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Enterprise resource planning

Semester 5th
BSc (IT)
Chapter: 1
1. Introduction to ERP
2. Evolution of ERP
3. What is ERP?
4. Reason for the growth of ERP
5. Scenario and Justification of ERP in India
6. Evaluation of ERP
7. Various modules of ERP
8. Advantages of ERP

1. Introduction to ERP

Short for enterprise resource planning, a business management system that integrates all
facets of the business, including planning, manufacturing, sales, and marketing.
As the ERP methodology has become more popular, software applications have emerged
to help business managers implement ERP in business activities such as inventory
control, order tracking, customer service, finance and human resources.

Enterprise resource planning's true ambition is to integrate all departments and functions
across a company onto a single computer system that can serve all those different
departments' particular needs.
Thus ERP attempts to integrate all departments and functions across a company onto a
single computer system that can serve all those different departments' particular needs.

ERP systems are IT systems which are meant to serve all the IT needs of a manufacturing
company. ERP stands for "Enterprise Resource Planning". This type of system has
evolved from earlier MRP and MRPII systems.

MRP stands for "Material Requirements Planning", and is a computer technique for
taking a product schedule as input and generating works and purchase orders as output.

MRP II was a later development of MRP which arose because MRP needed a set of
business processes surrounding it to make it effective. Not all of the business processes
needed IT support, but others did, hence MRPII systems supported a wider range of
business processes than MRP. The name MRPII came about because the new set of
business processes was called "Manufacturing Resource Planning", and because the
initials were the same as MRP, the II was tagged on.
MRPII systems tended to be so wide in scope that eventually systems developed towards
giving IT support to all parts of a manufacturing company. This is when the term ERP
came into use to signify its enterprise-wide scope.

2. Evolution of ERP
The history of ERP can be traced back to the 1960’s, when the focus of systems was
mainly towards inventory control. Most of the systems software were designed to handle
inventory based in traditional inventory concepts. The 1970’s witnessed a shift of focus
towards MRP (Material Requirement Planning).

This system helped in translating the master production schedule into requirements for
individual units like sub assemblies, components and other raw material planning and
procurement. This system was involved mainly in planning the raw material

Then, in 1980’s came the concept of MRP-II i.e. the Manufacturing Resource Planning
which involved optimizing the entire plant production process. Though MRP-II, in the
beginning was an extension of MRP to include shop floor and distribution management
activities, during later years, MRP-II was further extended to include areas like Finance,
Human Resource, Engineering, Project Management etc.

This gave birth to ERP (Enterprise Resource Planning) which covered the cross-
functional coordination and integration in support of the production process. The ERP as
compared to its ancestors included the entire range of a company’s activities. ERP
addresses both system requirements and technology aspects including client/server
distributed architecture, RDBMS, object oriented programming etc.

Evaluation Criteria
1. Some important points to be kept in mind while evaluating ERP software include
2. Functional fit with the Company’s business processes.
3. Degree of integration between the various components of the ERP system
4. Flexibility and scalability
5. User friendliness
6. Ease of implementation
7. Ability to support multi-site planning and control
8. Technology - client/server capabilities, database independence, security
9. Availability of regular upgrades
10. Amount of customization required
11. Local support infrastructure
12. Reputation and sustainability of the ERP vendor
13. Total costs, including cost of license, training, implementation, maintenance,
customization and hardware requirements.
Why ERP?
1. To Enhance Profitability:
a) Increase in sales
b) /or Reduce Procurement Cost

2. for Healthy Operations:

a) Integration of Systems across the Functional Departments in a
Company as well as across the Enterprise as a Whole.
b) Better Customer Service.
c) Introduction of Latest Technologies as and when the are ready for the
Industry acceptance
d) Expertise database
e) Avoids data redundancy

3. Competition in the Market:

a) Manufacturing Challenges.
b) Manufacturing Globally.
c) Distribution network spread.
d) New Product introduction.
e) Lower manufacturing lead time.
f) Focus on industry markets.
g) Satisfying the needs of customers.
h) Develop specific business methods and processes.
i) Integration with third party products.

4. Demands on the Industry:

a) Better products at lower costs
b) Tough competition
c) Need to analyze costs / revenues on a product or customer basis
d) Flexibility to respond to changing business requirements
e) More informed management decision making

5. Solving the Problems:

a) Unable to get accurate, timely information
b) Applications not complete for existing business practices
c) Modifications are time consuming or not feasible

Solving these Problems will the company ahead of competition!

