Ism 401 PDF

Enterprise Resource Planning Unit 1
Unit 1 Enterprise: An Overview
Structure
1.1 Introduction
Objectives
1.2 Business Functions and Business Processes
Relationship between business functions and business
processes
1.3 Importance of Information
Characteristics of information
Types of information
1.4 Information System
Components of an information system
Different types of information systems
Management information system
1.5 Enterprise Resource Planning
Business modelling
Integrated data model
1.6 Summary
1.7 Glossary
1.8 Terminal Questions
1.9 Answers
1.10 Case Study: Airline Management Information System (AMIS)
1.1 Introduction
An enterprise is an entity, organisation, or undertaking, which is created for
a commercial purpose or business venture. In other words, it is a group of
Sikkim Manipal University Page No. 1

individuals, who work together to accomplish common goals and objectives.

To achieve these goals, an enterprise needs to perform several interrelated
functions such as marketing, sales, production, and human resource.
To perform its business functions effectively, an enterprise has to
incorporate an integrated approach. Enterprise Resource Planning (ERP) is
an approach that aims to streamline and integrate the different operations
and processes of an enterprise. ERP helps an enterprise in the efficient
allocation of resources such as men, material, money, and machine. It
controls the flow of management information across an enterprise. This
leads to standardised business processes and increased profitability of an
enterprise.
In this unit, you will study about an enterprise. You will also study about the
relationship between the business functions and the business processes of
an enterprise. Next, you will be acquainted with the importance of
information and its characteristics and different types. The integrated
information system, its components, and different types, are also discussed
at length in the unit. A short discussion about Management Information
System (MIS) is also included in the unit. In the end, you will be apprised
about the significance of ERP and important ERP concepts, namely,
business modelling and integrated data model.
Objectives
After studying this unit, you will be able to:
 explain the importance of an enterprise
 define the relationship between the business functions and business

processes of an enterprise
 assess the importance of information
 analyse the importance of information system in an enterprise
 evaluate the significance of Enterprise Resource Planning

1.2 Business Functions and Business Processes

You must have heard the term ‘enterprise’ so many times. However, do you
know its actual meaning and function? An enterprise is a structure in which
people work together to accomplish common objectives. In order to achieve
these objectives, the enterprise needs to perform various business functions
and processes.
Every business process is a part of a particular business function. For
example, the sales and marketing function of an enterprise comprises
processes such as promotion campaigns, pricing, lead generation, and
demand and supply analysis. Similarly, the human resource function of an
enterprise involves processes such as recruitment, job evaluation, and
performance appraisal. So, you can say that a business process involves a
chain of activities; each of which is a part of a certain business function.
Now, let us discuss the two terms, ‘business function’ and ‘business
process’, in detail.
A business function refers to an activity that an enterprise performs to
realise its pre-determined goals and objectives. You can also define a
business function as a series of rationally interrelated activities or tasks
performed by an enterprise in order to obtain the desired results. Generally,
an enterprise classifies similar activities into groups to simplify work,
increase efficiency, and allocate resources effectively. For example,
activities, such as recruitment, performance appraisal, and compensation
management, come under the human resource function of an enterprise.
Business functions are broadly categorised into two types:
Internal Business Functions: Refer to business functions that are
performed within an enterprise. For example, sales, production, human
resource, etc.
External Business Functions: Refer to those business functions that are
performed by an external enterprise or agency. For example, public
relations, market research, etc.
Figure 1.1 represents the different business functions of an enterprise:

Figure 1.1: Business Functions

Now, to be specific, an enterprise that is engaged in the manufacturing and
selling of products can have the following business functions:
 Sales and marketing
 Production
 Materials management
 Human resource
 Accounting and finance
 Quality control
Each of these business functions consists of numerous business

processes/activities. A business process is defined as a set of activities
performed in a sequence to produce a valuable output from the available
inputs. Let us consider the previous example to establish a relationship
between a business function and a business process. The marketing
function of an enterprise includes activities (processes) such as budgeting,
planning, market research, demand forecasting, pricing, packaging,
advertising, and distribution. Similarly, the human resource function of an
enterprise comprises activities such as recruitment, compensation
management, and performance evaluation.
There can be three types of business processes, which are as follows:

Management Processes: Involve processes that are carried out by the top
management of an enterprise. These processes include formulation and
implementation of cross-functional strategies that help an enterprise to
achieve its long-term objectives. Typical management processes include:
 Corporate governance
 Strategic management
Operational Processes: Refer to processes that form the core business of

an enterprise. The following are the typical operational processes:
 Purchasing
 Manufacturing
 Advertising and marketing
 Sales
Supporting Processes: Refer to the processes that support the core

business of an enterprise. The following are some of the supporting
processes of an enterprise:
 Accounting
 Recruitment
 Administrative support
 IT support
1.2.1 Relationship between business functions and business

processes
All business functions and processes together form the internal working
environment of an enterprise. Figure 1.2 shows the relationship between
business functions and business processes of an insurance enterprise:

Figure 1.2: Relationship Between Business Functions and

Business Processes in the Insurance Sector
Figure 1.2 shows the steps involved in the process of selling an insurance
plan to a customer by an insurance enterprise. This process involves steps
such as making a proposal, taking a request, checking the request,
calculating premium, drafting a proposal, and informing the customer. All
these steps are the business processes of an insurance organisation. On
the other hand, relationship management, acceptance, calculation, and
support are the different business functions of an insurance organisation.
Thus, you can say that the business processes and business functions of
organisations are interlinked and none of these can work in isolation.
Self Assessment Questions:

1. A ________ refers to an activity that an enterprise performs to realise
its pre-determined goals and objectives.
2. ___________ refer to those business functions that are performed
within an enterprise.
3. A business function is defined as a set of activities that are performed
in a sequence to produce a valuable output from the available inputs.
(True/False)

4. All business functions and processes together form the internal

working environment of an enterprise. (True/False)
5. A single business process may not always belong to the single
business function. (True/False)
Activity 1:
Visit a retail store and list the different business functions that are being
performed there. Also, classify the internal and external business
functions of the store.
1.3 Importance of Information

In the previous section, you studied about different business functions and
processes of an enterprise. To perform all these functions and processes
effectively, an enterprise collects data related to its target market,
customers, and competitors. This data helps an enterprise to make crucial
business decisions. Data is a representation of facts, observations,
assumptions, and occurrences related to the people, processes, and
functions of an enterprise. Data can be collected in the form of text,
numbers, audio, video, and images.
However, data seems to be useless until it is processed to extract the
desired results. When data is processed and converted into a form that has
a specific meaning, it becomes information. For example, when a market
researcher asks people to complete questionnaires about a product or a
service, the collected questionnaires are data. When this data is processed
and analysed to prepare a market report, the resulting report is information.
So, you can say that information is a well-processed form of data that has a
specific meaning and purpose. Information helps an enterprise in decision
making. Thus, it is important for an enterprise to have accurate and timely
information.
1.3.1 Characteristics of information

Information is integral to effective decision making in an enterprise.
Therefore, it is important for an enterprise to have the right information, in

the right form, and at the right time, to make correct decisions. The following
are the characteristics of information:
Accuracy: Implies that information should be correct and based on facts.
Inaccurate information not only turns useless, but also leads to ineffective
decision making.
Relevance: Refers to one of the most important characteristics of
information. The information can only be useful if it is relevant to the
respective domains of decision making. For example, an enterprise wants to
formulate effective marketing strategies. In this case, the collected
information should be related to current market trends and needs and
preferences of customers.
Timeliness: Implies that information should be available when it is needed.
For example, you are the marketing manager of an enterprise. You have to
select an appropriate promotional tool. In such a case, if you get information
related to consumer behaviour after the completion of the decision-making
process, the information is useless. So, you should note that the value of
the information is inversely proportional to time.
Completeness: Refers to the characteristic of the information being fully
interpretable. If the information does not make complete sense, it may not
help in decision making.
1.3.2 Types of information

Decision making takes place at all the levels of an enterprise (top level,
middle level, and bottom level). So, managers at different levels require
different types of information to make business decisions. Based on these
levels, information is categorised in the following three types:
Strategic Information: Refers to the information that is used by the top
management of an enterprise to establish an overall business strategy.
Strategic information can be related to the profitability of each division of an
enterprise, level of competition in the market, and investments made by the
enterprise.
Tactical Information: Refers to the information that helps middle-level
managers in the allocation of resources. Tactical information can be related

to business productivity, profit and cash flow forecasts, and prices of

different products.
Operational Information: Provides support to the bottom-level managers
of an enterprise in carrying out day-to-day operational tasks. For example, a
production manager may want information related to the quality control
checks that are being carried out in the manufacturing process.

6. _______ can be collected in the form of text, numbers, audio, video,
and images.
7. When data is processed and analysed to prepare a market report, the
resulting report is ________.
8. ___________ provides support to the bottom-level managers of an
enterprise in carrying out day-to-day operational tasks.
9. Data is an organised, structured, and processed form of information
and has a specific meaning. (True/False)
1.4 Information System

Have you ever noticed how does an enterprise make its decisions? It is
information that enables an enterprise to make sound decisions and win in
today’s competitive world. In other words, you can say that information is a
valuable asset of an enterprise, which ensures effective business decision
making. Therefore, an enterprise should manage and store its information in
a manner so that it can be easily retrieved as and when required.
Information System (IS) is a set of interrelated components, which collects,
stores, processes, generates, and disseminates information for effective
business decision making.
For example, an enterprise wants to increase its profits by improving the
efficiency of its sales function. In such a case, IS can help the enterprise to
make effective sales decisions by providing information related to current
market trends, needs and preferences of customers, and availability of
similar products.

IS comprises two terms, namely, information and system. As discussed

earlier, information is a well-processed form of data and has a specific
meaning. On the other hand, a system is an arrangement that takes input
and converts it into a valuable output. So, you can define IS as an
arrangement that processes data and provides meaningful information. This
information supports the decision-making process of an enterprise. Apart
from this, an enterprise can use this information for future references. Figure
1.3 shows the working of an IS:
Figure 1.3: Working of an Information System

Nowadays, IS has become a significant component of any successful
business enterprise. It supports various business functions, such as
marketing, finance, production, and human resource, by providing useful
information.
1.4.1 Components of an information system

An IS is an organised combination of resources, such as people,
technology, and data, to produce meaningful information. The following are
the key components of an IS:
People: Refers to the most important resource of an IS. An IS requires
people for its operation. These people (resources) are categorised into two
types:
 IS Specialists: Involve individuals who are responsible for developing
and operating an IS. They include system analysts, software developers,
system operators, programmers, and other IT personnel.

 End Users: Involve individuals who use information produced by an IS.

They include market researchers, production managers, customers, and
accountants.
Hardware Resources: Include physical devices and materials used for

information processing. These resources include computers, keyboards,
mouse, printers, scanners, magnetic tapes, and pen drives.
Software Resources: Include a set of instructions to direct and control
computer hardware. Software resources can be of two types, namely,
programmes and procedures. Programmes include operating system and
application software, while procedures include data-entry procedures and
information distribution procedures.
Data: Includes observations and facts derived from the internal and external
sources of an enterprise. The internal sources are product descriptions,
customer records, employee records, etc. On the other hand, external
sources are supplier details, market conditions, competitor information, etc.
Network: Comprises a server and administrative tools for connecting and
distributing information to the different departments of an enterprise.
Information: Includes reports and results derived after processing the data.
For example, sales reports, cash flow forecasts, market reports, etc.
1.4.2 Different types of information systems

In an enterprise, there are varied requirements for information. As discussed
earlier, top-level managers need information for business planning and
strategic management. Middle-level managers need information to monitor
and control business activities, while employees working at operational level
need information to carry out their jobs.
Therefore, an enterprise generally has several information systems
operating at the same time. Table 1.1 shows the different kinds of
information systems in an enterprise:
Table 1.1: Different Types of Information Systems
Information System Description

Executive Support System Refers to a system that is designed to help
the top management of an enterprise in


(ESS) strategic decision making. The ESS
collects, analyses, and summarises
important internal and external information
used in an enterprise.
MIS Refers to a system that aims at processing
internal data of an enterprise and
summarising it into a series of
management reports. These reports are
generally used by middle-level managers
and operational supervisors. A detailed
discussion about MIS has been included
later in the unit.
Decision Support System Refers to a system that helps managers to
(DSS) make decisions in situations when there is
uncertainty about the possible outcomes of
those decisions. DSS uses spread sheets
to analyse different options and
alternatives.
Knowledge Management Refers to a system that provides
System (KMS) knowledge and expertise for making
decisions at all levels of management. It
provides two types of knowledge, namely,
explicit knowledge and tacit knowledge.
Information that is documented, stored,
and coded with the help of an information
system is known as explicit knowledge. On
the other hand, information that is based
on processes and procedures stored in an
individual’s mind falls under tacit
knowledge.
Transaction Processing Refers to a system that helps in processing
System (TPS) day-to-day business transactions efficiently
and accurately. This system can be useful
in performing activities like sending
invoices to customers, calculating monthly


payroll, identifying raw material
requirements, tracking the movement of
inventory, etc.
Office Automation System Refers to a system that helps employees to
(OFS) handle various office tasks such as raw
data storage and electronic transfer of
information. Apart from this, it helps
employees to have a comprehensive view
of all the assets of an enterprise and
capture data related to the total revenue
and expenditure of the enterprise.
Among all these, MIS is one of the most commonly used information
systems. It provides information related to various business aspects to
managers. Let us discuss about the significance of MIS in the next section.
1.4.3 Management information system

According to Schwartz, “MIS is the system of people, equipment,
procedures, documents, and communication that collects, validates,
operates on, transforms, stores, retrieves, and presents data for use in
planning, budgeting, accounting, controlling, and other management
processes.”
MIS is a computer-based system that supports managers to perform various
management functions such as planning, organising, directing, and
controlling. It provides accurate and timely information to facilitate effective
decision making in an enterprise. This results in a significant increase in the
overall profitability of an enterprise.
MIS aims to transform data into meaningful information for appropriate
decision making. It distributes information to the different departments of an
enterprise, so that they can carry out their activities effectively. MIS
comprises three primary resources:
 People
 Technology
 Information

Functions of MIS
As you know, MIS serves the information needs of managers in making
various business decisions. The following are the main functions of MIS:
 Collects data from various sources such as financial reports, sales
records, newspapers, magazines, etc.
 Processes, analyses, and summarises the collected data
 Transforms the collected data into useful and meaningful information
 Disseminates information to the intended users
 Stores information at a centralised location, so that it can be easily

retrieved
Advantages and limitations of MIS

MIS enables an enterprise to manage and store a large amount of data. In
addition, the following are a few advantages of MIS:
 Coordinates the activities of different departments
 Provides quick and reliable referencing of information
 Provides easy access to relevant data and documents
 Requires lesser number of employees
 Saves time and cost of an enterprise
In spite of many benefits, MIS has certain limitations, which are:

 Requires constant monitoring
 Ignores non-qualitative factors such as morale and attitude of

employees
 Reduces effectiveness due to frequent changes in management

functions
 Produces output that depends entirely on the quality of input

MIS provides information specific to particular departments. However, to

achieve its goals within the stipulated time, an enterprise requires a system
that serves the information needs of the whole enterprise.

10. An enterprise should manage and store its information in a manner,
so that it can be easily retrieved as and when required. (True/False)
11. IS comprises two terms, namely, __________ and ___________.
12. __________ refers to a system that is designed to help the top
management of an enterprise in strategic decision making.
13. MIS is a computer-based structure that supports managers to
perform various management functions such as planning, organising,
directing, and controlling. (True/False)
Activity 2:
How can MIS be useful in the banking sector?
1.5 Enterprise Resource Planning

In the previous section, you studied about different information systems for
performing different business functions. All these different information
systems provide different information. In such a case, it becomes difficult for
the organisation to compile the information and take appropriate business
decisions. Thus, an organisation needs an information system that can
provide integrated information about different business processes in one
place.
An integrated information system is the one that is formed by linking
together different software applications physically or functionally to act as a
single system. ERP is an integrated information system that controls and
integrates all the business functions of an enterprise. According to Nah and
Lau (2001), “ERP is a packaged business software system that enables a
company to manage the efficient and effective use of resources (materials,
human resources, finance, etc.) by providing a total, integrated solution for
the organisation’s information-processing needs.”

ERP integrates the functions of the different departments of an enterprise.

Moreover, it ensures that all departments are automatically updated about
the occurrence of an event. For instance, when an order is placed by a
customer, ERP automatically updates all the interrelated departments, such
as production, finance, and inventory control, about the order. Apart from
this, ERP helps an enterprise in the efficient allocation of resources, which
leads to a significant increase in the profitability of the enterprise.
Before implementing an ERP project, an enterprise should establish clear
goals that can be achieved through such an implementation. The
implementation of an ERP project requires support from many people such
as employees, package and hardware vendors, and communication
experts. The ERP project of an enterprise can be successful if all these
people are well-versed with the actual working of an ERP system.
1.5.1 Business modelling

Creating a business model or business modelling is the first step of
implementing an ERP project. A business model represents the
description of operations or methods that an enterprise carries out to
generate revenue. In other words, it is a representation of different functions
of an enterprise and how these functions are interrelated to each other.
Based on this model, an ERP system is designed to allocate resources for
carrying out different business functions more effectively.
A business model is developed based on the business strategy and
objectives of an enterprise. It is represented in the form of flowcharts and
data flow diagrams. A business model can be simple or complex depending
upon the nature of the business of an enterprise. For example, the business
model of a restaurant can be simple. This is because a restaurant earns
revenue simply by serving quality food to its customers as per the orders
placed by them. On the other hand, the business model of an IT firm may be
complex, as the firm can generate revenue from various sources such as by
providing quality service to customers through various modes, making
alliances with other firms, and conducting marketing campaigns.
Figure 1.4 shows an ideal business model:

Figure 1.4: An Ideal Business Model
The business model of an enterprise is effective if it has the following

components (as shown in Figure 1.4):
Value Proposition: Refers to one of the most important components of a
business model. The business model of an enterprise should involve a
description of customer needs and preferences. Moreover, it should also
specify how an enterprise strives to create value for its customers.
Generally, an enterprise focuses on providing quality customer support
services to achieve a high level of customer satisfaction and creating a
positive experience for the customers.
Market Segment: Refers to another key element of a business model. A
business model should clearly mention the target market of an enterprise.
Product Differentiation: Implies that a business model should also specify
how an enterprise’s products or services are different from that of its
competitors. A business model should mention the unique features of an
enterprise’s products and services.
Pricing: Implies that a business model should clearly state the prices of the
different products and services of an enterprise.
Revenue: Refers to an important constituent of a business model. A
business model should include a description about the different sources for
an enterprise to generate revenue. These sources can be sales and leasing.
In addition, it should specify the cost structure and target profit margins of
an enterprise.
Competitive Strategy: Implies that a business model should clearly state
how an enterprise will attempt to gain a sustainable competitive advantage.
Generally, an enterprise uses various strategies, such as product
differentiation and niche marketing, to achieve an edge over its competitors.

Distribution/delivery: Implies that a business model should include a

description about the different distribution channels used by an enterprise.
An enterprise should analyse each of these components to design a sound
business model. A business model not only describes different business
functions but also helps managers to make continuous improvement in
business processing.
While developing a business model, an enterprise is considered as an
integrated system and different business processes are referred to as
resources. Information is considered the most important resource that
manages the other resources of an enterprise.
1.5.2 Integrated data model

In the context of ERP implementation, the creation of an integrated data
model is one of the most critical steps. An ERP system aims at providing
access to integrated data to all the employees of an enterprise. This
integrated data is used for business decision making. Once an ERP system
is implemented in an enterprise, the data pertaining to a single department
is no longer required. This is because an ERP system provides information
related to all the departments of an enterprise, which helps employees to
get updated about the activities of different departments.
Therefore, while designing an ERP system, an enterprise should develop an
integrated model that clearly specifies how the activities of different
departments are related to each other.
14. _________ helps an enterprise in making an efficient allocation of
resources, which leads to an increase in the profitability of the
enterprise.
15. A _________ represents the description of operations or methods
that an enterprise carries out to generate revenue.
16. Name the component of a business model that mentions the target
market of an enterprise.
17. Once an ERP system is implemented in an enterprise, the data
pertaining to a single department is no longer required. (True/False)

Activity 3:
Identify and analyse the use of ERP in the telecom sector.
1.6 Summary
Let us recapitulate the main points discussed in the unit:
 An enterprise is an entity, wherein people work together to achieve
common goals.
 A business function is an activity performed by an enterprise to achieve

its pre-decided goals and objectives. On the other hand, a business
process is a set of activities carried out in a chronological order to
produce a valuable output from the available inputs. Thus, it can be said
that business functions and business processes are interlinked to each
other and cannot be performed alone.
 Data is a collection of facts, observations, assumptions, and

occurrences, related to the people, processes, and functions, of an
enterprise. The processed form of data is called information, which has
a specific meaning. Information enables an enterprise in making efficient
decisions. Information is categorised into three types, namely, strategic
information, tactical information, and operational information.
 IS helps in collecting and processing gathered information for effective

decision making. The key components of an IS include people,
hardware resources, software resources, data, network, and information.
The different types of IS are ESS, MIS, DSS, KMS, TPS, and OFS.
 ERP integrates the activities of the different departments of an

enterprise. The two important steps in the implementation of an ERP
project are business modelling and integrated data model.

1.7 Glossary
Let us have an overview of the important terms mentioned in the unit:
Business Function: An activity that an enterprise performs to achieve its
pre-determined goals and objectives.
Business Process: A series of activities that are performed in a certain
sequence to produce a valuable output from available inputs.
Data: A representation of facts, observations, assumptions, and
occurrences, related to the people, processes, and functions, of an
enterprise.
Enterprise: A systematic structure in which people work together to achieve
common goals.
Enterprise Resource Planning (ERP): An information system that controls
and integrates all the business functions of an enterprise.
Information: A well-processed form of data that has a specific meaning.
Information System (IS): A set of interrelated components that collects,
stores, processes, generates, and disseminates information for effective
Management Information System (MIS): A computer-based system that
helps managers in performing management functions, such as planning,
organising, directing, and controlling.

1. What do you mean by an enterprise?
2. Explain the two types of business functions.
3. What are the different types of business processes?
4. What are the different characteristics of information?
5. Define IS.
6. What do you mean by MIS? List the advantages and limitations of MIS.

7. Explain the components of a business model.

8. Write a short note on integrated data model.
1.9 Answers
Self Assessment Questions

1. Business function
2. Internal business functions
3. False
4. True
5. True
6. Data
7. Information
8. Operational information
9. False
10. True
11. Information, system
12. ESS
13. True
14. ERP
15. Business model
16. Market segment
17. True

Terminal Questions
1. An enterprise refers to an entity in which people work together to
achieve common goals. Refer Section 1.2 Business Functions and
Business Processes, which defines an enterprise.
2. The two types of business functions are internal business functions and
external business functions. Refer Section 1.2.1 Relationship between
business functions and business processes, which explains the two
types of business functions.
3. The different types of business processes are management processes,
operational processes, and supporting processes. Refer Section 1.2.1
Relationship between business functions and business
processes, which lists different types of business processes.
4. The characteristics of information include accuracy, relevance,

timeliness, and completeness. Refer Section 1.3.1 Characteristics of
information, which lists the characteristics of information.
5. IS can be defined as a set of interconnected components that gathers,

stores, processes, and distributes information for effective business
decision making. Refer Section 1.4 Information System, which defines
IS.
6. MIS refers to a computer-based system that enables managers to take
various decisions. Refer Section 1.4.3 Management information
system, which defines and lists the advantages and limitations of MIS.
7. The different components of a business model include value
proposition, market segment, product differentiation, pricing, revenue,
competitive strategy, and distribution/delivery. Refer Section 1.5.1
Business modelling, which lists the components of a business model.
8. An integrated model should be developed while designing an ERP

system in order to determine how the activities of different departments
are interrelated. Refer Section 1.5.2 Integrated data model, which
explains the integrated data model.

1.10 Case Study: Airline Management Information System

(AMIS)
The airline industry is among the early adopters of MIS. The main goals of
this industry for adopting MIS were to reduce costs and improve efficiency
by providing quick access of data to the employees. The evolution of AMIS
has largely contributed to the growth of the airline industry. AMIS helps the
airline industry to perform versatile functions such as finance and
accounting, reservation and e-ticketing, inventory management, flight
operations and engineering, payroll, and marketing statistics. Not only does
it provide this, but it also provides information related to random booking,
overstaffing, understaffing, earned or unearned revenue, daily transactions,
expense records, etc.
AMIS is a web-based, easy-to-use system that supports various operating
systems such as Linux, Netware, and Windows. The system protects the
data from unauthorised access and can be easily customised whenever
required. The cost of such a system ranges from INR 20,000 to INR
100,000.
Questions:
1. Do you think AMIS is a cost-effective tool to manage data?
2. How does AMIS help the airline industry?
References and Suggested Readings

 Thomas F. Wallace and Michael H. Kremzar (2001), ERP: Making It
Happen: The Implementers' Guide to Success with Enterprise Resource
Planning.
 Simha R. Magal and Jeffrey Word March (2012), Integrated Business
Processes with ERP Systems.

E-references
 http://en.wikipedia.org/wiki/Enterprise
 http://www.businessdictionary.com/definition/business-function.html
 http://www.sparxsystems.com/downloads/whitepapers/The_Business_Pr
ocess_Model.pdf
 http://en.wikipedia.org/wiki/Architecture_of_Integrated_Information_Syst
ems
 http://en.wikipedia.org/wiki/Enterprise_resource_planning
 http://www.webopedia.com/TERM/E/ERP.html

Unit 2 Introduction to ERP
Structure
2.1 Introduction
Objectives
2.2 Defining ERP
2.3 Origin and Need for an ERP System
2.4 Benefits of an ERP System
Reduction in lead time
On-time shipment
Reduction in cycle time
Better customer satisfaction
Improved supplier performance
Increased flexibility
Reduction in quality costs
Improved resource utility
Information accuracy and improved decision-making capability
2.5 Reasons for the Growth of ERP Market
2.6 Reasons for the Failure of ERP Implementation
Roadmap for successful ERP implementation
2.7 Summary
2.8 Glossary
2.10 Answers
2.11 Case Study: Failure of ERP Implementation at Hershey Foods
Corporation

2.1 Introduction
Enterprise resource planning (ERP) is an integrated information system that
is used to manage internal and external resources of an organisation. It
supports the day-to-day business operations and the decision-making
process of an organisation. An ERP system attempts to automate the
business operations of an organisation, such as supply chain management,
inventory control, production scheduling, sales support, customer
relationship management, financial and cost accounting and human
resource management. It is designed to enhance the competitive strength of
an organisation by generating and disseminating timely and accurate
information throughout the organisation.
The implementation of an ERP system results in reduced production cycles,
increased flexibility, higher customer satisfaction, enhanced decision-
making capability and improved productivity. However, many studies have
advocated that ERP implementation is not always successful. There are a
number of factors that can be held responsible for the failure of an ERP
system. Some of these factors include lack of top management support,
lack of planning and selection of an inappropriate ERP system. A detailed
analysis of these factors can help an organisation to implement an ERP
system successfully.
In this unit, you will study the importance of an ERP system in an
organisation. You will also study the origin and need of an ERP system. The
unit will then describe the benefits of an ERP system. Further, you will learn
about the reasons for the growth of the ERP market. In the end, the unit will
discuss the reasons for the failure of ERP implementation.
Objectives
 define ERP
 explain the origin and need of an ERP system
 list the benefits of an ERP system
 identify the reasons for growth of the ERP market
 discuss the reasons for the failure of ERP implementation

2.2 Defining ERP

You have already studied about ERP in the previous unit. To recall, ERP is
an information system that controls and integrates all the business functions
of an organisation. It is a multi-module application that integrates the
activities of different departments, such as production, finance, human
resource and marketing.
Some of the popular definitions of ERP are:
According to Deloitte Consulting, “ERP is a packaged business software
system that enables a company to automate and integrate the majority of its
business processes; share common data and practices across the
enterprise; and produces and access information in a real-time
environment”.
According to American Production and Inventory Control Society
(APICS) (2001), “ERP system is a method for the effective planning and
controlling of all the resources needed to take, make, ship and account for
customer orders in a manufacturing, distribution or service company.”
The main objective of an ERP system is to maintain a smooth flow of
internal and external information throughout an organisation. This helps the
different departments of an organisation to make independent decisions.

1. __________is a multi-module application that integrates the activities
of different departments, such as production, finance, human
resource and marketing.
2. According to___________, “ERP is a packaged business software
system that enables a company to automate and integrate the
majority of its business processes; share common data and practices
across the enterprise; and produces and access information in a real-
time environment”.
3. The main objective of an ERP system is to maintain a smooth flow of
internal and external information throughout an organisation.
(True/False)

Activity 1:
Discuss the role of an ERP system in a manufacturing organisation.
2.3 Origin and Need for an ERP System

Do you know how ERP came into existence? ERP evolved as a result of
continuous advancement in technology and radical changes in the ways
organisations used to conduct their businesses earlier.
Before 1960s, organisations used various scientific inventory control
methods and models, such as economic order quantity (EOQ), fixed order
quantity, periodic order method and optional replenishment method, for the
effective management of their business processes.
In the 1960s, most organisations implemented software packages for
controlling and managing their inventory. However, these organisations
were not completely satisfied with the software packages. Considering the
situation, organisations strived hard to invent some new software packages
that could fulfil their requirements. As a result, in the 1970s, a new system
called material requirements planning (MRP) was invented.
The MRP system was used to estimate the material requirements of
organisations for producing products with the help of master production
schedule, bill of materials and list of materials. Apart from this, it also helped
organisations in reducing inventory levels and lead time, thereby
maintaining on-time delivery performance. Later, with the addition of various
software tools, the functions of the MRP system were enhanced and the
system was also used for performing activities, such as sales planning,
customer order processing and capacity planning. This enhanced version of
MRP system was known as closed-loop MRP. After that, in the 1980s, MRP
II system was invented.
The MRP II system, also known as manufacturing resource planning, is an
assimilated form of various other systems, such as financial accounting
system, manufacturing system and material management system. It is an
integrated business system that helps an organisation in estimating the
material and capacity requirements for producing products. Using the MRP
II system, these requirements are transformed into financial information.

However, there were certain drawbacks of MRP II system, such as limited

focus on manufacturing activities, assumption of repetitive production set
ups and ineffective budgetary and costing controls. These drawbacks of
MRP II led to the evolution of ERP in the 1990s.
An ERP system integrates the flow of information within the different
departments of an organisation, such as finance, production, marketing and
human resource. Nowadays, it has enabled organisations to streamline its
business processes, improve workflow and increase customer satisfaction.
Figure 2.1 shows the historical milestones of ERP:
Figure 2.1: Historical Milestones of ERP

4. ERP evolved as a result of ____________________ and radical
changes in the ways organisations used to conduct their businesses
earlier.
5. Before 1960s, organisations used various scientific inventory control
methods and models, such as economic order quantity (EOQ), fixed
order quantity, periodic order method and optional replenishment
method, for the effective management of their business processes.
(True/False)
6. In the____________, a new system called material requirements
planning (MRP) was invented.
7. The _________ system was used to estimate the requirements of
materials for producing products with the help of master production
schedule, bill of materials and list of materials.
8. The ____________is an assimilated form of various other systems,
such as financial accounting system, manufacturing system and
material management system.

2.4 Benefits of an ERP System

Are you aware of the advantages of using an ERP system in an
organisation? An ERP system provides several direct and indirect benefits
to an organisation. The direct benefits of an ERP system are effective
decision-making and enhanced efficiency of business functions, while the
indirect benefits of an ERP system include strong corporate image and high
level of customer satisfaction. Figure 2.2 shows the major benefits of an
ERP system:
Reduction in lead time
On-time shipment
Reduction in cycle time

Benefits of an ERP system
Better customer satisfaction
Improved supplier
performance
Increased flexibility
Reduction in quality costs
Improved resource utility
Information accuracy and

improved decision-making
capability
Figure 2.2: Different Benefits of an ERP System

2.4.1 Reduction in lead time

Let us first study the meaning of the term ‘lead time.’ The amount of time
taken between the placing of an order and the receipt of products by a
customer is called lead time. For example, when you order a Domino’s
pizza, you receive it within 30 minutes. In this case, 30 minutes is the lead
time of receiving the order.
It is always important for an organisation to minimise the lead time in order
to reduce its inventory costs. In addition, low lead time enables an
organisation to make timely delivery of products, which ultimately builds a
strong market image of the organisation. Moreover, it helps an organisation
to acquire new customers and retain the existing ones by achieving a high
level of customer satisfaction.
Is the reduction of lead time so easy? Lead time can only be reduced if an
organisation has an effective inventory system, coordination among its
different departments and accurate information about the lead time of
various products. Acquiring detailed and updated information about the
different products and processes of an organisation manually is a difficult
and time-consuming task. In this case, an ERP system helps an
organisation to manage its inventory effectively and track the lead time of its
different products relatively in less time.
2.4.2 On-time shipment

Adhering to delivery dates is a competitive factor for any organisation. An
organisation that is unable to provide products to customers on time may
not survive in the long run. Therefore, on-time delivery is an important
criterion for customer satisfaction and relationship building.
An ERP system helps an organisation to ensure on-time delivery of
products to customers by integrating various business functions and
automating different tasks.
2.4.3 Reduction in cycle time

Earlier, when an order was placed by a customer, it was received by the
sales department of an organisation. Further, this order was passed by the
sales department to the warehouse to identify the availability of the product.

The warehouse used to take a few hours or days to check the availability of
the product. In case the product was not available in the warehouse, the
same information was passed to the production department for the
manufacturing of the product. In such a case, the production department
had to ask the procurement department to arrange the materials required for
manufacturing the product. Once the product was manufactured, the sales
department was informed about it. Then, the sales department would plan
the delivery of the product. Finally, the product was received by the
customer. This whole cycle could take a few days or weeks to get
completed. The amount of time taken to complete this cycle is called cycle
time. A long cycle time may result in undue delays in the delivery of
products to customers.
An ERP system helps an organisation to reduce cycle time by informing
customers about the availability of a product within a few seconds. For
example, when you visit a movie theatre and ask for the availability of
tickets, the operator checks the availability on his/her system and provides
you the required information within a few seconds. Moreover, an ERP
system integrates the activities of different departments of an organisation.
This helps the departments to get real-time information about an event that
may take place within the organisation.
Thus, an ERP system has enabled organisations to reduce cycle time
between the placing of an order and the receipt of the order to a large
extent.
NOTE:
Cycle time is always confused with lead time. However, there is a marked
disparity between the two. Cycle time starts when work begins on the
request of a customer and ends when the product is ready for delivery. On
the other hand, lead time is the amount of time taken between the placing
of an order and the actual receipt of products by the customer.
2.4.4 Better customer satisfaction

An ERP system not only enables an organisation to deliver its products on
time but also helps customers in:

 Getting customised products and services

 Receiving a fast response for their queries
 Obtaining the best solution for their product-related problems
 Receiving products on time
 Getting high quality products
 Tracking their orders
Apart from this, an ERP system also works in coordination with an
organisation’s customer relationship management (CRM) system, which
helps in providing better customer services through various modes, such as
e-mail, telephone and online chat. This ultimately results in high customer
satisfaction.
2.4.5 Improved supplier performance

A quick supply of the required raw materials plays a vital role in the timely
delivery of the final product to the customers. In addition, the quality of raw
materials also has a significant impact on the quality of final products.
Therefore, you can say that it is necessary for an organisation to select a
good supplier.
An ERP system contains some features that help an organisation to
manage supplier relations and track vendor activities. Nowadays, most
organisations make an agreement with their suppliers for procuring good
quality raw materials at lower prices. An ERP system helps an organisation
in controlling and managing agreement-related activities.
2.4.6 Increased flexibility

In today’s dynamic business environment, an organisation needs to be
flexible enough to adapt to the frequent changes in the market. For
example, an organisation needs to modify its products, services or overall
business strategy according to the ever-changing wants, tastes and
preferences of its customers. Apart from this, an organisation should be
flexible to use different production methods, such as Configure-To-Order
(CTO), Assemble-To-Order (ASO) and Engineer-To-Order (ETO), to meet
the changing requirements.

An ERP system enables an organisation to remain flexible and respond to

frequent changes in the market conditions quickly by maintaining a flow of
internal and external information across all the departments and automating
different processes.
2.4.7 Reduction in quality costs

To survive in today’s competitive market, the products and services
produced by an organisation should have the minimum required quality.
Quality is a measure of how well a product or service conforms to the
specified standards. Maintaining the required quality of products and
services incurs huge cost for an organisation.
The cost of quality is not related to the amount spent on producing quality
products or services, rather it is associated with preventing defects in
products and services. If there are defects in products, an organisation
needs to rework on them, which increases the overall cost of the
organisation. For example, rework on a product may involve the retesting of
assembly, rebuilding of a tool and reprocessing of a loan operation. This
may result in additional costs for an organisation.
An ERP system helps an organisation to identify defects in a product at the
designing stage and rectify them before it reaches a customer. The cost
incurred for rectifying defects at the designing stage of a product is lower as
compared to the cost incurred at the final stage. An ERP system ensures
that all the functional departments of an organisation follow a benchmark for
maintaining the required product quality, which, in turn, helps the
organisation to improve its production process. Apart from this, it provides
tools for implementing total quality management (TQM) within an
organisation.
2.4.8 Improved resource utility

Do you know how important it is for an organisation to make optimum
utilisation of available resources? Effective utilisation of resources helps in
maximising the profit and minimising the cost of an organisation. To use its
resources effectively, an organisation needs to determine its production
capacity accurately. If the actual production capacity is more than the
desired production capacity, the resources would not be utilised completely.

On the other hand, if the actual production capacity is less than the desired
production capacity, the organisation would not be able to deliver products
on time. This may have adverse impact on the goodwill of the organisation.
An ERP system facilitates effective utilisation of resources by enabling an
organisation to plan and schedule its production process properly. It uses
the master production schedule and material requirement plan for allocating
resources as per the production requirements.
2.4.9 Information accuracy and improved decision-making

capability
You must be aware of the importance of accurate information in business
decision-making. To win over its competitors, an organisation needs to
make sound business decisions related to the type of product, level of
production and selection of production technique. For this, it is essential for
an organisation to have updated information about current market trends
and customer requirements.
An ERP system helps an organisation to collect and integrate the required
information. In addition, it facilitates a free flow of information among the
different departments of an organisation. This information helps
departments to take several crucial decisions, which are:
 The selection of a product to be produced
 The selection of an appropriate vendor for procuring materials
 The identification of different sources of funds
 The selection of the right candidate for a job
 The selection of the right technology for producing products

9. It is always important for an organisation to minimise the lead time in
order to_____________ and ______________.
10. On-time delivery is an important criterion for_____________ and
______________.

11. An ERP system contains some features that help an organisation to

manage supplier relations and________________.
12. __________is a measure of how well a product or service conforms
to the specified standards.
13. The cost of quality is not related to the amount spent on producing
quality products or services, rather it is associated with preventing
defects in products and services. (True/False)
14. To use its resources effectively, an organisation needs to determine
its _______________accurately.
2.5 Reasons for the Growth of ERP Market

Earlier, the application of ERP was limited to large organisations. However,
over a period of time, vendors have developed customised ERP packages
for small to medium enterprises (SMEs). By implementing such packages,
organisations are able to improve their business performance. This has led
to the tremendous growth of ERP market. The growth of ERP market is
attributed to various factors, which are explained as follows:
Globalisation: In the era of cross-border exchange of business, there is
high competition in the market. Every organisation strives hard to have high
market share. In such a case, organisations need to manage their resources
efficiently. ERP is a solution that helps organisations to enhance their
business performance by reducing costs, increasing productivity and
managing their resources optimally. This, in turn, enables organisations to
capture high market share and survive in stiff competition.
Advancement in technology: The recent developments in technology
have replaced the traditional legacy systems with more advanced ones.
This led to the evolution of ERP systems, which helped organisations in
managing their resources, improving their business performance and
understanding customers’ requirements.
Increased Focus on High Efficiency: It is one of the major reasons for the
growth of ERP market. Today’s business world is characterised with stiff
competition, wherein organisations are constantly finding out the ways to
increase their efficiency in order to capture higher market share. An ERP

system helps organisations in increasing their efficiency by reducing cycle

time, enhancing business agility, meeting delivery schedules and acquiring
new customers and retaining the existing ones.
By implementing ERP packages, organisations can effectively perform their
business functions, such as planning, manufacturing, sales and marketing.

15. ERP is a solution that helps organisations to enhance their business
performance by reducing costs, increasing productivity and managing
their resources optimally. (True/False)
16. Recent developments in technology have replaced the traditional
legacy systems with more advanced ones. (True/False)
17. An ERP system helps organisations in increasing their efficiency by
increasing cycle time. (True/False)
18. Which of the following is not a factor that leads to the growth of ERP
system?
a. Globalisation
b. Advancement in technology
c. Liberalisation
d. Increased focus on high efficiency
2.6 Reasons for the Failure of ERP Implementation

As you have studied in the previous sections, an ERP system provides
several advantages to an organisation. However, the implementation of an
ERP system fails many times due to a number of reasons. An ERP system
fails either at the initial stage of its implementation or at the later stage when
it is unable to provide the desired results. What can be the possible reasons
for the failure of ERP implementation? Following are some of the reasons
for the failure of ERP implementation:
Lack of Top Management Support: Refers to one of the main reasons for
the failure of ERP implementation. The top management of an organisation
plays a vital role in the implementation of an ERP system by providing the

required resources, reassigning jobs to employees and changing work

processes. In addition, if the top management supports ERP
implementation, the employees also need to support it. Therefore, it is
important that the top management of an organisation should be aware of
the significance of implementing an ERP system.
Improper Planning and Budgeting: The ERP implementation project
requires detailed planning, which involves deciding the total budget,
determining the resources required, assigning jobs and responsibilities and
estimating the time required for the implementation. Effective planning is
crucial for the successful implementation of an ERP system. Any inaccuracy
at the planning stage may lead to adverse situations, such as insufficient
funds, ineffective procedures and lack of support of team members.
Apart from planning, budgeting also plays an important role in the
implementation of an ERP system. Budgeting involves estimating various
costs associated with the implementation of the ERP system and allocating
funds for completing the ERP implementation project. In case the ERP
project is under-budget, it may create unnecessary delays in the
implementation, while the over-budget project would increase the cost to the
company. Thus, you can say that proper budgeting is important for the
successful implementation of the ERP project.
Selection of an Inappropriate ERP System: Different organisations have
different environment, work culture and procedures. In addition, the
objective of implementing an ERP system varies across different
organisations. Therefore, while selecting an ERP system, an organisation
should determine whether the system is able to fulfil its objectives. In
addition, an organisation should determine whether the ERP system can be
implemented under the existing technology and working environment. If all
these aspects are not considered by an organisation while purchasing an
ERP system, it may lead to the failure of the system.
Lack of Training: Employees may resist ERP implementation in case
proper training is not provided to them. This is because they may have fear
that their workload would increase with this implementation. In addition,
some employees may also develop job insecurity, as the ERP system can

perform their work. Therefore, an organisation should provide proper

training to its employees on the functioning of an ERP system.
Ineffective Work Culture of an Organisation: Affects the implementation
of an ERP system to a large extent. ERP implementation is more successful
in an organisation where employees are willing to learn new things and are
flexible to changes. On the contrary, the implementation of an ERP system
fails in an organisation where employees resist any type of change in the
working environment.
Ineffective Communication: The implementation of an ERP system
requires effective communication among different departments. Lack of
communication may lead to inaccurate information, which would ultimately
result in the failure of ERP. If there is smooth communication among
employees, it would be easier to carry out activities involved in ERP
implementation. Thus, the entire plan of ERP implementation needs to be
communicated to all the employees to get their support for the
implementation.
2.6.1 Roadmap for successful ERP implementation

As mentioned in the previous section, it is important for an organisation to
identify the requirements of implementing an ERP system. For the
successful implementation of an ERP system, an organisation should adopt
the following steps:
1. Define the objectives and targets of implementing an ERP system.
2. Define the role of different departments in the implementation of an
ERP system.
3. Select a project team for the implementation of an ERP system.
4. Select the ERP vendor.
5. Select the ERP system as per the requirements.
6. Communicate the implementation plan to the team and educate them
on the changes that can take place and the benefits thereof. This is a
continuous process that is vital for the success of the implementation.
7. Implement the ERP system.

