company’s profit or other sabotage. ERP systems typically provide functionality for implementing internal controls to prevent actions of this kind. ERP vendors are also moving toward better integration with other kinds of information security tools.

Disadvantages of an ERP

Problems with ERP systems are mainly due to inadequate investment in ongoing training for the involved IT personnel – including those implementing and testing changes – as well as a lack of corporate policy protecting the integrity of the data in the ERP systems and the ways in which it is used.

Disadvantages

Customization of the ERP software is limited.

Re-engineering of business processes to fit the “industry standard” prescribed by the ERP system may lead to a loss of competitive advantage.

ERP systems can be very expensive (This has led to a new category of “ERP light” solutions).

ERPs are often seen as too rigid and too difficult to adapt to the specific workflow and business process of some companies this is cited as one of the main causes of their failure.

Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time “dirty data” will reduce the reliability of some applications.

Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).

The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.

Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

Some large organizations may have multiple departments with separate, independent resources, missions, chains-of-command, etc, and consolidation into a single enterprise may yield limited benefits.

Basic Feature of an ERP

COMPARING midmarket ERP packages is not exactly an apples-to-apples type of exercise. Each vendor wraps its midmarket offering erp2 with different functionality, tailored to the needs of the kinds of companies the solution is intended for and based on the vendor’s particular areas of expertise.

However, almost every midmarket ERP suite shares several common modules: BI, CRM, financial management, HCM, manufacturing operations and SCM. The differences among solutions tend to be quite granular within these modules. Also, even if different packages offer the same feature – say, sales-order management – it might not be bundled in the same module; some vendors include sales-order management in their CRM suites while others package it in their SCM suites.

Key to an ERP package is tight integration between modules, so that all of the core business modules are related. For instance, manufacturing operations are integrated with customer service, logistics and delivery.

Business Intelligence

One of the newer components of most modern midmarket ERP packages, BI shines a bright light into the heart of a company’s performance. In general, an ERP suite’s analytics or BI tools allow users to share and analyze the data that the ERP applications collect from across the enterprise from a unified repository. The end result is more informed decision making by everyone from executives to line managers to human-resources professionals to accountants. A variety of automated reporting and analysis tools can help streamline operations, as well as improve an organization’s business performance. With greater control and visibility of data across the enterprise, business leaders can better align the company’s operations with its overarching strategic goals.

CRM (Customer Relationship Management)

CRM has long been a core component of any ERP offering, giving manufacturers a way to improve customer service by pulling together tools to fulfill customers’ orders, respond to customers’ service needs, and often, create marketing campaigns to reach customers.

Most vendors include sales tools to provide customers with sales quotes, process their orders and offer flexible pricing on their products. erp2 Another important CRM component is service management, which may arm customer-service agents with scripts for talking to customers, as well as allow them to authorize product returns and search a knowledge base of support information. The third main component is usually marketing, which may include tools to manage campaigns, create sales literature and develop a library of marketing collateral.

Additionally, CRM often has tools for account management, SFA, and opportunity or lead management, as well as self-service tools for customers and an e-commerce storefront builder.

Financial Management

Of all the ERP modules, the financials applications tend to be the most frequently utilized. Across the board, these include general ledger, erp2 accounts receivable and accounts payable, billing, and fixed asset management. Because many midmarket companies deploy ERP to support efforts at breaking into global markets, it is imperative that their ERP packages support multiple currencies and languages.

The financial-management applications may also include tools for creating and adhering to budgets, cash-flow management, expense management, risk management and tax management.

HCM (Human Capital Management)

For the most part, the HCM module includes tools for human-resources management, performance management, payroll, and time and labor tracking. Some vendors also provide functionality for administering benefits, managing compensation, dealing with salary taxes, recruiting new employees and planning workforce needs. Some also include self-service tools for managers and employees.

Even though HCM is generally considered core ERP functionality, some vendors offer it as an add-on module.

Manufacturing Operations

The manufacturing module is where much product differentiation happens, including industry-specific functionality. In general, these applications are intended to make manufacturing operations more efficient and simple. Most vendors support different modes of manufacturing, include configurable product capabilities, perform different types of job costing and offer a BOM (Bill Of Materials) tool.

Applications often include PDM (Product Data Management), CRP (Capacity Requirements Planning), MRP (Materials Requirements Planning), forecasting, MPS (Master Production Scheduling), work-order management and shop-floor control.

SCM (Supply Chain Management)

Of all the ERP modules, SCM has the greatest variability between vendors: It is vast and varied, yet often adapted to the needs of specific erp2 industries. In general, SCM improves the flow of materials through an organization’s supply chain by “managing planning, scheduling, procurement, and fulfillment for optimum service levels and maximum profitability,” according to Lawson Software. Some vendors segment their SCM into smaller modules. Oracle’s JD Edwards, for instance, breaks it down into Supply Chain Planning, Supply Chain Execution (Logistics) and Supply Management (Procurement).

SCM features tend to include also production scheduling, demand management, distribution management, inventory management, warehouse management, procurement, sourcing and order management.

Basic Features of an ERP

Enterprise Resource Planning, the best application software, streamlines entire business operations of any company. It integrates all the erp2 functional departments like production, accounts, sales and human resources of the organization. Stick to this article to know more about the features of ERP application.

ERP has got all the sophisticated features to cater the business needs. The core feature of ERP software is the single database. All the departments are connected to the single database where in data of the each and every department can be stored. ERP may not take the decisions but, it definitely helps the management in taking some important decisions. In a nutshell, it acts as a ‘Decision Support System’ in the company. With all the Business information stored at the central location ERP acts as Management Information System also.