The advantages of ERP
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.

The following are some of the direct benefits of an ERP system:

1. Business Integration
2. Flexibility
3. Better Analysis and Planning Capabilities
4. Use of Latest Technology.

1. Business Integration: The first and most important advantage lies in the promotion of
integration. The reason why ERP packages are considered to the integrated, is the
automatic data updating (automatic data exchange among applications) that is possible
among the related business components.

Since conventional company information systems were aimed at the optimization of

independent business functions in business units, almost all were weak in terms of the
communication and integration of information that transcended the different business

In the case of large companies in particular, the timing of system construction and
directives differs for each product and department/ function and sometimes, they are
disconnected. For this reason, it has become an obstacle in the shift to new product and
business classification.

In the case of ERP packages, the data of related business functions is also automatically
updated at the time a transaction occurs. For this reason, one is able to grasp business
details in real time, and carry out various types of management decisions in a timely
manner, based on that information.

2. Flexibility: The second advantage of the ERP packages is their flexibility. Different
languages, currencies, accounting standards and so on can be covered in one system, and
functions that comprehensively manage multiple locations of a company can be packaged
and implemented automatically. To cope with company globalization and system
unification, this flexibility is essential and one can say that it has major advantages, not
simply for development and maintenance, but also in terms of management.

3. Better Analysis and planning Capabilities: Yet another advantage is the boost to the
planning functions. By enabling the comprehensive and unified management of related
business and its data, it becomes possible to fully utilize many types of decision support
systems and simulation functions. Furthermore, since it becomes possible to carry out,
flexible and in real time, the filing and analysis of data from a variety of dimensions, one
is able to give the decision-makers the information they want; thus enabling them to
make better and informed decisions.

4. Use of Latest Technology: the fourth advantage is the utilization of the latest
development in information Technology (IT). The ERP vendors were quick to realize that
in order to grow and to sustain that growth; they had to embrace the latest developments
in the field of information technology. Therefore, they quickly adapted their systems to
take advantage of the latest technologies like open systems, client/ server technology,
Internet/Intranet, CALS (Computer- Aided Acquisition and Logistics Support),
electronic-commerce, etc.

It is this quick adaptation to the latest changes in the Information Technology that makes
the flexible adaptation to changes in future business environments possible. It is this
flexibility that makes the incorporation of the latest technology possible during system
customization, maintenance and expansion phases.

What is that ERP enables?

a) Systematic Look into your Systems & procedures
b) Optimizing the processes
c) Enables you to adapt yourself to new technologies
d) Discipline across the functions

Problems Taken Care of by the ERP:

a) Availability check at the time of Accepting Sales order
b) On-line Material Status & Shortages
c) Productivity Enhancements
d) Material Planning
e) Customer Service
f) Cash Management
g) Inventory
h) Quality

What drives ERP?

 Business drives
a) Customer Satisfaction
b) Business Development - new areas, products, services
c) Ability to face competition
d) Efficient processes required to push the company to top gear

 IT drives
a) Present Software does not meet business needs
b) Legacy systems difficult to maintain
c) Obsolete hardware/software difficult to maintain
The market for ERP however does not sound so depressing. Companies still have
growth avenues which include:
Less penetrated modules within the ERP suite, both horizontal and vertical. The new
horizontal areas include E-commerce, Customer relationship management, Supply chain
management, plant maintenance, field service, data warehousing, product data
management, service contract management, warehousing & distribution,, transportation
management etc. Among the vertical application are industries such as retail, utilities,
insurance, and government organizations.

The mid market segment presents immense opportunities. However, the margins from
SMEs will be far below that from the larger players.
Another problem that the SMEs present is the low transaction (order) size and the
difficulty of reaching out to these players. Also they are relatively less sophisticated on
the technology side.
Another major demand driver will be the e-commerce wave. As more and more company
move towards e-commerce it becomes necessary to implement ERP solutions.