8. Monitor the performance of the ERP system.

Sometimes, organisations also hire an external experienced consultant.
This consultant acts as a coordinator between the ERP vendor and the
organisation. The consultant should have good experience in ERP
implementation. However, the availability of an experienced consultant is
very low. Therefore, it is preferred that an organisation should select its best
employees with the required technical skills and train them to work in
coordination with external consultants.
Exhibit 2.1: Success Story of ERP at Burmah Shell Oil Refineries Ltd
Burmah Shell Oil Refineries Ltd was an oil refinery established in 1952 in
Mumbai after an agreement made between the Government of India and
a UK-based company named Burmah Oil Company and Shell Petroleum
Co. This agreement was called Burmah-Shell Bill, which got over in 1975.
Thereafter, the Government of India signed an agreement with Burmah-
Shell and took over the operations of the company and renamed it as
Bharat Refineries.
Initially, Bharat Refineries only sold kerosene, but now it also sells petrol
and LPG for domestic cooking purposes. In 1976, the Government of
India acquired 100% shares of the organisation and named it as Bharat
Petroleum Corporation Ltd. (BPCL). Later, in 1991, the organisation got
into marketing contracts with Indo-Burmah Petroleum (IBP), Madras
Refineries Ltd. (MRL) and Cochin Refineries Ltd. (CRL). The government
disinvested 30% shares of BPCL in favour of financial institutions and
mutual funds.
In 2000, BPCL implemented an ERP system named SAP R/3 in order to
speed up its decision-making process, respond quickly to customers’
queries and complaints and improve business performance. The
implementation was successfully completed in 2001. After implementing
the ERP system, BPCL’s customers could access information easily and
perform business activities online. This led to an increase in the customer
base of BPCL from 14.9% to 15.8% as well as 2.28% increase in its
revenue.


19. If the top management supports ERP implementation, the employees
also need to support it. (True/False)
20. The objective of implementing an ERP system is the same for
different organisations. (True/False)
21. An organisation should provide ___________to its employees on the
functioning of an ERP system.
2.7 Summary
Let us recapitulate the main points discussed in the unit.
 Before the 1960s, organisations used scientific inventory control
methods and models, such as EOQ and fixed order quantity, for
managing business activities. However, in the 1960s, organisations
started using software packages for managing and controlling inventory.
Some of these packages are MRP and MRP II systems. The drawbacks
of MRP II system, such as limited focus on manufacturing activities and
ineffective budgetary and costing controls, led to the evolution of ERP in
the 1980s. ERP is an information system used for controlling and
integrating business activities.
 ERP system provides various benefits to an organisation. Some of these

benefits are reduction in lead time, on-time shipment, reduction in cycle
time, better customer satisfaction, improved supplier performance,
increased flexibility, reduction in quality costs, improved resource utility,
information accuracy and improved decision-making capability.
 The growth of ERP market is attributed to different factors, such as

globalisation, advancement in technology and increased focus on high
efficiency.
 The implementation of an ERP system may fail due to various reasons,

such as lack of top management support, improper planning and
budgeting, selection of an inappropriate ERP system, lack of training,

ineffective work culture of an organisation and ineffective

communication.
 In order to implement an ERP system successfully, an organisation

needs to take various steps, such as defining the objectives, targets and
role of different departments involved in the implementation of the ERP
system; selecting a project team, vendor and an appropriate ERP
system; communicating the implementation plan to the project team;
implementing the system; and monitoring its performance on a regular
basis.
2.8 Glossary
Let us have an overview of the important terms mentioned in the unit.
ERP system: It is an information system that helps an organisation to
control and integrate the activities of its different departments.
MRP system: It is a system that helps an organisation to estimate the
requirements of materials for manufacturing its products by using master
production schedule, bill of materials and list of materials.
Closed-loop MRP: It is an enhanced version of MRP that can perform
activities, such as sales planning, customer order processing and capacity
planning.
MRP II system: It is an integrated form of various systems, such as
financial accounting system, manufacturing system and material
management system.
Lead time: It is the amount of time taken between the placing of an order
and the receipt of products by a customer.
Cycle time: It is the time that starts when work begins on the request of a
customer and ends when the product is ready for delivery.
SAP: It is the world’s largest vendor of ERP systems.
Legacy system: It is a traditional method, technology or software used by
an organisation.


1. Define the term ERP.
2. How did ERP come into existence?
3. List the benefits of an ERP system.
4. Write a short note on globalisation as a reason for the growth of ERP
market.
5. Discuss the roadmap for successful ERP implementation.
6. Write a short note on the origin and importance of MRP.
7. What crucial decisions can an organisation make by implementing an
ERP system?
8. Explain the reasons for the failure of ERP implementation.
2.10 Answers

1. ERP
2. Deloitte Consulting
3. True
4. Continuous advancement in technology
5. True
6. 1970s
7. MRP
8. MRP II system
9. Reduce its inventory, purchasing costs
10. Customer satisfaction, relationship building
11. Track vendor activities
12. Quality
13. True

14. Production capacity

15. True
16. True
17. False
18. c
19. True
20. False
21. Proper training
Terminal Questions
1. ERP is business management software that integrates all the business
functions and processes of an organisation, thereby enhancing its
efficiency. Refer to Section 2.2 Defining ERP, which defines the ERP
system.
2. ERP came into existence with the advent of advancement in technology
and rapid changes in the business environment. Refer to Section 2.3
Origin and Need for an ERP System, which explains the evolution of
an ERP system.
3. An ERP system provides various benefits to an organisation. Some of
these benefits include effective decision-making, increased efficiency,
strong corporate image and high customer satisfaction. Refer to Section
2.4 Benefits of an ERP System, which explains the importance of an
ERP system in an organisation.
4. Globalisation has led to stiff competition in the marketplace. This has
necessitated the implementation of an efficient information system,
such as ERP, in organisations. Refer to Section 2.5 Reasons for the
Growth of ERP Market, which discusses globalisation as one of the
main reasons for the growth of the ERP market.
5. The steps for successful ERP implementation include defining the
objectives and targets as well as the role of different departments;
selecting a project team, the ERP vendor and the ERP system;
communicating the implementation plan; implementing the ERP

system; and monitoring the performance. Refer to Section 2.6.1

Roadmap for successful ERP implementation, which explains the
steps to be taken by an organisation for successful implementation of
an ERP system.
6. The MRP system, invented in the 1970s, was used to determine the
amount of material required by organisations for producing products.
Refer to Section 2.3 Origin and Need for an ERP System, which
explains the origin and importance of MRP.
7. The information provided by an ERP system helps an organisation’s
departments to make various important decisions, such as selecting
products to be produced and identifying different sources of funds.
Refer to Section 2.4.9 Information accuracy and improved decision-
making capability, which describes how an ERP system helps an
organisation in making important business decisions.
8. Some of the reasons for the failure of ERP implementation include lack
of top management support, improper planning and budgeting and
selection of an inappropriate ERP system. Refer to Section 2.6
Reasons for the Failure of ERP Implementation, which explains the
reasons for the failure of ERP implementation.
2.11 Case Study: Failure of ERP Implementation at Hershey

Foods Corporation
Hershey Foods Corporation is one of the leading manufacturers of quality

chocolates and non-chocolate confectionary items in North America. The
organisation implemented SAP ERP just before Halloween in 1999.
Halloween is the peak season for the organisation. The implementation of
the ERP system in the organisation led to a significant decrease in its
revenue and the efficiency of its operations. There are several reasons for
the failure of ERP implementation at Hershey Foods Corporation. Some of
these reasons are:

Insufficient training of employees: Employees were not trained properly

to work with the newly implemented ERP system. In addition, they were not
aware of the benefits of the ERP system. As a result, the employees
resisted ERP implementation.
Unrealistic implementation timeline: The original timeline for the ERP
implementation was 4 years, which was reduced to 2.5 years later on.
Consequently, some of the major activities, such as scope management,
project planning and project scheduling, were not performed properly.
Improper go-live schedule: The implementation of the ERP system in the
peak season was one of the major reasons for its failure.
Questions:
1. According to you, what is an appropriate way for implementing an ERP
system?
2. When should an organisation implement an ERP system?

Planning.
E-References
 http://www.erppandit.com/Evolution-of-ERP.html
 http://www.eresourceerp.com/ERP-benefits.html
 http://www.sysoptima.com/erp/erp_benefits.php
 http://en.wikipedia.org/wiki/SAP_ERP
 http://it-source.net/en/article/erp_market/
 http://www.reliableplant.com/Read/10733/real-reasons-why-erp-
systems-fail

Unit 3 ERP and Related Technologies
Structure
3.1 Introduction
Objectives
3.2 Business Process Reengineering (BPR)
3.3 Management Information System (MIS)
Nature of MIS
Need of MIS
Role of MIS
3.4 Decision Support System (DSS)
Characteristics of DSS
Role of DSS
Limitations of DSS
3.5 Executive Information Systems (EIS)
Advantages of EIS
Limitations of EIS
3.6 Customer Relationship Management (CRM)
3.7 Data Warehousing
3.7 Data Mining
3.9 On-Line Analytical Processing (OLAP)
3.10 Product Lifecycle Management (PLM)
3.11 Supply Chain Management (SCM)
3.12 ERP Security
3.13 Summary
3.14 Glossary
3.16 Answers
3.17 Case Study: Application of MIS in Walmart

3.1 Introduction
In the previous unit, you have studied the role of an ERP system in an
organisation and its applications. However, there are certain limitations of
an ERP system. To overcome these limitations of an ERP system, several
new technologies have been developed. In this unit, let us study more about
ERP and related technologies.
To perform business functions and processes efficiently, an ERP system is
used in conjunction with a number of advanced technologies. Some of these
technologies include Business Process Re-Engineering (BPR),
Management Information System (MIS), Decision Support System (DSS),
Executive Information System (EIS), and On-Line Analytical Processing
(OLAP).
In this unit, you will study about different technologies used in integration
with an ERP system. You will study the concept of BPR in detail. Next, you
will be familiarised with the nature, need, and role of MIS in an organisation.
Further, the characteristics and role of DSS are also explained in the unit.
Apart from this, you will study the advantages and limitations of EIS. The
importance of data warehousing, data mining, and OLAP is also discussed
at length. Towards the end, you will be acquainted with the application of
ERP in product lifecycle management and supply chain management as
well as ERP security.
Objectives
 explain the concept and application of business process re-engineering
 discuss the importance of management information system
 assess the significance of decision support system
 explain the advantages and limitations of executive information system
 recognise the importance of data warehousing, data mining, and on-line

analytical processing
 discuss the application of ERP in product lifecycle management and

supply chain management

3.2 Business Process Reengineering (BPR)

Today, the business environment is driven by three Cs: customer,
competition, and change. Therefore, organisations are constantly finding out
new ways and methods for their business problems. In such a scenario,
BPR seems to be an incredible solution for the different business problems
of organisations. To comprehend the concept of BPR more clearly, let us
discuss the meaning of the terms business process and re-engineering
separately.
In Unit 1, you studied that a business process is a set of activities that are
performed in a sequence to produce valuable output from the available
inputs. On the other hand, re-engineering means overall rebuilding. Thus,
BPR can be defined as the overall redesigning of a business process. More
specifically, it is a process that involves analysing and redesigning the
workflow pattern and processes of an organisation to make them more
effective. It helps an organisation in identifying loopholes in its existing
business processes and designing new business patterns. According to
Hammer and Champy (1990), “Re-engineering is the fundamental rethinking
and radical redesign of business processes to achieve dramatic
improvements in critical, contemporary measures of performance, such as
cost, quality, service and speed.”
Now, the question arises why an organisation needs to redesign its
business processes and how a business process can be redesigned. A re-
engineered business process improves the competitive strength of an
organisation and enhances its productivity. For example, the re-engineered
production and marketing processes of an organisation would lead to higher
customer satisfaction. Subsequently, the organisation would gain customer
loyalty and win over its competitors.
BPR is a step-by-step approach; an organisation should adopt the following
steps to re-engineer its business processes:
1. Identify the business process that needs to be redesigned.
2. Find out the areas of improvement in the process and the measures to
correct it.

3. Bring the improved process in practice and manage changes (for

example, providing training to employees so that they can work
efficiently with the new process).
4. Integrate the improved process with other business processes of the
organisation.
5. Take feedback from employees and ensure that the process is as per
the requirements of the organisation.

1. ________ is a process that involves analysing and redesigning the
workflow pattern and processes of an organisation to make them
more effective.
2. BPR helps an organisation in identifying ________ in its existing
business processes and designing new business patterns.
3. Re-engineering means overall_______.
4. BPO increases the operational costs involved in executing and
integrating its business processes. (True/False)
5. The first step in the BPR process is to identify the business process
that needs to be redesigned. (True/False)
3.3 Management Information System (MIS)

You have already studied the importance and functions of MIS. In this
section, you will comprehend the significance of MIS in more detail. To
explain the concept of MIS, let us study the two terms ‘management’ and
‘information system’ separately.
Management is a process of planning, organising, directing, and controlling
organisational resources. In Unit 1, you have already studied about
Information System (IS). To recall, IS refers to a set of interrelated
components that is able to collect, store, process, produce, and disseminate
information for effective business decision making. In this way, you can say
that MIS is a computer-based system that supports managers to perform
various management functions, such as planning, organising, directing, and
controlling. According to Davis and Olson, “MIS is an integrated user-

machine system designed for providing information to support operational

control, management control and decision making functions in an
organisation. ISs make use of resources such as hardware, software, men,
procedures as well as suppliers.”
MIS collects data from various internal and external resources, processes it,
and provides meaningful information. To process this data, MIS applies
certain technical and analytical measures. The information given by MIS
helps managers to make informed business decisions, which, in turn,
improves the organisation’s performance.
NOTE:
MIS is an information system that enables managers to perform various
managerial functions, such as planning, organising, directing and
controlling, by providing updated information. On the other hand, ERP is a
system that integrates the information obtained from different information
systems (such as BPR, MIS, DSS, and EIS) for business decision making.
3.3.1 Nature of MIS

MIS is an interdisciplinary approach that encompasses people, procedures,
software, databases, and devices to provide useful information to managers
for business decision making. Let us study the nature of MIS as follows:
System Approach: Refers to an approach in which an organisation is
considered to be a set of interrelated sub-systems. MIS coordinates and
integrates the different sub-systems of an organisation by providing the
required information.
Technical Concept: Implies that MIS makes use of a number of
technologies for data collection, data processing, and data dissemination.
Interdisciplinary Concept: Implies that MIS encompasses various
disciplines, such as accounts, marketing, sales, production, operations
research, and computer science, and provides integrated information.

3.3.2 Need of MIS

Now, you must be aware of the fact that MIS acts a tool for business
decision making. Apart from this, MIS also serves different purposes in an
organisation. Some of them are:
 Provides useful and timely information to managers.
 Provides a basis for logical decision making.
 Disseminates integrated information among the different departments of

the organisation.
 Ascertains a rational basis for business planning.
 Improves operational control in the organisation.
 Provides access to information to all the employees of the organisation.
3.3.3 Role of MIS

The main aim of MIS is to help managers in making complex business
decisions easily and efficiently. Besides, MIS helps an organisation in the
following ways:
Deal with business complexities: The business environment is changing
constantly with continuous advancement in technology. These changes
have increased the complexity of different business functions. For example,
to gain hold in the market, most organisations have branches in different
parts of the world. In such a case, it is difficult for organisations to have
control on operations performed at all the branches. To deal with such
complexity, MIS provides integrated information to all the branches.
Survive in stiff competition: MIS helps an organisation to remain
competitive by providing accurate and updated information related to current
market trends. This information helps managers to make various strategic
decisions effectively.
Perform managerial functions effectively: In the present business era,
the role of managers in an organisation cannot be limited to some specified
functions. Nowadays, managers are responsible for effective business
planning, decision making, and forecasting. MIS helps managers to perform

their functions effectively and quickly. For example, MIS helps managers in
comparing the sales of the last five years with the sales of the current year
by representing sales data in a graphical or tabular form.
Adapt to changes: MIS helps an organisation to respond quickly to
changes in the market. For example, nowadays, customers prefer to avail
services through the Internet. With the help of MIS, an organisation can
provide an online service facility to its customers.
Activity 1:
With the help of the Internet, find out the role of MIS in the banking sector.

6. IS refers to a set of __________ components that is able to collect,
store, process, produce, and disseminate information for effective
7. The main aim of ______ is to help managers in making complex
business decisions easily and efficiently.
8. MIS makes use of a number of _________ for data collection, data
processing, and data dissemination.
9. MIS collects data only from internal resources of an organisation.
(True/False)
10. MIS is an interdisciplinary approach. (True/False)
3.4 Decision Support System (DSS)

You make a number of decisions in your everyday life; for example, what to
cook for breakfast? What to wear for office? Similarly, organisations also
need to make certain decisions to carry out their operations smoothly. The
decisions made by organisations usually involve huge cost. One right
decision can lead to the remarkable growth of an organisation, while a
wrong decision can ruin the business completely. Therefore, business
decisions are considered to be highly critical. In order to make effective
decisions, an organisation requires timely and accurate information.

DSS is an interactive information system that provides substantial support to

managers while taking critical business decisions. It is a computerised
information system that is capable of performing logical data analysis and
testing hypothesis. Some of the popular definitions of DSS are as follows:
According to Hicks, “DSS is an integrated set of computer tools that allow a
decision-maker to interact directly with computers to create information
useful in making decisions.”
As per Keen and Scott-Morton (1978), “A DSS couples the intellectual
resources of individuals with the capabilities of the computer to improve the
quality of decisions. It is a computer-based support system for management
decision makers who deal with semi-structured problems.”
3.4.1 Characteristics of DSS

To cope with ever-changing business environment, most organisations rely
on DSS to assess and resolve day-to-day business problems. Let us
discuss some of the main characteristics of DSS:
Interactive System: DSS is capable of interacting with its users while
supporting them in decision making. For example, when a user comes up
with a hypothesis about some business decision, DSS tests the hypothesis
and provides its validity to the user.
Logical Tool: DSS enables managers to determine the consequences of
making a particular decision by performing what-if analysis. Moreover, it
helps an organisation to identify the trends of different business events by
performing various logical and statistical operations. For example, an
organisation needs to analyse the sales trend of its products. DSS can
easily find out data and reveal the facts related to the demand of the product
in the market.
Integrated System: DSS enables managers of different departments to
analyse business problems, generate reports, and deliver these reports to
end users through various modes, such as e-mail and other mobile devices.
3.4.2 Role of DSS

Suppose an organisation needs to make an investment decision for which it
has a number of options. Now, the organisation needs to select the option

that best meets its business objectives and is likely to derive maximum
return. To do so, the organisation needs to analyse each venture carefully.
In such a case, DSS can help the organisation in gathering and analysing
the relevant information by performing logical reasoning.
Apart from this, the following are some of the main advantages of DSS:
 Supports the decision-making process by providing useful information.
 Performs logical operations before providing a conclusion.
 Evaluates each available alternative with respect to prevailing business
conditions.
 Reduces time and efforts required in business decision making.
3.4.3 Limitations of DSS

In spite of its many benefits, there are a number of limitations of DSS. The
following are some limitations of DSS:
 It only supports the decision-making process of an organisation by
providing and analysing data, but the final decision is taken by an
individual. Thus, it totally depends on the competency of the individual to
take the correct decision.
 It may not be able to match the decision-making mode of expression or
perception.
 It is unable to rectify a faulty decision-making process.
 Its efficiency depends on the accuracy of data entered in it.

11. To cope with ever-changing business environment, most
organisations rely on _____________ to assess and resolve day-to-
day business problems.
12. DSS can help an organisation in gathering and analysing the relevant
information by performing ______ reasoning.
13. DSS enables managers to determine the consequences of making a
particular decision by performing _________ analysis.

14. In order to make effective decisions, an organisation requires timely

and accurate information. (True/False)
15. DSS is a non-interactive information system. (True/False)
3.5 Executive Information System (EIS)

In the previous sections, you have studied about different information
systems, such as MIS and DSS. These systems support decision making at
all the levels of management by providing useful information. However,
among the decisions made at different levels, top-level decisions are highly
critical to the business growth of an organisation. The top-level decisions
are related to the overall business strategy of an organisation. Therefore,
the top management of an organisation needs more accurate information.
EIS is a decision-support tool specifically designed for top-level managers
(executive-level management). It is designed to convert all relevant data into
aggregated information that supports the overall business strategy of an
organisation. EIS generates reports that help executives to make strategic-
level business decisions. For example, EIS helps the top management of an
organisation to set the target sales by providing a report containing the
sales figures of the past few years. It represents the target sales and
achieved level of sales of the organisation in a graphical form, as shown in
Figure 3.1:
5 Target
0 Sales (in
2008 2009 2010 2011 lakhs)
Figure 3.1: An Example of EIS Report

As shown in Figure 3.1, in 2008, the target sales level was higher than the
actual sales volume. While in 2009, the sales target was too low to motivate
the salespeople toward higher achievements. This information is useful for
top-level managers to determine an optimum sales target for the succeeding
year.

3.5.1 Advantages of EIS

The following are the major advantages of EIS:
 Provides the top management with quick access to internal and external
information.
 Enables executive-level managers to deal with strategic problems and
make efficient decisions.
 Presents the required information in the form of graphics, tables, and
equations, which helps top-level managers to analyse the information
easily.
 Improves the efficiency of different business functions.
 Enables executives to work in coordination with other systems used
within an organisation.
 Analyses information using various statistical and logical methods.
 Helps executives in identifying critical success factors.
3.5.2 Limitations of EIS

Although EIS is useful for improving the strategic efficiency of an
organisation in various ways, there are certain limitations of EIS. Some of
these limitations are:
 Includes limited functionality as it is confined to the top-level
management.
 Provides information that may be difficult to analyse.
 Seems difficult to be separated from other decision-making tools in
terms of its functions.
 Incurs huge cost for an organisation for its implementation.
 Becomes slow if the internal processes are not managed properly.
16. ___________ decisions are highly critical to the business growth of
an organisation.
17. EIS generates ___________ that help executives to make strategic-
level business decisions.

18. EIS presents the required information in the form of graphics, tables,
and equations, which helps the _______ managers to analyse the
information easily.
19. EIS includes limited functionality as it is confined to top-level
management only. (True/False)
20. EIS becomes fast if the internal processes are not managed properly.
(True/False)
3.6 Customer Relationship Management (CRM)

Customer Relationship Management (CRM) is a tool that helps an
organisation in establishing strong relationships with its customers. It
enables an organisation to identify the needs and expectations of customers
and fulfil them, which results in achieving a high level of customer
satisfaction. In other words, CRM can be defined as a business strategy that
focuses on customer satisfaction and retention. It is a multifaceted system
used for storing and analysing information related to customers, such as
their name, contact history, needs and preferences, and repeat purchases.
This information enables organisations to take sound business decisions.
The following are the main objectives of implementing a CRM system in an
organisation:
 Simplifying marketing and sales processes
 Providing a better customer service
 Acquiring new customers and retaining the existing ones
 Improving organisational efficiency and productivity
 Reducing operational costs
The following are some other advantages of CRM:

 Establishing effective communication channels
 Gathering information related to customers
 Creating detailed profiles of individual customers
 Achieving a high level of customer satisfaction

 Tracking new sales opportunities
 Increasing market share and profit margins
 Enhancing customer loyalty
 Fulfilling customer requirements

21. CRM enables an organisation to identify the needs and expectations
of customers and fulfil them, which results in achieving a high level of
customer satisfaction. (True/False)
22. CRM can be defined as a business strategy that focuses on
____________.
3.7 Data Warehousing

Now, you are aware of the fact that an ERP system requires different types
of data to operate. An organised collection of data is called database.
However, when an organisation uses an ERP system for quite a few years,
maintaining only a database is not sufficient. This is because, over a period
of time, an ERP system generates a large amount of data. The excess load
of data may slow down the performance of an ERP system. Now, the
question arises how an organisation can prevent such situations. These
situations can be prevented using a technique called data warehousing.
The concept of data warehousing was introduced in the late 1980s when
IBM researchers Barry Devlin and Paul Murphy developed a business data
warehouse. A data warehouse is a database that is developed for reporting
and analysis purposes. According to Bill Inmon, “A data warehouse is a
subject-oriented, integrated, time-variant and non-volatile collection of data
in support of management’s decision making process.” Data warehousing is
a process of consolidating this data at a centralised location. It helps
organisations to store data in such a manner that it can be easily analysed
and converted into meaningful information. Moreover, it protects the data
from risks, such as misuse, damage, and theft.

In order to maintain a data warehouse, data is extracted from the ERP

system of an organisation. The following are the main advantages of data
warehousing:
 Facilitates integrated storage of data.
 Provides backup for a large amount of data produced in the past.
 Provides a cross-functional view of data, which is helpful in decision

making.
The recent data warehousing systems are capable of performing online and
multi-dimensional analysis of data.
A data mart is a type of data warehouse that stores information on a
particular functional area, such as sales, finance, or marketing, of an
organisation. Data marts are usually developed and controlled by a single
department of an organisation.

23. A data warehouse is a _______ that is developed for reporting and
analysis purposes.
24. Data warehousing is a process of consolidating data at a
__________ location.
25. The recent data warehousing systems are capable of performing
___________ and multi-dimensional analysis of data.
26. Maintaining a database is sufficient while operating an ERP system.
(True/False)
27. The data stored in a data warehouse is not relevant to the current
operations. (True/False)
3.8 Data Mining

You must have heard the term ‘mining’—an act of extracting hidden
valuables from the earth. Similarly, data mining is an act of extracting
valuable information from a database. The ERP system of an organisation
stores all its data in a database. With the help of data mining, this data is
analysed to produce meaningful information for business decision making.

More specifically, data mining is a process of finding out important elements

from a database, establishing relationship among them, and generating
knowledge.
The modern data mining systems are capable of comparing the past
patterns, formulating inferences, and testing the hypothesis to generate
operational rules. For example, an organisation wants to enter the new
market. For this, it needs to analyse data related to the purchasing
behaviour of customers, level of competition, and entry and exit barriers.
This can be easily done with the help of data mining.
A data mining system is usually a vital component of the IS of an
organisation. This is because a data mining system allows logical data
analysis. The data mining technique is widely used by organisations
involved in market research, business development, advertising, and
investment analysis.

28. Data mining is an act of extracting valuable ________ from a
database.
29. The modern ______ systems are capable of comparing the past
patterns, formulating inferences, and testing the hypothesis to
generate operational rules.
30. A data mining system is usually a vital component of the _____ of an
organisation.
31. A data mining system does not allow logical data analysis.
(True/False)
32. Data mining aims to support the decision-making process of an
organisation. (True/False)
Activity 2:
How can data mining be useful for market research organisations?

3.9 On-Line Analytical Processing (OLAP)

OLAP is a technology that is used to analyse data stored at different
network places or data warehouses. It allows you to analyse data from
multiple database systems at the same time. The following are the five main
characteristics of OLAP:
Fast: An OLAP system follows simple steps to analyse data and provides a
quick response. The response is so fast that you will find almost a real-time
response from the system.
Analysis: An OLAP system is capable of analysing data by performing
statistical operations and logical reasoning.
Shared: An OLAP system administers the access to different users at a
time. Moreover, it prevents unauthorised access to information and
maintains the confidentiality of information.
Multi-dimensional: An OLAP system is able to provide a multi-dimensional
view of data according to your requirements.
Information: An OLAP system is capable of analysing data quickly and
providing meaningful information.
So, you can conclude that OLAP refers to a technology that provides real-
time access to the desired information at the same time while maintaining
the confidentiality of the information. The OLAP technology is used in a
number of business applications, such as market research, financial
analysis, business consolidation, planning, budgeting, forecasting, product
profitability analysis, pricing, activity-based costing, workforce planning, and
quality assurance.

33. OLAP is a ________ that is used to analyse data stored at different
network places or data warehouses.
34. ______ refers to a technology that provides real-time access to the
desired information.
35. OLAP allows you to analyse data from multiple database systems at
the _____ time.

36. An OLAP system administers the access of different users.

(True/False)
37. An OLAP system provides a quick response to users. (True/False)
3.10 Product Lifecycle Management (PLM)

Do you know the importance of products for an organisation? The
competitive position of manufacturing organisations depends on the types of
products they introduce in the market. Therefore, organisations strive hard
to enhance the features of their products. When a product is developed and
introduced in the market, it passes through four major stages—introduction,
growth, maturity, and decline. The journey of a product from the introduction
stage to the decline stage is called Product Life Cycle (PLC). PLM is all
about planning, directing, and controlling the succession of a product
through the various stages of PLC. The ERP system of an organisation
helps in managing the product lifecycle using the PLM software.
PLM software is a business solution that helps an organisation in
streamlining the flow of information about a product and relevant processes
throughout PLC. Moreover, organisations use PLM software for
collaborative engineering, product development, product structuring, and
product quality. Besides, the following are some of the main advantages of
PLM software:
 Helps in accelerating the task of product design and product testing.
 Helps in prototyping by using various optimisation and engineering

techniques, such as Computer Aided Design (CAD).
 Reduces time and cost incurred for product development.
 Helps in reducing wastage by maintaining the required level of inventory.
 Enables an organisation to make rational and profitable decisions at the

different stages of PLC.

38. The competitive position of manufacturing organisations depends on
the types of ______ they introduce in the market.

39. When a product is developed and introduced in the market, it passes

through _____ major stages.
40. PLM software is a business solution that helps an organisation in
streamlining the flow of ______ about a product and relevant
processes throughout PLC.
41. PLM software helps in product designing only. (True/False)
42. PLM software enables an organisation in making rational and
profitable decisions at the different stages of PLC. (True/False)
3.11 Supply Chain Management (SCM)

A supply chain refers to a network created for the procurement of raw
materials, transformation of these materials into final products, and
distribution of these final products. For example, when you go to a
supermarket, you find some items have been manufactured in different
countries. Nowadays, organisations procure materials from different
suppliers across the globe and supply these materials to their factories
located in different continents. Further, the finished products are passed
from factories to different countries, local markets, distributors, retailers, and
finally to end users through a distribution network. So, the process of
supervising the activities involved in moving products from factories to end
users is called Supply Chain Management (SCM).
Do you know the importance of SCM in an organisation? SCM is a crucial
process for an organisation as it has direct impact on the profitability of the
business. Moreover, an effective SCM process leads to higher customer
satisfaction. As discussed earlier, the ERP system of an organisation helps
in managing product lifecycle using PLM software. Similarly, it also helps in
managing supply chain activities using SCM software.
SCM software is an application that supports the planning, consolidating,
directing, and controlling of all the activities involved in delivering products
to end users. These activities include procuring raw materials, maintaining
an appropriate inventory level, matching the market demand, and managing
relationships with suppliers, wholesalers, retailers, and customers. SCM
software is helpful for an organisation in the following ways:

 Provides useful and timely information for decision making and

controlling the flow of products.
 Helps in avoiding unnecessary delays in product delivery.
 Helps in maintaining optimum stock of goods.
 Enables the organisation to track and improve the performance of

suppliers.
 Helps in activities, such as managing inventory, keeping track of sales

and purchase orders, and synchronising online product data.

43. A ____________refers to a network created for the procurement of
raw materials, transformation of these materials into final products,
and distribution of these final products.
44. SCM software is an application that supports the planning,
consolidating, directing, and controlling of all the activities involved in
delivering products to end users. (True/False)
45. The process of supervising the activities involved in moving the
product from factories to end users is called_____________.
46. The SCM ______ enables the organisation to track and improve the
performance of suppliers.
47. The SCM software helps in maintaining optimum stock of goods.
(True/False)
Activity 3:
Create a supply chain for the distribution of an FMCG product that you
use in your day-to-day life (for example, cheese, bread, and butter).
3.12 ERP Security

While implementing an ERP system, an organisation may face a number of
security issues. These issues can be related to network, role and
authorisation, and data safety. If these issues are not resolved properly, it

may result in the failure of ERP implementation. Thus, an organisation

should take proper measures to resolve security issues that may arise while
implementing an ERP system. Some security issues and their solution are
explained as follows:
Network Security Issues: Organisations provide access to suppliers and
customers of their ERP system in order to increase the efficiency of their
supply chain network. However, it can lead to higher risks for the corporate
networks of organisations. For example, some hackers can hack the
corporate networks of an organisation using certain techniques. In such a
case, hackers can misuse the data available on these networks by either
providing it to competitors or any other source for their own benefit.
In order to overcome this issue, an organisation should provide access to
only those suppliers and customers who are in collaboration with it. In
addition, it should formulate and implement a mitigation strategy in order to
secure its network from hackers. This strategy is adopted by the networking
team of an organisation.
Role and Authorisation Issues: ERP implementation requires participation
of all the departments and teams of an organisation. In such a case, it can
be possible that people associated with ERP implementation can get
confused about their authorisation power. For example, an individual
responsible for preparing purchase orders can have confusion whether
he/she can release the payment to the vendor. Such confusions can raise
role and authorisation issues in the organisation. As a result, individuals can
misuse their authorisation power for their personal benefit.
Thus, it is important that the roles and responsibilities of every individual
related to ERP implementation should be properly defined. In addition,
individuals should also be aware of their authorisation power. Moreover,
they should be given access to the data for which they are authorised.
Data Security Issues: Today, data security has become a challenge for
any organisation. An organisation uses an ERP system to maintain a large
amount of sensitive data related to customers, manufacturers, suppliers,
and competitors. Therefore, it is important for an organisation to protect data
against theft and misuse by adopting effective security measures. To do so,
all the data in the ERP system should be password protected. In addition,

employees should be given access to only that data for which they are
authorised.

48. While implementing an ERP system, an organisation may face a
number of___________.
49. Organisations provide access to their ERP system to suppliers and
customers in order to increase the efficiency of their supply chain
network. (True/False)
50. In addition, employees should be given access to only that
_________ for which they are authorised.
Activity 4:
Apart from the aforementioned issues, what could be other issues that an
organisation can face during ERP implementation? Write it in your own
words.
3.13 Summary
In this unit, you have studied:
 An ERP system cannot work effectively in isolation. Organisations need
to integrate their ERP system with other technologies, such as BPR,
MIS, DSS, EIS, and PLM, to achieve the required results.
 BPR refers to the process of evaluating and redesigning the workflow

pattern of an organisation in order to increase its efficiency.
 MIS is a system that enables managers to perform various managerial

functions, such as planning, organising, directing, and controlling,
effectively. It helps an organisation in dealing with business
complexities, surviving in stiff competition, and adapting to changes.
 DSS is an information system that supports managers in business

decision making by performing logical data analysis and testing
hypothesis. It is an interactive and integrated system, which also acts as
a logical tool.

 EIS is a computerised system that provides aggregated information to

top-level managers for strategic decision making.
 Data warehousing refers to the process of consolidating data at one

place so that it can be easily analysed and converted into meaningful
information whenever required. On the other hand, data mining is a
process of extracting information from the database, analysing it, and
deriving meaningful information.
 OLAP is a technology used for analysing data stored in different data

warehouses.
 PLM software is an application that enables an organisation in

streamlining the flow of information related to different processes
throughout the PLC.
 Supply chain is a network established by organisations for procuring raw

materials, transforming these materials into final products, and
distributing the final products to the end users. SCM software is an
application that helps in managing the activities involved in the supply
chains of an organisation.
 While implementing an ERP system, an organisation may face a number

of security issues. These issues are network security issues, role and
authorisation issues, and data security issues.
3.14 Glossary
Business Process: A series of activities that are performed in a certain
sequence to produce a valuable output from available inputs.
Re-engineering: An overall restructuring or rebuilding.
Product Life Cycle (PLC): The journey of a product from the introduction
stage to the decline stage.

Supply Chain: A network created for the procurement of raw materials,

transformation of these materials into final products, and distribution of
these final products.
Computer Aided Design (CAD): A software solution specifically developed
to support the designing phase of a product.
Prototyping: The process of developing a sample product that is tested for
making improvements in the actual product.
DSS: It is an information system that combines data analysis tools to
support decision making.
MIS: It is an information system that maintains a smooth flow of
management information throughout an organisation.
EIS: It is a strategic-level information system designed to support decision
making through advanced graphics and communication.

1. What are the steps involved in an effective BPR process?
2. Discuss the role of MIS in an organisation.
3. Explain the characteristics of DSS.
4. Discuss the importance of EIS.
5. What are the benefits of data warehousing?
6. What is data mining?
7. How does PLM software help an organisation?
8. What are the benefits of SCM?
3.16 Answers

1. BPR
2. loopholes

3. rebuilding
4. False
5. True
6. interrelated
7. MIS
8. technologies
9. False
10. True
11. DSS
12. logical
13. what-if
14. True
15. False
16. Top-level
17. reports
18. top-level
19. True
20. False
21. True
22. customer satisfaction and retention
23. database
24. centralised
25. online
26. False
27. True

28. information
29. data mining
30. IS
31. False
32. True
33. technology
34. OLAP
35. same
36. True
37. True
38. products
39. four
40. information
41. False
42. True
43. supply chain
44. True
45. Supply Chain Management
46. software
47. True
48. security issues
49. True
50. data

Terminal Questions
1. The steps involved in the BPR process include identifying the business
process that needs to be redesigned, finding out the areas of
improvement, bringing the improved process in practice, integrating the
improved process, and taking feedback from employees. Refer to
Section 3.2 Business Process Reengineering, which explains the
steps involved in an effective BPR process.
2. MIS is a computerised system that provides information support for
decision making to organisations. Refer to Section 3.3 Management
Information System, which discusses the role of MIS in an
organisation.
3. DSS is an interactive, logical, and integrated system that provides
timely information to organisations. Refer to Section 3.4.1
Characteristics of DSS, which lists the various characteristics of DSS.
4. EIS is an information system used by executives to make strategic
decisions, such as setting the vision and mission of the organisation
and formulating the business strategy. Refer to section 3.5 Executive
Information System that explains the importance of EIS.
5. Data warehousing helps organisations by facilitating the integrated

storage of data, providing backup for a large amount of data, presenting
a cross-functional view of organisational data. Refer to Section 3.6 Data
Warehousing, which lists the benefits of data warehousing.
6. Data mining is an act of analysing business data from various
perspectives and converting it into meaningful information. Refer to
Section 3.7 Data Mining, which explains the meaning and concept of
data mining.
7. PLM is a computerised system that helps an organisation in managing
the product lifecycle by providing timely information. Refer to Section
3.9 Product Lifecycle Management, which lists the advantages of
PLM software.

8. SCM helps in managing and controlling all the activities involved in

supply chain management. Refer to Section 3.10 Supply Chain
Management, which lists the benefits of SCM software.
3.17 Case Study: Application of MIS in Walmart

Walmart is one of the world’s most popular multinational, retail
organisations. It is originally a US-based organisation. Walmart has been
using MIS since 1983 with an aim of improving its services. The first MIS
implemented in the organisation was based on a satellite network for the
sharing of data and information. After its implementation, Walmart identified
a significant improvement in communications within one of its leading
stores.
Soon after this, the organisation also started implementing MIS in its other
stores. Moreover, it linked the point of sale terminals of all the stores. This
subsequently improved information sharing among the various stores of the
organisation. However, after a few years, the overall technological structure
became a complex network connecting the entire chain of stores of the
organisation. Considering the situation, Walmart effectively managed to deal
with the complexities by upgrading system requirements. The organisation
further linked its store-wide information system with its suppliers.
Consequently, the application of MIS enabled Walmart to achieve just-in-
time supply along with effective inventory management. The overall system
is designed in a way that quickly updates the database and informs the
suppliers as soon as an item is sold. This eventually alerts the suppliers to
be ready with the upcoming stock requirements. Moreover, the system
helps Walmart in avoiding excess inventory and wastage, which, in turn,
increases the profit margin of the organisation. The system also helps the
organisation in reducing cycle time, thereby improving customer service.
Thus, the installation of MIS is considered to be an important factor in
making Walmart a leader in the retail industry.

Questions:
1. What is the competitive strategy followed by Walmart?
2. Why do you think the installation of MIS is a success factor for
Walmart?

Planning.

E-References
 http://www.capterra.com/supply-chain-management-software
 http://books.google.co.in/books?id=pTGDy2GX_sUC&printsec=frontcov
er&dq=enterprise+resource+planning&source=bl&ots=Apu1Ak3Zn4&sig
=y2w6VEmM7i4g4dLzEWDz5JDeyuU&hl=en&sa=X&ei=-
gx9UOf9DYTLrQe3zoDADQ&ved=0CDAQ6AEwAA
 http://www.capterra.com/supply-chain-management-software
 http://en.wikipedia.org/wiki/Product_lifecycle_management

Unit 4 ERP Implementation Lifecycle
Structure
4.1 Introduction
Objectives
4.2 ERP Tools and Software
4.3 ERP Selection Methods and Criteria
4.4 ERP Selection Process
4.5 ERP Vendor Selection
4.6 ERP Implementation Lifecycle
4.7 Pros and cons of ERP implementation
4.8 Factors for the Success of an ERP Implementation
4.9 Summary
4.10 Glossary
4.12 Answers
4.13 Case Study: Ramco on Demand ERP System for Educational
Institution
4.1 Introduction
In the previous units, you have studied that cut-throat competition in the
marketplace has created a need for organisations to optimise their
resources, enhance profitability, and achieve higher customer satisfaction.
ERP is a solution that enables organisations to improve their operations and
provide faster customer response. Therefore, it is essential for organisations
to select the right ERP system and implement it effectively. In this unit, let
us study more about the selection and implementation of an ERP system in
detail.