Financial Module: ERP Financial module is tightly integrated with all functional departments in the company. It helps you in generating financial reports such as Profitability Report, Cost Center Analysis report, Management Information Report.

Manufacturing Module: Manufacturing module provides an integrated business environment for performing manufacturing and erp2 scheduling tasks. ERP constitutes of all the basic functionalities to mange entire supply chain process across the production units. Other than these above features, it contains other features like Master Production Schedule, Shop Floor Control, Bill of Material, Engineering Change Note, and Sales and Distribution.

Human Resource Management: Human resource management is one complete solution which you can get as individual package or integrated with ERP application. It will take care of Payroll Management, Personnel Management, Organization Management, Recruiting, Training, Time Management and Personal Development.

Inventory and Material Management Module: Inventory module helps in maintaining the exact level of stock in warehouse and throws you all the concerned reports on your inventory information.

Supplier Management and Purchase Order Management: Purchase module automates entire process of getting raw materials, packaging materials and any sub contracting work. The purchase module can be successfully integrated with the Production Planning and Inventory Control Modules.

Total Quality Management (TQM): It is a great feature built in all the enterprise resource planning applications. Total quality management is strongly integrated with Quality Control Management.

Plant Maintenance Module: Plant maintenance module gives you the reports on the machine capabilities, downtime analysis and location of the plant. This feature helps you in tracking of components like spare parts and replacements.

Excise Management: This feature takes care of the excise duty normally levied on the manufacturing products. If you are manufacturing the product that attracts excise duty, you are liable to pay the tax on the product. ERP will help you tracking all these tax related information and everything will be updates to the accounts automatically on a regular basis.

With all these features, enterprise resource planning is one of the best application software that can cater the needs of any company. All you need to do is evaluate the best product in the market and implement in your environment. It will streamline all the business operations in the company.

How long will an ERP project take?

Companies that install ERP do not have an easy time of it. Dont be fooled when ERP vendors tell you about a three or six month average erp2 implementation time. Those short (thats right, six months is short) implementations all have a catch of one kind or another: The company was small, or the implementation was limited to a small area of the company, or the company used only the financial pieces of the ERP system (in which case the ERP system is nothing more than a very expensive accounting system). To do ERP right, the ways you do business will need to change and the ways people do their jobs will need to change too. And that kind of change doesnt come without pain. Unless, of course, your ways of doing business are working extremely well (orders all shipped on time, productivity higher than all your competitors, customers completely satisfied), in which case there is no reason to even consider ERP.

The important thing is not to focus on how long it will take real transformational ERP efforts usually run between one and three years, on average but rather to understand why you need it and how you will use it to improve your business.

Over the last few years, however, Internet-driven changes have occurred that can drastically reduce how long it takes vendors to deliver ERP modules. These faster implementations (meaning weeks, not years) are the result of a new category of ERP software delivery referred to as on-demand or software-as-a-service (SaaS). Typically, on-demand and SaaS ERP applications (such as finance or HR packages) are hosted by a third party, and customers access the multitenant (or shared) ERP applications via a Web connection. Because the software doesn’t need to be installed as in the traditional on-premise manner, implementation times can be drastically shorter than implementing ERP applications on-premise.

What does ERP really cost?

One of the most often-cited studies of the Total Cost of Ownership (TCO) of ERP was completed by Meta Group in 2002. erp2 (Gartner acquired Meta Group in 2005.) This TCO study accounted for hardware, software, professional services and internal staff costs. Costs included initial installation and the two year period that followed, which is when the real costs of maintaining, upgrading and optimizing the system for your business are felt. Among the 63 companies surveyed including small, medium and large companies in a range of industries the average TCO was $15 million (the highest was $300 million and lowest was $400,000). While its hard to draw a solid number from that kind of range of companies and ERP efforts, Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it. The TCO for a “heads-down” user over that period was a staggering $53,320.

Results from a 2007 Aberdeen Group survey of more than 1,680 manufacturing companies of all sizes found a correlation between the erp2 size of an ERP deployment and the total costs. Therefore, “as a company grows, the number of users go up, along with the total cost of software and services,” states the Aberdeen report. For example, a company with less than $50 million in revenue should expect to pay an average of $384,295 in total ERP costs, according to the survey results. A mid-market company with $50 million to $100 million in revenues can expect to pay (on average) just over a $1 million in total costs; a much bigger mid-market company, with $500 million to $1 billion in revenues, should expect to pay just over $3 million in total costs. And those companies with more than $1 billion in revenues can expect to pay, on average, nearly $6 million in total ERP costs.

Will I get payback from ERP and how much will it be?

Dont expect to revolutionize your business with ERP. It is a navel-gazing exercise that focuses on optimizing the way things are erp2 done internally rather than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if youre willing to wait for it a 2002 Meta Group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system were $1.6 million.

What’s interesting to note is that according to a the results of a 2007 Aberdeen Group survey of more than 1,680 manufacturing companies erp2 of all sizes, those companies that pay the closest attention to return on investment (ROI) at the outset of an ERP engagement “reap far more rewards” than those companies that don’t. The companies that Aberdeen Group identified as “best performing” were able to produce, on average, 93 percent more improvement with their ERP systems across a variety of metrics such as cost reductions, schedule performance, headcount reduction or redeployment, and quality improvements, states the Aberdeen Group survey results.

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