Inhibitors or hurdles for the growth of ERP market:

After posting significant gains for a 3-4 years the ERP market may be heading towards a
slowdown. Except for SAP most other players have witnessed a slowdown in revenue

The main constraints to growth for the sector can be classified as:
a) Saturation of the certain horizontal applications including Finance and
accounting, MRP etc which accounted for nearly 45% of the ERP revenues during
b) Saturation of large customers. Most of the Fortune 500 companies and companies
having revenues over $1bn have already implemented ERP.
c) Though the medium enterprises provide a good opportunity for growth, pricing
for these companies will have to be highly competitive and margins may come
under pressure. Thus smaller players who have a cost advantage will have an edge
over the others.

ERP in India
Until recently Indian organizations were in a sellers market and operating in a regulated
environment. They grew by managing the environment, rather than innovating and
improving internal efficiencies. The customer was taken for granted and quality was
available only at a premium. With globalization and gradual lifting of regulation, there is
a paradigm shift in running the business.

Indian companies now need to increase customer focus, improve speed of delivery, be
cost competitive and provide value for money (improved quality at lower price). Indian
companies therefore need to implement ERP systems for improving their business
processes and becoming more competitive in the global environment. Though ERP
implementation is costly and time consuming, it has several benefits which will help
recover these costs in the long run.

According to NASSCOM, during the year 1998-99, the Indian ERP market has been
estimated at R5200mn compared to Rs2800mn in the previous year ie a growth of
85%yoy. The growth in the export market was far higher and more than doubled during
the same time period. According to the NASSCOM, by the end of FY2001-02, the total
Indian ERP market is expected to multiply by nearly 4 times and reach Rs65bn compared
to Rs13.4bn in 1998-99.
ERP Modules
ERP’s Central Database
All ERP packages contain many modules. The number and features of the modules vary
with the ERP packages. Some of the most common modules available in almost all
packages are:
1. Finance
2. Plant Maintenance
3. Quality Management
4. Material Management, etc
5. Inventory Management
6. Manufacturing and production planning
7. Sales and distribution

Some packages will have a subset of this and some will have more modules and / or

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 provided up-to-the minute
financial information in exactly the form you need it to make that critical difference and
help with that critical decision.

Accounting software needs access to information in each area of organization, from R&D
and market research through manufacturing, distribution and sales. Financial solution
must provide the management with information that can be leveraged for strategic
decisions, in order to achieve comprehensive advantage.

This section provides an overview of the financial solutions in most 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 our enterprise to where you
want it tomorrow is to know exactly where it is today.
What ever be the financial goals of the organization, the financial application components
of the ERP solutions work hand-in-hand to improve the bottom line.

This is true because the financial functioning 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 recourses to logistics.
The Finance modules of the 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.

The finance modules of most ERP systems will have the following subsystems:
1. Financial Accounting:
a. General Ledger
b. Accounts Receivable/payable
c. Special Ledgers, Fixed Asset Accounting
d. Legal Consolidation.

2. Investment Management:
a. Investment Planning
b. Budgeting
c. Controlling
d. Depreciation Forecast
e. Simulation
f. Calculation.

3. Controlling
a) Overhead Cost Controlling.
b) Activity- Based Costing
c) Product Cost Accounting
d) Profitability Analysis.

4. Treasury Module

A. Financial Accounting:

The objective of a good financial accounting system is to provide companywide 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 frame work of multiple
companies , languages , currencies and charts of accounts .

a. 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
The general ledger supports all the function needed in a financial accounting system .
b. Accounts receivable and payable:
ERP system offer a financial overviews of global business partner relationships in the
Accounts, Receivable and Payable functions .these sub-ledgers are integrated ,both with
the general ledger with the 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.
c. Special Ledgers, Fixed Asset Accounting
Asset Accounting, managers 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.
d. Legal Consolidation
Consolidated financial statements need to be integrated effectively with operational data
ay the individual company level. By using different valuation methods, you can plan
balance sheet strategies to suit the company’s requirements.

B. Investment Management
Investment Management provides extensive support for investment processes right from
planning through settlement. Investment management facilitates investment planning and
budgeting at a level higher than that needed for specific orders or projects. You can
define an investment program hierarchy using any criteria-for example, department-wise.

Investment program allows you to distribute budgets, which are used during the capital
spending process. The system helps you monitor, and thereby avoid, budget overruns.
Investment Management provides tools, enabling you to plan and manage your capital
spending projects right from the earliest stage
Investment Management module recognizes the importance of the asset accounting
aspects of investment measures. The system automatically separates costs requiring
capitalization from costs that are not capitalized, debiting the correct costs to the asset
under construction.