Selecting an appropriate ERP system is a crucial decision for an

organisation. To select the right system, an organisation should identify the
needs of implementing the ERP system. For example, an ERP system can
be implemented to maintain a smooth flow of information throughout the
organisation, which ultimately leads to better decision making. Apart from
this, an organisation should form an effective selection team that is able to
not only reach the optimal choice but also facilitate successful ERP
implementation.
Implementing an ERP system involves a great deal of cost, time, and
efforts. Therefore, the implementation process should involve the
participation of all the departments, such as production, finance, and
accounting. Moreover, there should be support and commitment of the top
management of an organisation in the implementation of an ERP system.
Another key factor to successful ERP implementation is end-user training.
An organisation should provide proper training to its employees so that they
can easily work with the ERP system.
In this unit, you will study about different tools and software of ERP. Next,
you will be familiarised with ERP selection methods and criteria. The steps
involved in the ERP selection process are also explained in detail in the unit.
Further, the process of ERP vendor selection is discussed at length in the
unit. You will also study the different phases of ERP implementation
lifecycle. In the end, you will study about the pros and cons of ERP
implementation and factors for its success.
NOTE:
In this unit, the terms software, system, solution, and package have been
used interchangeably.
Objectives
 list the different tools of ERP
 analyse the methods and criteria for the selection of an ERP system
 explain the ERP selection process

 discuss the process of ERP vendor selection
 describe the ERP implementation lifecycle
4.2 ERP Tools and Software

In earlier times, the different departments of organisations were used to
implement individual software to maintain their databases. Such individual
software was not capable of integrating interdepartmental processes, which
affected the overall productivity, speed, and performance of organisations.
Consequently, organisations had to face various problems, such as lack of
synchronised information, incomplete knowledge about business processes,
and unproductive decisions. For example, earlier, the sales department of
an organisation was not aware of the activities of the production department
and vice versa. However, with the evolution of ERP systems, it has become
easier for organisations to get integrated information related to its different
business functions. This has resulted in increased productivity,
synchronised workflow, global decision optimisation, and better flow of
information in organisations.
Organisations generally install two types of ERP systems, which are:
Commercial ERP Package: It is an ERP package that is quite expensive
and is suitable for large-scale organisations. Commercial ERP packages are
provided by well-known vendors, such as Oracle, SAP, and Microsoft. To
implement a commercial ERP package, organisations need to change their
existing technology and business processes. These packages lack flexibility
and require a large amount of money and time for their implementation.
Moreover, an organisation needs to provide extensive training to its
employees so that they can work with the package. Some of the commercial
ERP software are:
Microsoft Dynamics AX: It is commercial ERP software manufactured by
Microsoft Business Division. It is easy-to-use, customised software that
uses a cutting-edge technology. This package is suited for large and
medium-scale organisations.
Microsoft Dynamics NAV: It is ERP software that was developed by
Microsoft Corporation. It assists an organisation in performing various

functions, such as accounting, manufacturing, supply chain management,

and marketing. NAV is suited for small-scale organisations.
mySAP ERP: It is commercial ERP software that was introduced by SAP
AG. Its former name was SAP R/3. It is client-based software that involves a
three-layer model. These three layers are client layer, application layer, and
database layer. The client layer acts as an interface between the user and
software, while the application layer contains all business-specific logic. On
the other hand, the database layer stores transactional and configuration
data of the system.
Open Source ERP Package: It is an ERP system that is available free of
cost. The training procedure related to the handing and working of the open
source ERP package is easy. Unlike a commercial ERP package,
organisations can modify the code of their ERP package instead of
changing their existing technology and business processes while
implementing the open source ERP package. Therefore, the implementation
of the open source ERP package does not affect the regular working of an
organisation. The following are some of the features of the open source
ERP package:
 Suitable for large as well as small-scale organisations
 Easy to modify as license is available with the source code
 Takes less time for its implementation
Some of the open source ERP packages are Compiere, ERP5, and Fisterra.
Compiere is suitable for small and medium-scale organisations. It is easy to
install and its information structure can be modified even by a non-technical
personnel at any point of time. Open source ERP packages have an edge
over commercial ERP packages due to their advantages. However, they are
not fully accepted in the market due to their higher chances of failure.
Activity 1:
Identify some of the ERP tools used in the service industry.

4.2.1 ERP tools

Many organisations nowadays manufacture ERP systems. Some most
popular vendors of ERP software are SAP, Oracle Corporation, PeopleSoft,
JD Edwards, and Lawson. Among them, SAP has the highest market share
followed by Oracle. However, Oracle had acquired PeopleSoft, JD Edwards,
and Siebel to compete with SAP. Table 4.1 shows some of the ERP tools
manufactured by different vendors:
Table 4.1: ERP Tools and their Vendors
Name of ERP System Name of Vendor
SAP R/3 SAP
Oracle e-Business Suite Oracle Corporation
JD Edwards EnterpriseOne & JD Oracle Corporation
Edwards World
PeopleSoft Oracle Corporation
MicroSoft Dynamics NAV and AX MicroSoft Corporation
Lawson Financials Lawson Software
Sage MAS 500 Sage Group
NetERP NetSuite
Visual Enterprise Infor Global Solutions
Agresso Business World Unit 4 Agresso
Epicor Enterprise Epicor
IFS Applications Industrial and Financial Systems
MFG/PRO QAD

1. __________ ERP packages are provided by well-known vendors,
such as Oracle, SAP, and Microsoft.
2. The training procedure related to the handing and working of the
____________ERP package is easy.
3. The __________acts as an interface between the user and software.
4. The implementation of open source ERP package does not affect the
regular working of an organisation. (True/False)

4.3 ERP Selection Methods and Criteria

Do you know the importance of selecting the right ERP system? As you
have studied earlier, an organisation needs to spend a large amount of
money and time for the implementation of an ERP system. Therefore, any
wrong decision related to the selection of an ERP system may lead to heavy
losses for the organisation. For example, Nike implemented an ERP system
called ‘i2’s software’ at the cost of US $400 billion for upgrading its supply
chain management process. However, this implementation had failed due to
the following reasons:
 Heavy customisation of software
 Lack of integration
 Inadequate information
The failure of the ERP system reduced Nike’s sales by $100 million and its
stock price by 20%. It also triggered a flurry of class-action lawsuits.
Therefore, an organisation needs to be very careful while selecting an ERP
system. The selection process of an ERP system involves deciding the
selection criteria, analysing different alternatives, and selecting the best
system that matches with an organisation’s objectives. An organisation can
select an ERP system on the basis of its long-term strategy. This is because
only an appropriate ERP system provides updated and integrated
information to an organisation in order to make crucial business decisions,
such as expansion and diversification. Apart from this, there are three major
criteria for selecting an ERP system. These are:
Financial Consideration: An organisation should select an ERP system
that is able to generate reasonable profit. The total revenue generated after
implementing an ERP system should be more than the total cost incurred on
its execution. An organisation uses several methods to determine the
viability of ERP implementation. Some of these methods are:
Net Present Value (NPV) Method: It is the most widely used method for
selecting an ERP system. To select an ERP system, NPV uses the time
value of money and estimated cash inflows and outflows. The NPV of the
ERP system is determined by subtracting the present value of cash incurred

on ERP implementation from the estimated value of cash generated by this

implementation. If the NPV is positive, the ERP system is profitable.
However, if the NPV is negative, the system would incur substantial losses
for the organisation.
Budgetary Constraint Method: It is a method in which Internal Rate of
Return (IRR) and payback period methods are used for selecting an ERP
system. IRR refers to the rate of return expected from various ERP systems.
The ERP system that provides the maximum return is selected for
implementation. On the other hand, in the payback period method, the
actual output generated after implementing an ERP system is compared
with the desired output. All the alternative ERP systems are evaluated on
the basis of their payback period; the one that provides the maximum value
is selected.
Management Consideration: An organisation should select an ERP
system on the basis of its implicit and explicit business needs, competitive
pressure, legal requirements, and environmental concerns. As all these
variables are qualitative in nature, it is very hard for an organisation to
quantify them. Therefore, an organisation takes only a few of these
managerial factors into account for selecting an ERP system. Based on
these factors, an organisation forms a scoring system, which is used to
evaluate different ERP systems.
Development Consideration: Development is considered to be the least
important criterion for the selection of an ERP system. This is because
development consideration is related to the completion of ERP
implementation on time. However, it usually becomes difficult for an
organisation to implement an ERP system on time due to several
constraints, such as availability of resources and improper planning.
4.3.1 ERP software selection criteria

A good vendor can provide an appropriate ERP system to an organisation.
Therefore, it is important for an organisation to select the right vendor. While
selecting an ERP vendor, an organisation should focus on the functionality
and cost of the product offered by the vendor. In addition, it should select a
vendor that can provide the product on time. An organisation can ask the

following questions (can be regarded as the selection criterion) from the

vendor to select an effective ERP package:
Regarding product’s functionality

 Is the ERP package able to meet the organisation’s requirement?
 Is the menu structure of the system easy to understand?
 Are the help files easily accessible?
 What are the complexities of the ERP package?
Regarding product’s cost

 Is the cost of the ERP package reasonable as per its functionality?
 Is the ERP package affordable?
 Are the annual maintenance charges of the ERP package reasonable?
 How faster are the returns expected from the ERP package?
Regarding the vendor’s corporate vision

 What are the major organisational changes made by the vendor in the
recent years?
 How many times has the product been modified in the recent years?
 Does the executive staff of the vendor have sufficient knowledge about
current market trends and technology?
Regarding service and support

 Is the customer support team of the vendor comfortable with its sales
team?
 Does the customer support team of the vendor solve customers’ queries
on time?
 What is the experience level of people in the customer support team?
 How quickly the queries are solved by the customer support team?

 Is customer support available 24/7?
 Does the vendor provide Business Process Re-Engineering (BPR) as a

part of the implementation process?
 Does the vendor have experience of implementing the ERP system in

the same industry?
Regarding technology and system architecture

 Is the technology able to handle the current and future transactions load
of the organisation?
 Is the speed of ERP software acceptable for performing daily

operations?
 Is the source code provided for customisation or modification without

hefty charges?
 Is the ERP package Open Database Connectivity (ODBC) compliant?
 Does ERP software support transactions using various technologies,

such as e-commerce, Radio Frequency (RF), bar coding, and Electronic
Data Interchange (EDI)?
 Does ERP software support the global requirements of the organisation,

such as multi-language, multi-division, and multi-currency?
Regarding vendor’s longevity

 When did the vendor release its first product?
 Are the profits of the vendor consistent?
 Is there any recent employee turnover?
 Does the vendor have its customer references?
4.3.2 Improper ERP system selection

Most organisations do not follow a systematic methodology for the selection
of an ERP system. As a result, they commit certain mistakes while selecting

an ERP system, which, in turn, leads to huge losses. The following are
some common mistakes made by organisations:
Incomplete Set of Requirements: It has been often noticed that
organisations define their ERP requirements on a broader level, such as
business growth, profit maximisation, cost minimisation, and effective supply
chain management. However, organisations do not focus on the mediums
through which these requirements can be fulfilled. For example, for
minimising its costs, an organisation needs to manage its resources
effectively. Therefore, an organisation should define its requirements
properly in order to select an appropriate ERP system.
Overdependence on Vendor’s Demonstrations: Organisations should not
completely rely on vendor demonstrations for the selection of an ERP
system. Vendors always show the positive side of their products related to
their feasibility, availability, easy implementation, and low prices as
compared to the market price. However, it is not always necessary that all
the commitments made by the vendor would be fulfilled.
Overemphasis on System Cost: An organisation should select an ERP
system on the basis of its functionality, customer support, price, network,
and database. However, most organisations consider price as the only
criterion for the selection of an ERP system. This may result in heavy losses
for organisations.
Selection Bias: In most organisations, the selection of an ERP system is
done by an individual or a single department. Consequently, when such
ERP system is implemented, it would not be able to serve the requirements
of all departments.
Lack of focus on product and its functionality: As mentioned earlier, the
implementation of an ERP system incurs huge cost of an organisation.
Improper selection of ERP system may lead to losses for an organisation.
Therefore, it is important for an organisation to match its requirements with
the ERP products available in the market and select the most appropriate
product.

Activity 2:
Using the Internet, find out some organisations where ERP
implementation had failed due to the selection of a wrong ERP system.
4.3.3 Proper ERP system selection methodology

In the previous section, you have studied about some of the common
mistakes that organisations commit while selecting an ERP system. To
avoid these mistakes, an organisation should take into consideration the
following aspects:
Structured Approach: The organisation should follow a standard approach
for the selection of an ERP system. Moreover, it should properly
communicate information related to the ERP system to all its stakeholders.
This information can be related to ERP requirements, criteria for vendor
selection, vendor demonstrations, and selection of the ERP system.
Focused Demonstrations: An ERP vendor needs to provide a
demonstration on the basis of the format prescribed by the organisation.
The demonstration given by the vendor should be related to the
organisation’s business. The organisation should provide the required time
to the vendor for preparing the demonstration. It should select the vendor if
the demonstration given by him/her is as per business requirements.
Involvement of all Employees: The organisation should ensure that all its
employees agree with the selection of a particular ERP system. Moreover,
there should be equal participation of representatives from different
departments of the organisation while:
 Implementing an ERP system
 Defining the requirements
 Attending vendor demonstrations
 Selecting the vendor


5. The selection process of an ERP system involves deciding the
selection criteria, ______________, and selecting the best system
that matches with an organisation’s objectives.
6. An organisation should select an ERP system that is able to
generate_________.
7. ________refers to the rate of return expected from various ERP
systems.
8. While selecting an ERP vendor, an organisation should focus on the
functionality and ______of the product offered by the vendor.
9. Is customer support available_______?
10. Vendors always show the positive side of their products related to
their feasibility, availability, easy implementation, and low prices as
compared to the market price. (True/False)
11. In most organisations, the selection of an ERP system is done by an
individual or a single department. (True/False)
4.4 ERP Selection Process

From the discussion so far, you can conclude that selecting an appropriate
ERP system is essential for the growth of an organisation. For this, an
organisation follows a step-by-step approach so that it can select a system
that is as per its requirements. Since every organisation has different
requirements, the process of selecting an ERP system varies across
different organisations. However, there are some common steps that are
adopted by all organisations while selecting an ERP system. These steps
are:
Assessing business requirements: Before selecting an ERP system, an
organisation first needs to define its requirements accurately. While defining
its requirements, it should consider the following points:
 Identify the present as well as future requirements.
 Identify whether the financial value of requirements can be determined,

if yes, calculate their value.

 Determine the benefits obtained by meeting the requirements.
 Assess the problems that can occur if the requirements are not met.
 Analyse the different functional areas of the organisation that can be

improved after the implementation of the ERP system.
An organisation should define the requirements for the implementation of an

ERP system with respect to:
 Management Information
 Determine whether the key data is easily accessible by the existing

system.
 Identify whether the reports can easily be generated, modified, and
executed.
 Efficiency
 Identify the efficiency of the existing system.

 Identify how efficiently the current system streamlines business
activities.
 Business growth
 Identify whether the existing system facilitates business growth.

 Determine the adaptability of the existing system with respect to
internal and external changes.
 Strategy execution
 Identify whether the existing system helps managers in making

crucial strategic decisions. .
 Reliability
 Identify whether the existing system can be improved easily.

 Determine whether the existing system is able to increase the
organisation’s transparency.

 Infrastructure
 Determine whether the existing system is able to integrate with the

organisation’s current technology.
 Identify the number of incompatible systems used by the
organisation.
 Determine the implications of using a large number of systems.
 Statutory compliance
 Identify whether the existing system complies with the regulations.

 Determine whether the existing system is per the requirements.
Appointing a selection team: An organisation needs to form a team that is
responsible for making decisions related to the selection and procurement
of an ERP system. The selection team should consist of members from the
different departments of an organisation. The members should have sound
knowledge about the processes of their respective departments. An ERP
selection team comprises the following individuals:
Executive Sponsor: An individual who is responsible for monitoring the
selection of an ERP system on a broader level. An executive sponsor acts
as the key decision-maker for the procurement of an ERP system.
Project Manager: An individual who is responsible for the every phase of
the ERP selection process from initiation to completion. A project manager
is generally selected from the finance or IT department having proper
knowledge about the existing system of the organisation and problems
related to it. If you are a project manager, you should be aware about the
requirements of an ERP system with respect to different departments and
have a good working relationship with these departments.
Analysing business processes and resource constraints: The selection
team should analyse the business processes of the organisation and
identify the requirements for selecting an ERP system. These requirements
should include the present as well as future requirements. While selecting
an ERP system, the selection team should focus on the adaptability and
responsiveness of the system along with its functionality. The selected ERP

system should be capable of responding to the changes that may take place
in an organisation in the future.
After preparing a list of requirements, the selection team should identify the
constraints related to time and resources that may hamper the selection or
implementation process of an ERP system. In the case of any constraints,
the selection team may take help from external consultants or vendors.
Deciding the vendor selection criteria: One of the criteria for evaluating a
vendor is his/her ability to fulfil the requirements identified by the selection
team. Apart from this, other criteria can be the financial strength and future
product development plan of the vendor. Moreover, the selection team
should also consider the price of the ERP system offered by the vendor.
After deciding the vendor selection criteria, the selection team should rank
vendors by using the grading method.
Selecting a vendor: After ranking the vendors, the selection team needs to
shortlist a few potential vendors who are able to fulfil business
requirements. For this, the team provides certain problems faced by an
organisation to vendors and asks them to solve them. The selection team
shortlists vendors based on the demonstrations given by them. Finally, the
vendor who is able to meet all the requirements of the organisation is
selected. A detailed discussion about vendor selection has been included
later in the unit.
Selecting the ERP system: After the selection of a vendor, a formal
agreement is made between the vendor and the organisation with respect to
pricing, service contract, licensing, and maintenance contract. The vendor
has to help the organisation in the implementation of the ERP system.
4.4.1 Features and functionalities of an ERP system

An organisation needs to consider the following features and functionalities
of an ERP system while selecting it:
Customisation: The organisation should select an ERP system that is in
accordance with its present and future needs.
Implementation: The organisation should select an ERP system that can
be easily implemented without hampering the organisation’s overall
functioning.

Real-Time Processing: The organisation should select an ERP system that

provides real-time batch processing capabilities for the regular integration
and modification of information.
Adaptability: An ERP system should be able to adapt to the changes that
may take place in the internal and external environment of the organisation.
User Friendliness: The organisation should ensure that the selected ERP
system can be easily used by even a non-technical person.
Cost: The cost of an ERP system should justify its features and services
and should be within the organisation’s budget.
Flexibility in Execution: The organisation should select an ERP system
that is not dependent on a particular operating system, database system,
and hardware.
Aftersales Support: The selected ERP vendor should be able to provide
effective aftersales services (for example, installation and technical support)
for the ERP system.
Backup System: The backup system of an ERP system should be able to
restore data within the shortest possible time.
Reporting and Analysis Features: An ERP system should be able to
adopt specific reporting and analysis tools added by the management of an
organisation from time to time.
Vendor Credentials: Before selecting a vendor, the organisation should
consider the vendor’s market share, reputation, and support infrastructure. It
should also take into account the number of installations performed by the
vendor.
Integration with other Software/Applications: An ERP system should be
able to integrate with the existing system of the organisation and facilitate a
smooth flow of information within and outside the organisation.
Internet Integration: An ERP system should support e-business, e-
commerce, and Electronic Data Interchange (EDI) transactions.


12. Before selecting an ERP system, an organisation first needs to define
its requirements accurately. (True/False)
13. The ____________ should consist of members from the different
departments of an organisation.
14. An _____________ acts as the key decision-maker for the
procurement of an ERP system.
15. A ____________is generally selected from the finance or IT
department of an organisation having proper knowledge about the
existing system of the organisation and problems related to it.
4.5 ERP Vendor Selection

You are already aware of the fact that it is important for an organisation to
select an efficient ERP vendor. An ERP vendor plays a vital role in the
successful implementation of an ERP system. Only the right vendor can
provide the right ERP system to an organisation as per its requirements.
Before selecting an ERP vendor, an organisation should consider:
 The market share of the vendor
 The previous records and existing clients of the vendor
 The price charged by the vendor for the implementation and acquisition
of an ERP system
 The technologies used by the vendor
 The level to which the vendor understands the business processes of

the organisation
 The risk mitigation and business continuity plans given by the vendor
Table 4.2 shows some of the popular ERP vendors and their revenue:

Table 4.2: ERP Vendors and their Revenue

Vendor Revenue Year
(million $)
SAP 12401.4 2006
Oracle Applications 14380.0 2006
Infor Global Solutions 2100.0 2006
The Sage Group 1832.0 2006
Microsoft Dynamics (Formerly Microsoft Business 44200.0 2006
Solutions)
Unit 4 Agresso 465.2 2005
Lawson Software 390.8 2006
Epicor 384.1 2006
Visma 305.5 2005
Industrial and Financial Systems (IFS) 288.0 2005
QAD 225.0 2006
NetSuite 67.2 2006
ABAS Software 62.6 2006
Ramco Systems 60.1 2006
4.5.1 Vendor selection process

Now, you must be aware of the fact that it is important for an organisation to
select the right ERP vendor. The next question arises how an organisation
can select the right vendor. To select the right ERP vendor, an organisation
first needs to make a list of some reputed vendors. This list can be prepared
by contacting consultants and industry associations, using the Internet,
referring trade journals, and attending trade shows.
Selecting a vendor is a step-by step approach. An organisation needs to
adopt the following steps to select a vendor:
Identifying a good reseller: It is beneficial for an organisation to select a
Value Added Reseller (VAR) for selecting and implementing an ERP

system. This is because a VAR buys a product from the market, adds extra
features to it, and resells it. In this way, the quality and functionality of the
product enhances.
Issuing a Request for Proposal (RFP): An RFP is a document that
systematically represents the requirements of an organisation. An
organisation sends the RFP to all the selected vendors. The vendors who
are able to fulfil these requirements are shortlisted by the organisation.
Conducting demonstrations: The shortlisted vendors should be called for
providing demonstrations of their products. These demonstrations should
not exceed the time limit of 2-3 hours.
Making call references: An organisation should enquire about the vendor
by getting references from the previous or existing clients of that vendor.
Based on the information collected from different clients, the organisation
should prepare a checklist of questions to be asked from the vendor.
Determining the Total Cost of Ownership (TCO): An organisation should
identify different costs associated with the implementation of an ERP
system, such as license fees and implementation cost. In addition, the
organisation should have a detailed discussion with the vendor related to
aftersales support, hardware, and network.
Carrying out a pilot test: An organisation should conduct a pilot test to
check whether the ERP system is implemented properly. This test also
helps the vendor to understand the organisation’s processes, identify
loopholes in the system, and rectify them.
Exhibit 1:Types of Vendors

The different types of vendors are discussed as follows:
Independent Software Vendor (ISV): These are the vendors that
design and develop software for the mass or niche market and sell
them to end users. The software developed by ISVs can run on one or
more operating system platforms. The companies that manufacture
operating system platforms, such as Microsoft, IBM, and Apple,
support ISVs through special business partner programs. Some ISVs
develop software only for a particular operating system while others

specialise in a particular area, such as engineering, and develop

software for UNIX-based workstation platforms.
Value-Added Reseller (VAR): These are the vendors that buy an

existing product, add some new features to the product, and resell it as
a new product. The new features are added by integrating,
customising, or developing a specific application for the existing
product.

16. A ___________ buys a product from the market, adds extra features
to it, and resell it.
17. An _______ is a document that systematically represents the
requirements of an organisation.
18. The shortlisted vendors should be called for providing demonstrations
of their products. (True/False)
19. An organisation should enquire about the vendor by getting
references from the ___________of that vendor.
20. An organisation should conduct a ____________to check whether
the ERP system is implemented properly.
4.6 ERP Implementation Lifecycle

After studying about the selection of the ERP vendor and the system, you
must be keen to explore how an ERP system is implemented in an
organisation.
The process of implementing an ERP system in an organisation is called
ERP implementation lifecycle or ERP lifecycle, which comprises a number
of phases. Figure 4.1 shows the different phases of ERP implementation
cycle:

Pre- Project
Package Gap
evaluation Planning
Evaluation Analysis
Screening Phase
Implement
Configurati Reenginee
Testing ation Team
on ring
Training
Post-
End-user
Going Live implement
Training
ation
Figure 4.1: ERP Implementation Lifecycle

Figure 4.1 shows a chronological sequence of phases involved in the
implementation of an ERP system. However, this sequence varies across
different organisations. Moreover, it is not necessary that all the phases of
the ERP implementation lifecycle are followed in every case. For example, if
an organisation has already selected an ERP system, it would start directly
from the project planning phase.
Let us discuss the different phases of the ERP implementation lifecycle in
detail.
4.6.1 Pre-evaluation screening

Pre-evaluation screening is the first phase of the ERP implementation
lifecycle. It includes examining all the available ERP systems. Among these
systems, those that are able to meet the organisation’s requirements are
selected.
4.6.2 Package evaluation

The package evaluation phase involves a deep analysis of all the shortlisted
ERP systems in order to select the final system. It is the most important
phase as the success of ERP implementation highly depends on the
selection of the right system. As discussed earlier, an organisation should
select an ERP system that is as per its requirements.

4.6.3 Project planning

The project planning phase involves formulating a detailed plan for
implementing an ERP system. The project plan specifies the resources
required for implementing an ERP system, the timeline for the completion of
the implementation process, and the targets that need to be achieved by
implementing the ERP system. In addition, the project planning phase
involves developing a contingency plan, identifying control measures, and
deciding the methods for the evaluation of the ERP system.
4.6.4 Gap analysis

Gap analysis is considered to be the most crucial phase of the ERP
implementation lifecycle. In this phase, an organisation develops a model
that states its current status and future targets. Using this model, the
organisation can anticipate any functional gaps and cover them.
4.6.5 Re-engineering
You have already studied in the previous unit that re-engineering is all about
a complete restructuring of business processes, technology, and functions.
However, while implementing an ERP system, the term re-engineering is
used in two different contexts. In the first context, re-engineering is used as
a downsizing tool. Generally, the top-level executives of an organisation
implement an ERP system to reduce the number of employees. However, in
reality, the ERP system modifies the job responsibilities of employees as it
automates all business activities. Therefore, an ERP system should be
considered as an investment and cost-cutting measure instead of a
downsizing tool.
In the second context, the term re-engineering is used to signify the
integration of Business Process Reengineering (BPR) with the ERP system.
This integration helps in redefining the job roles and responsibilities of
employees as per their skills and competencies in order to implement the
ERP system successfully.

4.6.6 Configuration
Configuration is the functional phase of the ERP implementation lifecycle. In
this phase, an ERP system is synchronised with the existing system of an
organisation. For this, the organisation should properly analyse all its
business processes so that it can achieve its overall objectives.
4.6.7 Implementation team training

In this phase, the implementation team is trained for implementing the ERP
system successfully in the organisation. The training is given on the working
of the ERP system and its implementation. After the implementation of the
ERP system, the vendor and external consultants leave the organisation. In
such a case, it is important for the organisation to give proper training to its
employees to avoid any contingencies during the working of the ERP
system.
4.6.8 Testing
In the testing phase, the ERP system is verified by creating real situations.
These real situations can be related to system overloads, invalid data entry,
and hacking attacks. If the ERP system is unable to pass the testing phase,
the required changes should be made in the system.
4.6.9 Going live

In the going live phase, the ERP system is made available to all the
employees in the organisation. At this stage, the ERP system is ready to be
used technically and functionally. In this phase, the old system is replaced
by the new ERP system in order to perform various business functions.
4.6.10 End-user training

In this phase, the employees who need to work on the ERP system are
identified and segregated into groups so that they can be trained to work on
the new system. This training also focuses on the methods an employee
needs to use in case the ERP system does not work properly.

4.6.11 Post-implementation
The post implementation phase involves continuous evaluation of the ERP
system implemented in the organisation. To receive the full benefits of the
ERP system, it is important that the system is accepted in the entire
organisation. Moreover, the system should be upgraded from time to time.

21. The ______________phase involves a deep analysis of all the
shortlisted ERP systems in order to select the final system.
22. The ______________specifies the resources required for
implementing an ERP system, the timeline for the completion of the
implementation process, the targets that need to be achieved by
implementing the system, etc.
23. ________brings changes in the roles and responsibilities of
employees, which is required for the implementation of the ERP
system.
24. ____________is the functional phase of the ERP implementation
lifecycle.
25. In the ______________ phase, the ERP system is made available to
all the employees in the organisation.
26. The _______________phase involves the continuous evaluation of
the ERP system implemented in the organisation.
4.7 Pros and Cons of ERP Implementation

You have already studied that ERP is an application that streamlines the
different business processes of an organisation. This application provides
up-to-date information to an organisation for business decision making.
Implementing an ERP system in an organisation requires huge cost and
efforts. Therefore, an organisation needs to identify its needs before
implementing an ERP system. ERP implementation has its own pros and
cons. Let us discuss some of them.

The following are the benefits obtained by an organisation after

implementing an ERP system:
 An ERP system provides an integrated reporting system to an
organisation. It provides a single platform to perform the functions of
different departments of an organisation, thereby reducing cost incurred
on purchasing separate software for each department.
 It provides business intelligence to an organisation.
 It can be integrated with e-commerce, which helps an organisation to

handle its Web-based order tracking/processing efficiently.
 It can also be integrated with other systems, such as Customer

Relationship Management (CRM) and Supply Chain Management
(SCM).
In spite of its many benefits, the following are the disadvantages of

implementing an ERP system:
 The cost involved in the planning, customisation, configuration, testing,
and implementation of an ERP system is very high.
 An ERP system usually takes 1-3 years for its implementation.
 An ERP system needs to be highly customised in order to integrate it

with the other systems of an organisation.
 The returns generated from ERP implementation cannot be realised

immediately, thus, it is difficult to measure the benefits of an ERP
system.
 The implementation of an ERP system requires extensive training of

employees of the organisation.

27. An organisation need not identify its requirements before
implementing an ERP system. (True/False)
28. An ERP system provides an integrated reporting system to an

29. An ERP system provides business intelligence to an organisation.

(True/False)
30. The cost involved in the planning, customisation, configuration,
testing, and implementation of an ERP system is __________.
4.8 Factors for the Success of ERP Implementation

An organisation needs to be careful while implementing an ERP system as
any mistake at this level may incur heavy losses. The following are the
factors that an organisation should consider for successful ERP
implementation:
Identification of organisational requirements: An organisation should
clearly identify its requirements before implementing an ERP system. This
helps the organisation to select an appropriate ERP system as per its
needs.
Estimation of Return on Investment (ROI): It is essential for an
organisation to determine the returns that would be generated after
implementing an ERP system. This is required to establish parameters for
measuring the performance of an ERP system.
Top management support: ERP implementation requires proper support
from the top management of an organisation. This is because the top
management provides the required resources for ERP implementation. In
addition, if the top management supports ERP implementation, the
employees also need to support it.
Proper planning: It is essential for an organisation to make a feasible plan
for implementing an ERP system by taking into account various business
aspects. This would reduce errors and make the process of implementation
easier. Therefore, an organisation should take adequate time for preparing
an ERP implementation plan.
Well-designed communication plan: Before implementing an ERP
system, the employees of the organisation should be informed about the
different benefits of ERP system and how the process of implementation
would take place. For this purpose, a proper communication plan should be

designed by the organisation, which should involve details about the

following:
 How should the employees be introduced to the ERP system?
 How should the jobs and responsibilities be communicated to

employees?
 Whom should the employees report about their work status or any
requirement?
 What should be the mode of communication (such as through e-mail

and direct interaction) among different departments of an organisation?
 How should the process of implementation take place in case of any

emergency?
Such type of plan helps in avoiding confusions that may take place among
employees.

31. Identifying its requirements before implementing an ERP system
helps an organisation to ______ an appropriate ERP system as per
its needs.
32. It is essential for an organisation to determine the _______ that would
be generated after implementing an ERP system.
33. It is essential for an organisation to make a feasible plan for
implementing an ERP system by taking into account various business
aspects. (True/False)
4.9 Summary
 Organisations generally install two types of ERP systems, namely
commercial ERP package and open source ERP package. Commercial
ERP package is quite expensive and suitable for large-scale
organisations. Some commercial ERP software packages are Microsoft
Dynamics AX, Microsoft Dynamics NAV, and mySAP ERP. On the other

hand, open source ERP package is available free of cost on the Internet.
Some open source ERP packages are Compiere, ERP5, and Fisterra.
 An organisation can select an appropriate ERP system if it is able to

select the right vendor.
 For selecting the right vendor, an organisation needs to focus on the

functionality and cost of a product offered by the vendor as well as the
timely delivery of the product.
 While selecting an ERP system, organisations can commit certain

mistakes that may lead to the failure of the ERP system implementation.
Some of these mistakes are incomplete set of requirements,
overdependence on vendor’s demonstrations, overemphasis on system
cost, selection bias, and lack of focus on product and its functionality.
 If organisations do not follow a systematic way of selecting an ERP

system, they will incur heavy losses as the implementation of an ERP
system involves huge cost. So, organisations should take into
consideration various aspects while selecting an ERP system. Some of
these aspects are structured approach, focused demonstrations, and
involvement of all employees.
 The ERP system selection process involves various steps, such as

assessing business requirements, appointing a selection team,
analysing business processes and resource constraints, deciding the
vendor selection criteria, and selecting a vendor and an ERP system.
 An organisation should consider the features and functionality of ERP

system while selecting it. These features are customisation,
implementation, real-time processing, adaptability, user friendliness,
cost, flexibility in execution, aftersales support, backup system, reporting
and analysis features, vendor credentials, integration with other
software/applications, and internet integration.
 An ERP vendor is selected through a systematic process, which

involves various steps. These steps are identifying a good reseller,
issuing a Request for Proposal (RFP), conducting demonstrations,

making call references, determining the Total Cost of Ownership (TCO),

and carrying out a pilot test.
 The different phases of ERP implementation cycle are pre-evaluation

screening, package evaluation, project planning, gap analysis, re-
engineering, configuration, implementation team training, testing, going
live, end-user training, and post-implementation.
 An ERP system provides several benefits to an organisation, such as

integrated reporting system, business intelligence, and integrated with e-
commerce, which helps in handling the Web-based order
tracking/processing efficiently. However, an ERP system also has
certain disadvantages, such as huge cost, extensive training, and a long
time period for its implementation.
 In order to implement an ERP system successfully, an organisation

needs to take into consideration various factors, such as identification of
organisational requirements, estimation of Return on Investment (ROI),
top management support, proper planning, and well-designed
communication plan.
4.10 Glossary
Commercial ERP Package: An ERP package that is provided by well-
known brands to large-scale organisations.
Open Source ERP Package: An ERP package that can be used by
medium and small-scale organisations as it is available free of cost.
Net Present Value (NPV) Method: A method used for determining the
profitability of an ERP system by subtracting the present value of cost
incurred on ERP implementation from the estimated value of profit
generated by this implementation.
IRR: A method used for determining the rate of return expected from
various ERP systems.

Executive Sponsor: An individual who needs to monitor the activities

involved in the selection of an ERP system on a broader level.
Project Manager: An individual who needs to effectively manage the
activities involved in the selection of an ERP system.
Electronic Data Interchange (EDI): The transmission of organised data
from one computer system to another without the involvement of individuals.
Pilot Test: A small-scale study conducted before the full deployment of a
system to evaluate its speed, performance, and impact on the overall
functioning of an organisation.

1. Name some of the ERP tools and software.
2. Discuss the ERP selection criteria.
3. What are the mistakes that an organisation should not commit while
selecting an ERP system?
4. Explain the ERP system selection methodology.
5. Elaborate on the ERP selection process.
6. What are points that need to be considered while selecting an ERP
vendor?
7. Discuss the process of vendor selection.
8. What are the different phases of the ERP implementation lifecycle?
4.12 Answers

1. Commercial
2. open source
3. client layer
4. True

5. analysing different alternatives

6. reasonable profit
7. IRR
8. cost
9. 24/7
10. True
11. True
12. True
13. selection team
14. executive sponsor
15. project manager
16. VAR
17. RFP
18. True
19. previous or existing clients
20. pilot test
21. package evaluation
22. project plan
23. BPR
24. Configuration
25. going live
26. post-implementation
27. False
28. True
29. True

30. very high

31. select
32. returns
33. True
Terminal Questions
1. Some popular ERP software include Microsoft Dynamics AX, Microsoft
Dynamics NAV, mySAP ERP, and Open Source ERP Package. Refer
to Section 4.2 ERP Tools and Software, which explains different ERP
tools and software.
2. There are three main criteria for selecting an ERP system, namely
financial consideration, management consideration, and development
consideration. Refer to Section 4.3 ERP Selection Methods and
Criteria, which discusses criteria for the selection of an ERP system.
3. An organisation should be careful while selecting an ERP system. It

should not commit mistakes, such as an incomplete set of
requirements, overdependence on vendor demonstrations,
overemphasis on system cost, selection bias, and lack of focus on
product and its functionality. Refer to Section 4.3 ERP Selection
Methods and Criteria, which describes the mistakes an organisation
can make while selecting an ERP system.
4. In order to select an appropriate ERP system, an organisation needs to
take into consideration various aspects, such as a structured approach
to the selection of an ERP system, focused demonstrations given by
vendors, involvement of all the employees of an organisation. Refer to
Section 4.3 ERP Selection Methods and Criteria, which explains how
an organisation can select an appropriate ERP system.
5. The ERP selection process involves a number of steps, which are
Assessing business requirements, appointing a selection team,
analysing business processes and resource constraints, deciding the
vendor selection criteria, selecting a vendor, and select the ERP

system. Refer to Section 4.4 ERP Selection Process, which states the
different steps involved in the selection of an ERP system.
6. An organisation should take into consideration various points before
selecting an ERP vendor. These points are the market share of the
vendor, the previous and existing records of the vendor’s clients, and
the price charged by the vendor for the implementation and acquisition
of an ERP system. Refer to Section 4.5 ERP Vendor Selection, which
lists the points to be considered while selecting a vendor.
7. Selecting a vendor involves a number of steps, which are identifying a
good reseller, issuing an RFP, conducting demonstrations, making call
references, determining TCO, and carrying out a pilot test. Refer to
Section 4.5 ERP Vendor Selection, which explains the process of
vendor selection.
8. The different phases of the ERP implementation lifecycle are pre-
evaluation screening, package evaluation, project planning, gap
analysis, re-engineering, configuration, implementation team training,
testing, going live, end-user training, and post-implementation. Refer to
Section 4.6 ERP Implementation Lifecycle, which describes the
different phases of the ERP implementation Lifecycle.
4.13 Case Study: Ramco on Demand ERP System for

Educational Institution
Arsha Vidya Mandir (AVM) is an institution that provides education up to the
higher secondary level. It is one of the Delhi’s largest educational
institutions with the highest number of students. In such a case, it becomes
hard for the institution to maintain proper database of its business
processes. As a result, AVM has faced problems in:
 Tracking the inventory stock, purchasing raw materials from local
vendors, and estimating expenses with respect to supply
 Preparing reports, balance sheets, and profitability statements
 Allocating the budget

To overcome the above problems, AVM has selected Ramco On Demand

(RODE) ERP for automating and integrating its business processes. This
ERP solution helps the institution in integrating all the dispersed processes
in order to form a single database and maintain a smooth flow of information
across the institution. Apart from this, AVM has obtained several other
benefits by implementing RODE, which are:
 Better control of inventory and finance
 Better tracking of student-wise outstanding reports
 Effective report generation
 Tracking of trust and school assets
 Supplier-wise tracking of goods and transactions
Questions:
1. How did the implementation of RODE ERP help AVM?
2. What are the important points that need to be considered while
selecting an ERP vendor?

Planning.
E-References
 http://www.nickmutt.com/selecting-erp-vendor.htm
 http://www.solarsoft.com/opinion-and-forums/top-10-vendor-selection-
best-practices/
 http://en.wikipedia.org/wiki/ERP_system_selection_methodology
 http://www.accountingweb.com/sites/default/files/ERPWhitePaper.pdf
 http://www.slideshare.net/apurvgourav/erp-implementation-life-cycle

Unit 5 ERP Modules Structure
Structure
5.1 Introduction
Objectives
5.2 Finance
5.3 Sales and Distribution
5.4 Manufacturing and Production Planning
Material and capacity planning
Shop floor control
Quality management
JIT/repetitive manufacturing
Cost management
Engineering data management
Engineering change control
Configuration management
Serialisation/lot control
Tooling
5.5 Human Resource
5.6 Plant Maintenance
Preventive maintenance control
Equipment tracking
Component tracking
Plant maintenance calibration tracking
Plant maintenance warranty claims tracking

5.7 Quality Management

Functions of quality management module
CAQ and CIQ
5.8 Materials Management
Pre-purchasing
Purchasing
Vendor evaluation
Inventory management
Invoice verification and material inspection
5.9 Summary
5.10 Glossary
5.12 Answers
5.13 Case Study
5.1 Introduction
An ERP system consists of several modules. Each module of an ERP
system supports the major functional areas of an organisation. In this unit,
let us study about different modules of a system, in detail.
Some of the common modules of an ERP system include finance,
manufacturing and production planning, human resource, quality
management, materials management, and plant maintenance. These
modules provide accurate information to an organisation, which leads to
effective decision making.
All the modules of an ERP system are integrated with each other. This helps
an organisation in tracking the overall organisational performance. For
example, the sales module of an ERP system provides information related
to the current demand of products in the market, which enables the
production department to produce the most profitable product. Similarly, the
finance module provides information related to the financial resources of an

organisation, which helps all the departments of the organisation to make

decisions as per the available funds. The modules of an ERP system vary
across different organisations, depending on their requirements. Therefore,
it is imperative for an organisation to define its requirements clearly, in order
to choose the right combination of ERP modules.
In this unit, you will study about different modules of an ERP system. You
will first study about the finance module of an ERP system and its various
sub-modules. Next, you will be acquainted with the sales and distribution
module of an ERP system. The manufacturing and production planning
module, and its functions, is also explained in the unit. Apart from this, you
will also be familiarised with the cost management, human resource, plant
maintenance, and quality management modules. In the end, you will study
about the materials management module of an ERP system.
Objectives
 discuss the relationship among different modules of an ERP system
 explain the functions of the finance module
 assess the importance of the sales and distribution module
 list the features of the manufacturing and production planning module
 identify the importance of the human resource module
 describe the functions of the plant maintenance module
 state the significance of the quality management module
 discuss the benefits of the materials management module
5.2 Finance
Do you know the importance of finance in an organisation? Finance is a vital
resource for every organisation that facilitates the execution of business
operations. For example, an organisation requires finance to set up plants
and machinery, expand its business operations, and sustain its business
through continuous improvement in its products. So, you can conclude that

finance is a highly crucial factor for an organisation; therefore, it should be

managed prudently.
The finance module of an ERP system helps an organisation by providing
financial functionality and analysis support. It also aids the financial decision
making of an organisation. Similar to other business functions, timely data
also plays an important role in performing the financial activities of an
organisation effectively. The finance module helps managers by providing
quality data related to finance. Not only this, this module consists of a set of
processes that analyses data and converts it into meaningful information.
This information is presented in a manner that managers can view every
business aspect, in order to make effective financial decisions.
To make financial decisions, managers need information from all the
departments of an organisation. The finance module integrates information
related to the different departments of an organisation such as sales,
distribution, human resource, and production. It acts as an organisation-
wide financial control unit, because it provides useful information to an
organisation while making strategic decisions.
The financial module of an ERP system is usually composed of several sub-
modules, which are:
Financial Accounting: It helps in performing activities such as general
ledger, accounts payable, bills receivables, asset accounting, and legal
consolidation.
Investment Management: It is used to carry out activities such as planning,
budgeting, and investment management.
Financial Controlling: It enables an organisation to perform tasks such as
cost controlling, activity-based costing, cost accounting, and profitability
analysis.
Funds Management: It helps in activities such as funds flow management,
cash flow management, and treasury management.

1. The finance module of an ERP system helps an organisation by
providing ______ and________.

2. The finance module helps managers by providing quality _______

related to finance.
3. The finance module of an ERP system acts as an organisation-wide
financial control unit. (True/False)
4. The finance module acts independently and does not require any
integration. (True/False)
5. Which of the following sub-modules, of the finance module, involves
activities like general ledger, accounts payable, etc.?
A. Financial accounting
B Investment management
C. Financial control
D. Funds management
Activity 1:
Using the Internet, find out the functions of the accounting information
system.
5.3 Sales and Distribution

You may not have sold anything in your life. However, you automatically
participate in a sales process when you purchase something. You must have
noticed that most activities taking place around you are directly or indirectly
related to purchasing or selling. Sales is all about transferring products or
services from one individual to another, at a mutually agreed price. It involves
reaching the right people, with the right message, at the right time.
Sales is the primary source of revenue for an organisation. In today’s
business world, selling is no more done as a door-to-door activity or through
a shop in your neighbourhood. Now, the products and services of an
organisation are passed through an extensive distribution network, before
they reach the end users. This distribution network involves wholesalers,
retailers, and commission agents. An effective distribution network helps in
delivering the right product, to the right customer, at the right time. This,
ultimately, helps in increasing the sales of an organisation. An increased

efficiency of sales and distribution helps an organisation in enhancing its

profit margins and improving customer service, thereby achieving a
competitive edge in the market.
Thus, you can say that the success of any organisation is based on how
well it manages its sales functions. The sales and distribution module of an
ERP system enables an organisation to perform its sales activities, such as
sales order management, delivery of products, and invoicing, effectively.
Not only this, the module has a significant role in the e-commerce activities
of an organisation. It enables an organisation to manage its online stores
(virtual stores) efficiently.
In order to improve the sales function of an organisation, most ERP systems
are closely integrated with Distribution Requirements Planning (DRP)
software. Basically, DRP software helps in managing the supply chain
activities of an organisation, thereby maintaining the Just-In-Time (JIT)
delivery of products. The sales and distribution module and DRP software,
collectively, enable the ERP system to produce replenishment orders based
on stock requirements. A detailed explanation of DRP is given in the next
unit. Besides this, the sales and distribution module of an ERP system helps
an organisation in:
 Responding to customer queries quickly
 Preparing and processing quotations
 Performing activities such as order placement, order tracking, and order

shipment
 Complying with sales and distribution agreements such as delivery

schedule agreement and sales contract
 Managing the delivery of products by checking the availability of stock

and monitoring the shipment
 Managing sales transactions by verifying credit limits and bills,

processing transactions, and calculating taxes
 Providing after-sales support

 Maintaining sales and distribution records and preparing other

necessary documents such as order confirmation notes and sales
receipts
Although all the modules of an ERP system work in association with one
another, the sales and distribution module is closely integrated with material
management and financial accounting modules, for the timely delivery of
products and accurate billing.

6. Sales involves transferring products or services from one individual to
another at a mutually agreed_______.
7. Sales is the primary source of _______ for an organisation.
8. An effective ________ network helps in delivering the right product,
to the right customer, at the right time.
9. The sales and distribution module of an ERP system does not
support the functioning of the online stores of an organisation.
(True/False)
10. What does DRP stand for?
A. Distribution Resale Planning
B. Distribution Requirements Planning
C. Distribution Request Performing
D. Distribute and Require Planning
5.4 Manufacturing and Production Planning

As a customer, what expectations do you have when you purchase a
product? You always prefer to go for a quality product with unique features.
The quality of products produced by an organisation depends on its
manufacturing efficiency. Manufacturing is all about producing products with
specified quality characteristics in the right quantity and in the most cost-
efficient way possible. The manufacturing process of an organisation is
directly related to its sales and distribution functions. For example, if an
organisation manufactures low-quality products, customers hardly prefer

buying them. Consequently, the sales of the organisation decline. On the

contrary, high-quality products lead to a significant increase in the
organisation’s sales. Therefore, it is necessary for an organisation to
manage its manufacturing operations effectively.
The manufacturing and production planning module of an ERP system
provides useful information to an organisation for planning, scheduling,
directing, and controlling, its manufacturing activities. This module not only
enables an organisation to perform its manufacturing operations effectively
but also helps in managing the supply chain activities as per the business
policies of the organisation. Thus, you can conclude that the manufacturing
and production planning module supports the entire manufacturing process
of an organisation, from material procurement to the final delivery of
products. Using this module, an organisation is not confined to adopting a
particular manufacturing method. The module allows an organisation to use
a combination of manufacturing methods.
This module consists of various sub-modules such as material and capacity
planning, shop-floor control, quality management, JIT/repetitive
manufacturing, cost management, and engineering-data management. Let
us discuss all these sub-modules of the manufacturing module in detail.
Exhibit 5.1: Types of Manufacturing

In an ERP system, the manufacturing operation can be broadly
categorised into the following parts:
Process Manufacturing: In this type of manufacturing, after a product is
produced, it cannot be segregated into its components. Process
manufacturing is used in food, cosmetics, chemical, and paint, industries.
Discrete Manufacturing: In this type of manufacturing, products are
assembled from distinct components such as automotive, aerospace, and
electrical parts.
5.4.1 Material and capacity planning

Apart from purchasing quality products, you always expect on-time delivery
of products. In order to fulfil these requirements, an organisation needs to
develop an effective production schedule by properly planning its materials

and capacity requirements. Material planning is all about managing the

supply of raw materials for quality production. On the other hand, capacity
planning involves ensuring whether the planned level of production meets
the market demand.
The material and capacity planning module helps an organisation in:
 Providing a quick response to changing customer needs
 Determining the consequences of alternative production plans, selecting

the best plan, and making effective purchase decisions
 Making optimum utilisation of its resources
 Making a proper use of its production capacity by providing graphical

reports on planned and utilised capacity.
 Identifying order-processing priorities with changing business needs
5.4.2 Shop floor control

In order to reduce manufacturing time and product time-to-market,
manufacturing organisations, nowadays, are focusing more on evaluating
their shop-floor activities. Before studying how to evaluate shop-floor
activities, let us first explain what shop floor is all about.
Shop floor is the part of a factory where the machines are placed and men
are directly engaged in manufacturing activities. These activities need to be
controlled in order to make the product readily available in the market.
Shop-floor control involves efforts made by manufacturing organisations for
managing shop-floor activities and reducing cycle time. These efforts
involve the evaluation of available resources, labour capacity, machine
hours, and other information. This, ultimately, helps in planning, scheduling,
and controlling the manufacturing process.
The shop floor control module aims at minimising the cycle time; thereby
increasing productivity. Moreover, the shop floor control module is flexible
enough to re-allocate materials among various shop floors, as and when
required. The following are some of the important functions of the shop floor
control module:

 Manages the shop-floor activities of a manufacturing organisation by

providing the right information, at the right time.
 Enables an organisation to execute its manufacturing operations, as per

its pre-determined schedule, thereby preventing delays in production
and maintaining on-time delivery of products.
5.4.3 Quality management

The quality management module consists of a wide range of parameters
that help an organisation in ensuring that the quality requirements, at every
stage of production, are fulfilled. For this, the module collects data from
other sub-modules of the manufacturing module that has a direct impact on
the quality of the final output. The quality management module is capable of
optimising the product-design process, production methods, and process-
engineering techniques, thereby ensuring high-quality output. In this way,
this module enables an organisation to perform recurring operations and
defect-cause analysis and make continuous improvements in its production
methodologies.
5.4.4 JIT/repetitive manufacturing

JIT delivery is the most crucial element of the manufacturing process of an
organisation. This approach lays emphasis on reducing cycle time and lead
time.
The JIT module enables an organisation to complete its manufacturing
activities as per the schedule and make on-time delivery of products. It also
allows an organisation to develop a transition-based production system,
instead of discrete manufacturing. A detailed explanation of JIT is given in
the next unit.
5.4.5 Cost management

An organisation needs to incur different types of costs like manufacturing
costs, transportation costs, recruitment costs, etc. Every organisation
desires to reduce these costs, in order to maximise its profit. Among these
costs, the manufacturing cost of a product has a crucial part in the overall
profits of an organisation. The manufacturing cost consists of all the
expenses that an organisation has to bear, in order to produce the desired

quality output. This cost is incurred for procuring raw materials, employing
labour, purchasing equipment and machinery, and running various
necessary operations.
The cost management module communicates necessary information related
to different cost drivers to the employees working at different levels of an
organisation. This information helps managers in identifying the elements
that can be adjusted, in order to reduce the overall manufacturing cost, as
well as selecting the most optimum costing method.
5.4.6 Engineering data management

You are already aware of the fact that every organisation desires to reduce
its cycle time, in order to ensure timely delivery of the final product. The
engineering data management module reduces the time taken in data
transfer from one module to another in the ERP system and minimises
errors in data transfer. This leads to increased efficiency of manufacturing
operations. For this, the module develops an automatic link between
engineering and production information. In most ERP systems, the
engineering data management module works in association with Computer
Aided Design (CAD) software, to facilitate an easy exchange of information
among people engaged in the manufacturing process.
5.4.7 Engineering change control

Engineering change refers to the alteration or modification in the product-
development process. This change affects the material and equipment
requirements as well as the manufacturing schedule of a product.
Therefore, most organisations do not prefer to make engineering changes.
These changes can be made due to various reasons such as changing
needs of customers, technology obsolescence, and change in market
trends. An engineering change is quite critical to the success of a product in
the market. For example, when a trend of webcam-enabled laptops was
noticed in the market, most laptop manufacturers had to call for engineering
changes, in order to satisfy their customers. However, implementing this
change was a time-consuming and expensive task for manufacturers.
The engineering change control module enables an organisation to
determine the steps to be performed, before any engineering change is

approved or implemented. For example, in order to implement engineering

changes, an organisation can determine a procedure that consists of four
steps, namely requisition, evaluation, approval, and implementation.
Consequently, every engineering change is well analysed, before it is
implemented in the manufacturing of a product.
5.4.8 Configuration management

Configuration management is a process of maintaining consistent product
performance throughout its life cycle, in terms of its functionality and
attributes. The main aim of configuration management is to reduce order-
cycle time, by eliminating lengthy engineering review of products.
The configuration management module enables an organisation to reduce
the time taken in product-engineering reviews, thereby minimising the cycle
time. This module also enables an organisation to analyse the cost and
configuration feasibility of the final product. To support the functions of this
module, a user-defined database is developed. This database consists of
knowledge and expertise related to product engineering, sales, and cost
management. It also contains user-defined product attributes such as
height, weight, volume, and size.
5.4.9 Serialisation/lot control

An organisation needs to purchase an adequate amount of raw materials so
that there should be no shortage or over-supply of materials, during the
production process. For this, the organisation has to determine an optimum
lot size and the number of lots to be purchased. The lot size depends on the
sequence (serial) of operations to be performed, while producing the final
product. Therefore, the sequence in which a product is developed, needs to
be carefully analysed while determining the lot size.
The serialisation/lot control module helps an organisation in determining the
sequence of operations to be performed for manufacturing a product,
thereby deciding the optimum lot size. This module allocates unique
numbers to each lot so that it can be easily associated with the sequence of
operations.

5.4.10 Tooling
In a manufacturing organisation, the availability of proper tools plays a
crucial role in the conversion of raw materials into finished products. The
tooling module helps an organisation in identifying the types and
requirements of tools for performing manufacturing operations. This module
is closely integrated with capacity planning and inventory management
modules in order to identify the requirements of various tools. This
integration helps an organisation keep track on the delivery of tools so that
there can be proper utilisation of productive capacity. Apart from this, the
tooling module allows an organisation to estimate the useful life of tools and
to identify their maintenance needs.

11. ‘JIT’ stands for:
A. Justified in Time
B. Just in Time
C. Jack in Track
D. Jolly in Time
12. Which of the following refers to the part of a factory where the
machines are placed and men are directly engaged in manufacturing
activities?
A. Production department
B. Shop floor
C. Engineering department
D. Marketing department
13. During a manufacturing process, engineering change does not affect:
A. Material requirements
B. Equipment requirements
C. Manufacturing schedule
D. Type of product to be manufactured

14. The quality management module enables an organisation to perform

______ and __________ to make continuous improvements in its
production methodologies.
15. The main aim of configuration management is to reduce order
________ by eliminating lengthy engineering review of products.
Activity 2:
Collect information on the production process of any renowned
manufacturing organisation.
5.5 Human Resource

Human resource refers to the workforce of an organisation that is employed
to achieve organisational goals and objectives. It is the most productive
resource that creates a long-lasting advantage for an organisation, by
utilising its skills and knowledge.
Suppose you are the owner of an organisation. Your employees are one of
your organisation’s precious assets. This is because the performance of your
employees has a direct impact on your brand image and service quality,
which ultimately decides the level of customer satisfaction. So, you can say
that it is important for any organisation to manage its human resource
effectively.
The human resource module of an ERP system helps an organisation to
perform human resource activities, such as performance management,
compensation management, employee motivation, communication,
administration, and training, effectively. Apart from this, the module allows an
organisation to maintain a comprehensive database of employee records and
update it whenever required. These records include information related to
salary, attendance, performance evaluation, promotion, transfer, and personal
details of all the employees working in an organisation. An advanced human
resource module is integrated with a knowledge management system, which
facilitates the sharing of expertise throughout an organisation.

The following are some of the common sub-modules of the human resource
module:
 Personnel administration
 Organisational management
 Payroll management
 Workforce management
 Employee development
You will study about these sub-modules in the succeeding units of the book.

16. Human resource refers to the ____________ of an organisation that
is employed to achieve organisational goals and objectives.
17. The ________ module allows an organisation to maintain a
comprehensive database of employee records and update it
whenever required.
18. An advanced human resource module is integrated with a knowledge
management system. (True/False)
19. Which of the following is not a sub-module of the human resource
module?
A. Personnel administration
B. Organisational management
C. Payroll management
D. Funds management
Activity 3:
Meet the human resource manager of an organisation in your locality and
discuss the importance of maintaining employee data.
5.6 Plant Maintenance

Plant maintenance is all about the overhauling of equipment and machinery
deployed in the production plant. It involves the proper cleaning, oiling,

repair, and replacement, of machines and their spare parts. Plant

maintenance helps in maintaining equipment and machinery under good
operating conditions. However, lack of proper plant maintenance may lead
to equipment breakdowns, which, in turn, may hamper the production and
delivery schedules of an organisation. Apart from this, equipment
breakdowns also result in the wastage of material and decline in the quality
of the final output.
Why do you think plant maintenance is important for an organisation?
Needless to say, the main aim of any organisation is to maximise profits and
minimise costs. Proper maintenance of a plant leads to significant reduction in
the overall operating cost, improved productivity of the plant, and a safe
working environment for employees. Although some of the organisations
consider plant maintenance to be an extra expense, the amount spent on plant
maintenance is paid back by improved quality, JIT production, and prevention
of material wastage. Therefore, it is important for every organisation to
efficiently perform activities related to plant maintenance.
The plant maintenance module of an ERP system provides a range of
necessary mechanisms that allow an organisation to perform functions
related to plant maintenance. These functions are supported by various sub-
modules of the plant maintenance module. Let us discuss these sub-
modules in detail.
5.6.1 Preventive maintenance control

Preventative maintenance is all about preventing an item from wearing out
with the help of systematic inspection and detection of incipient failure. The
preventive maintenance and control module enables an organisation to
prevent breakdowns, during the production process. This is done by
planning, scheduling, and controlling tasks, involved in the maintenance of
equipment, in order to maintain it under reliable operating conditions. This
module monitors equipment and identifies potential failures with the help of
its user-defined inspection modes and everyday operating frequency. It also
collects information related to hourly operation, units of output, fuel
consumption, and serviceable life of equipment.
The preventive maintenance and control module provides the following
benefits to an organisation:

 Reduced repair costs

 Higher machine utilisation
 Improved machine reliability
 Higher production yields
 Extended life of equipment
5.6.2 Equipment tracking

The machines and equipment deployed in an organisation’s production
plant are usually very costly. Therefore, they are considered to be the
precious assets of an organisation. However, with the passage of time,
these assets are subject to wear and tear or decay, thus, their efficiency
reduces gradually. For example, over a period of time, the sharp blades of a
cutting-machine turn blunt, which, in turn, hampers the production process
and affects the quality of the final output. Therefore, an organisation needs
to continuously track the performance of equipment so that it can be
repaired before it affects the output.
The equipment tracking system provides details related to the current and
previous operating conditions of equipment, in terms of its, hourly, daily,
weekly, monthly, and yearly, performance. This helps an organisation in
identifying potential failures in equipment and rectifying them.
5.6.3 Component tracking

You know that a machine is made up of several spare parts (components).
Improper functioning of any of these components may adversely affect the
performance of the machine. Therefore, it is important for an organisation to
ensure whether all the spare parts of a machine are functioning properly.
The component tracking module enables an organisation to inspect all
equipment and their parts and sub-parts. Moreover, this module provides
information related to every spare part, in terms of its pre-defined codes.
These codes help an organisation to identify which sub-part belongs to
which machine. This enables an organisation, at the time of repair or
replacement of machines.

5.6.4 Plant maintenance and calibration tracking

The plant maintenance and calibration module provides necessary
information support for tracking whether the set-up of equipment is in
compliance with the quality requirements, defined under Internationsl
Organisation for Standardisation (ISO) 9000. This module justifies the cost
incurred by an organisation on plant maintenance work.
5.6.5 Plant maintenance warranty claims tracking

You must have a lot of expectations when you purchase a product, in terms
of its quality and performance. Similarly, an organisation also expects higher
efficiency of equipment and machines while purchasing them. In order to
ensure the expected efficiency of equipment, the vendors or manufacturers
provide warranty for the operation of equipment. However, this warranty is
usually subject to certain terms and conditions. For example, the vendor of
a cooling fan can provide warranty for the replacement of the fan, in case it
does not function properly. However, the warranty is valid only for a
specified period, from the date of purchase of the fan. Thus, in this case, the
organisation need not bear the cost for the maintenance of the fan up to that
period.
The plant maintenance warranty claims tracking module acts as an
administrative tool. It provides useful information that helps an organisation in:
 Complying with the terms and conditions of the warranty given by the
vendor or manufacturer (while equipment and machinery is being used)
 Tracking the performance of equipment or machinery
 Claiming the warranty of equipment or machinery in case any issues

related to its operation are identified

20. Plant maintenance is all about the _________ of equipment and
machinery deployed in the production plant.
21. The preventive maintenance and control module enables an
organisation to prevent __________ during the production process.

22. The equipment tracking system provides details related to the current
and previous operating conditions of equipment, in terms of its weekly
performance only. (True/False)
23. Plant maintenance does not involve:
A. Cleaning and oiling of machines
B. Repair of machines
C. Purchase of machines
D. Replacement of machines
5.7 Quality Management

The term ‘quality’ assumes a number of meanings at a workplace. However,
you can simply define quality from two perspectives, namely, the customer’s
perspective and the organisation’s perspective. From a customer’s
perspective, quality is a set of expectations that you have as a customer
while buying a product. On the other hand, from an organisation’s
perspective, quality is a measure of how well a product or service conforms
to the specified standards. The quality standards can be a combination of
product attributes to be produced by an organisation. These attributes
include the performance, reliability, and appearance of the product and
commitment to delivery time.
When you buy a product, you must always be focused on its quality,
irrespective of its cost. If the product is not as per your quality requirements,
you may not purchase it or switch to other brands. Therefore, in order to win
in today’s competitive business environment, it is important for every
organisation to manage quality.
Quality management is actually a comprehensive task for any organisation.
This is because an organisation needs to manage quality at every step,
before a product reaches end users. A number of international quality
standards have been defined to help the task of quality management, such
as ISO 9000 series.
The quality management module of an ERP system provides necessary
information and technical support to an organisation for adopting

appropriate quality standards and making continuous improvements in its

products and processes. Let us discuss the functions of the quality
management module, in detail.
5.7.1 Functions of quality management module

Although every module of an ERP system shares the responsibility of
quality management, the quality management module is specific to the
quality of the overall production process of an organisation. The major
functions of the quality management module of an ERP system are:
Quality Planning: Involves accumulating basic data for deciding the
required level of quality for materials, operations, and finished products.
Quality planning aims at improving quality by preventing repetitive defects in
the production process.
Quality Monitoring: Involves the inspection of materials, processes, and
finished products. This helps an organisation in ensuring whether the level
of quality is maintained as per the planned quality.
Quality Control: Refers to a process in which the system undertakes the
historical data related to the level of quality maintained in the past.
Thereafter, the system applies various quality control techniques to maintain
the desired level of quality and improve it continuously. Some of these
techniques include sample testing, quality control charts, and quality circles.
The quality management module is closely related to the functions of
purchasing, inventory management, shop-floor control, and customer
relationship management. Therefore, the module is capable of accessing
data from other modules such as material management, manufacturing, and
sales.
5.7.2 CAQ/CIQ
Computers are finding their way into almost every aspect of business. They
have enabled organisations to manage their business functions effectively,
thereby increasing their productivity. Recent advancements in quality-
related applications have helped manufacturing organisations in controlling
and improving the quality of their products.

Computer Aided Quality (CAQ) is a quality management tool that collects

and analyses data related to the quality of output to be produced by a
manufacturing organisation. It generates a set of specifications related to
the desired quality of the final output. The module also develops operational
specifications that help in realising the desired quality of the final output.
Quality management is a comprehensive task that cannot be performed in
isolation. Moreover, today’s competitive business environment demands
rapid modifications in the quality of products. In such a scenario, relying only
on CAQ for quality management is not sufficient for an organisation.
Therefore, in order to improve its usability, CAQ is directly integrated with
other ERP modules. This advanced version of CAQ is known as Computer
Integrated Quality (CIQ).
So, you can define CIQ as a CAQ management tool that is integrated with
other modules of an ERP system such as finance, sales and distribution,
and manufacturing. This integration of different modules enables CIQ to use
various automatic data-processing techniques for quality management.
24. From a customer’s perspective, ______ is a set of expectations that
you have as a customer, while buying a product.
25. The quality standards can be a combination of a product’s _______
to be produced by an organisation.
26. Which of the following is a more effective software for quality
management?
A. CAQ
B. CIQ
C. CQ
D. ISO 9000
27. Product attributes include:
A. The performance of a product
B. Reliability of a product
C. Appearance of a product
D. All of these

Activity 4:
Using the Internet, make a project on quality parameters given by the ISO.
Also, add the modifications made by the ISO in these parameters, from
time to time, in your project.
5.8 Materials Management

Now, you must have a fair idea about the importance of materials (as a
resource) in the manufacturing of products. The next question arises that
what quality and quantity of materials should an organisation employ in
order to produce standardised products? Materials management
encompasses all the aspects of materials required for converting raw
materials and other inputs into final products.
The materials management module of an ERP system helps an
organisation in handling, storing, and transporting materials. It also allows
an organisation to make judicious purchasing, reduce wastage, utilise
materials efficiently, thereby minimising materials cost. Apart from this, the
other functions of the materials management module include automated
vendor evaluation, automated inventory management, and integrated
invoice verification. To perform these functions, the material management
module works with the help of its sub-modules. Let us discuss these sub-
modules in detail.
5.8.1 Pre-purchasing
The pre-purchasing module supports all the activities involved in planning
raw materials to be purchased for producing products. These activities are
related to bidding, supplier search, sample acceptance, and supplier
selection. This module also helps an organisation in developing a set of
service specifications for every procurement project proposed in the
organisation.
5.8.2 Purchasing
The purchasing module supports all the activities involved in purchasing raw
materials. The major purchase activities involve order placement, receipts of
goods, inventory management, and invoice verification. The module
facilitates a timely exchange of information among the members of an
organisation’s supply chain, such as suppliers, transporters, and

distributors. This helps an organisation to keep tabs on activities involved in

the purchase of raw materials.
5.8.3 Vendor evaluation
Vendor evaluation is a process in which an organisation appraises the
potential suppliers of materials by performing measurable assessments. It is
one of the most important steps of the purchasing process. This is because,
the quality of final output depends on the quality of materials provided by
vendors. Therefore, it is essential for an organisation to evaluate its
suppliers carefully while taking purchasing decisions.
The vendor evaluation module helps an organisation in selecting the right
supplier of materials. This module enables an organisation to easily resolve
the issues related to the procurement of materials, thereby, maintaining
cordial relationships with suppliers. This ultimately helps in optimising the
production process of an organisation.
5.8.4 Inventory management
After an organisation receives materials from its suppliers, it is important to
store these materials properly in order to prevent them from loss or damage.
Moreover, it is important for an organisation to maintain an adequate level of
inventory (raw materials and other inputs). This is because, the excess of
inventory incurs high storage costs for an organisation, while the shortage of
inventory may cause unnecessary delays in production. Therefore, the
inventory management department has to keep track on the level of
inventory available in the organisation.
The inventory management module helps an organisation in ensuring the
availability of inventory throughout the production process, at the same time,
preventing it from loss or damage. To do so, the module provides complete
information about the quality and quantity of current and ordered stock and
daily consumption of stock.
5.8.5 Invoice verification and material inspection

When the materials are received, an organisation needs to ensure that the
received materials meet the required specifications (in terms of quality and
quantity). This can be done by performing a proper inspection of the
received materials. After inspection, the organisation can either accept or
reject the received materials. If the organisation accepts the materials, it
needs to generate an invoice for the received materials. An invoice contains

complete information related to the received materials. It needs to be

verified before it is forwarded to the finance department (which ultimately
makes payments to the suppliers in exchange for raw materials). For
performing material inspection and invoice verification, the organisation
needs to have complete information about the material ordered and
received.
The invoice verification and material inspection module provides complete
and accurate information to an organisation so that it can efficiently examine
the received materials and verify the invoice generated. This information is
related to the quality and quantity of materials ordered and received by the
organisation. Using this information, the module automatically generates an
invoice, which can be modified as per the requirements. The invoice
verification and material inspection module can also compare the
information of ordered and received material for verifying the invoice
generated. The module acts as a link between finance and material
management modules, as it forwards the invoice verification details to the
finance department, in order to make payments to suppliers.
28. Materials management encompasses all the aspects of _______
required for converting raw materials and other inputs into final
products.
29. If an organisation accepts the materials, it needs to generate an
______ for the received materials.
30. The _____________ module supports all the activities involved in
planning the raw materials to be purchased for producing products.
31. Vendor evaluation is a process in which an organisation appraises
the potential ________ of materials by performing measurable
assessments.
Activity 5:
Visit a manufacturing organisation and observe how the materials are
managed there.

5.9 Summary
 An ERP system involves several modules. These modules support the
different functions of an organisation. Some of the common modules of
an ERP system include finance, manufacturing and production planning,
human resource, quality management, materials management, and
plant maintenance.
 The finance module of an ERP system provides financial functionality
and analysis support to an organisation. In addition, it also facilitates an
organisation in taking crucial financial decisions. The financial module of
an ERP system consists of various sub-modules such as financial
accounting, investment management, financial controlling, and funds
management.
 The sales and distribution module of an ERP system helps an
organisation to perform various sales functions, such as sales order
management, delivery of products, and invoicing, effectively. ERP
systems are integrated with DRP software in order to improve the sales
performance of the organisation.
 The manufacturing and production planning module of an ERP system
provides useful information to an organisation for performing its
manufacturing activities effectively. In addition, it also helps in managing
the supply chain activities of the organisation. The module contains
various sub-modules such as material and capacity planning, shop-floor
control, quality management, JIT/repetitive manufacturing, cost
management, and engineering data management.
 The human resource module of an ERP system enables an organisation
to perform its human resource activities. Its sub-modules include
personnel administration, organisational management, payroll
management, workforce management, and employee development.
 The plant maintenance module of an ERP system provides a range of
tools and techniques for performing plant maintenance functions, which
are supported by its sub-modules. Some of these sub-modules are
preventive maintenance control, equipment tracking, component

tracking, plant maintenance and calibration tracking, and plant

maintenance warranty claims tracking.
 The quality management module of an ERP system enables an
organisation to continuously improve the quality of its products and
processes by providing effective tools. Its major functions include quality
planning, quality monitoring, and quality control.
 The materials management module of an ERP system enables an
organisation to handle, store, and transport materials, throughout the
supply chain, while minimising its cost. Its sub-modules include pre-
purchasing, purchasing, vendor evaluation, inventory management,
invoice verification, material inspection.
5.10 Glossary
Replenishment Order: This order is placed in the replacement of a
previous order.
Calibration: It is a setup of equipment designed to execute manufacturing
operations.
ISO 9000: A set of quality standards that are followed by most
organisations, across the world.
Discrete Manufacturing: A manufacturing system in which every part is
produced as an individual product. These parts are further assembled to
make the final product.
Transition-based Production: A manufacturing system in which a product
is developed in a logical series of operations.
Cost Driver: An object or activity that incurs a certain cost for an
organisation.
Lot Size: The quantity of materials purchased at a time for manufacturing
purposes.

1. Name the sub-modules of the finance module.

2. Explain the importance of the sales and distribution module.

3. What is the importance of the tooling sub-module of the manufacturing
and production planning module?
4. What is the role of the human resource module of an ERP system?
5. Explain plant maintenance.
6. Explain the preventive maintenance control sub-module of the plant
maintenance module.
7. What are the functions of the quality management module?
8. Evaluate the role of vendor evaluation sub-module of the materials
management module.
5.12 Answers

1. Financial functionality and analysis support
2. Data
3. True
4. False
5. a. Financial accounting
6. Price
7. Revenue
8. Distribution
9. False
10. b. Distribution Requirements Planning
11. b. Just in Time
12. b. Shop floor
13. d. Type of product to be manufactured
14. Recurring operations and defect-cause analysis
15. Cycle time

16. Workforce
17. Human resource
18. True
19. d. Funds management
20. Overhauling
21. Breakdowns
22. False
23. c. Purchase of machines
24. Quality
25. Attributes
26. b. CIQ
27. All of these
28. Materials
29. Invoice
30. Pre-purchasing
31. Suppliers
Terminal Questions
1. The sub-modules of the finance module includes financial accounting,
investment management , financial controlling, and funds management.
Refer to Section 5.2 Finance that discusses the common sub-modules
of the finance module.
2. The sales and distribution module of an ERP system helps an
organisation in performing activities, such as sales order management,
delivery of products, and invoicing, effectively. Refer to Section 5.3
Sales and Distribution, which explains the importance of the sales
module.
3. The tooling sub-module of the manufacturing module enables an
organisation to identify the types of tools required to perform
manufacturing operations. Refer to Section 5.4 Manufacturing and

Production Planning, which discusses the importance of the tooling

sub-module.
4. The human resource module helps in performing activities such as
personnel administration, organisational management, payroll
management, and workforce management. Refer to Section 5.5
Human Resources, which sheds light on the role of the human
resource modules of an ERP system.
5. Plant maintenance is concerned with keeping the physical plant of an
organisation under good operating conditions. Refer to Section 5.6
Plant Maintenance, which explains the meaning of plant maintenance.
6. Preventive maintenance is a part of plant maintenance. It involves
taking actions for preventing breakdowns during the production
process. Refer to Section 5.6 Plant Maintenance, which explains the
preventive maintenance control sub-module.
7. The functions of the quality management module include quality
planning, quality monitoring, and quality control. Refer to Section 5.7
Quality Management, which lists the functions of the quality
management module.
8. Vendor evaluation is critical to the success of the purchasing process,
as the quality of the final output depends on the quality of materials
provided by vendors. Therefore, it is important for an organisation to
evaluate its vendors carefully, while taking purchasing decisions. Refer
to Section 5.8 Materials Management, which discusses the role of the
vendor evaluation sub-module.
5.13 Case Study: Implementation of an ERP System with Human

Resource Management Functionality at Atlantic
Manufacturing
In the past few years, Atlantic Manufacturing had identified continuous
decline in its sales volume. This is because the organisation was not able to
recruit talented sales representatives. Considering the situation, the
organisation decided to determine the root cause of the problem. After
continuous efforts for three days, it was found that the organisation was
using a traditional system, which was not capable of analysing the large
volume of applicant data. Moreover, the system was not able to maintain the

data of the existing employees related to their attendance, salary,

absenteeism, role, responsibilities, performance appraisal, etc. This led to a
number of complexities in the human resource functions of Atlantic
Manufacturing.
To solve the on-going issues, the organisation decided to implement an
ERP system with the human resource management functionality. After
implementing the system, Atlantic Manufacturing was able to maintain and
analyse employee data and retrieve it, as and when required. The system
also helped the organisation to recruit the right candidates and allocate
them jobs as per their skills and capabilities. This resulted in a significant
increase in the sales of the organisation.
Questions:
1. How did the ERP system with human resource functionality help
Atlantic Manufacturing?
2. Name some common sub-modules of the human resource module of
an ERP system.

Planning.
E-references
 http://www.scribd.com/doc/36927263/57/CAQ-CIQ
 http://www.eresourceerp.com/
 http://books.google.co.in/books?id=FnbMqI7nhIgC&pg=PA167&dq=wha
t+is+Engineering+Change&hl=en&sa=X&ei=HlGTUOXdLYPRrQfXmIHA
Bg&ved=0CDMQ6AEwAA#v=onepage&q=what%20is%20Engineering%
20Change&f=false
 http://books.google.co.in/books?id=WE2M8YAD7jQC&printsec=frontcov
er&dq=Preventive+Maintenance+Control&hl=en&sa=X&ei=01CTUPadO
8TtrQeY6YGIDw&ved=0CC8Q6AEwAQ#v=onepage&q=Preventive%20
Maintenance%20Control&f=false

Unit 6 ERP: A Manufacturing Perspective
Structure
6.1 Introduction
Objectives
6.2 Role of ERP in Manufacturing
6.3 Computer Aided Design/Computer Aided Manufacturing (CAD/CAM)
6.4 Materials Requirement Planning (MRP)
Master Production Schedule (MPS)
Bill of Material (BOM)
Inventory records
Closed loop MRP
Manufacturing Resource Planning –II (MRP-II)
6.5 Manufacturing and Production Planning Module of an ERP System
6.6 Distribution Requirements Planning (DRP)
6.7 Just-in-Time (JIT) and Kanban
Benefits of JIT
Potential pitfalls of JIT
Kanban
6.8 Product Data Management (PDM)
Data management
Process management
Functions of PDM
Benefits of PDM
6.9 Manufacturing Operations
Make-to-Order (MTO) and Make-to-Stock (MTS)

Assemble-to-Order (ATO)
Engineer-to-Order (ETO)
Configure-to-Order (CTO)
6.10 Summary
6.11 Glossary
6.13 Answers
6.14 Case Study: MRP II System Implementation at ABC Ltd.
6.1 Introduction
Now, you must be familiar with the different modules of an ERP system.
This unit provides you an overview of ERP from the manufacturing
perspective.
The manufacturing sector largely contributes to the growth of a country’s
economy. According to a report presented by the Institute for Supply
Management (ISM), in January 2013, the Indian manufacturing sector
employs about 54% people and contributes more than 50% to Indian
exports. However, the era of economic liberalisation has led to rapid
changes and fierce competition in the manufacturing industry. In such a
case, it has become essential for manufacturing organisations to
differentiate their products from that of their competitors and maintain
healthy relationships with customers.
ERP plays a vital role in the manufacturing process of an organisation. It
allows an organisation to streamline and integrate its manufacturing
operations. An ERP system with a manufacturing module allows an
organisation to perform functions, such as inventory management,
purchasing, quality management, and sales management, effectively. This,
ultimately, leads to improved performance of an organisation and higher
customer satisfaction.
In this unit, you will study the role of ERP in manufacturing. Next, you will be
familiarised with the two main techniques of product design, namely,

Computer Aided Design (CAD) and Computer Aided Manufacturing (CAM).

Next, you will study the importance of Materials Requirement Planning
(MRP) in detail. Further, the unit explains the significance of Distribution
Requirements Planning (DRP). The benefits and potential pitfalls of Just-in-
Time (JIT) are also explained in the unit. Apart from this, the unit elaborates
on Product Data Management (PDM). In the end, you will study the different
types of manufacturing operations.
Objectives
 identify the role of ERP in manufacturing
 define Computer Aided Design/Computer Aided Manufacturing
 explain the importance of Materials Requirement Planning
 assess the significance of Distribution Requirements Planning
 define Just-in-Time and Kanban
 list the functions and benefits of Product Data Management
 discuss the different manufacturing operations
6.2 Role of ERP in Manufacturing

You have already studied that the manufacturing sector plays a significant
role in the growth of a country’s economy. In this section, you will be
familiarised with the importance of ERP in manufacturing.
In order to survive in today's aggressive business environment, it has
become essential for an organisation to achieve higher customer
satisfaction, maintain cordial relationships with its suppliers, and control
costs. To do so, an organisation needs to produce quality products with
unique features, which depend on the organisation’s manufacturing
efficiency.
An ERP system enables an organisation to minimise manufacturing costs,
make effective utilisation of resources, reduce production errors, and
maintain on-time delivery performance by providing up-to-date information

about different manufacturing activities. Apart from this, the following are
some other advantages of an ERP system in manufacturing:
 An ERP system automates and streamlines business processes.
 It controls and manages inventory at different levels of production.
 It meets complex inventory requirements.
 It enhances design innovation in manufacturing.
 It improves project management for customised orders.

1. In order to survive in today's aggressive business environment, it has
become essential for an organisation to achieve higher customer
satisfaction, maintain cordial relationships with its suppliers, and
control costs. (True/False)
2. An ERP system helps an organisation in minimising manufacturing
costs, making effective utilisation of resources, reducing production
errors, and maintaining on-time delivery performance. (True/False)
3. An ERP system helps an organisation automate and _____________
business processes.
4. An ERP system helps an organisation meet only simple inventory
requirements. (True/False)
6.3 Computer Aided Design/Computer Aided Manufacturing

(CAD/CAM)
Have you ever wondered why a product with a unique design attracts you
the most? An effective product design has become increasingly important
for an organisation in today's competitive business environment. The design
of a product is said to be effective when a product includes all the features
required by customers. An effective product design helps an organisation
produce a product with excellent functional utility and sales appeal at a
reasonable cost and time. The manufacturing module of an ERP system
contains various procedures and systems for designing a product. CAD and
CAM are the two most critical systems used for product design.

CAD is a computer-based application that is used by an organisation in

order to create, modify, and analyse, the design of a product. It enables an
organisation to create the 2-D and 3-D images of its products on the basis
of plan and elevation views. In addition, CAD suggests the materials to be
used and the colour scheme of a particular product to be produced. On the
other hand, CAM is an application that controls the tools and machinery
used for producing a product with the help of computers.
In earlier times, CAD and CAM were used only by automotive and
aerospace organisations. However, with an increase in the level of
competition, most manufacturing organisations started using CAD and CAM
for product design. The following are some of the renowned organisations
using CAD and CAM techniques for designing their products:
Mahindra & Mahindra: The product design capacity of Mahindra &
Mahindra has increased by using CAD and CAM. This has led to enhanced
manufacturing capacity of the organisation and its business growth.
Tata Johnson Controls: CAD and CAM have enhanced the product design
capacity of Tata Johnson Controls, which, in turn, has resulted in increased
customer base of the organisation.

5. __________ is a computer-based application that is used by an
organisation in order to create, modify, and analyse, the design of a
product.
6. __________is an application that controls the tools and machinery
used for producing a product with the help of computers.
7. In earlier times, CAD and CAM were used only by _________and
_________ organisations.
8. The ______________of Mahindra & Mahindra has increased by
using CAD and CAM.
Activity 1:
With the help of the Internet, identify some additional techniques and
software used for product design, apart from CAD/CAM.

6.4 Materials Requirement Planning (MRP)

You have studied in the previous units that before the 1960s, organisations
used various scientific inventory-control methods and models, such as
Economic Order Quantity (EOQ), fixed order quantity, the periodic order
method, and the optional replenishment method, for managing their
business processes. In the 1960s, most organisations implemented
software packages for controlling and managing their inventory. However,
these organisations were not completely satisfied with these software
packages. As a result, in the 1970s, a new system called MRP was
invented.
MRP is a production planning and inventory-control system that helps an
organisation in managing its manufacturing processes effectively. Moreover,
it enables an organisation to keep track of the due date of order, the date
when the order is scheduled to arrive, and the date when the order is
actually received. The following are the main objectives of an MRP system:
 Ensuring the availability of raw materials for producing products
 Making products available for customers
 Reducing the inventory level
 Planning and scheduling activities related to purchasing, manufacturing,

and product delivery
The following are some key benefits of an MRP system:

Maintaining an Adequate Level of Inventory: An MRP system helps a
manufacturing organisation prepare a production schedule. This schedule
enables the organisation to determine an appropriate level of inventory in
order to meet production requirements, thereby, reducing the inventory cost
of the organisation.
Maintaining an Economic Ordering of Lot Size: An MRP system helps an
organisation determine the exact lot size required for producing products. In
addition, it enables the organisation to determine production requirements,
carrying costs, quantity price breaks, and transportation costs. This,
ultimately, helps the organisation in selecting the most cost-effective order.