Asset accounting provides precise proof of origin for all transactions affecting acquisition
and production costs.

C. Controlling
The controlling system gathers the functions required for effective internal cost
accounting. It offers a versatile information system, with standard reports and analysis
paths for the most common questions. In addition, there are features for creating custom
reports to supplement standard reports.
a. 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. The Overhead Cost Controlling subsystem focuses on the monitoring and
allocation of overheads.
b. Cost Centre Accounting
Cost centre accounting analyses where overheads occur within the organization. Costs are
assigned to the sub-areas of the organization where they originated.
They system offers a wide variety of methods for allocating posted amounts and qualities.

c. 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

d. 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-
department business process, in addition to functions and products.

e. Product Cost Controlling

Product Cost controlling module determines, the costs arising from manufacturing a
product, or providing a service. Plan and standard values, serves 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

f. Cost Object Controlling

It helps to monitor manufacturing orders. Integration with the logistics components
results in a logistical quantity flow that provides instant information on actual cost object
costs, allowing ongoing costing calculations at any time.

g. Profitability Analysis
It examines the sources of returns. As part of sales controlling. Profitability Analysis is
the last step in cost-based settlement, where revenues are assigned to costs according to
the market segment. This subsystem can help defining any market segment-
distinguishing, for example between products, customers, orders, sales organizations,
distribution channels and business areas- and evaluate it, according to contribution and
revenue margins.

D. Treasury Module
Company can gain significant competitive advantage by efficiently managing the short,
medium, and long-term payment flows and the resulting risk exposure.
Tasks such as short-term monitoring and concentration of bank account balances,
medium-term planning, and forecasting of incoming and outgoing resources in accounts
receivable and payable, to a long-term view of areas such as materials management and
sales, underline the importance of integrating information from various company
Linking these operating divisions to realized and planned financial transactions and
positions in Treasury, has a significant impact on the company’s success. Such
integration also facilitates management and control of cash flows, and risk positions
through all the divisions in the company. The treasury components provide you with a
basis for effective liquidity, portfolio and risk management.

a. Cash Management
The Cash Management subsystem allows yo9u to analyze financial transactions for a
given period. Cash Management also identifies, and records future developments for the
purpose of financial budgeting. The company’s payment transactions are grouped into
cash holdings, cash inflows and cash outflows.

The Cash Management provides information on the sources and uses of funds to secure
liquidity in order to meet payment obligations when they become due.
The Cash Management also monitors and controls incoming and outgoing payment
flows, and supplies the data required for managing short term money market investments
and borrowing. Depending on the time period under review, a distinction is made
between cash position, short-term cash management and medium and long-term financial

The Cash Management component thus ensures that all information relevant to liquidity
is available to you for analysis, creating a basis for the necessary cash management

b. Treasury Management
Treasury Management component offers functions for managing financial deals and
positions, from trading to transferring data to Financial Accounting. Treasury
Management also supports flexible reporting and evaluation structures for analyzing
financial deals, positions and portfolios. For short-term liquidity and risk management,
you can use the money market, or to eliminate currency risks.

By using common organizational elements throughout, various organizational structures

can be represented in the system, such as a central enterprise-wide treasure department or
‘in-house banks’. This also ensures full integration of Treasury into other modules of the

c. Market Risk Management

Market Risk Management plays vital role within Treasury, in ensuring company’s
competitiveness. Market Risk Management involves a complex feedback loop
encompassing data collection, risk management, analysis and simulation as well as active
planning of financial instruments. Market Risk Management acts as an integrated central
risk control station with monitoring and management functions.
Access to information on current and future cash flows and on financial deals already
processed, is an absolute must. As a result, Cash management, which pools all cash flows
from the business sectors, such as sales and distribution or purchasing, forms the basis.
Consequently, all cash flows from the company’s operating business can be accessed for
the purposes of risk management. Furthermore, all financial transactions managed in
Treasury management can be evaluated together with the cash flows generated by the
various operating divisions.