Planning and Scheduling Purchasing Activities: If the demand for a

product increases, an organisation needs to determine the type and amount
of inventory required to meet this demand. This can be easily done by using
an MRP system.
Planning Production Activities: An MRP system helps an organisation in
preparing a production plan by determining an adequate amount of input to
be employed for producing products. In addition, it enables the organisation
to modify its production plan by providing information related to the shortage
of inventory during the production process.
Making Efficient Allocation of Resources: An MRP system helps an
organisation determine the quantity of resources, such as men and material,
required for producing products. This further helps the organisation allocate
its resources effectively for its manufacturing process.
To provide the above benefits, an MRP system requires three types of
inputs, namely, Master Production Schedule (MPS), Bill of Material (BOM),
and Inventory Records (IR). The system processes these inputs and
provides the following output:
 Planned order quantities
 Planned order release dates
 Planned order due dates
Let us discuss the inputs of an MRP system in detail.
6.4.1 Master Production Schedule (MPS)

MPS is a detailed production schedule that provides information related to
finished products. This information can be related to the nature and quantity
of finished products and the time taken for producing these products. MPS
is derived from an aggregate plan. MPS is a plan developed for individual
products to be produced in a particular time period, while the aggregate plan
is a broad schedule, formulated for the whole family of products. When the
aggregate plan is converted into MPS, the family of products is disintegrated
into individual products.

MPS is one of the major inputs of an MRP system. It is prepared on the

basis of orders placed by customers or the demand for products, or both. It
is a long-term schedule, and thus, covers the lead time of all the
components required to produce a finished product. Figure 6.1 shows how
an aggregate plan is broken into an MPS:
Figure 6.1: Conversion of an Aggregate Plan into an MPS
6.4.2 Bill of Material (BOM)

BOM is a hierarchical list of all materials, such as raw materials, sub-
assemblies, component parts, and sub-components, required for producing
a product. It allows an organisation to determine the exact quantity of
materials required for producing a product. BOM can be of various types
and used for different purposes. For example, an engineering BOM includes
details related to the materials required for product design, whereas a sales
order BOM specifies the materials required by customers. So, you can say
that a BOM is classified on the basis of its usage and the business needs of
an organisation.
Figure 6.2 shows an example of BOM of a bicycle manufacturing
organisation:

Figure 6.2: BOM of a Bicycle
6.4.3 Inventory records

IRs are the manual or computer-based records, maintained to track
inventory at the different levels of production. These records may also
contain information related to lead time, level of safety stock, and scrap.
Figure 6.3 shows a sample format of inventory records:
Figure 6.3: Format of IRs
6.4.4 Closed-loop MRP

You have already studied in the previous units that the MRP system was
enhanced and was used for performing activities such as sales planning,
customer order processing, and capacity planning. This enhanced version
of the MRP system was known as closed-loop MRP.
The closed-loop MRP system allows an organisation to complete its
production activities (as planned) on time. This leads to a significant
increase in the production capacity of the organisation. Apart from this, the
closed-loop MRP system synchronises the materials procurement plan of
the organisation with its MPS. It also provides updated information to the
organisation related to the current inventory and completion of production
activities.

6.4.5 Manufacturing Resource Planning-II (MRP-II)

The MRP II system, an extension of the closed-loop MRP system, is used
by manufacturing organisations in order to manage their business
processes effectively. It facilitates a smooth flow of information within an
organisation, thereby, encouraging inter-departmental interaction. The MRP
II system provides the following benefits to the different departments of an
organisation:
Sales and Marketing Department: The MRP II system provides an order-
promising capability to the sales and marketing departments. Order
promising is an act of delivering products or services to customers on time
as per their requirements. The MRP II system provides information related
to the availability of a product to the sales and marketing department of an
organisation, thereby, providing exact delivery dates to customers.
Finance Department: The MRP II system enables an organisation to
perform financial planning by converting material schedules into capital
requirements.
Production Department: The MRP II system enables an organisation to
prepare an effective production plan and manage its production processes
efficiently, by providing integrated management information. This ultimately
enhances the production efficiency of the organisation.

9. __________ is a production planning and inventory-control system
that helps an organisation in managing their manufacturing processes
effectively.
10. __________ is a detailed production schedule that provides
information related to finished products.
11. _________is a list of all materials, such as raw materials, sub-
assemblies, component parts, and sub-components, required for
producing a product.
12. ____________are the manual or computer-based records maintained
to track inventory at the different levels of production.

13. The ____________allows an organisation to complete its production

activities (as planned) on time.
14. ____________, an extension of the closed-loop MRP system, is used
by manufacturing organisations in order to manage their business
processes effectively.
15. The MRP II system provides information related to the ____________
to the sales and marketing department of an organisation.
6.5 Manufacturing and Production Planning Module of an ERP

System
You have studied in previous units that an ERP system integrates the
activities of different departments of an organisation such as manufacturing,
marketing, accounting, and human resource. The manufacturing and
production planning module of an ERP system helps an organisation plan
and perform its production activities effectively by providing accurate and
timely information. Some of these activities include MRP, shop-floor control,
inventory management, and capacity planning.
The manufacturing and production planning module of an ERP system

integrates all the software and hardware used for performing manufacturing
activities. Moreover, the module helps in reducing paperwork, design cost,
lead time, and level of inventory. It works with the help of its various sub-
modules, which are shown in Table 6.1:
Table 6.1: The Sub-Modules of the Manufacturing and Production

Planning Module and their Functions
Name of the Sub-Module Function

Forecasting Helps an organisation in determining the
resources required for manufacturing
purposes
Sales and Operations Helps an organisation in determining the
Planning rate at which the manufacturing,
engineering, and financial resources, are

Name of the Sub-Module Function

used to support sales planning
Demand Management Links forecasting functions with MPS and
MRP
MPS Helps an organisation in planning and
scheduling materials required for
producing products in order to satisfy
customer requirements
MRP Helps an organisation in determining the
type and quantity of materials required for
producing products and generating
replenishment schedules for raw
materials, components, and assemblies
Manufacturing Execution Helps in reducing cycle time and the time
taken to produce a product, thereby,
improving the productivity of an
organisation
Order Settlement Confirms production order operations by
gathering data related to the scale of
production and time involved in the
production of a particular product

16. _____________ of an ERP system helps an organisation plan and
perform its production activities effectively by providing accurate and
timely information.
17. The manufacturing and production planning module of an ERP
system ____________all the software and hardware used for
performing manufacturing activities.
18. The ____________ module helps an organisation determine the
resources required for manufacturing purposes.
19. The ____________ module links forecasting functions with MPS and
MRP.

6.6 Distribution Requirements Planning (DRP)

Suppose, you are the distribution and logistics manager of a manufacturing
organisation. You need to manage an increasingly complex supply chain
network of the organisation, which includes suppliers, customers, and
investors. Moreover, you are responsible for a number of activities involved
in the physical flow of products and information. In such a case, the DRP
system will help you coordinate all activities involved in the distribution of
products to end users.
DRP extends the technique of MRP into the physical distribution system of
an organisation. This system enables an organisation to plan orders within
its supply chain. DRP helps an organisation in establishing certain inventory
control parameters such as safety stock. In addition, it helps in determining
time-phased inventory requirements. Some of the main benefits of DRP are:
 Decreases freight costs by coordinating shipments
 Helps an organisation produce the right quantity of products at the right

time, which, in turn, reduces inventory levels
 Synchronises the activities of logistics and manufacturing
 Increases budgeting capability by determining inventory and

transportation requirements under multiple planning situations
As mentioned earlier, the DRP system is an extension to the MRP system.

However, there is a wide difference between the two. Table 6.2 shows the
differences between DRP and MRP:
Table 6.2: Differences Between MRP and DRP
S. No. MRP DRP

1. An MRP system works on A DRP system functions on the
the basis of a production basis of market demand, which
schedule, which is prepared is not under the control of an
and controlled by an organisation.
organisation.
2. An MRP system helps an A DRP system helps an
organisation in coordinating organisation in coordinating

S. No. MRP DRP

materials in the between demand and supply
manufacturing system. sources.
3. An MRP system controls A DRP system controls
inventory until the inventory after the
manufacturing and assembly manufacturing and assembly of
processes of an organisation finished goods.
are complete.

20. The _____________ system extends the technique of MRP into the
physical distribution system of an organisation.
21. A _______ system functions on the basis of market demand, which is
not under the control of an organisation.
22. A _________ system helps an organisation in coordinating materials
in the manufacturing system.
23. A DRP system controls __________ after the manufacturing and
assembly of finished goods.
6.7 Just-in-Time (JIT) and Kanban

JIT is a strategy employed by an organisation to make continuous
improvement in its production process by manufacturing products on time;
neither too early nor too late. This helps an organisation to reduce wastes
and improve quality, thereby, decreasing inventory costs. Apart from this,
JIT helps an organisation to successfully execute all its manufacturing
activities, required to produce a final product.
JIT is considered to be a production philosophy, as it monitors the entire
production system. This philosophy works on three principles, which are:
Elimination of Wastes: Waste elimination is all about identifying non-value-
adding activities and removing them from the production process. Non-
value-adding activities (usually called wastes) are expensive for the
organisation and do not provide any benefit. According to the JIT approach,

there are certain types of wastes that should be eliminated from the
production process. These wastes are:
 Waste from overproduction
 Transportation waste
 Processing waste
 Waste from product defects
 Waste of waiting lines
 Inventory waste
Wastes are eliminated from the production process by identifying defects in

products and rectifying them.
Total Quality Management (TQM): TQM is a structured and integrated
approach that focuses on minimising errors in the manufacturing process
and streamlining supply chain activities, thereby, achieving higher customer
satisfaction and increasing employee productivity. TQM, along with JIT,
helps an organisation prevent the occurrence of defects in the product by
identifying the root cause of the problem, which may lead to defects. To do
so, an organisation needs to use several tools and techniques at the
different stages of production such as manufacturing, product development,
and purchasing.
Total Employee Involvement: JIT focuses on the participation of all the
employees of an organisation for the success of the system. This can be
done by providing proper training to employees regarding JIT.
NOTE:
The JIT system is also called ‘zero defects’ or ‘synchronous production’ or
‘stockless production’.
Activity 2:
Find out the different techniques of inventory control used by
manufacturing organisations.

6.7.1 Benefits of JIT

JIT helps an organisation in reducing inventory at different stages of
production. A low inventory level reduces the chances of damage, spoilage,
and obsolescence, of products. Apart from this, following are the benefits of
the JIT system:
Reduced Warehouse Costs: The JIT system reduces the storing cost of
inventory by decreasing the amount of inventory. The reduced level of
inventory may lead to decline in the number of warehouses of an
organisation.
Better Supply Chain Management: The JIT system enables an
organisation to handle its supply chain more effectively by receiving raw
materials on time for producing products. This further helps in delivering
products to customers within the defined time line. An efficient supply chain
reduces the overall cost of manufacturing, thereby, increasing the
competitive strength of an organisation.
High Customer Satisfaction: The implementation of the JIT system helps
in achieving higher customer satisfaction by reducing defects in products
and delivering products to customers on time.
6.7.2 Potential pitfalls of JIT

In spite of its many benefits, the JIT system may fail due to various reasons,
which are:
 Lack of knowledge about the JIT system
 Lack of resources
 Lack of top management support
 Lack of training of employees regarding the importance of the JIT

system
 Improper planning process and control system
6.7.3 Kanban
Kanban is a Japanese term used for ‘visual record'. It is an inventory control
system that was developed at Toyota in the 1950s by Taiichi Ohno.

According to him, Kanban is a means through which JIT is achieved. In

Toyota, it was used as a technique for managing the flow of materials on the
assembly line. Over the passage of time, Kanban has become a highly
effective method of production used by organisations to achieve a
competitive edge in the market.
Kanban is a simple and easy to understand approach that coordinates the
production plan of an organisation with that of its suppliers. Some of the
main advantages of Kanban are:
 Involves low cost for transferring information from one source to another
 Helps in responding quickly to changes
 Avoids over-capacity and over-production
 Eliminates wastes

24. _____________ is a strategy employed by an organisation to make
continuous improvement in its production process by manufacturing
products on time; neither too early nor too late.
25. JIT is considered to be a _______________ as it monitors the entire
production system.
26. _________ is all about identifying non-value-adding activities and
removing them from the production process.
27. _______ along with JIT helps an organisation prevent the occurrence
of defects in the product by identifying the root cause of the problem,
which may lead to defects.
28. The JIT system reduces the storing cost of inventory by
____________.
29. __________is a Japanese term used for ‘visual record'.
6.8 Product Data Management (PDM)

You must be aware of the fact that an organisation needs data in order to
make various business decisions. Similarly, to make the right decisions

related to product design and development, an organisation needs accurate

product data that can be retrieved as and when required.
PDM is a tool that helps an organisation manage product-related data
throughout the production process from the product design phase to the
shipping phase. This data includes technical specifications of the product,
manufacturing and product development specifications, and types of
materials required for manufacturing the product.
A PDM system is considered to be an important part of product-life-cycle
management. This is because, it helps an organisation in capturing and
maintaining data related to a product throughout its lifecycle. A PDM system
manages the following types of data:
 Number of parts
 Description of parts
 Vendors of materials
 Price of the product
 Schematic or CAD drawings
 Material data sheets
In order to manage and control product-related data, a PDM system carries

out two activities, namely, data management and process management. Let
us discuss these two activities in detail.
6.8.1 Data management

A manufacturing organisation needs to maintain detailed data related to
component parts and assemblies such as their shapes, sizes, weight, and
usage. This data needs to be organised in a manner that it can be easily
accessible whenever required. A PDM system helps the organisation
organise product-related data and store it at a reliable location, so that it can
be easily retrieved. To do so, a PDM system undertakes two activities,
which are:
Classification of Components: The components of a product are placed
under different classes in a database. These classes are further clubbed

under different heads. By doing so, an organisation can access the data
easily and quickly, as and when required.
Classification of Documents: Different documents related to assemblies
and components are classified as per their attributes such as number and
dates entered. This enables an organisation to retrieve the documents
related to different components easily.
6.8.2 Process management

Process management is all about using knowledge, skills, tools, and
techniques, in order to measure, control, and improve the performance of
business processes, with the aim of meeting customer requirements.
Process management encompasses three main activities, which are:
Work Management: A PDM system provides up-to-date product-related

data to engineers, thereby, managing all the tasks involved in the
manufacturing of a product.
Workflow Management: A PDM system helps an organisation manage

activities involved in product development. In addition, it provides a routing
list that includes the sequence of activities to be performed, while
developing a product. This list varies across different organisations.
Work History Management: A PDM system not only maintains a database

of the product that is currently being developed but also records the
activities involved at the different stages of product development for future
references. Thus, a PDM system acts as a potential source for product
audits.
6.8.3 Functions of PDM

As discussed earlier, a PDM system helps an organisation by providing
integrated, up-to-date information, related to a product. Apart from this, it
performs the following functions:
 Helps in making modifications in BOMs
 Validates data, before it is added to a database

 Tracks and links order revisions in MPS and MRP

 Prepares reports on upcoming engineering changes
6.8.4 Benefits of PDM

The following are the major benefits of a PDM system:
Reduced Time to Market: There are three factors that affect how fast an
organisation launches its product in the market. These three factors include
time consumed in performing production activities, time that gets wasted
between activities, and time taken in rework. A PDM system can help an
organisation reduce its time involved in launching a product by:
 Providing instant and accurate product-related data
 Facilitating concurrent task management
 Providing authorised access to data
Increased Productivity: A PDM system provides easy access to product-
related data, which, in turn, reduces the time taken in the product design
process. This ultimately increases the overall productivity of an organisation.
Improved Product Design and Manufacturing Accuracy: A PDM system

provides integrated and up-to-date data to all the individuals involved in the
manufacturing process. This helps in developing an effective product design
and reducing errors in the manufacturing process.
Better Use of Creative Team Skills: A creative team is one that is involved in
the product design and development process. It generates and implements
new and innovative ideas. A PDM system enables a creative team to:
 Reduce design rework and potential design mistakes
 Minimise the risk of failure
 Retrieve the required data
 Share ideas of solving a problem


30. _____________ is a tool that helps an organisation manage product-
related data throughout the production process from the product-
design phase to the shipping phase.
31. An organisation needs to organise data in a manner that it is easily
accessible whenever required. (True/False)
32. A PDM system provides easy access to system-related data, which,
in turn, reduces the time taken in the product-design process.
(True/False)
33. A _________ is one that is involved in the product design and the
development process.
6.9 Manufacturing Operations

Manufacturing operations can be of the following types:
 Make-to-Order (MTO) and Make-to-Stock (MTS)
 Assemble-to-Order (ATO)
 Engineer-to-Order (ETO)
 Configure-to-Order (CTO)
Let us discuss all these manufacturing operations in detail.
6.9.1 Make-to-Order (MTO) and Make-to-Stock (MTS)

In the MTO manufacturing operation, an organisation starts the
manufacturing of a product, once the order is placed by a customer. This
type of manufacturing operation is adopted by organisations competing on
the basis of product customisation. These organisations plan their
production process, based on the orders received from customers. MTO
manufacturing operations are mostly used in the software industry, wherein
product customisation is a major concern.
On the other hand, in an MTS manufacturing operation, an organisation

manufactures and stores the final product, before a customer places an
order. Organisations using the MTS operation deliver their products to

customers through retail outlets or distribution centres, and plan their

production process based on market analysis and demand forecasting. MTS
operations are generally used in the FMCG industry.
6.9.2 Assemble-to-Order (ATO)

In the ATO manufacturing operation, an organisation assembles the
different components of a product, after receiving an order from a customer.
The main components of a product are already manufactured and stocked
in anticipation of a customer order. For example, automobiles are
manufactured (as per the market demand) by assembling its different
components such as tires and seating system. In this case, the components
are already manufactured, assuming the future demand for automobiles.
6.9.3 Engineer-to-Order (ETO)

In the ETO operation, an organisation manufactures a product as per the
requirements of customers but at a higher price. In this type of operation,
even minute details related to the product are considered in order to better
serve the needs of customers. ETO manufacturing operation is mostly used
by software organisations.
6.9.4 Configure-to-Order (CTO)

In the CTO manufacturing operation, a customer selects a base product,
while placing an order. After that, all the variable features related to the
product are configured. A CTO manufacturing operation is based on the
demands of customers for specific products. This operation is used by
organisations that deal in the manufacturing of furniture items.

34. In the _______manufacturing operation, an organisation starts the
manufacturing of a product, once the order is placed by a customer.
35. In the ________manufacturing operation, an organisation
manufactures and stores the final product, before a customer places
an order.

36. Organisations using the MTS operation deliver their products to

customers through retail outlets or distribution centres, and plan their
production process based on market analysis and demand
forecasting. (True/False)
6.10 Summary
 An ERP system helps an organisation in minimising its manufacturing
costs, making the effective utilisation of resources, reducing production
errors, and maintaining on-time delivery performance. This is done by
providing up-to-date information about different manufacturing activities.
 CAD is an application used for creating, modifying, and analysing, the

design of a product.
 CAM is a computer-based application that controls the tools and

machinery, used for producing products.
 MRP is a system used for production planning and inventory control

purposes. This system provides several benefits to an organisation such
as maintaining an adequate level of inventory, planning and scheduling
purchasing and production activities, and making efficient allocation of
resources.
 MPS refers to a production schedule prepared on the basis of orders

placed by customers or the demand for products, or both. It provides
information about the finished products of an organisation.
 BOM refers to a hierarchical listing of materials, such as raw materials,

sub-assemblies, component parts, and sub-components, required for
producing a product.
 The closed-loop MRP system enables an organisation to complete its

production activities on time. This increases the production capacity of
the organisation.

 MRP II system is an extension of the closed-loop MRP system that is

used for managing the business activities of a manufacturing
organisation.
 The manufacturing and production planning module of an ERP system

integrates all software and hardware used for performing manufacturing
activities effectively.
 The DRP system extends the application of MRP into the physical
distribution system of an organisation. It facilitates an organisation to
plan orders within its supply chain.
 JIT is a strategy used by an organisation for controlling inventory and

producing products on time. This philosophy works on three principles,
namely the elimination of wastes, TQM, and total employee involvement.
Some of the benefits provided by the JIT system are reduced
warehouse costs, better supply chain management, and high customer
satisfaction.
 PDM is a tool used by organisations to manage the product-related data,

starting from product design to the shipping of the product. The benefits
of PDM are reduced time to market, increased productivity, improved
product design and manufacturing accuracy, and a better use of creative
team skills.
 Manufacturing organisations use different types of operations for

producing products. Some of these operations are MTO, MTS, ATO,
ETO, and CTO.
6.11 Glossary
Quantity Price Breaks: A reduction in the price of a product if the quantity
of an order placed exceeds a specified limit.

Lead Time: The time taken between the initiation and completion of the
production process.
Safety Stock: The inventory that is held as a buffer for future use.
Scrap: The small parts or pieces of materials left, after the product is
manufactured.
Time-phased Inventory: The distribution of inventory over an appropriate

time scale for the scheduled completion of the production plan.

1. Discuss the role of ERP in manufacturing.
2. Define MPS.
3. Write a short note on BOM.
4. What is DRP?
5. What are the benefits of the JIT system?
6. State the different functions of PDM.
7. Write a short note on process management.
8. Define the terms MTO and MTS.
6.13 Answers

1. True
2. True
3. Streamline
4. False
5. CAD
6. CAM

7. Automotive, aerospace
8. Product design capacity
9. MRP
10. MPS
11. BOM
12. Inventory records
13. Closed-loop MRP system
14. MRP II system
15. Availability of a product
16. The manufacturing and production planning module
17. Integrates
18. Forecasting
19. Demand management
20. DRP
21. DRP
22. MRP
23. Inventory
24. JIT
25. Production philosophy
26. Waste elimination
27. TQM
28. Decreasing the amount of inventory
29. Kanban
30. PDM

31. True
32. False
33. Creative team
34. MTO
35. MTS
36. True
Terminal Questions
1. An ERP system provides updated information to an organisation related
to the different manufacturing activities of the organisation. This
information helps an organisation to reduce manufacturing costs, make
optimal utilisation of resources, and decrease production errors. Refer
to Section 6.2 Role of ERP in Manufacturing, which discusses the
role of ERP in manufacturing.
2. MPS is a plan that contains information related to the finished products

to be produced by an organisation, when they are needed, and in what
quantities. Refer to Section 6.4 Materials Requirement Planning
(MRP), which defines MPS.
3. BOM is a hierarchical listing of subassemblies, intermediates, parts,

and raw materials, required to produce one unit of a final product. Refer
to Section 6.4.2 Bill of material, which explains BOM.
4. The DRP system helps in coordinating and controlling activities

associated with the distribution of products. Refer to Section 6.6
Distribution Requirements Planning (DRP), which defines DRP.
5. The JIT system has numerous benefits for an organisation. These

benefits include reduced warehouse costs, better supply chain
management, and high customer satisfaction. Refer to Section 6.7
Just-in-Time (JIT) and Kanban, which lists the benefits of the JIT
system.

6. PDM helps an organisation make alterations in BOM, authenticate the

available data, and prepare reports on upcoming engineering changes.
Refer to Section 6.8 Product Data Management (PDM), which states
the different functions of PDM.
7. Process management is an act of measuring, controlling, and improving

the business performance of an organisation by using the available
knowledge, skills, tools, and techniques. Refer to Section 6.8 Product
Data Management (PDM), which explains process management.
8. MTO is a type of manufacturing operation, wherein products are

produced after the orders are placed by customers, while in MTS
manufacturing operation, the final products are produced and stored
before the orders are placed by customers. Refer to Section 6.9
Manufacturing Operations, which discusses MTO and MTS
manufacturing operations.
6.14 Case Study: MRP II System Implementation at ABC Ltd.

ABC Ltd. is a manufacturing organisation that deals in home appliances.
The organisation has a customer base across the world. All its customers
have unique specifications with respect to the quality of materials and
physical attributes of products. Therefore, it is important for the organisation
to maintain customer data in a manner that it can be easily retrieved
whenever required. However, the organisation is dependent on paper work
with a detached legacy system for managing its operations, which are hard
to integrate and modify.
For managing its operations effectively, ABC wants to implement the MRP II
system. Before taking this decision, the organisation evaluated various ERP
systems available in the market, and found that they required lot of
customisation.

ABC Ltd. has purchased an MRP II system from a reputed vendor and
installed it. The system has integrated all the functions of the organisation’s
manufacturing plant such as materials receipts, inventory management,
production, marketing, finance, and shipping.
ABC Ltd. has received the following benefits after the implementation of the
MRP II system:
 Reduction in costs incurred for paper work
 Integration of different departments
 High Return on Investment (ROI)
 Quick response to customer queries
Questions
1. What was the need to replace the existing system of ABC with the MRP
II system?
2. What are the benefits received by ABC after the installation of the MRP
II system?

Planning.

E-references
 http://www.slideshare.net/sivasubramaniants/erp-for-manufacturing-
industry-4114054
 http://www.erppandit.com/Benefits-of-ERP-in-manufacturing-
industry.html

 http://www.osas.com/downloads/trav_drp_spec.pdf
 http://www.inventorysolutions.org/def_mrp.htm
 http://smallbusiness.chron.com/advantages-justintime-inventory-
systems-20997.html
 http://machinedesign.com/BDE/cadcam/bdecad4/bdecad4_1.html

Unit 7 ERP: A Purchasing Perspective
Structure
7.1 Introduction
Objectives
7.2 Role of ERP in Purchasing
7.3 Purchase Module
Features of purchase module
Benefits of purchase module
7.4 ERP Purchase System
7.5 Summary
7.6 Glossary
7.8 Answers
7.9 Case Study: Implementation of Solarsoft ERP Purchase System in
Eurospec Manufacturing
7.1 Introduction
In the previous unit, you studied about the role of an ERP system in
manufacturing. In this unit, let us discuss the importance of an ERP in
purchasing.
‘Purchasing’ is something you can’t do without. Not only you but
organisations also depend heavily on purchasing for running most of their
operations. Purchasing is an act of acquiring products and services at a
certain amount of money. From the manufacturing perspective, you can
define purchasing as a managerial activity that involves the right selection of
materials, supplies, machines, equipment, and tools required for producing
a product.

In order to purchase the right quality and quantity of materials, an

organisation follows a step-by-step approach. Firstly, it needs to identify the
requirements of materials to be purchased across the organisation. After
that, the organisation determines the availability of funds to purchase the
required materials. Next, it needs to select a suitable supplier to acquire the
required materials within the organisation’s budget. So, you can say that
purchasing is a comprehensive task for any organisation. To manage their
overall purchasing process, most organisations use an ERP system with
purchasing functionality.
The purchasing module of an ERP system provides complete purchasing
control to an organisation. It allows an organisation to generate and track
purchase orders quickly. The module also monitors the entire material
procurement process of an organisation from vendor quoting to final
payment of materials. This results in the elimination of manual purchasing
processes, reduced account, and improved vendor performance.
In this unit, you will study about the role of ERP in purchasing. Next, you will
be acquainted with the purchase module of an ERP system along with its
features and benefits. In the end, you will study about some important terms
related to the purchase module.
Objectives
 explain the role of ERP in purchasing
 state the features and benefits of ERP purchase module
 discuss the functions of ERP purchase module
7.2 Role of ERP in Purchasing

Now, you must be aware of the fact that purchasing is an important function
for every manufacturing organisation. A manufacturing organisation needs
to acquire raw materials for producing products. Considering the importance
of purchasing, most manufacturing organisations have a separate
purchasing department. In any manufacturing organisation, the cost of
materials ranges from 50-80 per cent of the product cost. Therefore, the

purchasing department should ensure the purchasing of the right quality of

materials in the right quantity from the right supplier at the right time by
spending the most economical cost. To do so, organisations implement an
ERP system with purchasing functionality.
An ERP system helps an organisation in making efficient purchase
decisions. It also allows an organisation to perform purchase-related
activities, such as supplier selection, order placement, order review, and
invoice generation, effectively. In addition, an ERP system enables an
organisation to have an integrated view of all purchase-related activities
performed by the different departments of an organisation, such as stores,
production, and finance. To perform these activities, an ERP system works
in association with a purchase module. Let us study about the purchase
module of an ERP system in detail.

1. A manufacturing organisation needs to acquire raw materials for
producing products. (True/False)
2. In any manufacturing organisation, the cost of materials ranges from
_______ per cent of the product cost.
3. An ERP system enables an organisation to have an _______ view of
all purchase-related activities performed by the different departments
of an organisation.
Activity 1:
With the help of the Internet, make a list of the raw materials used in
producing the following products:
Shoes, bags, notebook, pen
7.3 Purchase Module

You have already studied about the importance of purchasing materials in
the previous section. Intense competition and adverse economic conditions
have created a need for effective purchase management. Earlier, the
purchase management function of organisations was confined to the

procurement of a sufficient amount of raw materials in a timely manner.

However, in recent years, the purchase management function also involves
ensuring the right quality and quantity of materials. This ultimately helps an
organisation in producing a high quality output, preventing the shortage or
excess of stock, thereby avoiding delays in product delivery.
The purchase module of an ERP system supports the overall purchasing

function of an organisation starting from purchase requisition to the final
payment of raw materials. The module also helps an organisation in
searching prospective suppliers, negotiating prices, placing and tracking
orders, and preparing invoices. In this way, the purchase module
streamlines the overall procurement process of an organisation. To do so,
the module maintains data related to the purchase of raw materials.
The purchase module is closely integrated with production planning and

inventory control modules. It also works in integration with the finance
module while performing activities, such as order verification, and payment
settlement. In addition, the module can work with traditional and automated
procurement processes and a comprehensive information pool.
7.3.1 Features of purchase module

The purchase module enhances the overall purchase function of an
organisation. This module is capable of performing activities, such as
vendor evaluation, order placement, order tracking, and invoicing. The
following are the major features of this module:
Database Management System: The purchase module maintains all data

related to the purchasing of materials. The module also allows an
organisation to modify the data and retrieve it as and when required.
Flexibility: The purchase module of an ERP system is quite flexible as it

readily adapts to changes that take place in the business environment.
Integrated Approach: The purchase module works with other modules,

such as production planning, inventory control, and finance modules.

Automation: The purchase module automates the generation, modification,

and cancellation of purchase orders based on the production plan and
schedule.
7.3.2 Benefits of purchase module

The following are the benefits of the purchase module of an ERP system:
 Minimises manual operations and paperwork.
 Helps in reducing inventory levels through efficient inventory

management, thereby reducing overall inventory cost.
 Helps in preventing unnecessary delays in production by keeping track

on the available inventory.
 Evaluates the performance of the existing vendors and identifies

potential vendors.
 Maintains data related to purchasing activities and updates it from time

to time.
 Maintains effective coordination among the members of a supply chain.
 Generates receipt notes and invoices.
Activity 2:
Visit a footwear manufacturing organisation and find out the materials
required for the manufacturing of shoes.

4. The ________ module of an ERP system supports the overall
purchasing function of an organisation starting from purchase
requisition to the final payment of raw materials.
5. The purchase management function of organisations is only confined
to the procurement of a sufficient amount of raw materials in a timely
manner. (True/False)
6. The purchase module is closely integrated with _______ and
_______ modules.

7. The purchase module ________ the generation, modification, and

cancellation of purchase orders based on the production plan and
schedule.
8. The purchase module helps in reducing inventory levels through
efficient inventory management, thereby reducing overall inventory
cost. (True/False)
7.4 ERP Purchase System

Now that you are aware of different features of the purchase module of an
ERP system, let us discuss some of the important terms related to the
purchase module. These terms are:
Purchase Requisition: It is a document that is generated to inform the
purchasing department about the need of materials to be ordered
(purchased). This document is created after considering the requirements of
all the departments of an organisation. A purchase requisition also specifies
the quantity of items required and the timeframe. The purchase module
saves the time and effort of an organisation by efficiently handling the tasks
related to the purchase requisition. The module can automatically copy the
previous requisition in case the requirements are repetitive.
NOTE:
A purchase requisition is also called ‘purchase request.’
Purchase Requisition Review: After the requisition is created, it is sent for

approval to the purchase department. The purchase module helps the
purchase department in verifying the requisition by comparing the
requirements for materials identified with the total amount of materials
available in the organisation.
Order Placement: After the purchase requisition is approved, the purchase
department needs to search for an appropriate supplier to place the order.
The purchase module enables the purchase department to identify the right
supplier. Moreover, it automatically generates a new purchase order or
allows the purchasing department to modify the previous order.

Material Receipt and Inspection: The purchase module simplifies the

entire process of material receipt by supporting the activities, such as order
tracking, material inspection, and recordkeeping. After the order is received,
the purchase module also enables the purchasing department to verify
whether the order received is as per the requirements.
Order Acceptance/Return: After the inspection of materials received, the
order may either be accepted or returned back to the supplier. The order is
returned in case there happens to be a mismatch between the quality or
quantity of materials required and received. However, the material can be
returned only before invoicing. The purchase module helps in inspecting the
materials before they are accepted.
Invoicing: If the order is accepted, the invoice is prepared for the
concerned purchase order. The purchase module enables the purchase
department to prepare the invoice by matching the cost, quality, and
quantity of materials accepted and ordered.
Record Keeping and Report Generation: The purchase module of an
ERP system stores data related to purchasing so that it can be easily
retrieved whenever required. Using this data, the module generates reports
that help managers in making purchase-related decisions.

9. Purchase requisition is a _________ that is generated to inform the
purchasing department about the need of materials to be ordered
(purchase).
10. After the order is received, the purchase module enables the
purchasing department to _______ whether the order received is as
per the requirements.
11. After the inspection of the materials received, the invoice is prepared
for the concerned purchase order. (True/False)
12. Materials can only be returned after invoicing. (True/False)

7.5 Summary
 Purchasing refers to the procurement of products and services at a
particular amount. In manufacturing organisations, purchasing is defined
as an activity of selecting the right materials, supplies, machines,
equipment, and tools required for producing a product.
 An ERP system helps an organisation in making efficient purchase

decisions. It also allows an organisation to perform purchase-related
activities, such as supplier selection, order placement, order review, and
invoice generation, effectively.
 The purchase module of an ERP system is flexible, integrated software

used for managing data related to the purchasing activities and
automating the generation, modification, and cancellation of purchase
orders as per the production plan and schedule.
 The purchase module is closely integrated with the production planning,

inventory control, and finance modules of the ERP system.
 The important terms related to the purchase module are purchase

requisition, purchase requisition review, order placement, material
receipt and inspection, order acceptance/return, invoicing, record
keeping, and report generation.
 The purchase module of an ERP system provides several benefits to an

organisation, such as minimisation of manual operations and paperwork,
reduction in inventory levels through efficient inventory management,
and effective coordination among the members of a supply chain.
7.6 Glossary
Invoice: It is a document contains information related to the purchased
materials.

Prospective Suppliers: Those suppliers from whom an organisation is

likely to purchase materials.
Negotiation: It is a discussion that takes place between two parties in order
to decide a mutually agreed price of a thing.

1. Explain the role of ERP in purchasing.
2. What are the responsibilities of a purchasing department?
3. What are the features of the purchase module?
4. Explain the benefits of the purchase module?
5. Write a short note on purchase requisition.
6. What do you mean by order placement?
7. Discuss the importance of invoicing.
8. Write a short note on material receipt and inspection.
7.8 Answers

1. True
2. 50-80
3. integrated
4. purchase
5. False
6. production planning and inventory control
7. automates
8. True
9. document
10. verify

11. False
12. False
Terminal Questions
1. An ERP system enables an organisation to perform purchase-related
activities effectively. These activities include supplier selection, order
placement, order review, and invoice generation. Refer to Section 7.2
Role of ERP in Purchasing, which explains the role of ERP in
purchasing.
2. The purchasing department of an organisation is responsible for
managing and controlling the purchasing function. Refer to Section 7.2
Role of ERP in Purchasing, which explores the responsibilities of a
purchasing department.
3. The purchase module has various features, such as database
management system, flexibility, integrated approach, and automation.
Refer to Section 7.3 Purchase Module, which lists the features of the
purchase module.
4. The purchase module provides various benefits to an organisation,
such as minimisation of manual operations and paperwork, reduction in
inventory levels, and effective coordination among supply chain
members. Refer to Section 7.3 Purchase Module, which discusses
the benefits of the purchase module.
5. A purchase requisition is a document that is prepared to communicate
the need of materials to be purchased to the purchasing department.
Refer to Section 7.7 ERP Purchase System, which explains the term
purchase requisition.
6. After the purchase requisition is approved, an appropriate supplier
needs to be selected for placing an order. Refer to Section 7.4 ERP
Purchase System, which discusses about order placement.
7. When the order is accepted, a bill is generated for the respective

purchase order. This bill is called invoice. Refer to Section 7.4 ERP
Purchase System, which explains the importance of invoicing.

8. Material receipt involves receiving and tracking the order, while

inspection includes verifying whether the received order is as per the
requirements. Refer to Section 7.4 ERP Purchase System, which
explains material receipt and inspection.
7.9 Case Study: Implementation of an ERP Purchase System in

Eurospec Manufacturing
Eurospec Manufacturing is a full-service supplier of stamped metal parts.
Founded in 1985, the organisation has a staff of more than 140 employees.
Eurospec’s client base includes some of the renowned organisations in the
automotive industry throughout North America.
Eurospec had been using an ERP solution for more than a decade.
However, the advent of new technologies and intense competition in the
market compelled Eurospec to replace its old ERP solution with an
advanced one. Consequently, the organisation selected Solarsoft iVP to
manage its business functions efficiently. Solarsoft iVP has proved to be a
complete package for Eurospec. It automates and controls all the business
functions of the organisation. Apart from this, Solarsoft iVP helps Eurospec
in the following ways:
 Determining an optimum order quantity and number of lots by examining
all the relevant suppliers and rebates available.
 Generating automated purchase orders supported by material planning

and forecasts.
 Keeping records of historical data that can be easily accessed.
 Performing functions like order tracking, invoice verification, and

payment of suppliers.
The Materials and Procurement Manager of Eurospec, Peter Gismondi,

remarks this change as an effective investment decision of the organisation.
He also added that the old system of Eurospec lacked integration approach
and required a lot of manual work.

Questions:
1. Discuss some unique features of Solarsoft ERP software.
2. Do you think the implementation of Solarsoft ERP software is a
profitable investment made by Eurospec Manufacturing?

Planning.

E-References
 http://www.scribd.com/doc/27665424/ERP-Purchase-module
http://samooha.sourceforge.net/pages/modules/purchase-module.html
 http://www.acgil.com/products/purchase2.htm
 http://www.solarsoft.com/history/roots/

Unit 8 ERP: Sales and Distribution Perspective
Structure
8.1 Introduction
Objectives
8.2 Role of ERP in Sales and Distribution
8.3. Sub-Modules of the Sales and Distribution Module
Master data management
Order management
Warehouse management
Shipping and transportation
Billing and sales support
Foreign trade
8.4 Integration of Sales and Distribution Module with Other Modules
8.5 Summary
8.6 Glossary
8.8 Answers
8.9 Case Study: Implementation of FFX Sales and Distribution Module
at ABC Private Ltd.
8.1 Introduction
In the previous unit, you have studied the importance of ERP system in
purchasing. In this unit, let us study the role of ERP system in sales and
distribution.
To keep pace with dynamic changes in the business environment,
organisations not only need to have the best product but focus on their core
com

petencies. An efficient sales and distribution process is a key to ensure

increased competitive strength, higher profit margins, and quality customer
service for an organisation. For this, an organisation needs to have an
integrated and flexible system that supports all the aspects of their sales
and distribution process.
The sales and distribution module of an ERP system automates the overall
sales and distribution process of an organisation. This module is closely
integrated with the other modules of an ERP system, such as marketing,
production, and finance. This integration helps an organisation in developing
a detailed logistics plan to maintain just-in-time deliveries. Apart from this,
the sales and distribution module allows an organisation to generate sales
orders and invoices, provide quick response to customers’ queries, and
check credit limits.
In this unit, you will study about the role of ERP in sales and distribution.
You will also study about the different sub-modules of the sales and
distribution module, such as master data management, order management,
and warehouse management. In the end, you will be familiarised with the
integration of sales and distribution module with other modules of an ERP
system.
Objectives
 discuss the role of ERP in sales and distribution
 explain different sub-modules of the sales and distribution module
 evaluate the integration of sales and distribution module with other
modules
8.2 Role of ERP in Sales and Distribution

You have already studied in the previous units that sales is the primary
source of revenue for an organisation. An organisation generates revenue
by selling its products and services. These products and services are
passed through an extensive distribution network before they reach the end
users. This distribution network involves wholesalers, retailers, and
commission agents. An effective distribution network helps in delivering the

right product to the right customer at the right time. This ultimately helps in
increasing the sales and profit of an organisation.
To achieve higher sales volume and profit margins, most organisations
implement an ERP system with sales and distribution functionality. The
sales and distribution module of an ERP system helps an organisation in
performing the following functions:
 Preparing an effective logistics plan for Just-in-Time (JIT) deliveries.
 Processing sales and purchase orders.
 Providing quick response to customers’ queries.
 Monitoring sales transactions.
 Ensuring the availability of resources.
 Transferring sales order requirements to Materials Requirement

Planning (MRP) system.
 Maintaining on-time delivery performance.
 Determining pricing and taxes associated with product delivery.
 Checking credit limits.
 Generating work orders and invoices.

1. Sales is the primary source of revenue for an organisation.
(True/False)
2. A ___________ involves wholesalers, retailers, and commission agents.
3. An effective distribution network helps in delivering the right product
to the right customer at the right time.(True/False)
Activity 1:
With the help of the Internet, find out the benefits provided by an ERP
system to a wholesaler.

8.3 Sub-Modules of the Sales and Distribution Module

Sales is a comprehensive function of an organisation that involves a number
of activities, such as order management, shipping, and invoicing. The sales
and distribution module enables an organisation to perform these activities
with the help of its different sub-modules. Figure 8.1 shows the different
sub-modules of the sales and distribution module:
Master data
management
Order
Foreign trade
management
Sub-modules of the
sales and distribution
module
Billing and sales Warehouse

support management
Shipping and
transportation
Figure 8.1: Different Sub-Modules of the Sales and Distribution Module
8.3.1 Master data management

Master data, also called reference data, plays a key role in executing the
operations of an organisation. It involves details related to every resource

and stakeholder of an organisation, such as customers, employees,

inventory, and suppliers. Master data management is a method that
involves linking all critical data of an organisation in a single file called
master file. This file is accessible to different users across the organisation.
The master data management module helps an organisation in maintaining
its master data and storing it in such a manner so that it can be easily
accessible. In sales and distribution, the master data management module
is used to maintain data related to customers, sales orders, products, and
suppliers. This data helps in solving customer queries, forecasting sales,
formulating a sales plan, generating sales orders and invoices, and tracking
supplier activities.
8.3.2 Order management

You often hear the term ‘order’ while studying about the sales and purchase
functions of an organisation. An organisation places or receives different
types of orders, such as purchase order and sales order. For example, as a
customer, you place an order for products that you need. Such type of order
is received by an organisation and is known as sales order. An organisation
receives or places orders in bulk. Therefore, it is necessary for an
organisation to manage its orders effectively in order to carry out its
operations smoothly. To do so, most organisations use the order
management module.
The order management module enables an organisation to manage its
order placement function effectively. Broadly, there are two types of order
management modules, which are:
Sales Order Management: This module helps an organisation to perform
its sales activities effectively. In addition, it allows an organisation to
manage its sales orders, contracts, and customer discounts. The module
also ensures the on-time delivery of products to customers.
Purchase Order Management: This module helps an organisation in
performing activities, such as on-time purchase requisition, contract
management, vendor selection and management, and rate negotiation.
Moreover, the module allows an organisation to keep track on the activities
of vendors and manage purchase orders.

8.3.3 Warehouse management

The warehouse management module provides up-to-date information
related to the inventory levels of an organisation. In addition, it provides
tools for managing the daily operations of a warehouse. The module also
integrates the warehouse functions of an organisation with its different
departments.
An effective warehouse management module is able to satisfy the needs of
a warehouse, such as proper space, safety of employees, and prevention of
inventory from wastage or spoilage. For this, the warehouse management
module works in association with its different components. These
components are:
Inventory Planning: It helps an organisation in planning its inventory
requirements effectively. This can be done by accurate forecasting of
market trends and adjustment of reordering points, safety stock, lead-times,
and service levels.
Inventory Handling: It enables an organisation to monitor all its warehouse
activities, such as the receipt, issue, and transfer of inventory.
Inventory Reporting: It tracks inventory available at different places in the
organisation. In addition, it provides an organisation with different tools to
determine and communicate accurate product delivery dates to customers.
Inventory Analysis: It enables an organisation to determine an optimum
level of inventory, thereby preventing the excess and shortage of inventory.
8.3.4 Shipping and transportation

The shipping and transportation module enables an organisation to perform
its shipping and transportation activities effectively. Apart from this, the
module helps an organisation to:
 Provide exact delivery dates to customers.
 Plan and monitor work lists for shipping activities.
 Ensure the availability of materials.
 Process outstanding orders.

 Facilitate effective shipping and transportation planning.
 Determine foreign trade requirements.
 Update data related to arrival of materials and delivery of products.
8.3.5 Billing and sales support

The billing and sales support module helps an organisation to perform billing
functions, such as generation of invoices, termination of billing transactions,
and transfer of billing data to financial accounting.
Apart from this, the billing and sales support module records and
administers orders received from customers. It also helps an organisation to
make timely delivery of products to customers, thereby retaining customers
and improving customer service.
8.3.6 Foreign trade

In today’s globalised market, it has become important for organisations to
carry out their business in the international market. Consequently, most
organisations have started exporting their products to other countries and
importing raw materials from them. Therefore, it has become essential for
an organisation to handle its foreign trade activities effectively.
The foreign trade module of an ERP system allows an organisation to meet
the changing requirements of foreign trade. Apart from this, the following are
some of the important functions of the foreign trade module:
 Handling import and export activities.
 Fulfilling the license requirements for foreign trade.
 Automating the foreign trade reporting system.
 Providing up-to-date data related to foreign trade activities.

4. ___________ plays a key role in executing the operations of an
organisation.
5. The __________ helps an organisation in maintaining its master data
and storing it in such a manner so that it can be easily accessible.

6. An organisation places or receives different types of orders, such as

purchase order and sales order. (True/False)
7. The __________helps an organisation in performing activities, such
as on-time purchase requisition, contract management, vendor
selection and management, and rate negotiation.
8. The warehouse management module provides up-to-date information
related to the inventory levels of an organisation. (True/False)
9. __________helps an organisation in planning its inventory
requirements effectively.
10. Shipping and transportation constitutes an important part of an
organisation’s____________.
11. The ____________of an ERP system allows an organisation to meet
the changing requirements of foreign trade.
8.4 Integration of Sales and Distribution Module with Other

Modules
You have already studied that all the modules of an ERP system work in
coordination with each other, thereby enhancing business decision making.
Similarly, the sales and distribution module is integrated with other modules,
such as production, accounting, and marketing. This integration helps an
organisation keep track on the activities of all its departments and make
decisions accordingly. Figure 8.2 shows the integration of the sales and
distribution module with other modules:
Figure 8.2: Integration of Sales and Distribution Module with

Other Modules

As shown in Figure 8.2, the sales and distribution module of an ERP system
has been integrated with its different modules. For example, integrating the
sales and distribution module with the production planning module would
help the organisation in determining the requirements of customers and
producing products accordingly. Similarly, if the sales and distribution
module is integrated with the financial accounting module, it would help the
organisation to estimate the cost incurred on the production and distribution
of products.
The integration of sales and distribution module leads to improved customer
service and enhanced business performance of an organisation.

12. All the modules of an ERP system work in coordination with each
other, thereby enhancing business decision making.(True/False)
13. The sales and distribution module is integrated with other modules,
such as production, accounting, and marketing. (True/False)
14. The integration of sales and distribution module leads to improved
customer service and enhanced business performance of an
Activity 2:
Find out the importance of integrating the sales and distribution module
with the materials management module.
8.5 Summary
 Organisations implement the sales and distribution module of an ERP
system to achieve higher sales volume and profit margins. This module
automates the overall sales and distribution process of an organisation.
 The different sub-modules of the sales and distribution module are
master data management, order management, warehouse
management, shipping and transportation, billing and sales support, and
foreign trade.

 The master data management module enables an organisation to

maintain data related to customers, sales orders, products, and
suppliers. This data further helps the organisation to take decisions with
respect to the procurement of materials, sales, and distribution of
products and retention of customers.
 Organisations use the order management module for performing its
sales and purchasing activities effectively. This module can be
categorised into two types, namely sales order management and
purchase order management.
 The warehouse management module enables an organisation to
perform its warehouse operations effectively by providing up-to-date
information about its inventory levels. This module works in association
with its different components, such as inventory planning, inventory
handling inventory reporting, and inventory analysis.
 The shipping and transportation module helps an organisation in
performing its shipping and transportation activities effectively.
 Organisations use the billing and sales support module for receiving,
recording, and monitoring the orders placed by customers. The billing
and sales support module enables organisations to make timely delivery
of products to customers, thereby retaining the customers.
 The foreign trade module of an ERP system is used to meet the
changing requirements of foreign trade and provide products to
customers accordingly.
 The sales and distribution module is integrated with other modules of an
ERP system, such as production, accounting, and marketing for the
smooth flow of information in different departments so as to take
effective business decisions.
8.6 Glossary
Master data: A data that plays a vital role in the execution of different
processes of an organisation.

Inventory Planning: A process in which a plan is prepared for determining

the inventory requirements of an organisation.
Inventory Handling: A process of monitoring the different warehouse
activities of an organisation, such as receipt, issue, and transfer of
inventory.
Inventory Reporting: A process in which an organisation tracks inventory
available at different places of the organisation.

1. Discuss the role of ERP in sales and distribution.
2. Name the sub-modules of the sales and distribution module.
3. Define master data management.
4. What is order management?
5. Write a short note on warehouse management.
6. Explain the importance of shipping and transportation sub-module.
7. Elaborate on the foreign trade module.
8. Discuss the integration of the sales and distribution module with other
modules.
8.8 Answers

1. True
2. distribution network
3. True
4. Master data
5. master data management module
6. True
7. purchase order management module

8. True
9. Inventory planning
10. supply chain
11. foreign trade module
12. True
13. True
14. True
Terminal Questions
1. An ERP system helps an organisation in performing sales and
distribution activities effectively, thereby attaining higher sales volume
and profit margins. Refer to 8.1 Role of ERP in Sales and Distribution,
which discusses the role of ERP in the sales and distribution process.
2. The sub-modules of the sales and distribution module are master data
management, order management, warehouse management, shipping
and transportation, billing and sales support, and foreign trade. Refer to
Section 8.2 Sub-Modules of the Sales and Distribution Module, which
lists the different sub-modules of the sales and distribution module.
3. Master data management is an activity of managing all critical data of
an organisation into a single file called the master file. Refer to
Section 8.2 Sub-Modules of the Sales and Distribution Module, which
defines master data management.
4. Order management, one of the most important functions of an
organisation, involves receiving sales orders from customers and
managing these orders so that the organisation can deliver the products
as per the requirements of customers. Refer to Section 8.2 Sub-
Modules of the Sales and Distribution Module, which explains the term
order management.
5. Warehouse management is a process of meeting the requirements of a
warehouse. It involves inventory planning, handling, reporting, and
analysis. Refer to Section 8.2 Sub-Modules of the Sales and
Distribution Module, which explains the term warehouse management.

6. The shipping and delivery sub-module helps an organisation to deliver

products to customers at the right time and in the right quantity. Refer to
Section 8.2 Sub-Modules of the Sales and Distribution Module that
elaborates on the importance of the shipping and transportation sub-
module.
7. The foreign trade sub-module enables an organisation to handle export
and import activities, fulfil licensing requirements, and get up-to-date
information on foreign markets. Refer to Section 8.2 Sub-Modules of
the Sales and Distribution Module, which explains the foreign trade
module.
8. The sales and distribution module is combined with the other modules,
such as production, accounting, and marketing, of an organisation in
order to keep track on the activities of all its departments and make
decisions accordingly. Refer to Section 8.3 Integration of Sales and
Distribution Module with Other Modules, which discusses the
integration of sales and distribution module with other modules of an
ERP system.
8.9 Case Study: Implementation of FFX Sales and Distribution

Module at ABC Private Ltd.
ABC Private Ltd. is one of the leading manufacturers of toys and games in
India. Its product line includes talent blocks, colour strokes, and doctor sets.
The organisation has expanded its operations in the international market.
Over a passage of time, ABC has been facing the following issues:
 Unorganised sales and distribution activities
 Increase in wastage and scrap
 Increase in total cost of production
 Delays in the delivery of products
Considering the situation, the Chief Executive Officer (CEO) of ABC has
called a meeting with the heads of all the departments of an organisation. In
the meeting, it has been found that the organisation is not able to handle its
sales and distribution function properly. In order to resolve the
abovementioned issues, the organisation has decided to implement FFX

Sales and Distribution Tool from XYZ International. This tool has helped
ABC in the following ways:
 Managing the sales and distribution activities effectively.
 Making on-time delivery of products to its customers.
 Getting up-to-date information related to sales and distribution.
 Facilitating centralisation of decisions.
Questions:
1. What was the need of implementing a sales and distribution module in
ABC?
2. How did FFX Sales and Distribution Module help ABC?

Planning.
E-References
 http://www.eresourceerp.com/ERP_for_Sales_Management.html
 http://www.erptips.com/Learn-SAP/SAP-Module-Overviews/Sales-and-
Distribution-SD.html
 http://en.wikipedia.org/wiki/Master_data_management
 http://www.magentocommerce.com/product/features/order-
management/view
 http://www.manh.com/solutions/distribution-management/warehouse-
management
 http://www.dole.com/shippingandtransportationinformation/tabid/1179/D
efault.aspx
 http://scn.sap.com/thread/2069828

Unit 9 ERP: An Inventory Management Perspective
Structure
9.1 Introduction
Objectives
9.2 Role of ERP in Inventory Management
Features of ERP inventory management system
Benefits of ERP inventory management system
Limitations of ERP inventory management system
9.3 Importance of Web ERP in Inventory Management
9.4 ERP Inventory Management Module
9.5 Sub-Modules of the ERP Inventory Management Module
9.6 Installation of ERP Inventory Management System
9.7 Failure of ERP Inventory Installation
9.8 Summary
9.9 Glossary
9.11 Answers
9.12 Case Study: Inventory Management at Boeing
9.1 Introduction
In the previous unit, you studied how important an ERP system is in
performing the sales and distribution activities in an organisation. In this
unit, let us get acquainted with the significance of an ERP system in
managing inventory.
You often hear the term ‘inventory’ while talking about the production or
sales process of an organisation. Inventory refers to the total amount of
materials or goods maintained by an organisation for production and sales

purposes at a given point of time. Broadly speaking, inventory can be of

three types, namely raw materials, work-in-progress, and finished goods.
Raw materials are the items that an organisation needs to convert into
output. Work-in-progress includes items that are currently in the process of
production and are partly manufactured. Finished goods are the items that
have been produced but not yet sold. All the three types of inventories are
high-value assets for an organisation. Thus, it is important for an
organisation to manage its inventory properly.
Inventory management is all about supervising the inflow and outflow of the
inventory of an organisation. Effective inventory management is integral to
successful business operations. This is because, excessive amount of
inventory may incur high cost for an organisation, while inadequate
inventory hampers the production process of the organisation. Inventory
management is a complex process and involves a number of activities.
Therefore, in order to manage their inventory efficiently, most organisations
use an ERP system with an inventory management module.
The inventory management module controls the overall inventory
management process of an organisation. The module helps an organisation
to track the movement of inventory. The inventory management module is
fully integrated with the other modules of an ERP system, thereby, providing
real-time inventory information to all business areas.
In this unit, you will study about the role of ERP in inventory management,
along with its features, benefits, and limitations. Next, you will study about
Web ERP, its features, and benefits. After that, you will be familiarised with
the importance of inventory management module of an ERP system. In the
end, you will get an overview of the common sub-modules of the ERP
inventory management module.
NOTE:
In this unit, the terms ‘inventory’, ‘materials’, and ‘stock’ have been used
interchangeably.

Objectives
 explain the role of ERP in inventory management
 discuss the importance of Web ERP along with its features and benefits
 state the functions of the ERP inventory management module
 describe the sub-modules of the inventory management module
9.2 Role of ERP in Inventory Management

You have already studied how important it is for an organisation to manage
its inventory. In order to improve its inventory management process, an
organisation uses an ERP system with inventory management functionality.
Let us now study about the role of the ERP inventory management system
in an organisation.
The inventory management process of an organisation includes various
activities. Some of these activities are:
 Identifying stock requirements
 Determining the production schedule
 Implementing techniques of information sharing
 Monitoring the inflow and outflow of inventory
 Coordinating with suppliers for maintaining an optimum inventory level
 Generating an inventory report and communicating it to the procurement

department
An organisation can perform all these activities efficiently by using the ERP
inventory management system. This system is able to integrate all the
business processes of an organisation. The ERP inventory management
system reduces paper work and facilitates quick information sharing in an
organisation. This system also reduces the time gap between material
requirement and material acquisition in an organisation.

Apart from this, the ERP inventory management system is able to

automatically update variations in inventory levels. By doing so, the system
enables an organisation to ensure the timely availability of inventory in all of
its stores. Let us now discuss the features and benefits of the ERP inventory
management system in detail.
9.2.1 Features of ERP inventory management system

Following are some important features of the ERP inventory management
system:
 It is an organisation-wide system that improves the overall efficiency of
an organisation.
 It involves quality-check parameters to identify the desired quality level

of materials.
 It performs continuous inventory analysis, thereby, maintaining the

optimum stock level.
 It performs extensive inventory monitoring by taking into account the

rate of inventory consumption.
 It automatically updates the status of stock on-hand, reserved stock,

ordered stock, defective and rejected stock, etc.
 It makes use of bar codes while managing inventory, thereby, facilitating

easier inventory tracking.
NOTE:
In an ERP system, the bar code of a material is entered as stock-item-
information. This makes it easier to communicate stock-related details
among the different department of an organisation.
9.2.2 Benefits of ERP inventory management system

The main advantage of the ERP inventory management system is that it
integrates all the departments and branches of an organisation located in
different parts of the world. Apart from this, following are some of the other
benefits of the ERP inventory management system:

 It enables an organisation to consistently track the level of inventory

available, thereby, planning the stock to be purchased.
 It helps in tracking the movement of materials in an organisation.
 It facilitates effective communication within and outside the organisation.
 It provides details of all the activities involved in the inventory

management process of an organisation.
 It provides reliable information related to the current inventory level, the

amount of inventory required, etc.
In this way, the ERP inventory management system increases the overall
efficiency of an organisation. However, there are certain limitations of the
ERP inventory management system. Let us discuss these limitations in
detail.
9.2.3 Limitations of ERP inventory management system

Some of the main limitations of the ERP inventory management system are
as follows:
 It cannot be fully customised according to the different requirements of
an organisation.
 It requires high cost, time, and effort, of an organisation.
 It requires past data and proper user training for its installation, which
makes it a complex task.
 It is less effective for information sharing, unless users are willing to

share information.

1. In order to improve its inventory management process, an
organisation uses an ERP system with _________ management
functionality.
2. The inventory management process of an organisation does not
include monitoring the inflow and outflow of inventory. (True/False)

3. The ERP inventory management system ______ paper work and

facilitates quick information sharing in an organisation.
4. The ERP inventory management system makes use of _______
while managing inventory, thereby, facilitating easier inventory
tracking.
Activity 1:
Find the importance of the ERP inventory management system in a retail
store.
9.3 Importance of Web ERP in Inventory Management

Web ERP is a Web-based system that enables an organisation to manage
all its business processes efficiently. It is an open-source system that can
be downloaded free of cost from the Internet. Moreover, an organisation can
customise this system and add features that best match its requirements.
To support the different business processes of an organisation, the system
requires a Web browser and a PDF reader. Let us discuss the importance of
Web ERP in inventory management.
Web ERP allows an organisation to monitor its inventory at any point of time
from any location. It is capable of providing accurate information related to
inventory such as the amount of inventory available, ordered, and sold. The
system can be linked with suppliers, transporters, and various other third-
party organisations with the help of an interactive point-of-sale system. Let
us discuss the features and benefits of Web ERP in detail.
The following are the benefits of Web ERP in inventory management:
 It is a user-interactive software that is completely based on the Web.
 It is compatible with all types of Web browsers and Web-enabled
systems.
 It provides reports in various languages, depending on user
requirements.
 It is able to track the activities of multiple warehouses at different
locations.

 It can automatically calculate estimated transportation costs.

 It maintains complete details of stock movement from its purchase till its
release.
 It provides specifications of invoices or credit notes issued for each
purchase order, along with stock movement details.
 It maintains the history of stock usage on a monthly basis.
 It maintains details of the Internal transfer of stock.
 It can calculate the cost of materials purchased and show its value in
different currencies.
 It helps in planning inventory, based on material usage at present, and
in the previous months.
 It prevents unauthorised access to system data through various security
codes and passwords.
 It helps in scheduling and controlling the inventory.
 It ensures the timely availability of inventory for Just-in-Time (JIT)
production.

5. Web ERP is a ________ system that enables an organisation to
manage all its business processes efficiently.
6. Web ERP is an open-source system. (True/False)
7. Web ERP can be downloaded after paying a certain cost.
(True/False)
8. Web ERP ensures the timely availability of inventory for JIT
production. (True/False)
9. Web ERP allows an organisation to monitor its inventory at any point
of time from any location. (True/False)
10. Web ERP provides reports in different languages. (True/False)

9.4 ERP Inventory Management Module

The inventory management module of an ERP system enables an
organisation to efficiently maintain the optimum level of inventory available
in its warehouse. The following are some of the major functions of this
module:
Material Requisition Management: The inventory management module
maintains the information related to the inventory requirements, identified by
the different departments of an organisation.
Inventory Release Details: The inventory management module maintains
a record of the type of materials issued, in what quantity, at what time, and
to which department.
Particulars of Stock Receipt: The inventory management module keeps a
record of when a particular material was received to be inventoried. It also
records the qualitative and quantitative specifications of materials at the
time of their receipt.
Record of Internal Material Transfers: Sometimes organisations transfer
materials to their other units due to a number of reasons like cost saving,
prevention of wastage, etc. Such types of transfers are called internal
material transfers. When internal material transfers take place, an
organisation does not purchase materials. However, it receives and
releases such materials. The inventory management module maintains the
records of all internal material transfers in terms of the quantity of
materials transferred, name of the unit to whom the materials have been
transferred, etc.
Inspection of Inventoried Stock of Material: The inventory management
module performs automated inspection of inventoried materials, and
provides information about the same.
The inventory module of an ERP system works in close integration with its
sub-modules. Let us discuss the functions of different sub-modules of the
ERP inventory module.


11. The inventory management module enables an organisation to
efficiently maintain an __________ level of material available in its
warehouse.
12. The inventory management module maintains the records of only
those materials, which have been purchased from suppliers.
(True/False)
13. The inventory management module performs _____ inspection of
inventoried materials.
9.5 Sub-Modules of Inventory Management Module

To control the overall inventory management process of an organisation, the
inventory management module of an ERP system works in association with
its different sub-modules. These sub-modules are discussed as follows:
Inventory Requisition: This sub-module helps the different departments of
an organisation to inform about their inventory requirements to the inventory
department. On the other hand, this sub-module enables the inventory
department to access the details of inventory required by the different
departments. Apart from this, the inventory requisition sub-module provides
information related to the current level of inventory and the minimum and
maximum amount of inventory to be purchased. This information allows the
inventory department to determine an optimum inventory level to be
purchased.
Inventory Order Assessment: Once the optimum level of inventory is
determined, a purchase order is to be placed by the organisation to fulfil the
identified inventory requirements. However, before placing a purchase
order, the identified inventory requirements are compared with the minimum
inventory required to fulfil the requisition. After this, the final inventory to be
purchased is determined. This sub-module also generates a list of potential
suppliers to acquire the inventory.
Inventory Order Placement: After generating a list of potential suppliers,
the inventory order placement sub-module generates a purchase order. This
purchase order contains the following details:

 Order date
 Quality desired
 Supplier details
 Name of the department requiring the inventory
 Itemised purchase cost
 Order shipping mode
 Mode of payment
Supplier Performa: This sub-module helps an organisation in collecting
sales proposals (also called sales quotations) from its potential suppliers. A
sales proposal includes the following particulars:
 The quantitative and qualitative specification of materials given by a
supplier
 The time period in which the materials can be supplied
 The cost of each type of material to be supplied
 The mode of shipment
 The preferred date and time for payment of material to be supplied
Based on the aforementioned details given by potential suppliers, an

organisation can take a rational purchase decision.
Order Receipt and Inspection: When the order is received, it is thoroughly
examined before its payment is made. This is done to ensure whether the
materials received match with the materials ordered in terms of quality and
quantity. After that, if the materials received are as per the materials
ordered, the organisation accepts the order and stores the materials
received in its warehouse.
Invoicing: When the received order is accepted, the organisation needs to
pay a due amount to the supplier. While doing so, the organisation has to
ensure that the right amount is paid to the right person through the right
mode. The invoicing sub-module helps in ensuring that the due amount is
paid to the relevant supplier, safely. While doing so, the sub-module also

keeps a record of necessary information related to payment like amount

paid, mode of payment, receipt number of payment, etc.

14. The inventory management module of an ______ system works in
association with its different sub-modules.
15. Which of the following is not a sub-module of the ERP inventory
management module?
A. Warehouse management
B. Supplier performa
C. Order receipt and inspection
D. Invoicing
16. When the received order is accepted, the organisation needs to pay a
due amount to the________.
17. Which of the following sub-modules helps an organisation in
collecting sales proposals from its potential suppliers?
A. Inventory order placement
B. Supplier performa
C. Order receipt and inspection
D. Invoicing
9.6 Installation of ERP Inventory Management System

You are already aware of the fact that it is quite expensive for an
organisation to install the ERP inventory management system. Moreover,
installing the ERP inventory management system is a complex task for an
organisation. Therefore, most organisations hire a third party (usually called
ERP vendors) to install the ERP inventory management system.
An ERP vendor provides necessary consultation to an organisation related
to an ERP system. The vendor also understands the requirements of an
organisation, and provides a customised system accordingly. There are a
number of ERP vendors available in the market. It is important for an
organisation to select the right vendor for successful ERP implementation.

A successfully installed ERP inventory management system should be able

to serve the following information requirements of an organisation:
 The quantity and type of inventory available in the warehouse of the
organisation
 The amount and type of inventory released
 The details of financial strengths, issues, and profit margins
 The amount of inventory ordered and its delivery

18. An ERP vendor provides necessary ____________ to an organisation
related to an ERP system.
19. Which of the following requirements are not served by the ERP
inventory management system?
A. Quantity and type of inventory available in the warehouse
B. Amount and type of inventory released
C. Details of financial strengths, issues, and profit margins
D. Number of employees in warehouse
9.7 Failure of ERP Inventory Installation

There are instances when ERP installation efforts of an organisation fail due
to various reasons. The following are the main reasons for the failure of
ERP installation:
 The way the system operates may not match the design and processes
of an organisation.
 The time taken in the installation work may take longer than expected.
 Inefficient planning and preparation on part of the organisation for the

installation of the system.
 Resistance of employees to adapt to technological changes.

 Insufficient training provided to employees for operating the newly

installed ERP system.

20. Resistance of employees to adapt to technological changes can
cause the failure of ERP installation. (True/False)
21. Which of the following requirements is not the reason for the failure of
an ERP inventory management system?
A. Time taken in the installation work
B. Amount and type of inventory required for production purpose
C. Inefficient planning and preparation for installation of the system
D. Insufficient training provided to employees for operating the newly
installed ERP system
9.8 Summary
 The inventory management process of an organisation includes various
activities such as identifying stock requirements, preparing the
production schedule, and tracking the inflow and outflow of inventory. In
order to perform these activities effectively, organisations implement
ERP inventory management system.
 The ERP inventory management system is an organisation-wide system
that involves quality-check parameters for identifying the required quality
level for materials by performing inventory analysis and monitoring. This
system automatically updates the inventory-related information, thereby,
reducing the paperwork and facilitating quick information sharing in the
organisation.
 Despite its several benefits, the ERP inventory management system has
certain limitations. Some of these limitations include: involves high cost,
time, and efforts; requires past data and proper user training for its
installation; and less effective for information sharing if users are not
willing to share information.

 Web ERP refers to a Web-based system that helps an organisation in

performing its operations effectively. The movement of inventory
throughout the supply chain can be easily tracked using a Web ERP, by
linking it with the suppliers, transporters, and various other third-party
organisations, using an interactive point-of-sale system.
 The major functions of the ERP inventory management module are
material requisition management, inventory release details, particulars of
stock, receipt record of internal material transfers, and inspection of
inventoried stock of material.
 The sub-modules of the ERP inventory management module include
inventory requisition, inventory order assessment, inventory order
placement, supplier performa, order receipt and inspection, and
invoicing.
 In order to install an ERP inventory management system, organisations
hire a third party, which is usually called an ERP vendor. These vendors
understand the requirement of an organisation, and provide a
customised system accordingly. ERP vendors also provide consultation
and training to the employees of an organisation for installing the
system.
 Sometimes the installation of the ERP inventory management system
fails due to various reasons such as inefficient planning and preparation
for installation, resistance from employees to adapt to technological
changes, and insufficient training of employees.
9.9 Glossary
Bar Code: It is a code in the form of numbers and parallel lines of different
widths. It is printed on different types of materials to make them easily
identifiable in an ERP system.
Portable Document Format (PDF): It is an electronic document that
represents information in a more secure form as compared to other
electronic documents.

Lot Control: It is all about monitoring the purchase of materials in order to

ensure the timely availability of materials within an organisation.
Point-of-sale: It is a checkout location where the exchange of goods or
services takes place between a customer and an organisation.

1. Discuss the important features of the ERP inventory management
system.
2. What are the advantages of the ERP inventory management system?
3. What are the limitations of the ERP inventory management system?
4. Write a note on the installation of the ERP inventory management
system.
5. What are the reasons that usually cause failure of ERP installation?
6. What is the importance of Web ERP in inventory management.
7. Write a note on the ERP inventory management module.
8. Name the sub-modules of the ERP inventory management module.
9.11 Answers

1. Inventory
2. False
3. Reduces
4. Bar codes
5. Web-based
6. True
7. False
8. True
9. True

10. True
11. Optimum
12. False
13. Automated
14. ERP
15. A
16. Supplier
17. B
18. Consultation
19. D
20. True
21. A
Terminal Questions
1. The important features of the ERP inventory management system
include organisation-wide system, quality-check parameters,
continuous inventory analysis, and extensive inventory monitoring.
Refer to Section 9.2 Role of ERP in Inventory Management, which
discusses about the important features of the ERP inventory
management system.
2. There are many benefits of the ERP inventory management system,
such as the system tracks the level of inventory available, facilitates
effective communication within and outside the organisation, and
provides details of all the activities involved in the inventory
management process of an organisation. Refer to Section 9.2 Role of
ERP in Inventory Management, which lists the advantages of the ERP
inventory management system.
3. The ERP inventory management system cannot be fully customised
and it requires high cost, time, and effort, of an organisation. Refer to
Section 9.2 Role of ERP in Inventory Management, which explains
the limitations of the ERP inventory management system.

4. Most organisations hire an ERP vendor for the installation of the ERP
system. The vendor understands the requirements of an organisation
and designs the system accordingly. He/she also provides the required
training for operating the system to the organisation’s employees. Refer
to Section 9.6 Installation of ERP Inventory Management System,
which discusses about the installation of the ERP inventory
management system.
5. There can be various reasons for the failure of the ERP inventory
management system, such as mismatch between the design and
processes of an organisation, long duration for installation, inefficient
planning, and resistance of employees. Refer to Section 9.7 Failure of
ERP Inventory Installation, which lists the reasons that usually cause
failure of ERP installation.
6. Web ERP enables an organisation to track its inventory anytime from
anywhere. Refer to Section 9.3 Importance of Web ERP in Inventory
Management, which explains the meaning, features, and benefits of
Web ERP.
7. The inventory management module of an ERP system helps an
organisation in maintaining an adequate level of inventory available in
its warehouse, so that the organisation can carry out its operations
smoothly. Refer to Section 9.4 ERP Inventory Management Module,
which explains the ERP inventory management module.
8. The sub-modules of the inventory management module are inventory
requisition, inventory order assessment, inventory order placement,
supplier performa, order receipt and inspection, and invoicing. Refer to
Section 9.5 Sub-Modules of the ERP Inventory Management
Module, which explains the different sub-modules of the ERP inventory
management module.
9.12 Case Study: Inventory Management at Boeing

Boeing is the world's largest aerospace organisation. Based in the United
States, it is a leading manufacturer of commercial jetliners and defence,
space, and security systems. Boeing is a large-scale organisation, and has
a number of departments and offices across the world. All these

departments and offices need to work in close integration with each other.
Besides, the manufacturing of aerospace and defence systems largely
depends on the supply of raw materials and components. However, it is
challenging for the organisation to maintain a free flow of information across
all its units.
In the past, in order to solve information sharing issues, Boeing had
installed several information systems. However, these systems were not
fully integrated, which resulted in undue delays in the delivery of products.
Considering the prevailing issues, Boeing replaced all its previous
information systems with an efficient ERP system with inventory
management functionality. The system has facilitated an uninterrupted flow
of information across all the units of the organisation. Moreover, it has
helped the organisation to manage its inventory more efficiently.
Questions:
1. Identify the major issues in the given case.
2. How did the ERP system help Boeing?

Planning.

E-references
 http://www.weberp.org/
 http://www.weberp.org/Features.html
 http://www.roseindia.net/blog/2008/01/04/erp-inventory-
management/index.html

Unit 10 ERP: A CRM Perspective
Structure
10.1 Introduction
Objectives
10.2 Role of ERP in CRM
10.3 Concept of CRM
Objectives of CRM
Benefits of CRM
Components of CRM
10.4 Types of CRM
Operational CRM
Analytical CRM
Sales intelligence CRM
Collaborative CRM
10.5 Sub-Modules of CRM
Marketing module
Service module
Sales module
10.6 Summary
10.7 Glossary
10.9 Answers
10.10 Case Study: Significance of CRM

10.1 Introduction
In the previous unit, you studied how an ERP system helps an organisation
in managing its inventory. In this unit, you will study about the significance of
an ERP system in managing long-term customer relationship.
You are no stranger to the term ‘customer’. In fact, you turn into a customer
when you buy something. In today’s competitive business scenario,
organisations regard their customers as the most valuable asset. This is
because, the success of any organisation depends on the extent of
customer satisfaction. So, you can say that it is important for an
organisation to keep its customers satisfied and maintain healthy
relationships with them.
Customer Relationship Management (CRM) is a tool that helps an
organisation to strengthen relationships with its customers. It enables an
organisation to identify the needs and expectations of customers and fulfil
them, thereby, achieving higher customer satisfaction. In other words, CRM
can be defined as a business strategy that focuses on customer satisfaction
and retention.
The ERP system with CRM functionality provides information related to
customers such as their name, contact history, needs and preferences, and
repeat purchases. This information enables an organisation to provide a
quick response to customer queries and make sound business decisions.
In this unit, you will study the role of ERP in CRM. Next, the unit discusses
the concept of CRM with its objectives, benefits, and components. Further,
the unit explains different types of CRM. The sub-modules of the CRM
system are also discussed in the unit. Apart from this, the unit explains
variations in operational CRM. In the end, you will study about the barriers
to CRM implementation.
Objectives
 discuss the role of ERP in Customer Relationship Management
 explain the concept of Customer Relationship Management

 identify the different types of Customer Relationship Management
 state the functions of different sub-modules of Customer Relationship

Management
10.2 Role of ERP in CRM

Now, you must be aware of the fact that customers are the most precious
asset of any organisation. Therefore, it is essential for an organisation to
satisfy the needs of its customers and maintain cordial relationships with
them. To do so, most organisations use an ERP system with CRM
functionality. Let us now study the importance of the ERP-CRM system in
an organisation.
The ERP-CRM system helps an organisation to identify the requirements of
its customers and fulfil them. This ultimately leads to sound customer
relationships and higher customer satisfaction. The system also enables an
organisation to organise, automate, and synchronise its different business
processes. Apart from this, the ERP-CRM system helps an organisation in:
 Adopting a customer-oriented approach
 Collecting data related to customers
 Achieving a competitive edge in the market
 Enhancing revenue by reducing costs incurred on marketing, selling,
and customer service
1. The _______________helps an organisation to identify the
requirements of its customers and fulfil them.
2. The ERP-CRM system enables an organisation to organise,
automate, and synchronise, its different business processes.
(True/False)
3. The ERP-CRM system helps an organisation in adopting a customer-
oriented approach. (True/False)

Activity 1:
What can be the benefits provided by the ERP-CRM system in a retail
store?
10.3 Concept of CRM

You can simply define CRM as a business strategy that helps an
organisation to better serve the needs of its customers and improve
customer service, thereby, achieving higher customer satisfaction, loyalty,
and retention. Some of the most popular definitions of CRM are given as
follows:
According to Gartner, CRM is “A business strategy designed to optimise
profitability, revenue, and customer satisfaction.”
According to Price Waterhouse Cooper (PWC), “A business strategy that
aims to understand/appreciate, manage and personalise, the needs of the
organisation’s current and potential customers.”
According to Jill Dyche, “The infrastructure that enables the delineation and
increase in customer value and the correct means by which to motivate
valuable customers to remain loyal and buy again.”
According to Paul Greenberg, “A philosophy and a business strategy,
supported by a system and a technology, designed to improve human
interactions in a business environment.”
10.3.1 Objectives of CRM

The implementation of a CRM system involves high cost and efforts of an
organisation. Therefore, it is important for an organisation to develop clear
CRM objectives prior to its implementation. The following are some of the
main objectives of implementing a CRM system in an organisation:
 Simplifying marketing and sales processes
 Providing better customer service
 Acquiring new customers and retaining the existing ones
 Improving organisational efficiency and productivity
 Reducing operational costs

10.3.2 Benefits of CRM

You have already studied that the main aim of CRM is to achieve higher
customer satisfaction. Apart from this, the following are some other
advantages of CRM:
 Collecting information related to customers such as their tastes and
preferences, standard of living, income level, and demographics
 Developing effective communication channels, such as e-mail and Web
chats
 Creating detailed profiles of individual customers including online portals
 Tracking new sales opportunities. For example, it helps an organisation
to find opportunities in markets that are never explored
 Increasing market share and profit margins by serving customer needs
 Providing a quick response to customers through various
communication channels
10.3.3 Components of CRM

Broadly, a CRM system consists of four components, which are:
Software: The module-based CRM software automates the business
processes related to functional areas of CRM such as marketing, customer
support, and sales. The CRM software includes various modules such as
customer contact management, direct marketing, sales automation, call
centre applications, and helpdesk. The CRM software runs on hand-held
devices (like Palmtops) and wireless devices (like WAP phones) in addition
to desktops and laptops. It can be installed on various operating systems
like Unix, Linux, and Windows NT.
Processes: The business processes of an organisation can be divided into
three levels, namely, strategic planning, management control, and
operational control. The ERP system streamlines the business processes at
all the levels of an organisation, while the CRM system improves business
processes at management control and operational control, levels.

Users: The CRM system cannot perform on its own, unless it is operated by
its users. The main users of the CRM system are employees, customers,
and business partners.
Hardware: Hardware could comprise of clients, servers, firewalls, and
necessary network components.

4. _______ is a business strategy that helps an organisation to better
serve the needs of its customers and improve customer service,
thereby, achieving higher customer satisfaction, loyalty, and
retention.
5. Identify the speaker of these words—“A business strategy designed
to optimise profitability, revenue and customer satisfaction.”
6. The main aim of CRM is to achieve higher____________.
7. The business processes of an organisation are divided into three
levels, namely strategic planning, management control,
and______________.
8. Generally, CRM software runs on________, an operating system.
10.4 Types of CRM

As you have studied earlier, CRM is a powerful tool used by an organisation
to acquire new customers and retain the existing ones. It provides
meaningful information related to customers. This information ultimately
helps an organisation in making sound business decisions. However, the
usage of CRM varies across different organisations. For example, some
organisations may use CRM to enhance its sales productivity, while other
organisations use it to improve the quality of customer service. Based on its
different applications, CRM can be classified into four main categories,
which are shown in Figure 10.1:

Types of
CRM
Operational Sales
Analytical Collaborative
Intelligence
CRM CRM CRM
CRM
Figure 10.1: Types of CRM

Let us discuss the different types of CRM (as shown in Figure 10.1) in
detail.
10.4.1 Operational CRM

Operational CRM supports the front-office operations of an organisation
such as sales and marketing. Apart from this, operational CRM enables an
organisation to store customer information and retrieve it as and when
required, in order to understand the background, needs, and preferences of
customers. For example, the sales and marketing department of an
organisation can easily maintain and update the customer related data
using operational CRM. In addition, it can access the data whenever and
wherever required. Broadly, there are three types of operational CRM,
which are shown in Figure 10.2:
Variations in
Operational
CRM
Enterprise Customer
Sales Force
Marketing Service and
Automation
Automation Support
Figure 10.2: Variations in Operational CRM

The different types of operational CRM are discussed as follows:
Sales Force Automation (SFA): SFA is an application that is used for
automating sales activities, such as order processing, contact management,
sales forecasting, and performance assessment of salespeople. It enables

salespeople to share sales data with other departments through e-mail,

telephone, and videoconferencing.
SFA consists of a contact management system that tracks all contacts
made with customers, reasons for making such contacts, and follow-up
requirements of customers. This prevents the duplication of sales efforts.
Apart from this, SFA also includes a sales-lead tracking system that
provides details related to the potential customers of an organisation.
The two main elements of SFA are hardware and software. Hardware
includes desktop, laptop, contact or call centre telephone technology, and
other hand-held devices. Software includes computerised systems that
assist in performing sales activities. The following are the main advantages
of SFA:
 Saves time and cost of an organisation
 Helps in developing customer contact information
 Provides easy access to the required sales data
 Assesses sales performance and suggests remedial measures
Enterprise Marketing Automation (EMA): EMA refers to a type of

operational CRM that helps an organisation in performing various marketing
activities such as customer segmentation and event-based marketing. For
example, EMA enables an organisation to segment its customers based on
various factors, such as their income level, age, and tastes, and place its
products accordingly. Apart from this, it is used to create a database for the
existing and potential customers and conduct marketing campaigns,
thereby, improving its marketing efficiency.
Customer Service and Support (CSS): In today’s competitive world,
quality CSS is of utmost importance for any organisation. If an organisation
is not able to provide proper services to its customers, they may switch to
other brands. To provide quality customer service, most organisations use
the CSS module.
The CSS module helps an organisation to automate service requests,
complaints, product returns and enquiries, and improve customer service.

10.4.2 Analytical CRM

Analytical CRM enables an organisation to analyse customer information
and make various product-related decisions accordingly. This information is
used for various purposes, which are:
 Conducting marketing campaigns for customer acquisition and retention,
as well as for improving marketing efficiency
 Analysing customer behaviour for making product-related decisions
 Making various decisions such as financial forecasting and customer

profitability analysis
For example, an organisation can determine customer requirements, using

analytical CRM, and produce products accordingly. Similarly, using the
analytical CRM, the organisation can also determine customer buying
behaviour and make strategies for increasing their buying frequency.
10.4.3 Sales intelligence CRM

Sales intelligence CRM is a tool that an organisation uses to optimise and
evaluate its key sales processes. It allows salespeople to analyse
information related to customers and take various sales decisions. Besides,
sales intelligence CRM enables an organisation to track available sales
opportunities and enhance sales productivity. This ultimately generates high
revenue for an organisation.
Sales intelligence CRM is primarily designed for organisations involved in
the wholesale, distribution, and manufacturing segments. The system allows
these organisations to identify cross-sell, switch-sell, and up-sell
opportunities by analysing customer buying trends. For example, the sales
intelligence CRM provides updated sales data to an organisation. It also
enables the organisation to compare the current sales data with the
previous year’s data, and frame effective sales practices and procedures.
10.4.4 Collaborative CRM

Collaborative CRM facilitates the free flow of customer information among
the different departments of an organisation. This helps the organisation to
understand and fulfil the requirements of customers, thereby, maintaining

cordial relationships with them. For instance, you are the marketing
manager in an organisation. Collaborative CRM can help you to share
information related to the demand for products and services with the
production department.
Apart from this, collaborative CRM integrates various channels used for
customer interaction. These channels include telephone, e-mail, voice chat,
application sharing, desktop sharing, file transfer, and collaborative
browsing. Generally, collaborative CRM is customised according to the
requirements of customers. Following are the main objectives of
collaborative CRM:
 Reducing customer service costs
 Facilitating customer interaction
 Gathering information related to customers

9. _______ supports the front-office operations of an organisation such
as sales and marketing.
10. _______ is an application that is used for automating sales activities
such as order processing, contact management, sales forecasting,
and performance assessment of salespeople.
11. SFA consists of a ______________system that tracks all contacts
made with customers, reasons for making such contacts, and follow-
up requirements of customers.
12. The two main elements of SFA are hardware and __________.
13. __________ refers to a type of operational CRM that helps an
organisation in performing various marketing activities such as
customer segmentation and event-based marketing.
14. The ________ module helps an organisation to automate service
requests, complaints, product returns, and enquiries, and improve
customer service.
15. ________ enables an organisation to analyse customer information
and make various product-related decisions accordingly.