The Market Risk Management component provides various measurements for analyzing
and assessing interest rate and currency risks. Market-to-market, effective rate and
effective yield calculations are based on up-to-the minute market data, uploaded via data
feed, and financial transactions or position.

d. Funds Management
Funds Management system enables you to control various funds commitments and
determine how much of the budget has already been utilized via availability checking.
The information system can supply with information at nay time, on when, where, and
how funds commitments arose. Analyses by responsibility area and commitment items
allow identifying any budget bottlenecks.

e. Enterprise Controlling
Enterprise Controlling comprises of those functions that will optimize shareholder value,
while meeting internal objectives for growth and investment. This module usually
includes executive Information System, Business planning and Budgeting, Consolidation,
and profit Centre Accounting.

f. Executive Information System

The Executive Information System provides an overview of the critical information
necessary to manage the organization. This component integrates data from other ERP
components, and non-ERP data sources both inside and outside the enterprise.
Business planning and budgeting. Business planning and budgeting supports the
management teams of business units and groups in the calculations of business targets,
such as ROI. This module also supports central investment planning, budget release and

This module automatically transfers data about investment requirements from transaction
applications, and provides extensive analysis functions for budget monitoring.

g. Profit Centre Accounting

Profit Centre Accounting analyses the profitability of internal responsibility centres. A
company’s organizational structure is represented in the form of a profit centre hierarchy,
with the profit centre as the smallest unit of responsibility. All business transactions in
financial accounting, Material Management, Asset Management, and Sales and
Distribution, which affects profits, are automatically reflected in profit Centre
2. Plant Maintenance Module
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:

a) Preventive Maintenance Control
b) Equipment Tracking
c) Component Tracking
d) Plant Maintenance Calibration Tracking
e) Plant Maintenance Warranty Claims Tracking

a. Preventive Maintenance Control

Preventive Maintenance Control provides planning, scheduling and control of facilities
and equipment. Equipment lubrication, components replacement and safety inspection
can be planned schedule, and monitored. Maintenance tasks can be tracked for each
machine, or piece of equipment, by two user defined modes, as well as calendar day

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
Preventive Maintenance Control enables organizations to lower repair costs by avoiding
downtime, machine breakage and process variability. Companies achieve higher machine
utilization and improved machine reliability and tolerance control, along with higher
production yields.

b. 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 utilization history are described and
This history includes acquisition and disposition information and associations between
different pieces of equipment to pinpoint operational dependencies. Running totals for
operational units to date 9miles, 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 specifications, which provide detailed information for technical
specialists working in equipment operations, maintenance and transportation control.

c. 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 components replacements, rather than waiting for components failure to occur,
reduce unscheduled equipment downtime. Components tracking include repair/exchange
history and components service life.

d. 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 ISO9000 requirements.

e. 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.

3. Quality Management Module

The ISO9000 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 form
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.
Computer-integrated Quality Management (CIQ) is more appropriate term in comparison
to Computer-Aided Quality Management (CAQ), 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, 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.
As a part of the Logistics applications, the Quality Management module handles the
traditional tasks of:
i. Quality planning
ii. Quality inspection
iii. Quality Control.
For example, it support 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).

Computer-integrated Quality Management (CIQ)

The integration of Quality Management in the ERP systems considerable advantages
because only an integrated system can support all the elements of a quality management
system, according to ISO 9000. The integration allows the quality management functions
to influence all processes within a company, thereby affecting all phases of a product’s
life cycle.

The Quality Management module uses the system’s integration to link the tasks of quality
management with those of the other applications, such as materials management,
production, sales/distribution and cost accounting. An inspection that is triggered
automatically upon goods receipt is an example of this.

The Quality Management module is integrated with the master data and processes of the
following applications:

1. Materials management (purchasing, inventory

management, warehouse management, material
requirements planning).
2. Production ( work scheduling, shop floor control)
3. sales and distribution ( delivery, creation of quality

4. Materials Management Module:

The Material Management module optimizes all purchasing processes with workflow-
driven processing functions, enables automated supplier evaluations, lower procurement
and warehousing costs with accurate inventory and warehouse management and
integrates invoice verification. The main modules of the Material Management module

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

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.
Purchasing is a very important component of the Material Management module. The
Material Management module is fully integrated with other modules in the system. It
supports all phases of material 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 flow of

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.
2. Financial Accounting: Purchasing and Accounting both maintain information on
vendors. Information on each vendor is stored in a vendor master record which contains
both accounting and purchasing information.