16. _________is a tool that an organisation uses to optimise and

evaluate its key sales processes.
17. Sales intelligence CRM is primarily designed for organisations
involved in the wholesale, distribution, and _________ segments.
18. ______________ facilitates the free flow of customer information
among the different departments of an organisation.
Activity 2:
With the help of the Internet, find out the organisations that use SFA.
10.5 Sub-Modules of CRM

You have already studied that the CRM system provides information related
to customers to an organisation in order to make various business
decisions. To do so, the CRM system works in association with its different
sub-modules. These sub-modules are shown in Figure 10.3:
Sub-
modules of
CRM
Marketing Service Sales

Module Module Module
Figure 10.3: Sub-modules of CRM

Let us discuss the different sub-modules of CRM in detail.
10.5.1 Marketing module

The marketing module of a CRM system helps an organisation in:
 Executing marketing-related activities
 Making long-term marketing plans
 Conducting marketing campaigns through different communication
modes

 Targeting potential customers and retaining the existing ones

 Identifying sales-related opportunities
10.5.2 Service module

The service module of a CRM system helps an organisation in:
 Improving customer service
 Processing service orders
 Managing service contracts
 Complying with service-level agreements
10.5.3 Sales module

The sales module of a CRM system enables an organisation to:
 Manage and execute the pre-sales activities
 Capture sales opportunities
 Enhance customer interaction
 Support data processing
 Centralise the relevant sales data at a single location

19. A _______ system provides information related to customers to an
organisation in order to make various business decisions.
20. The ________ module of a CRM system helps an organisation in
executing marketing-related activities.
21. The _________ module of a CRM system helps an organisation in

improving customer services.
22. The _________ module of a CRM system enables an organisation to
capture sales opportunities.

10.6 Summary
 CRM is a business strategy that enables an organisation to serve
customers in a better way by improving their customer service, which
further helps in increasing the level of customer satisfaction. In order to
implement this strategy effectively, organisations use the ERP-CRM
system that helps in organising, automating, and streamlining, different
business processes.
 A CRM system consists of four components, namely, software,

processes, users, and hardware and operating system.
 CRM can be of different types, namely, operational CRM, analytical

CRM, sales intelligence CRM, and collaborative CRM.
 Operational CRM enables an organisation to perform its front-office

operations, such as sales and marketing, effectively by maintaining and
updating the database of customers regularly. It can be of three types,
namely, SFA, EMA, and CSS.
 Analytical CRM analyses customer information in the database of the

organisation and takes crucial business decisions.
 Sales intelligence CRM optimises and evaluates the key sales

processes of an organisation. It helps in taking various sales decisions,
tracking available sales opportunities, and enhancing sales productivity.
 Collaborative CRM helps in the smooth flow of information throughout

an organisation. This helps in identifying customer requirements and
serving them accordingly, thereby, maintaining cordial relationships with
them.
 The sub-modules of CRM system include marketing module, service

module, and sales module.

10.7 Glossary
CRM: A business strategy that allows an organisation to identify the needs

of its customers and fulfil them, thereby, achieving higher customer
satisfaction, loyalty, and retention.
Operational CRM: A tool used by an organisation to perform its front-office

functions effectively.
Analytical CRM: A tool used by an organisation to analyse customer

information and make product-related decisions.
Sales Intelligence CRM: A tool that enables an organisation to optimise its

key sales processes.
EMA: A type of operational CRM that enables an organisation to perform its

different marketing functions such as customer segmentation and event-
based marketing.

1. Discuss the role of ERP in CRM.
2. Explain the concept of CRM.
3. State the objectives of CRM.
4. What are the benefits of CRM?
5. What are the different components of CRM?
6. Write a short note on SFA.
7. What is EMA?
8. Define CSS.

10.9 Answers

1. ERP-CRM system
2. True
3. True
4. CRM
5. Gartner
6. Customer satisfaction
7. Operational control
8. UNIX
9. Operational CRM
10. SFA
11. Contact management
12. Software
13. EMA
14. CSS
15. Analytical CRM
16. Sales intelligence CRM
17. Manufacturing
18. Collaborative CRM
19. CRM
20. Marketing
21. Service
22. Sales

Terminal Questions
1. The ERP-CRM system helps an organisation in understanding
customer needs and fulfilling them in order to achieve high customer
satisfaction. Refer to Section 10.2 Role of ERP in CRM, which
discusses the role of ERP in CRM.
2. CRM is a business approach that helps an organisation in better

serving the needs of customers. Refer to Section 10.3 Concept of
CRM, which explains the concept of CRM.
3. The main objectives of CRM are to simplify marketing and sales

processes, provide better customer service, acquire new customers,
and retain the existing ones. Refer to Section 10.3 Concept of CRM,
which lists the objectives of CRM.
4. CRM helps an organisation in collecting information related to

customers, developing effective communication channels, and creating
detailed profiles of customers. Refer to Section 10.3 Concept of CRM,
which states the benefits of CRM.
5. There are four main components of CRM, namely software, processes,

users, and hardware. Refer to Section 10.3 Concept of CRM, which
discusses the different components of CRM.
6. SFA is a system that automates an organisation’s sales-related

activities such as order processing, contact management, and sales
forecasting. Refer to Section 10.4.1 Operational CRM, which explains
SFA.
7. EMA is a type of operational CRM that automates the marketing

activities of an organisation. Refer to Section 10.4.1 Operational CRM,
which defines EMA.
8. CSS enables an organisation to provide better services to its

customers. Refer to Section 10.4.1 Operational CRM, which defines
CSS.

10.10 Case Study: Significance of CRM

ABC Organisation undertakes the projects of various government and non-
government bodies involved in developing policies for the education sector
and providing funds to it.
ABC wants to increase its efficiency by sharing information with its internal
and external customers. To do so, the organisation requires a cost-effective
CRM system that will facilitate a free flow of information within and outside
the organisation.
Considering its requirements, ABC selects the Microsoft Dynamics CRM as

its core CRM solution. This system can be easily integrated with existing
technologies and maintained in-house. Moreover, the Microsoft Dynamics
CRM is available comparatively at low costs, and can be customised as per
the requirements of different user groups.
Questions:
1. What is the need for implementing CRM in ABC?
2. What would be the benefits of implementing a CRM system in ABC?

Planning.

E-references
 http://www.crmasiasolutions.com/online-business-solutions-articles/6-
crm-concepts/76-what-is-crm-basic-concepts-of-crm-solutions.html
 http://www.gallopercrm.com/en/galloper/concept.php

 http://www.tutorial-reports.com/software/crm/types.php
 http://en.wikipedia.org/wiki/Customer_relationship_management
 http://itzone.bizxchange.in/u11/B-U-28S-28I-N-E-S_M-
/Types_Variations-of-CRM.html
 http://www.netcoresolutions.com/types-and-variations-of-crm/

Unit 11 ERP: HR Perspective
Structure
11.1 Introduction
Objectives
11.2 Role of ERP in Human Resource Management
Workflow of ERP human resource management system
Advantages of ERP human resource management system
11.3 Human Resource Management Module
Functions of human resource management module
Features of human resource management module
Benefits of human resource management module
11.4 Common Sub-Modules of Human Resource Management Module
Personnel management
Organisational management
Payroll management
Time management
Personnel development
11.5 Summary
11.6 Glossary
11.8 Answers
11.9 Case Study: Implementation of ERP HRM System at ABC
11.1 Introduction
In the previous unit, you have studied how an ERP system helps in
managing long-term relationships with customers. In this unit, let us study

the importance of an ERP system in managing human resource in an

organisation.
You often hear the term ‘human resource’ used by many industry experts.
Human resource refers to an organisation’s workforce, labour, or
employees. The overall success of an organisation depends on the skills
and efficiency of its human resource. So, you can say that human resource
is one of the most vital resources for any business entity.
In today’s dynamic business environment, the role and requirements of
human resource in an organisation are subject to constant changes.
Therefore, it is important for an organisation to recruit the right set of
employees with required talent and manage them efficiently. Human
Resource Management (HRM) is a process that involves managing people
in an organisation in a structured and thorough manner. However, HRM is a
complex process for any organisation. To improve its HRM function, most
organisations use the ERP HRM system.
The ERP HRM system is software that is able to maintain and analyse a
large amount of employee data. The data helps an organisation in
performing activities, such as performance appraisal, payroll management,
applicant tracking, interviewing, and employee selection. Apart from this, the
ERP HRM system provides immediate access to various company-related
documents, such as employee handbooks and safety guidelines.
In this unit, you will study about the role of ERP in human resource
management. Next, you will be acquainted with the human resource
management module of an ERP system. In the end, you will be familiarised
with the common sub-modules of the human resource management
module.
Objectives
 evaluate the role of ERP in human resource management
 assess the importance of the human resource management module
 explain the common sub-modules of the human resource management

module

11.2 Role of ERP in Human Resource Management

An organisation cannot do without human resource. Human resource is the
most important asset of an organisation in every aspect ranging from
strategic planning to building up the organisation’s image. An organisation
needs human resource to make strategic decisions, convert inputs into
valuable output, and handle back-office operations. The overall efficiency of
an organisation depends on the skills and capabilities of its employees.
Therefore, it is necessary for an organisation to manage its human resource
effectively.
In order to maintain a pool of efficient employees, an organisation should
hire employees with the required qualifications and competencies. Apart
from this, it should keep on developing the skills of its existing employees so
that they can perform their duties efficiently. To do so, an organisation
conducts several training and welfare programs for its employees.
To manage its employees efficiently, an organisation needs to maintain a
large amount of employee data. This data helps an organisation to track
employee performance and conduct appraisals accordingly. However,
maintaining employee data is a complex and time-consuming task
especially for large organisations. Therefore, most organisations use an
ERP system with Human Resource Management (HRM) functionality.
An ERP system with an HRM function enables an organisation to manage a
large amount of employee data. This data includes details related to
employees’ qualification, age, address, designation, and work responsibility.
It can be easily accessed or analysed by human resource professionals as
and when required. Apart from this, the system enables human resource
professionals to focus on human resource planning and development and
make sound decisions. It also supports human resource policies and
procedures, suggestion boxes, opinion polls, news portals, and employee
forums of an organisation, thereby facilitating effective communication
among employees.

11.2.1 Workflow of ERP Human Resource Management System

From the discussion so far, you can say that the ERP HRM system plays a
crucial role in improving the human resource functions of an organisation.
Figure 11.1 shows the workflow of the ERP HRM system:
Figure 11.1: Workflow of ERP HRM System

As shown in Figure 11.1, the work flow of the ERP HRM system mainly
deals with functions, such as personnel management, organisational
management, and payroll management. You will study about these
functions later in the unit.
11.2.2 Advantages of ERP Human Resource Management

System
The following are the main advantages of the ERP HRM system:
 Automates the HRM functions of an organisation, thereby reducing time-
consuming tasks.
 Provides a centralised database so that it can be accessed anytime by

all the departments of an organisation.
 Maintains the confidentiality of information shared through its centralised

database.
 Facilitates effective internal and external communication.
 Provides real-time information related to employees.

 Allows employees to access their data related to their salary structure,

daily attendance, and leaves.

1. The overall efficiency of an organisation depends on the skills and
capabilities of its______.
2. In order to maintain a pool of efficient employees, an organisation
should hire employees with least qualifications and competencies.
(True/False)
3. To manage its employees efficiently, an organisation needs to
maintain a large amount of _________.
4. Maintaining employee data is a complex and time-consuming task
especially for large organisations. (True/False)
5. An ERP system with an _______ function is able to manage a large
amount of employee data.
Activity 1:
Meet some HR professionals in your vicinity and discuss the importance
of the ERP HRM system with them.
11.3 Human Resource Management Module

You must be aware of the fact that advance information and communication
technologies have changed the way organisations used to conduct their
businesses traditionally. This also holds true in the field of HRM. Nowadays,
organisations use different types of technologies in order to manage their
human resource efficiently depending on their requirements. The ERP
human resource management module is the most widely used tool that
streamlines the HRM functions of an organisation.
The human resource management module is an integrated solution
designed to improve the efficiency of human resource operations by
reducing time-consuming administrative tasks and deploying self-service
applications. In addition, the module automatically updates an employee
database and facilitates online employee communication. The module not

only helps an organisation to maintain employee data but also allows

employees to update their personal information as and when required. For
example, you are an employee of an organisation and you have changed
your residence. In this case, you can update your residential address in the
system database by using the human resource management module. Let us
discuss the functions, features, and benefits of the human resource
management module.
11.3.1 Functions of human resource management module

The following are the major functions of the human resource management
module of an ERP system:
Payroll Management: In the most basic terms, payroll is all about a
payment made by an employer (organisation) to an employee for the work
performed. An organisation is responsible for paying the correct amount of
salary to its employees on time. In case an organisation fails to perform its
payroll duties properly, its employees would not be motivated to work
properly.
The human resource management module helps an organisation to manage
its payroll activities efficiently. This module prevents miscalculations of the
working hours of employees, thereby generating accurate salary slips. For
example, the human resource management module provides exact details
related to the log-in and log-out time of every employee. These details help
an organisation to calculate employees’ salaries accurately.
Benefits Administration: In simple terms, benefits administration is a
process of managing the benefits provided to employees in an organisation.
The employee benefits generally include medical insurance, pension plans,
Individual Retirement Accounts (IRAs), and medical, casual, and maternity
leaves.
The human resource module helps an organisation to manage employee
benefits in an efficient manner by providing meaningful employee
information. This information includes date of hiring, marital status, number
of dependents, total working hours, and attendance records of employees.
Employee Data Management: The human resource module maintains the
entire information of employees working in an organisation right from their
hiring till separation. This information is important for an organisation to

perform HRM functions, such as recruitment, selection, performance

evaluation, compensation management, and training and development.
Recruitment: Acquiring a pool of efficient employees is of utmost
importance for an organisation. The human resource module acts as a
talent management system that automates the entire recruitment process of
an organisation. The module is able to collect the curriculum vitae (CV) of
potential job seekers from different sources and filter the candidates based
on the organisation’s requirements. In addition, it publishes jobs on an
organisation’s website as well as on other job portals, thereby simplifying
the search of the desired talent for the organisation. Apart from this, it allows
an organisation to track the details related to scheduled interviews and
events.
Training and Development: The human resource module enables an
organisation to plan training and development programs by keeping track on
the performance of employees. The module also helps in determining and
monitoring the training curriculum, training modes/media (such as books,
CDs, or e-learning), planning individual sessions, and delegating resources
for training and development programs.
Employee Self-Assistance: The human resource module allows
employees to view their specific personal and work-related information, and
update it. The module also helps employees to get their human resource-
related queries and issues resolved quickly. Besides, the human resource
module helps supervisors/managers to approve leave requests online and
shift schedules of their sub-ordinates.
11.3.2 Features of human resource management module

Some of the important features of the human resource management module
of an ERP system are as follows:
 It is able to define the job roles and responsibilities of employees.
 It helps in recruiting the right employees with the right skills and
competencies.
 It simplifies the activities involved in the employee selection and
placement process of an organisation.
 It is capable of shortlisting eligible applicants from the pool of
applications based on pre-specified selection criteria.

 It can update the details of a number of employees at a single point of

time.
 It continuously tracks the performance of employees, thereby allowing
an organisation to conduct performance appraisals and determine
training needs accordingly.
11.3.3 Benefits of human resource management module

Now, you can say that the human resource management module helps an
organisation in many ways. Broadly speaking, there are four main portals of
the human resource management module. These portals help the human
resource department of an organisation to perform its responsibilities in an
efficient manner. These four portals are:
Employee Portal: It includes all the details related to employees, such as
employee attendance, service records, and personal information. This
information can be retrieved by an organisation as and when required.
Self-Service Portal: It allows employees to communicate their queries to
the human resource department. On the other hand, the portal helps the
human resource department to provide a quick response to employees’
queries.
Security Portal: It maintains the security of an organisation by monitoring
the people visiting the organisation.
Career Portal: It maintains the records of candidates applying for a job
position that is vacant in an organisation. This portal further helps in sorting
out the potential employees of the organisation.

6. The ERP human resource management module is the most widely
used tool that streamlines the HRM functions of an organisation.
(True/False)
7. The human resource management module may automatically update
the employee database but does not facilitate online employee
communication. (True/False)

8. The module not only helps an organisation to maintain employee data

but also allows employees to update their personal information as
and when required. (True/False)
9. The human resource management module cannot update the details
of a number of employees at a single point of time. (True/False)
10. Which of the following is not a function of the human resource
management module?
a. Cash flow management
b. Payroll management
c. Benefits administration
d. Employee data management
11.4 Common Sub-Modules of Human Resource Management

Module
The human resource management module of an ERP system works in
association with various sub-modules. These sub-modules are shown in
Figure 11.2:
Personnel
Management
Personnel Organisational
Development Management
Sub-Modules of
Human
Resource
Management
Module
Time Payroll
Management Management
Figure 11.2: Sub-Modules of the Human Resource Module

Let us discuss these sub-modules in detail.
11.4.1 Personnel management

Personnel management is all about obtaining and maintaining satisfied
workforce in an organisation. The main purpose of personnel management
is to promote the efforts of employees and inculcate co-operation and trust
among them. The success of an organisation depends on the efforts of its
employees. Therefore, it is important for any organisation to keep its
employees satisfied.
The personal management sub-module helps an organisation to perform its
personnel development function effectively. The following are the functions
of the personnel development sub-module:
Personnel Administration: The personnel management sub-module
provides information related to all the activities of employees, such as their
performance, attendance, and behaviour. This information helps the human
resource department in conducting performance-based appraisals, resolving
conflicts that may rise among employees, and maintaining discipline in an
organisation.
Employee Master Data Management: The personnel management sub-
module maintains a centralised employee database called employee master
data. This database can be easily accessed by all the departments of an
organisation as and when required. Besides, the personnel management
sub-module represents the employee master data in the form of graphs and
charts that help managers in human resource decision making.
Recruitment: The personnel management sub-module helps an
organisation in hiring the right people at the right time for the right job. It
automates the entire recruitment process by determining the job
requirements of different departments of an organisation.
Travel Management: The personnel management sub-module helps an
organisation in managing all the travel expenses of employees. The sub-
module also verifies these expenses and makes arrangements for their
reimbursement.
Benefits Administration: The personnel management sub-module enables
an organisation to determine the criteria for providing benefits to its

employees. For example, in an organisation, gratuity is paid to only those

employees who have completed five years of their service. In such a case,
the organisation can quickly find out the list of employees who are eligible
for the payment of gratuity by using the personnel management sub-
module.
Salary Administration: The salary of employees not only needs to be
calculated but also verified at every step in order to maintain a fair
compensation system. This makes the whole process of salary
administration very complex.
The personnel management sub-module helps an organisation in
calculating and verifying the salaries of all the employees. While doing so,
the sub-module takes into account standard salary variations and
performance metrics (such as overtime) of individual employees in an
organisation.
11.4.2 Organisational management

Organisational management can be defined as a process that includes
planning, organising, leading, and controlling the efforts of human resource
in order to achieve organisational goals. In other words, you can define
organisational management as a method in which the operations of an
organisation are broken down into several phases. This helps managers in
having a clear picture of the organisation at any point of time.
The organisational management sub-module enables an organisation to:
 Establish an effective organisational and reporting hierarchy, thereby
maintaining a favourable work environment for employees.
 Divide employees into different teams or groups based on their

functions, business areas, and geographical locations.
 Define the roles and responsibilities of employees in an organisation.
 Define salary for each job position.
11.4.3 Payroll management

You have already studied that payroll is all about a payment made by an
employer to an employee for the work performed. An organisation is

responsible for paying the correct amount of salary to its employees on

time.
The payroll management sub-module of an ERP system enables an
organisation to:
 Calculate employees’ salary, allowances, deductions, gross pay, and net
pay accurately.
 Generate pay slips for a specific period.
 Generate reports related to employees’ attendance, and salary

deductions.
 Maintain the confidentiality of employee information.
 Remind an organisation about due payroll processing.
11.4.4 Time management

Time is the most valuable resource that you cannot store or save for later
use. In your personal life, you must have noticed that managing time is of
great importance in order to be successful. Similarly, an organisation needs
to manage time in order to achieve the best possible results in the shortest
span of time.
The time management sub-module plans and monitors the amount of time
spent on specific activities with the purpose of increasing the efficiency of an
organisation. The sub-module also enables an organisation to comply with
time-related rules and regulations. The following are the main functions of
the time management sub-module:
 Prepares schedules for the work shifts of an organisation.
 Keeps a record of the overtime and short time of employees, thereby

supporting the correct calculations of pay-outs.
 Ensures whether the time-related regulations of an organisation are

followed by all of its employees.

11.4.5 Personnel development

Personnel development aims at developing and improving the skills and
talents of employees working in an organisation. It helps employees to
perform their duties effectively, cope with the changing business scenario,
and improve their personalities. For this, an organisation conducts various
personnel development programs.
The personnel development sub-module keeps track on the potential,
performance, and motivation level of employees, and work environment.
Subsequently, it helps an organisation in planning and scheduling various
development programs, such as seminars, training sessions, and group
discussions.

11. The personnel management sub-module maintains a centralised
employee database called__________.
12. _____________ can be defined as a process that includes planning,
organising, leading, and controlling the efforts of human resource in
order to achieve organisational goals.
13. The payroll management sub-module of an ERP system reminds an
organisation about due payroll processing. (True/False)
14. An organisation needs to ________ time in order to achieve the best
possible results in the shortest span of time.
15. The personnel development sub-module keeps track on the potential,
performance, and motivation level of employees, and work
environment. (True/False)
11.5 Summary
 Human resource management is one of the major functions of an
organisation. In order to perform this function efficiently, organisations
employ an ERP system with an HRM function, which helps in managing
huge data related to employees and taking effective business decisions.

 The human resource management module is an integrated solution that

increases the efficiency of human resource operations by updating the
employee database automatically, reducing time-consuming
administrative tasks, and implementing self-service applications.
 The major functions of the human resource management module are

payroll management, benefits administration, employee data
management, recruitment, training and development, and employee
self-assistance.
 The four main portals of the human resource management module are
employee portal, self-service portal, security portal, and career portal.
 The sub-modules of the human resource management module include

personnel management, organisational management, payroll
management, time management, and personnel development.
11.6 Glossary
Curriculum Vitae: It is a document that contains all the work-related details
of an individual. It is usually submitted to the organisation where the
individual has applied for a job.
Personnel Administration: A process of monitoring the activities and
behaviour of employees, thereby maintaining the code of conduct in an
organisation.
Organisational and Reporting Hierarchy: It is a hierarchical order of all
the designations and positions assigned by an organisation to its
employees.

1. Discuss the role of ERP in human resource management.
2. What are the benefits of the ERP HRM system?
3. What are the functions of the human resource management module?

4. List the important features of the human resource management module.

5. Name the four portals of the human resource management module.
6. Name the various sub-modules of the human resource management
module.
7. What are the functions of the personnel management sub-module?
8. Write a note on the time management sub-module of human resource
management module.
11.8 Answers

1. employees
2. False
3. employee data
4. True
5. HRM
6. True
7. False
8. True
9. False
10. a
11. employee master data
12. Organisational management
13. True
14. Manage
15. True

Terminal Questions
1. An ERP system with an HRM function helps an organisation in
managing a large amount of employee data. This data may include
details related to employees’ qualification, age, address, designation,
and work responsibility. Refer to Section 11.2 Role of ERP in Human
Resource Management, which explains the role of ERP in human
resource management.
2. An ERP system automates the HRM functions of an organisation and
provides a centralised database so that it can be accessed anytime by
all the departments of an organisation, and maintains the confidentiality
of information shared through its centralised database. Refer to Section
11.2 Role of ERP in Human Resource Management, which discusses
the benefits of the ERP HRM system.
3. The important functions of the human resource management module
include payroll management, benefits administration, employee data
management, recruitment, training and development, and employee
self-assistance. Refer to Section 11.3 Human Resource Management
Module, which lists the functions of the human resource management
module.
4. Some of the features of the human resource module are to define the
job roles and responsibilities of employees, help in recruiting the right
employees with the right skills and competencies, and simplify the
activities involved in the employee selection and placement process of
an organisation. Refer to Section 11.3 Human Resource Management
Module, which lists the features of the human resource management
module.
5. The four portals of the human resource management module are
employee portal, self-service portal, security portal, and career portal.
Refer to Section 11.3.3 Benefits of human resource management
module, which explains about the four portals of the human resource
management module.

6. The sub-modules of the human resource management module are

personnel management, personnel development, time management,
payroll management, and organisational management. Refer to Section
11.4 Common Sub-Modules of Human Resource Management Module,
which provides the names of common sub-modules of the human
resource management module.
7. The personnel management sub-module helps an organisation to
perform personnel development functions, such as personnel
administration, employee master data management, recruitment, travel
management, and benefits administration, effectively. Refer to Section
11.4 Common Sub-Modules of Human Resource Management Module,
which explains the functions of the personnel management sub-module.
8. The time management sub-module helps an organisation to plan and
monitor the amount of time spent on specific activities with the purpose
of increasing its overall efficiency. Refer to Section 11.4 Common Sub-
Modules of Human Resource Management Module, which discusses
the time management sub-module of the human resource management
module.
11.9 Case Study: Implementation of ERP HRM System at ABC

ABC is a US-based organisation that operates several museums, research
centres, and zoological parks. A few years back, the organisation faced a
number of issues in managing its human resource functions. This was due
to the obsolescence of the existing human resource management system.
The old system of the organisation was not able to provide accurate
information related to employees.
Considering the on-going issues, ABC decided to implement the latest
version of ERP HRM system called PeopleSoft HRMS V8.8 from Software
Performance Systems, Inc. The implementation of this system was divided
into four phases.
First Phase: Focused on implementing personnel management, benefits
administration, and payroll administration functions.

Second Phase: Focused on implementing job requisition, labour relations,

and workflow management features.
Third Phase: Concerned with the development of an organisation-wide
learning source to facilitate information and knowledge sharing.
Fourth Phase: Focussed on competency mapping and personnel
development.
The implementation of the ERP HRM system not only improved human
resource functions but also increased the overall operational efficiency of
the organisation.
Questions:
1. Why was ABC facing problems related to HRM?
2. What are the advantages obtained by ABC after implementing the ERP
HRM system?

Planning.

E-References
 http://www.scribd.com/doc/90619061/Chapter-5-Erp-Modules-hr
 http://en.wikipedia.org/wiki/Human_resource_management_system
 http://en.wikipedia.org/wiki/Payroll

Unit 12 ERP: Finance Perspective
Structure
12.1 Introduction
Objectives
12.2 Role of ERP in Finance
12.3 Accounting and Finance Processes
Cash management
Capital budgeting
12.4 Features of ERP Financial Module
12.5 Benefits of ERP Financial Module
12.6 Sage Accpac ERP – A Financial ERP Tool
12.7 Summary
12.8 Glossary
12.10 Answers
12.11 Case Study: Implementation of ERP Financial Module at ABC
12.1 Introduction
You have already studied the importance of finance in the business world.
An organisation requires finance to expand its business, purchase raw
materials, pay debts, and acquire licenses. The competitive strength of an
organisation depends on its financial strength. On the contrary, lack of
financial resources hampers the growth and success of an organisation.
Therefore, efficient management of finance is critical for any organisation to
achieve its strategic goals. To do so, most organisations implement an ERP
system with financial functionality. In this unit, let us study more about the
financial module of an ERP system.

The financial module of an ERP system automates the financial transactions

of an organisation. It helps an organisation to efficiently perform various
financial activities, such as accounts payables and receivables, cash
management, and capital budgeting. In addition, the financial module
enables an organisation to generate accurate financial statements, such as
balance sheet and profit and loss account.
In this unit, you will study about the role of ERP in finance and also some of
the important accounting and finance processes of an organisation. Next,
you will study about the features and benefits of the ERP financial module.
In the end, you will be familiarised with the functions of Sage Accpac ERP,
which is a financial ERP tool.
Objectives
 discuss the role of ERP in finance
 analyse accounting and finance processes
 list the features of the ERP financial module
 explain the benefits of the ERP financial module
 state the features and benefits of Sage Accpac ERP
12.2 Role of ERP in Finance

Now, you must be aware of the fact that finance is an important resource for
any organisation to carry out its business operations. Therefore, it is very
important for an organisation to manage its finance prudently. To do so,
most organisations use the financial module of an ERP system.
The ERP financial module not only helps an organisation to perform its
financial activities effectively but also acts as an effective tool for financial
decision making. Figure 12.1 shows the general framework of the ERP
financial module:

Figure 12.1: ERP Financial Module

The different departments of an organisation need to maintain a certain kind
of financial information by preparing different types of accounts, such as
purchase and sales. For example, a sales account includes sales-related
information, such as the cost and sales price of a product and the profit
generated by selling one unit of that product. On the other hand, the
purchase account includes the information related to the quantity of raw
materials purchased and the cost incurred on their purchase. All these
accounts can be maintained effectively by using the ERP financial module.

1. The ERP financial module not only helps an organisation to perform
its financial activities effectively but also acts as an effective tool for
____________.
2. The different departments of an organisation need to maintain a
certain kind of financial information by preparing different types of
accounts, such as purchase and sales. (True/False)
3. A sales account includes sales-related information, such as the cost
and sales price of a product and the profit generated by selling one
unit of that product. (True/False)

Activity 1:
Using the Internet, find out the importance of ERP financial module in the
banking sector.
12.3 Accounting and Finance Processes

You must have noticed that the terms accounting and finance are used
interchangeably. However, accounting and finance are two different but
closely related fields. Let us define these two terms in detail.
Accounting is all about recording the business transactions of an
organisation and preparing financial statements, such as profit and loss
account, cash flow statement, and balance sheet. These statements help in
determining the financial position of an organisation. On the other hand,
finance is a broader term and uses accounting information to make various
financial decisions, such as how to raise funds for the future projects of an
organisation. Figure 12.2 shows the accounting and finance processes of an
organisation:
Figure 12.2: Accounting and Finance Processes

Let us discuss some of the main activities involved in the accounting and
finance processes of an organisation in detail.

12.3.1 Cash management

Cash management is a process of administering the cash of an organisation
in such a manner so as to maximise the availability of cash and prevent
insolvency. It helps in ensuring whether an organisation has sufficient cash
to meet its requirements and invest in different projects. Cash management
undertakes two main activities, namely cash flow analysis and budget
analysis. Cash flow analysis is a process of tracking the inflow and outflow
of cash during a particular time period. On the other hand, budget analysis
is all about ensuring whether the cash outflow of an organisation is as per
its budget.
12.3.2 Capital budgeting

Capital budgeting involves determining the financial feasibility of different
ventures or projects of an organisation. In simple words, you can define
capital budgeting as a process of finding whether the projects of an
organisation are worth pursuing. Capital budgeting can be performed using
three main techniques, namely Net Present Value (NPV), Internal Rate of
Return (IRR), and Payback Period.

4. ___________ is all about recording the business transactions of an
organisation and preparing financial statements, such as profit and
loss account, cash flow statement, and balance sheet.
5. Financial statements help in determining the _________ of an
organisation.
6. _________ is a broader term and uses accounting information to
make various financial decisions, such as how to raise funds for the
future projects of an organisation.
7. ___________ is a process of administering the cash of an
organisation in such a manner so as to maximise the availability of
cash and prevent insolvency.
8. ____________ is a process of tracking the inflow and outflow of cash
during a particular time period.

9. ___________ is all about ensuring whether the cash outflow of an

organisation is as per its budget.
10. ___________ involves determining the financial feasibility of different
ventures or projects of an organisation.
12.4 Features of ERP Financial Module

The financial module is one of the most crucial modules of an ERP system.
It collects financial data and generates reports, such as ledgers, trail
balance, and balance sheets. In addition, the financial module monitors the
flow of cash within and outside an organisation. The following are some of
the important features of the financial module:
Integration of Financial System: The financial module provides integrated,
up-to-date financial information to all the departments of an organisation,
thereby enabling them to make sound business decisions.
General Ledger Module: The financial module includes a sub-module
called general ledger. This sub-module provides information related to the
current and the future financial needs of an organisation.
Effective Security Features: The ERP financial module includes security
features that help an organisation to protect its financial data from misuse.
Multi-Currency System: The financial module consists of a multi-currency
system that can convert a particular amount in one currency to another
easily. This helps in avoiding delays in business transactions.
Multiple Payment Options: The financial module enables customers to
make payments through different modes, such as online, mobile, credit
card, and debit card, etc.

11. The ___________ collects financial data and generates reports, such
as ledgers, trail balance, and balance sheets.
12. The financial module monitors the flow of cash within and outside an

13. The _________ sub-module provides information related to the

current and the future financial needs of an organisation.
14. The ERP financial module includes _________ features that help an
organisation to protect its financial data from misuse.
15. The financial module consists of a multi-currency system that can
convert a particular amount in one currency to another easily.
(True/False)
12.5 Benefits of ERP Financial Module

Some of the main benefits of the financial module of an ERP system are:
 Provides authorised access to financial data to multiple users at the
same time.
 Converts financial values in multiple currencies.
 Generates accurate financial statements.
 Connects different databases through a single source.
 Maintains information related to previous years’ accounts.
 Updates changes in different databases automatically.

16. The financial module of an ERP system provides authorised access
to financial data to multiple users at the same time. (True/False)
17. The Financial module of an ERP system generates accurate
___________ statements.
18. The financial module of an ERP system cannot provide information
related to previous years’ accounts. (True/False)
Activity 2:
Find out the limitations of the ERP financial module using the Internet.

12.6 Sage Accpac ERP – A Financial ERP Tool

Sage Accpac ERP is a financial tool that streamlines the complex
accounting and finance processes of an organisation at the same time
complying with regulations. It includes some core financial features that
enable an organisation to reduce reporting cycle, enhance its budgeting
process, and accelerate cash collections. Sage Accpac ERP works in
association with its various sub-modules. Some of these sub-modules are:
General Ledger: improves the accounting and financial reporting processes
of an organisation. The general ledger sub-module has the following
benefits:
 It reverses journal entries automatically.
 It provides efficient budgeting and planning tools.
 It supports multi-currency and inter-company transaction processing.
 It supports multiple bank accounts.
Accounts Payable: provides the following benefits to an organisation:

 It generates inter-company checks.
 It reduces paperwork.
 It prevents errors in the printing of checks.
Accounts Receivable: enables an organisation to:

 maintain sufficient cash deposits.
 generate accounts receivables automatically.
 prepare an effective cash flow statement.
Reporting and Analysis: helps an organisation in the following ways:

 It provides business intelligence tools.
 It includes flexible dashboards that can represent data in the form of

charts and graphs.

Budgeting: provides the following benefits to an organisation:

 It reduces planning cycles.
 It provides effective analysis tools.
 It helps in financial modelling and projection.

19. ___________ is a financial tool that streamlines the complex
accounting processes and finance of an organisation at the same
time complying with standards.
20. Sage Accpac ERP includes some core financial features that enable
an organisation to reduce reporting cycle, enhance its budgeting
process, and accelerate cash collections. (True/False)
21. The ___________ sub-module improves the accounting and financial
reporting processes of an organisation.
22. The ____________ sub-module prepares an effective cash flow
statement.
12.7 Summary
 The ERP financial module helps an organisation to perform its financial
activities effectively and take financial decisions.
 The main activities involved in the accounting and finance processes of

an organisation are cash management and capital budgeting. Cash
management is a process of managing the inflow and outflow of cash of
an organistion for increasing the availability of cash and preventing
insolvency. On the other hand, capital budgeting involves determining
the financial feasibility of different ventures or projects of an organisation
using various techniques, such as Net Present Value (NPV), Internal
Rate of Return (IRR), and Payback Period.

 The important features of the financial module are integration of financial

system, general ledger module, effective security features, multi-
currency system, and multiple payment options.
 Sage Accpac ERP refers to a financial tool used by organisations to
manage its complex accounting and finance processes while complying
with the regulations. It has various sub-modules, such as general ledger,
accounts payable, accounts receivable, reporting and analysis,
budgeting.
12.8 Glossary
Profit and Loss Account: An account prepared by an organisation at the
end of its accounting period to determine its gross and net profit or loss.
Cash Flow Statement: An accounting statement that shows the amount of
cash generated and spent by an organisation in a given time period.
Balance Sheet: A financial statement that includes information related to
the assets, liabilities, and shareholders’ equity of an organisation at a given
point of time.
Insolvency: An inability of an organisation or individual to pay its debts on
time.

1. Discuss the role of ERP in finance.
2. Write a short note on accounting and finance processes.
3. Define cash management.
4. What is capital budgeting?
5. State the features of the ERP financial module.
6. What are the benefits of the ERP financial module?
7. What is Sage Accpac ERP?
8. Name the different sub-modules of Sage Accpac ERP.

12.10 Answers

1. financial decision making
2. True
3. True
4. Accounting
5. financial position
6. Finance
7. Cash management
8. Cash flow analysis
9. Budget analysis
10. Capital budgeting
11. financial module
12. True
13. general ledger
14. security
15. True
16. True
17. financial
18. False
19. Sage Accpac ERP
20. True
21. general ledger
22. accounts receivable

Terminal Questions
1. An ERP system helps in facilitating an effective financial decision
making in an organisation. Refer to Section 12.2 Role of ERP in
Finance, which explains the role of ERP in finance.
2. Accounting is a process of recording the business transactions of an

organisation and preparing financial statements, such as profit and loss
account, cash flow statement, and balance sheet. The accounting
process helps an organisation in determining its financial position. On
the other hand, finance involves the management of funds of an
organisation by using the accounting information. Refer to Section 12.3
Accounting and Finance Processes, which discusses accounting and
finance processes.
3. Cash management is a process of ensuring that an organisation has
sufficient cash to carry out different activities. Refer to Section 12.3
Accounting and Finance Processes, which defines cash
management.
4. Capital budgeting involves determining the viability of projects by using
various techniques. Refer to Section 12.3 Accounting and Finance
Processes, which explains capital budgeting.
5. The different features of the financial module of an ERP system are the
integration of financial system with other departments, effective data
security, multi-currency feature, and multiple payment options. Refer to
Section 12.4 Features of ERP Financial Module, which states the
features of the ERP financial module.
6. The ERP financial module provides many benefits to an organisation.
These benefits include providing authorised access to financial data to
multiple users at the same time, converting financial values in multiple
currencies, and generating accurate financial statements. Refer to
Section 12.5 Benefits of ERP Financial Module, which lists the
benefits of the ERP financial module.
7. Sage Accpac ERP is a financial tool that simplifies the complex
accounting and finance processes of an organisation at the same time

complying with regulations.Refer to Section 12.6 Sage Accpac ERP- A

Financial ERP tool, which explains Sage Accpac ERP.
8. The different sub-modules of Sage Accpac ERP are general ledger,

accounts payable, accounts receivable, reporting and analysis, and
budgeting. Refer to Section 12.6 Sage Accpac ERP –A Financial ERP
Tool, which lists the different sub-modules of Sage Accpac ERP.
12.11 Case Study: Implementation of ERP Financial Module at

ABC
ABC Private Ltd. is one of the India’s leading manufacturers of steel. Since
its inception, ABC has a large customer base. The organisation is
committed to maintain world-class quality standards, effective delivery
schedules, competitive prices, and superior aftersales service.
However, for the past few months, the profit margin of ABC had been
decreasing considerably. This led to decline in its organisational efficiency.
In order to resolve the on-going issues, the organisation decided to inspect
the functioning of its different departments. After inspection, ABC identified
the following problems:
 Higher bad debts
 Ineffective account receivables process
 Duplication of work
 Lack of coordination between the finance department and the other

departments
Considering the aforementioned problems, ABC decided to implement an

ERP system with financial functionality. It hired a UK-based vendor to
execute the process of ERP implementation. The following are the benefits
obtained by ABC after implementing the ERP system:
 Decline in bad debts by 50%
 Reduction in the duplication of work by 30%
 Improved financial activities

This ultimately resulted in a significant improvement in the efficiency and

effectiveness of the organisation.
Questions:
1. What were the main problems faced by ABC?
2. Do you think the implementation of an ERP system was the right
decision of ABC?

Planning.

E-References
 http://www.sagesoftware.co.in/SubSubProduct.aspx?SubProductId=5
 http://www.open-source-erp-site.com/erp-finance-module.html
 http://www.exlservice.com/services/outsourcing/finance-accounting.aspx
 http://wiki.sdn.sap.com/wiki/display/SSC/Best+Practise+Finance+Proces
ses+in+Shared+Services

Unit 13 ERP Vendors, Consultants, and Employees
Structure
13.1 Introduction
Objectives
13.2 Vendors
Role of a vendor
13.3 Consultants
Types of consultants
Role of a consultant
13.4 Employees
Role of employees
Resistance by employees
Dealing with employee resistance
13.5 Role of Top Management
13.6 Role of Implementation Partner
13.7 Summary
13.8 Glossary
13.10 Answers
13.11 Case Study: ERP Implementation at AX Ltd.
13.1 Introduction
Now, you have a fair idea about the benefits of an ERP system in an
organisation. However, implementing the right ERP system as per the
requirements of an organisation is a challenging task. It involves identifying
business needs, determining the ERP budget, and managing data. A
successful ERP implementation depends on three major elements, namely

vendors, consultants, and employees. In this unit, let us study more about
these three elements.
You have already studied that vendors are the people who develop ERP
packages as per the requirements of different organisations. They invest a
huge amount of money, time, and effort, in research and development, so
that they can provide customised ERP solutions to organisations. On the
other hand, consultants are the people responsible for monitoring each
phase of the ERP implementation process. They ensure that all the
activities involved in an ERP implementation are performed on time and at
the desired quality level. Once an ERP system is configured and automated
by vendors and consultants, an organisation needs complete support of its
employees in order to draw the desired benefits of the system.
The effectiveness of an ERP system depends on how efficiently employees
can work on it. So, you can say that employees are the key players in any
ERP implementation. However, employees can be reluctant in accepting the
ERP system implemented by an organisation. This is because employees
may have job insecurity, as an ERP system automates all the business
functions of an organisation. Employee resistance can be one of the
roadblocks in successful ERP implementation. Thus, it is necessary for an
organisation to make its employees aware about the benefits of an ERP
system and reassure them about their jobs, thereby, winning their trust and
cooperation.
In this unit, you will study about ERP vendors and their role in ERP
implementation. You will also study about the role of ERP consultants in
ERP implementation. In the end, you will be acquainted with the role of
employees in ERP implementation.
Objectives
 define the role of ERP vendors
 explain the importance of ERP consultants
 assess the contribution of employees in successful ERP implementation
 evaluate the pros and cons of ERP implementation
 discuss the factors essential for successful ERP implementation

13.2 Vendors
You are no stranger to the term ‘vendor’. You have already studied that the
people or organisations that develop ERP packages according to the
requirements of different organisations are called vendors. These vendors
spend their valuable resources and expertise in order to develop
customised ERP packages. These ERP packages are sold to client
organisations at a mutually agreed price. However, developing a
customised ERP solution as per the requirements of an organisation is a
time-consuming and complex process. Developing an ERP package
requires more team efforts and expertise as compared to the development
of any other information system.
Earlier, there were a limited number of ERP vendors in the market.
However, today, almost every organisation is aware of the benefits of an
ERP system. This has led to the emergence of several vendors in the ERP
market. With high demand for ERP packages, the level of competition has
also increased in the ERP market. Nowadays, vendors provide ERP
packages with several unique and advanced features in order to remain
competitive in the market. Apart from this, they also upgrade their ERP
solutions with advancements in technology. In such a case, it becomes
difficult for an organisation to select the right vendor to better serve its
needs.
You must have heard that organisations prefer to hire only those vendors
that have good reputation in the market. However, this does not hold true in
the ERP market. Here, the popularity of a vendor is not a selection criterion.
An organisation generally selects a vendor on the basis of the functionality
and operational efficiency of the ERP package offered by the vendor.
Vendors are responsible for managing the overall installation of ERP
systems in organisations and providing proper training to employees, so that
they can efficiently work with the newly implemented system. Although
vendors are completely responsible for ERP installations, the success or
failure of the system depends on an organisation. Let us discuss the role of
an ERP vendor in detail.