Sales and Distribution: Within the framework of material requirements planning

(MRP), customer requirements from Sales can be passed on to purchasing. In addition,
when creating a requisition, you can assign it to a sales order.
Purchasing system performs tasks like procurement of materials and services,
determination of possible sources of supply for a requirement identified by the materials
planning and control system or arising directly with in a user department, monitoring of
deliveries and payments to vendors, and so on.
Vendor Evaluation

The vendor evaluation component has been completely integrated into the Material
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 assesses basic data in Materials Management, such as goods receipt data from
Inventory Management. In the case of procurement of materials, the system helps you
select sources of supply and facilitates the continual monitoring of exiting supply

It provides 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.
5. Inventory Management
Inventory Management system allows you to manage your stocks on a quantity and value
basis, plan, enter and check any goods movements and carry out physical inventory.
In the Inventory Management system, the physical stocks reflect all transactions resulting
in a change in stock and thus, in updated inventory levels.
The user can easily obtain an overview of the current stocks of any given material.

For each material, not only are the stocks in the warehouse shown, but also the stocks
ordered but not yet delivered, reserved for production or for a customer, and the stocks in
quantity inspection can be monitored.
The stocks are managed not only on a quantity basis but also by value- a prerequisite for
cost accounting. With every goods movement, the following values are updated:
1. Stock value for inventory management
2. Account assignment for cost accounting

Both the quantity and the value are updated automatically when entering a goods
Most Inventory Management systems support inventory methods like periodic inventory,
Continuous Inventory, Inventory sampling and Cycle counting.
Invoice Verification and Material Inspection.
Invoice Verification component is part of the Material Management system. It provides
the link between the material Management components and the Financial Accounting,
Controlling and Asset Accounting components.
Invoice Verification in Material Management serves the following purposes:
1. It completes the material procurement process-which starts with the purchase
requisition, continues with purchasing and goods receipt and ends with the invoice
2. It allows invoices that do not originate in materials procurement ( for example,
services, expenses, courses, course costs, etc.) to be processed
3. It allows credit memos to be processed, either as invoice cancellations or discounts.
Invoice verification does not handle the payment or the analysis of invoices. The
information required for these processes is passed on to other departments.

Each invoice contains various items of information. To post an invoice, you must enter
this information into the system. If an invoice refers to an existing transaction, certain
items of information will already be available in the system. The system proposes this
information as default data so that you only need to compare it and, if necessary, correct
any possible variances.
If an invoice refers to a purchase order, for example, you only need to enter the number

Market players and profiles

While 52% of the total market is accounted for by the unorganised and small players the
rest is accounted for by around 10 major players. SAP contributes 17% of the total
revenues followed by People Soft, Oracle, Baan and J D Edwards.

SAP pioneered Enterprise Resource Planning. The company’s R/3 System, a family of
integrated components such as Production, Sales and Distribution, Controlling and
Human Resources can be used as a whole or individually. R/3 is also internet-compatible
and can be easily combined with other types of software or customers’ own systems.
Probably the only leader, SAP, according to AMR has a market share of 33% which is
higher compared to the next 4 competitors put together. The company has more than
19,300 employees worldwide. The company’s R/3 system is in use in more than 107

The ERP market

During the last 3-4 years the ERP market witnessed considerable growth rates driven
mainly by the Y2K crisis. ERP companies including SAP, PeopleSoft, Oracle and Baan
etc have recorded consistent growth in revenues, which were well above the 20% mark.
However, recent trends in the industry indicate a slowdown in the traditional ERP
market. The slowdown has been attributed to the Y2K crisis, which is round the corner
and the stagnant world economy. Growth rates which were as high as 40% per annum is
expected to slowdown considerably to around 15-20%.

However, the market is also witnessing new avenues like the emergence of SMEs (Small
and Medium Enterprises – turnover of $50mn to $500mn) as a major ERP spender with
significant demand for module specific implementation. As the Fortune 500 market for
product license revenue becomes saturated, larger ERP firms are shifting their focus to
the middle market.

Also, other areas like Supply Chain Management (SCM), Customer Relationship
Management (CRM), extended ERP and Web enabled ERP are catching attention.
During the year 1998 the total ERP market is estimated to be around $17.5bn by IDC a
growth rate of around 26%yoy.

The ERP market is widely spread with the top ten players accounting for almost 48% of
the total market the rest of the market is accounted for by the small and regional players.
However, the top end of the market is captured by a few players. SAP, the market leader,
accounts for 17% of the total market (1998). Other major players include Baan, Oralce,
and PeopleSoft etc