NOTE:
Generally, a vendor has a team of people who are responsible for the
installation of an ERP system. These people are experts in developing
information systems for a specific business function such as human
resource, finance, and marketing.
Activity 1:
Find out the names of some renowned ERP vendors using the Internet.
13.2.1 Role of a vendor

A vendor provides ERP systems to client organisations as per their
requirements at a mutually agreed price. Generally, a contractual
agreement is signed between a vendor and a client organisation. This
agreement states all the terms and conditions related to the system’s
functions, level of quality, price, and performance.
After an ERP system is purchased by an organisation, a team of experts
(vendor) need to install the system and ensure its operational efficiency.
Most of the vendors appoint a liaison officer to keep track on the activities of
this team of experts. Apart from this, the team is responsible for providing
training to the organisation’s employees, so that they can learn about the
functionality of the ERP system. Generally, this training is provided to the
key users of the system in the organisation. After receiving training, these
key users are able to train the other users of the system.
A vendor usually provides training on the following aspects of an ERP
system:
 The working of the system
 The key components of the system
 The main features of the system
 The benefits of the system
 The major limitations of the system

From the discussion so far, you can say that vendors are responsible for
maintaining the overall quality of the system.

1. The people who develop ERP packages according to the
requirements of different organisations are called ______.
2. Vendors are responsible for managing the overall installation of ERP
systems in organisations and providing proper _______ to
employees.
3. A vendor is an individual that develops and installs an ERP package.
(True/False)
4. Training provided by a vendor aims at enabling the employees to
work with the newly implemented ERP system. (True/False)
5. An organisation generally selects a vendor on the basis of the
popularity of the vendor in the ERP market. (True/False)
13.3 Consultants
Apart from vendors, there are some other system experts who can deal with
issues, which may take place during an ERP implementation. These experts
are known as business consultants or simply consultants. These
consultants possess sound knowledge of system development. Moreover,
they have expertise in the administration, management, and control of ERP
implementation projects.
Consultants provide comprehensive support to an organisation, right from
the phase of package evaluation till employee training. These consultants
perform multiples roles, such as project manager, team leader, and vendor
service representatives, when they are hired by organisations. Generally,
trained consultants are technically proficient and flexible in working with
different computer applications. Moreover, these consultants have sound
knowledge of software and the prevailing market conditions. They also have
relationship building, communication, and problem-solving, skills. However,
hiring a trained consultant is not possible for every organisation, as they
charge a huge amount of money.

Following are the major functions performed by consultants in an ERP

implementation:
 Maintaining the documents used during the ERP implementation project
 Examining the existing market conditions and business processes of an
organisation
 Performing time study and gap analysis during the implementation
process
 Customising the system and reviewing its operations
Let us discuss the different types of consultants and their roles in ERP
implementation, in detail.
13.3.1 Types of consultants

ERP consultants usually provide three types of consultation services,
namely, managerial consultation, application consultation, and technical
consultation. Based on this categorisation, consultants are also grouped into
three main categories, which are:
Management Consultants: These consultants primarily focus on
managerial functions (planning, organising, directing, and controlling)
related to ERP implementation. For example, organising the resources and
planning the flow of data. They also direct an organisation throughout the
ERP implementation process and the system usage.
Application Consultants: These consultants mainly focus on configuring
the system as per the requirements of an organisation. In addition, they are
also responsible for instructing the organisation about the functioning of the
system through demonstrations. This helps the organisation in performing
its business functions with the help of the newly installed system.
Technical Consultants: These consultants primarily concentrate on
resolving technical issues that may rise during an ERP implementation.
These technical issues can be related to database conversion, source code
modification, communication protocols, operating system management, and
programme integration. These issues are usually identified by management
and application consultants during an ERP implementation. Therefore,
technical consultants need to work in close integration with the management
and the application consultants.

13.3.2 Role of a consultant

From the discussion so far, you have a fair idea about the responsibilities of
an ERP consultant. Basically, consultants perform an extensive research in
order to determine the functionality of the system, thereby, meeting the
needs of organisations. You have studied earlier that vendors provide
training to key users in an organisation, while consultants supervise the
whole training programme in order to ensure that the training objectives are
met properly. Apart from this, following are some other responsibilities of
ERP consultants:
 Supervising the entire ERP implementation process
 Formulating a plan of actions and ensuring that all the tasks are
performed in the planned way
 Ensuring the participation of all the members associated with the ERP
implementation project
 Adding value to the ERP implementation project through their expertise

and knowledge
 Saving additional costs, resources, and time of the organisation
 Providing application support so that the organisation can derive the

desired benefits of the ERP system
 Customising the ERP package through thorough analysis
 Making the organisation understand the pros and cons of their present
legacy system

6. Consultants have _______ in the administration, management, and
control of ERP implementation projects.
7. __________ provide comprehensive support to an organisation, right
from the phase of package evaluation till employee training.
8. Hiring a trained consultant is not possible for every organisation, as
they charge a huge amount of money. (true/false)

9. Consultants do not provide training to the key system users in an

10. Consultants supervise the entire ERP implementation process.
(True/False)
Activity 2:
Find out the names of some famous ERP consultants.
13.4 Employees
The consultant and vendor leave an organisation, once an ERP system is
implemented. By this time, the users are trained to work on the ERP
system. These users are basically the competent employees of the
organisation. These employees are kind of pilot trainees, who subsequently
train other employees to work with the system, and help the organisation to
derive the desired benefits of the system. Let us study about the role of
employees in ERP implementation, in detail.
13.4.1 Role of employees

The implementation of an ERP system can be successful, if there is proper
support and cooperation of employees. Unless the employees operate the
system efficiently, the ERP system would not be able to provide the desired
results. Therefore, it is important for an organisation to make its employees
aware of the benefits of an ERP system.
The roles and responsibilities of employees change after the implementation
of an ERP system. This is because an ERP system automates the tasks
that were handled manually by employees earlier. So, you can say that an
ERP system enables the employees of an organisation to perform their
complex business functions easily. However, some of the employees resist
change in their job roles and responsibilities. The resistance of employees
can be a hurdle in successful ERP implementation.
Therefore, an organisation needs to identify the reason for such resistance
and deal with it efficiently.

13.4.2 Resistance by employees

In today’s dynamic business environment, change is an essential element.
However, it is a natural human tendency to resist change. This natural
reaction may lead to a loss of operational effectiveness and increased
management issues. Thus, it is critical for an organisation to manage
employee resistance to change.
Similarly, employees also resist the changes that take place after
implementing an ERP system in an organisation. The following are some of
the main reasons for employee resistance:
Fear of Being Dismissed: Implementing an ERP system brings a number
of changes in the existing job profile of employees in an organisation. As
discussed earlier, an ERP system automates all the business functions of
an organisation. In such a case, employees may feel redundant and
develop job insecurity.
Fear of Failure: Sometimes employees develop a feeling that ERP
implementation will make things more complex than ever. This further
makes employees develop a mind-set that they will fail to learn the skills
required to operate the new system.
Fear of Losing Power: Employees may also have a notion that ERP
implementation may reduce their control over the database. This is because
the data provided by an ERP system is accessible to all the employees of
an organisation and the data is no longer under one person’s control.
Passive Attitude Towards Change: Some employees also feel that
changes affect the existing way of life. Employees with such an attitude
always resist change as they fail to look on the brighter side of the change.
Although ERP implementation brings changes in the existing job
responsibilities, it creates many new job opportunities and adds value to the
existing job responsibilities at the same time. Therefore, an organisation
should make its employees aware of the benefits of an ERP system.
13.4.3 Dealing with employee resistance

An organisation can take the following measures to deal with employee
resistance to ERP implementation:

Addressing Employee Issues: Resistance takes place when employees

are unaware of the actual benefits of an ERP implementation, and their
issues are not addressed properly. Therefore, it is important for an
organisation to educate its employees about the benefits of an ERP system
and clear their doubts properly. The more the employees are clear about the
benefits of an ERP system, the less they resist.
Providing Proper Training and Knowledge: An organisation should
provide proper training to employees, so that they can work better with the
ERP system and derive the desired benefits out of it.
Conducting Pilot Programmes: In a pilot project, some of the competent
employees are selected by an organisation. These selected employees are
given training to work with the system. Consequently, the rest of the
employees also get motivated to work with the new system. In such a case,
it becomes easier for an organisation to deal with employee resistance.
Encouraging Employee Participation: An organisation should involve its
employees in the planning and implementation of an ERP system. This
keeps employees informed about the benefits of the new system
beforehand. Consequently, employees do not resist change.
Managing Employee Expectations: An organisation should conduct
employee surveys in order to determine the needs and expectations of its
employees and fulfil them. Moreover, it should communicate correct
information related to the of an ERP system to its employees. This helps an
organisation in preventing the spread of rumours and misconceptions
among employees.

11. The consultant and vendor do not leave an organisation after the
implementation of an ERP system. (True/False)
12. An organisation should miscommunicate the benefits of an ERP
system to employees in order to avoid their resistance. (True/False)
13. Providing proper training and knowledge to employees is one of the
measures to deal with employee resistance. (True/False)
14. Which of the following is not a reason for employee resistance?

A. Training and knowledge

B. Fear of being dismissed
C. Fear of failing
D. Passive attitude towards change
13.5 Role of Top Management

The top management of an organisation is responsible for formulating and
executing the business strategy of the organisation. In ERP implementation,
the support and commitment of the top management are necessary for its
success. This is because the top management provides the required
resources for the implementation of an ERP system. Apart from this, the top
management plays various roles and responsibilities for implementing the
ERP system successfully. Some of these roles and responsibilities are:
Responsibilities with Respect to the ERP Project: The top management
has the following responsibilities towards the ERP project:
 Attending the meetings regarding ERP implementation
 Participating in the decision-making process of ERP implementation
 Funding the resources required for ERP implementation
 Supporting the project manager
 Making plans for monitoring and controlling the ERP implementation

project
 Making employees aware of the functioning and complexity of ERP

implementation
Responsibilities with Respect to the ERP Implementation Process: For

successful ERP implementation, the top management performs the
following functions:
 Aligning the ERP project with the overall organisational strategy
 Facilitating requirement analysis

Responsibilities with Respect to Employees Involved in ERP

Implementation: The top management of an organisation needs to perform
the following functions:
 Assigning the best and right people for the right work
 Empowering the members of the project team
 Ensuring employee commitment at all levels of ERP project

implementation
 Establishing comprehensive and continuous communication
 Motivating employees
 Preventing employee resistance to ERP implementation by making them

aware about the benefits of this implementation

15. The top management of an organisation is responsible for formulating
and executing the business strategy of the organisation. (True/False)
16. In ______________, the support and commitment of top
management is necessary for its success.
13.6 Role of Implementation Partner

An Implementation Partner (IP) is a vendor who acts as a consultant and a
coach in the implementation of a large-scale project. As ERP
implementation involves huge cost, time, and effort, organisations prefer to
hire IPs for implementing an ERP system. IPs are experts in ERP
implementation and suggest the most effective ways of selecting and
implementing an appropriate ERP system.
It is essential for an organisation to select the right IP for implementing the
ERP system. To select the right IP, an organisation needs to consider the
following questions:
 Is the IP wholly independent?
 Does the IP charge commission from ERP vendors?

 Is the methodology used by the IP internally developed and proprietary

based?
 Does the IP provide deep and cross-functional training with respect to

the ERP implementation methodology to its consultants?
 Does the culture followed by the IP fit the organisation in which ERP
implementation is to be taken place?
 Does the IP have an understanding of global business success?
 Does the IP have international experience?
 Does the IP provide all the services related to ERP implementation such
as software selection, implementation, organisational change
management, and business process reengineering?
 Does the IP provide a comprehensive 360-degree approach to ERP

engagements?
 Does the IP have expertise in every facet of an ERP implementation?
 Is the IP well-known in the ERP industry?

17. An ______________ is a vendor who acts as a consultant and a
coach in the implementation of a large-scale project.
18. An organisation should check the people working with the
implementation before selecting the partner. (True/False)
13.7 Summary
 Vendors are the people who develop ERP packages as per the
requirement of different organisations. They also provide training to the
organisation’s employees for implementing and working on ERP
systems.
 Consultants are the people who have sound knowledge about ERP
system development. In addition, they also have expertise in the

administration, management, and control of ERP implementation. They

provide support to the organisation, right from the selection of ERP
system till the training of employees. The consultants are hired by
organisations and can act as a project manager, a team leader, and a
vendor service representative, in the ERP implementation process. ERP
consultants are of three types, management, application, and technical
consultants.
 In successful ERP implementation, the employees of an organisation

play an important role, as they need to operate the system efficiently in
order to generate the desired results. However, sometimes employees
resist ERP implementation due to various reasons such as fear of being
dismissed, fear of failure, and fear of losing power. In order to overcome
employee resistance, organisations take several steps such
as addressing employee issues, providing proper training and
knowledge, conducting pilot programmes, encouraging employee
participation, and managing employee expectations.
 The support of top management is also essential for successful ERP

implementation, as it provides the required resources for the
implementation process.
 An IP helps in the implementation of an ERP system by acting as a

consultant and a coach that guides the implementation process.

1. Write a short note on ERP vendors.
2. Discuss the role of vendors in ERP implementation.
3. Who are ERP consultants?
4. How do consultants help in successful ERP implementation?
5. What is the role of employees in successful ERP implementation?
6. What are the primary reasons for employee resistance to ERP
implementation?

7. Name different types of ERP consultants.

8. How can an organisation deal with employee resistance to ERP
implementation?
13.10 Answers

1. Vendors
2. Training
3. False
4. True
5. False
6. Expertise
7. Consultants
8. True
9. False
10. True
11. False
12. False
13. True
14. A
15. True
16. ERP implementation
17. Implementation partner
18. False

Terminal Questions
1. ERP vendors develop ERP packages as per the requirements of
customers. Refer to Section 13.2 Vendors, which provides information
about ERP vendors.
2. Vendors are responsible for providing an ERP system as per the
requirements of customers, installing the system, and training staff.
Refer to Section 13.2 Vendors, which discusses the role of ERP
vendors.
3. Consultants are experts in the administration, management, and control
of ERP implementation projects. They support an organisation right
from the phase of package evaluation till employee training. Refer to
Section 13.3 Consultants, which provides information about ERP
consultants.
4. Consultants maintain documents required in the implementation
process, check the existing market conditions, perform time and gap
analysis, customise the system, and review its operations. Refer to
section 13.3 Consultants, which explains the role of consultants in
ERP implementation.
5. Unless employees operate the system efficiently, the ERP system will
not be able to provide the desired results. Therefore, it is important for
an organisation to make its employees aware of the benefits of an ERP
system. Refer to Section 13.4 Employees, which discusses the role of
employees in successful ERP implementation.
6. Employees may resist the implementation of an ERP system due to
various reasons such as fear of being dismissed, fear of failure, and
fear of losing power. Refer to Section 13.4 Employees, which lists the
primary reasons for employee resistance to ERP implementation.
7. Different ERP consultants are management consultants, application
consultants, and technical consultants. Refer to Section 13.3.1 Types
of consultants, which explains different ERP consultants.

8. An organisation can deal with employee resistance to ERP

implementation by addressing employee issues, providing proper
training and knowledge, conducting pilot programmes, encouraging
employee participation, and managing employee expectations. Refer to
Section 13.6 Factors for the Success of ERP Implementation, which
lists the factors for the success of ERP implementation.
13.11 Case Study: ERP Implementation at AX Ltd.

Established in 1977, AX Ltd. is a chemical engineering organisation. It has a
staff of 42,000 employees and generates an annual revenue of $150 million.
The organisation operates in more than 29 countries all around the world.
With such a large-scale business, it becomes difficult for AX Ltd. to manage
its different business processes effectively. In order to carry out its business
processes smoothly, the organisation has decided to implement an ERP
system. For this, AX Ltd. has hired a consultant, Mr. Ram, who has five
years of experience in ERP implementation.
Mr. Ram has examined the existing market conditions and the business
processes of the organisation. In addition, he has contacted one of his
known ERP vendors to provide him the required product. Apart from this, he
has performed the following functions:
 Prepared a plan of actions and ensured that all the tasks are performed
in a planned way
 Understood the pros and cons of the existing legacy system
 Ensured the participation of all the members associated with the ERP
implementation project
 Added value to the ERP implementation project through their expertise
and knowledge
 Customised the ERP package by thorough analysis
 Provided application support so that the organisation can derive the
desired benefits from the ERP system
 Saved additional costs, resources, and time of the organisation
 Supervised the entire ERP implementation process

The ERP implementation at AX Ltd. has proved to be a huge success. The

organisation has earned a profit of $ 100 million.
Questions:
1. According to you, what can be the other functions that Mr. Ram should
have performed during the ERP implementation?
2. How can an organisation deal with employee resistance during ERP
implementation?

Planning.

E-references
 http://www.erppandit.com/roles-of-ERP-vendors.html
 http://www.nickmutt.com/roles-of-erp-consultant.htm
 http://www.eresourceerp.com/erp-consultant-responsbiltiies.html

Unit 14 Different ERP Vendors
Structure
14.1 Introduction
Objectives
14.2 ERP Vendors
14.3 SAP-AG
Products and technology
R/3 overview
SAP advantage
14.4 Baan Company
Baan ERP modules
Global support, education, and consulting
PeopleSoft
JD Edwards World Solutions Company
14.5 Oracle Corporation
Oracle Application
Vertical solutions
14.6 Microsoft Corporation
14.7 Ramco Systems
14.8 Systems Software Associates Inc. (SSA)
BPCS application suite
14.9 QAD

MFG/PRO application
Modules
14.10 Summary
14.11 Glossary
14.13 Answers
14.14 Case Study: ERP Implementation in PQR Ltd.
14.1 Introduction
You studied in the previous unit that vendors are the people, who develop
ERP packages as per the requirements of different organisations. They
invest a large sum of money and efforts to provide customised ERP
solutions to their customers. In this unit, let us discuss about different ERP
vendors and their products.
With an increase in demand for ERP, a large number of ERP vendors have
emerged in the market. All these vendors provide innovative ERP products
to different industries. This resulted in cut-throat competition in the ERP
market. Some of the renowned ERP vendors are SAP-AG, Baan Company,
Oracle Corporation, SSA, and QAD.
In this unit, you will study about the different ERP vendors. Next, the unit
elaborates on SAP-AG and its products and technology. Further, you will be
familiarised with a popular ERP vendor called Baan Company, its products,
and modules. An overview of Oracle Corporation and PeopleSoft Inc. is also
given in the unit. In addition, the unit sheds light on the products of JD
Edwards World Solutions Company. Apart from this, you will study about the
different products of Systems Software Associates. In the end, you will be
apprised about QAD and its various modules.
Objectives
 discuss different ERP vendors

 explore the products offered by SAP-AG
 identify ERP solutions provided by Baan Company
 explain the applications of Oracle
 evaluate the solutions provided by PeopleSoft
 describe the products offered by JD Edwards
 explain the importance of BPCS applications of SSA
 discuss the modules of QAD
14.2 ERP Vendors

Now, you must be aware of the fact that the ERP vendors play a significant
role in ERP implementation. These ERP vendors are responsible for
administering the entire ERP implementation process, providing training to
end users, and resolving issues that may take place during implementation.
Nowadays, the ERP market is facing stiff competition due to increasing
number of vendors. These vendors strive hard to fulfil the needs of
customers by providing unique and innovative ERP packages. Some of the
renowned ERP vendors are:
 SAP-AG
 BAAN Company
 Oracle Corporation
 People Soft
 JD Edwards World Solutions Company
 Systems Software Associates Inc. (SSA)
 QAD
Let us discuss about these ERP vendors and their products in detail.


1. The ERP vendors play a significant role in ERP implementation.
(True/False)
2. _________ are responsible for administering the entire ERP
implementation process, providing training to end users, and
resolving issues that may take place during implementation.
3. IBM is one of the renowned ERP vendors. (True/False)
Activity 1:
Using the Internet, determine the market share of the different ERP
vendors.
14.3 SAP-AG
Systems Application and Products in Data Processing (SAP)-AG was
incorporated in 1972, Germany by the five former employees of IBM. It is
one of the largest, multinational organisations that provide enterprise
application software to different organisations. SAP operates in more than
130 countries.
SAP’s ERP software is available in two versions, namely mainframe version
(SAP R/2) and client/server version (SAP R/3). Among them, SAP R/3 is the
most commonly used software. It is accepted as the standard software in
many industries, such as oil, chemical, consumer products, and electronics.
14.3.1 Products and technology

SAP ERP is one of the most popular products of SAP-AG. Its recent version
is known as SAP ERP 6.0, which is previously called R/3. SAP ERP 6.0 is
one of the five enterprise applications of SAP Business Suite. Other four
enterprise applications of SAP Business Suite are:
Customer Relationship Management (CRM): Enables organisations to
acquire new customers and retain the existing ones. In addition, it helps
organisations in identifying the needs of its customers and fulfilling them.

Product Lifecycle Management (PLM): Provides up-to-date product-

related information to organisations.
Supply Chain Management (SCM): Enables organisations to monitor their
entire supply chain process.
Supplier Relationship Management (SRM): Helps organisations to
develop cordial relationships with suppliers.
Apart from this, the following are some other business solutions provided by
SAP:
 SAP Business Objects Suite (BOBJ)
 SAP Advanced Planner and Optimizer (APO)
 SAP Analytics
 SAP Apparel and Footwear Solution (AFS)
 SAP Business Information Warehouse (BW)
 SAP Business Intelligence (BI)
 SAP Catalogue Content Management (CCM)
 SAP Convergent Charging (CC)
 SAP Convergent Invoicing (CI)
 SAP Enterprise Buyer Professional (EBP)
 SAP Enterprise Learning
 SAP Portal (EP)
 SAP Process Integration (SAP PI))
 Governance, Risk and Compliance (GRC)
 Enterprise Central Component (ECC)
 SAP Human Resource Management Systems (HRMS)
 SAP Internet Transaction Server (ITS)
 SAP Incentive and Commission Management (ICM)

 SAP Knowledge Warehouse (KW)
 SAP Manufacturing
 SAP Master Data Management (MDM)
 SAP Service and Asset Management
 SAP Solutions for Mobile Business
 SAP Solution Composer
 SAP Sourcing
 SAP Strategic Enterprise Management (SEM)
 SAP Test Data Migration Server (TDMS)
 SAP Training and Event Management (TEM)
 SAP NetWeaver Application Server (Web AS)
 SAP xApps
 SAP Supply Chain Performance Management (SCPM)
SAP products are more effective as compared to any other business

software. One of the main features of SAP software is its real-time
integration. It enables an organisation to integrate its different processes
and applications. In addition, SAP software provides a quick response to
any change in the organisation on a departmental, divisional, or global level.
SAP software can easily be used by multinational organisations as it
supports multi-currency transactions. The software also handles country-
specific import, export, legal, tax, and language requirements. For example,
a complete business suite of R/3 includes more than 24 international
languages.
14.3.2 R/3 overview

SAP R/3 is client/server architecture of SAP ERP. It is one of the most
popular ERP systems among organisations. It is considered as the best tool
for resolving problems related to data management.

In R/3, the letter ‘R’ stands for real-time while 3 signifies the three-layer
architecture. These layers are:
Database Layer: Stores transactional and configuration data of the system.
It resides on mainframe or central servers host computers.
Application Layer: Contains logic for processing business information and
providing it to different departments.
Presentation Layer: Acts as an interface between the user and the
software. It is installed on personal computers and handles all the activities
related to data presentation.
SAP R/3 supports various Internet and intranet-based interfaces,
applications, and business processes. This helps in meeting the unique
requirements of different customers.
SAP R/3 includes different modules, which can either be installed alone or
in combination with other solutions. These modules are:
Financial Accounting: Provides up-to-date information that supports the
accounting process of an organisation.
Controlling: Enables an organisation to manage and control its various
functions, such as marketing, finance, production, and quality.
Investment Management: Provides integrated information for managing
the investments of an organisation effectively.
Production Planning: Provides various tools for preparing an effective
production plan for an organisation.
Materials Management: Helps an organisation to determine an optimum
level of inventory, thereby reducing cost incurred on procurement and
warehousing.
Plant Maintenance and Service Management: Provides tools for the
maintenance of equipment and machinery of an organisation.
Project System: Enables an organisation to monitor the different phases of
a project effectively.
Human Resources Management: Provides tools for planning and
managing the human resource of an organisation effectively.

14.3.3 SAP advantage

SAP has established partnerships with hardware manufacturers, database
providers, and service organisations that help in the successful
implementation of ERP systems in organisations. The three-tier architecture
of SAP ERP facilitates effective information sharing within an organisation.
SAP provides education via their University Alliance programs.
Apart from this, SAP ERP has the following advantages:
Functionality: SAP ERP is capable of automating and managing all the
business processes of an organisation.
User Friendliness: SAP ERP provides a uniform graphical user interface,
which makes it easier for organisations to work with the system.
Customisation: SAP ERP can be customised as per the requirements of
different organisations.
Flexible Structure: SAP ERP is flexible to adapt changes quickly that may
take place in the dynamic business environment.
Real-Time Information: SAP ERP provides up-to-date, real-time
information to an organisation as and when required.

4. Systems Application and Products in Data Processing (SAP) was
incorporated in _______, Germany by the five former employees of
IBM.
5. _________ is one of the largest, multinational organisations that
provide enterprise application software to different organisations.
6. SAP’s ERP software is available in two versions, namely
___________ and client/server version (SAP R/3).
7. SAP ERP is one of the most popular products of SAP-AG.
(True/False)
8. SAP ERP 9.0 is one of the five enterprise applications of SAP
Business Suite. (True/False)
9. __________ enables organisations to acquire new customers and
retain the existing ones.
10. ___________ helps organisations to develop cordial relationships
with suppliers.

11. ___________ is client/server architecture of SAP ERP.

12. In R/3, the letter ‘R’ stands for _________ while 3 signifies the
____________.
13. Database Layer stores transactional and configuration data of the
system. (True/False)
14. __________ acts as an interface between the user and the software.
15. SAP ERP provides a uniform __________, which makes it easier for
organisations to work with the system.
Activity 2:
Identify some of the limitations of SAP ERP.
14.4 Baan Company

Baan Company was established by two brothers Jan Baan and Paul Baan
in Netherlands, 1978. It is one of the leading providers of enterprise
business software across the world. It provides a wide range of applications
for automating the front and back-office processes, thereby reducing
complexity in the processes. Moreover, the organisation’s products are
flexible enough to adapt any changes in business processes.
The organisation’s customer base includes several large-scale
organisations, such as Boeing, Philips, Mercedes-Benz, Nortel, Fujitsu
Network Communications, and Motorola.
Baan Company adopts ‘Three-I’ philosophy, which is:
Integrity: The organisation maintains transparency (when providing any
business information) while interacting with its customers, colleagues,
partners, and shareholders. This helps an organisation in winning the trust
of its customers and shareholders.
Innovation: The organisation uses innovative ideas while producing and
delivering its products.
Initiative: The organisation always takes initiatives to implement new and
advanced technologies.


Baan software is known for its Dynamic Enterprise Modeller (DEM),
technical architecture, and 4GL (Fourth Generation Language). The
technologies used by Baan are considered to be one of the most effective
and productive database application development platforms.
Baan's products have multi-layer architecture that provides maximum
scalability and flexible configuration. This enables the existing hardware,
operating systems, databases, networks, and user interfaces of an
organisation to support Baan’s products without modifying the code. The
products offered by Baan Company not only support major operating
systems, such as UNIX platforms and Microsoft NT, but also support
various database systems, such as Oracle, Informix, DB2, Sybase, and
Microsoft SQL Server.
Baan’s products are built using best-of-class components to reduce the
complexities of IT solutions. In addition, the organisation keeps on
upgrading its products with changes in technology. The product family of
BaanSeries includes:
 Baan Enterprise Resource Planning (BaanERP)
 Baan Front Office
 Baan Corporate Office Solutions
14.4.2 Baan ERP modules

Baan ERP is the first and widely used ERP software. It is completely
integrated software that provides unique functionality across an
organisation. It includes several interdependent components that are
required to meet business needs of an organisation. These components are
often called Baan ERP modules, which are:
Manufacturing Module: Supports the different manufacturing activities of
an organisation, such as engineering change control, engineering data
management, product classification and configuration, and production
planning and control.

Finance Module: Manages the financial and accounting activities of an

organisation. These activities include accounts receivables and payables,
budgeting, cash management, financial reporting, cost accounting, and
sales invoicing.
Project Module: Helps an organisation in handling all the activities of a
project effectively. Some of these activities are budgeting, cost estimation,
invoicing, monitoring, planning, and executing.
Distribution Module: Helps an organisation in performing activities, such
as sales management, purchase management, and warehouse
management.
14.4.3 Global support, education, and consulting

Baan Company has earned reputation in the ERP market by providing:
Global Support: Baan Company provides various support services, such
as telephone support and critical incident support, to its customers through
one of its subsidiaries named Baan Global Support. This subsidiary also
offers preventive technical advice to its customers.
Education: Baan Company provides Web-based training to the employees
of a client organisation through its subsidiary called Baan Education. This
training is provided through a virtual campus and includes details related to
the products offered by Baan Company and the functioning of all these
products.
Consulting: The organisation provides a broad range of services, such as
business consulting, application consulting, and technical consulting,
through its subsidiary called Baan Consulting. The subsidiary provides
consultation support to its customers at each stages of ERP
implementation.
16. Baan Company was established by two brothers Jan Baan and Paul
Baan in __________, 1978.
17. ___________ provides a wide range of applications for automating
the front and back-office processes, thereby reducing complexity in
the processes.

18. Baan Company uses innovative ideas while producing and delivering
its products. (True/False)
19. Baan software is known for its ______________, technical
architecture, and 4GL (Fourth Generation Language).
20. Baan's products have _____________ that provides maximum
scalability and flexible configuration.
21. __________ is completely integrated software that provides unique
functionality across an organisation.
22. Baan Company provides various support services, such as telephone
support and critical incident support, to its customers through one of
its subsidiaries named ____________.
23. The organisation provides a broad range of services, such as
business consulting, application consulting, and technical consulting,
through its another subsidiary called ___________.
14.5 Oracle Corporation

Oracle Corporation was founded by Larry Ellison, Bob Minger, and Ed
Oates in 1977. The organisation is headquartered in Redwood Shores,
California. Today, it operates in more than 150 countries with a staff of
43,000 employees. The organisation’s annual revenue is more than $10.1
billion.
Oracle Corporation is the first software organisation that has adopted the
Internet computing model for enterprise software development. Oracle
Corporation provides various tools, databases, and applications along with
related consulting, education, and support services.

Oracle software can be run on various systems, such as personal digital
assistants, set-top devices, network computers, PCs, workstations,
minicomputers, and mainframes. The latest Oracle software, Oracle8i, is a
database system used for Internet computing. Oracle provides a wide range
of database, networking, and gateway products. These products help an

organisation to access any data, on any server, over any network, and from
any client device.
Oracle's Warehouse Technology Initiative (WTI) is one of the rapidly
growing alliance programs in the data warehousing industry. It was
developed to improve the data warehousing solutions provided by Oracle
Corporation. It enables Oracle Corporation to build a data warehouse
system for its customers through its specialised tools, optimised products,
and streamlined support.
Oracle's Business Intelligence provides easy access to business data and a
rapid response to customer queries. Its family of products includes
enterprise reporting tool, Oracle Discoverer, Oracle's award-winning ad-hoc
query and analysis tool, and Oracle Express.
14.5.2 Oracle Application

Oracle Application is a division of Oracle Corporation that provides
packaged and integrated ERP solutions to different organisations. Oracle
Application provides business expertise to organisations for the rapid
execution of strategies and mitigation of various business risks.
Oracle Application includes more than 45 enterprise modules, which are
divided into the following categories:
Oracle Financials: Helps organisations to reduce their administrative costs,
close their accounting books quickly, and manage their cash effectively.
Moreover, it provides accurate financial information to make timely and
accurate decisions.
Oracle Projects: Improves the operational efficiency of an organisation by
providing an integrated project management system. It automates all the
activities involved in project management, thereby increasing returns
generated from a project.
Oracle Human Resources: Enables an organisation to manage its human
resource effectively, thereby increasing overall organisational efficiency.
This application also helps an organisation in hiring the right set of
employees at the right time. It provides comprehensive and up-to-date
information related to human resource to make sound decisions.

Oracle Manufacturing: Enables an organisation to improve its overall

production process from research and development to product delivery. This
helps an organisation to achieve operational excellence.
Oracle Supply Chain: Simplifies and manages the supply chain process of
an organisation by providing real-time information. Oracle Supply Chain
Application enables an organisation to collaborate with partners across the
world, manage complex supplier networks, and provide a quick response to
global constraints and demand.
Oracle Front Office: Enables an organisation to adopt a customer-centric
approach. Oracle Front Office Application helps an organisation to maintain
healthy customer relationships, thereby increasing revenue and reducing
service costs. In addition, the application integrates the different front-office
functions, such as sales, marketing, and customer support, with the other
functions of an organisation.
14.5.3 Vertical solutions

Oracle provides vertical solutions with a full line of modular products that are
designed to fulfil industry-specific requirements. These products are used by
industries, such as automotive, aviation, defence, communications,
consumer packaged goods, finance, and public sector utilities. This makes
Oracle as one of the most preferred brands among customers. Through
continuous innovation in technology, Oracle has achieved an edge over its
competitors.
14.5.4 PeopleSoft
PeopleSoft Inc., ownedacquired by Oracle, was founded by Ken Morris and
David Duffield in 1987. The organisation provides innovative software to
meet the changing needs and preferences of its customers. PeopleSoft Inc.
has developed software that provides enterprise-wide solutions to various
industries, such as health care, manufacturing, communications, financial
services, retail, transportation, and public sector.
The products provided by PeopleSoft Inc. help organisations in the following
areas:
 Human resource management

 Accounting
 Treasury management
 Performance management
 Project management
 Sales and logistics
 Materials management
 Supply chain planning
 Service revenue management
 Procurement
 Supply chain management
PeopleSoft Inc. uses new and advanced technologies in its products. Some
of these technologies are:
PeopleSoft Self-Service Applications: These Java-based, cross-platform
applications help employees, customers, suppliers, and other occasional
users of an organisation to perform self-service administrative tasks easily
and effectively. These applications work in coordination with PeopleSoft’s
core product lines, such as human resource management and materials
management.
PeopleSoft Web Client: Refers to software that can be downloaded on
demand and run on multiple Web browsers. PeopleSoft Web Client is
affordable, simple software with open architecture that provides enterprise
wide solutions to organisations. This software is supported by the self-
service applications of PeopleSoft. Moreover, it has a Work list and Query
interface that provides quick access to business information.
PeopleSoft Workflow: Enables communication and telecom organisations
to achieve enterprise-wide integration of information, applications, and
people. It helps an organisation to automate its various time-consuming
manual activities by providing useful business data. For example, you are
the marketing manager of an organisation and require an approval from the
top management to conduct a promotional activity. In such a case,
PeopleSoft workflow would automatically forwards the approval requests to
your superior.

14.4.5 JD Edwards World Solutions Company

JD Edwards, now owned by Oracle, was founded by Jack Thompson, Dan
Gregory and Ed McVaney in 1977. Initially, the organisation developed
software for several small and medium-scale organisations. In 1980s, it
started providing products to IBM. During this time, JD Edwards introduced
Computer-Aided Systems Engineering (CASE) software development and
design tool.
It provides three main application suites, namely OneWorld, WorldSoftware,
and WorldVision. These are discussed as follows:
JD Edwards OneWorld: It is a flexible application that can be integrated
with the existing technology of an organisation. OneWorld includes various
tools and technologies that provide up-to-date information related to
different business processes of an organisation.
JD Edwards WorldSoftware: It is inherently flexible software that can
easily be implemented in an organisation. WorldSoftware can be:
 Modified as per the requirements of an organisation and changing
business conditions.
 Implemented along with WorldVision in order to obtain client/server

benefits.
 Run along with OneWorld in order to incorporate other computing

platforms into a single network.
JD Edwards WorldVision: It provides Graphical User Interface (GUI) and

allows an organisation to:
 Maximise its productivity by minimising training cost.
 Make a safe move to client/server by leveraging the existing host-centric

WorldSoftware applications.
The different business modules offered by JD Edwards are:

Financial Suite: Enables an organisation to perform various financial and
accounting activities, such as general accounting, accounts payable and

receivables, financial modelling, budgeting, multi-currency processing, and

cash management.
Logistics/Distribution Suite: Assists an organisation in forecasting, sales
order management, advanced pricing, procurement, work order
management, and inventory management.
Service Suite: Involves tools for subcontract management, change
management, and property management.
Manufacturing Suite: Includes tools for configuration management, cost
management, product data management, capacity planning, and shop floor
management.
Architecture, Engineering, Construction, Mining and Real Estate Suite:
Supports the inventory management, equipment management, subcontract
management, change management, homebuilder management, and
property management functions of an organisation.
Energy and Chemical Suite: Includes tools for agreement management,
advanced stock valuation, sales order management, bulk stock
management, and load and delivery management.

24. Oracle Corporation was founded by Larry Ellison, Bob Minger, and
Ed Oates in _________.
25. Oracle Corporation is the first software organisation that has adopted
the _____________ for enterprise software development.
26. Oracle provides a wide range of database, networking, and gateway
products. (True/False)
27. __________ is one of the rapidly growing alliance programs in the
data warehousing industry.
28. ______________ is a division of Oracle Corporation that provides
packaged and integrated ERP solutions to different organisations.
29. ______________ helps organisations to reduce their administrative
costs, close their accounting books quickly, and manage their cash
effectively.

14.6 Microsoft Corporation

Microsoft Corporation is an international software organisation
headquartered in Redmond, Washington. It manufactures a wide variety of
computer-related products and services. It develops a wide variety of ERP
solutions under the brand name Microsoft Dynamics. Some of these ERP
solutions are:
Microsoft Dynamics AX: It is a comprehensive ERP product designed for
middle- and large-scale organisations so that they can easily operate in
different locations and countries. It enables organisations to standardise
their processes and increase visibility of products and services across their
different departments and supply chain networks.
Microsoft Dynamics GP: It is an ERP solution that helps organisations to
increase their productivity and collaboration among different departments.
Microsoft Dynamics GP also enables organisations to integrate its financial
and operational processes and provides a fast access to required
information using Microsoft tools.
Microsoft Dynamics NAV: It is an ERP product for middle-scale
organisations that provides industry-specific functionality. It is can be easily
implemented, configured, and used.
Microsoft Dynamics SL: It is an ERP solution developed for the project-
driven, middle-scale organisations. It helps organisations to complete their
projects on time and within the defined budget by providing services, such
as professional services, operations, field services, and construction
management companies.

30. ___________________ is a comprehensive ERP product designed
for middle and large-scale organisations so that they can easily
operate in different locations and countries.
31. Microsoft Dynamics SL helps organisations to complete their projects
on time and within the defined budget by providing services, such as
professional services, operations, field services, and construction
management companies. (True/False)

14.7 Ramco Systems

Ramco Systems is one of the world’s leading software organisations. It
provides easy-to-install, innovative, and cost-effective business solutions to
organisations. The organisation is headquartered in Chennai, India. It
provides an ERP solution called Ramco ERP suite to organisations.
Ramco ERP on Cloud includes in-built business intelligence and expertise
of different industries. This suite includes a wide range of products, namely
manufacturing, financial management, Supply Chain Management (SCM),
Human Capital Management (HCM), Customer Relationship Management
(CRM), Enterprise Asset Management (EAM), project management,
process control, analytics, advanced planning and optimisation, and
connectors. These products have expertise in their functional areas. For
example, the manufacturing product of Ramco ERP Suite enables
organisations to perform their manufacturing processes effectively.
Similarly, the financial management product of Ramco ERP Suite allows
organisations to perform the accounting and financial processes effectively.

32. The manufacturing product of Ramco ERP Suite allows organisations
to perform the accounting and financial processes effectively.
(True/False)
33. Ramco Systems is headquartered in ______________.
14.8 Systems Software Associates Inc. (SSA)

System Software Associates (SSA), Inc., a part of Infor Group, was
established in 1981 by Roger E. Covey. It is one of the world’s leading
providers of ERP software for different industries. The main reason for the
early growth of SSA was its unique distribution system.
In 1989, SSA provided integrated software in different languages, such as
French, German, Italian, Chinese, and Japanese, at a price ranging from
$50,000 to $500,000. In 1989, the net income of SSA was $11.1 million.
In 1994, SSA started focusing on a new strategy for supporting open-
system, client server computing environment. It started providing more

flexible software as compared to its previous products. During this year,

SSA introduced a new series, called Business Planning and Control
System/Advanced Solution (BPCS/AS).

SSA uses the CASE technology for developing AS series. This technology
provides flexibility to the products of AS series, which further helps
customers to modify these products according to their requirements.
A new product line of SSA called Main/Tracker enables an organisation to
automate its maintenance tasks, perform safety inspections, and track
warranty. Apart from this, some of the popular products of SSA are:
Business Planning Control System (BPCS): It is the main product line of
SSA. It is an integrated group of software that involves applications for
manufacturing, distribution, and financial activities. BPCS is able to run on
various systems, including IBM AS/400 or IBM eServer iSeries. It supports
various computer languages, such as SQL, AS/Set, RPG, and other IBM
languages.
Business Performance Management (BPM): It includes a set of
management and analytical processes that helps an organisation to define
and measure its strategic goals and manage performance against these
goals.
Customer Relationship Management (CRM): It includes tools for
acquiring and retaining customers and building cordial relationships with
them. In addition, it provides quick access to customer information to the
different departments of an organisation.
Financial Management (FM): It involves tools for managing financial
activities effectively.
Human Resource Management (HRM): It helps an organisation in
performing and improving its HRM function effectively.
Product Lifecycle Management (PLM): It enables an organisation to
monitor all the activities involved in PLM by providing up-to-date information
related to products.

Supply Chain Management (SCM): It allows an organisation to monitor the

movement and storage of raw materials, work-in-process, and finished
goods from the point of origin to the point of consumption.
Supplier Relationship Management (SRM): It enables an organisation to
build healthy relationships with its suppliers by tracking their activities.
14.8.2 BPCS application suite

BPCS application suite is used for performing distribution and
manufacturing activities efficiently. The BPCS application suite includes
various components, which are:
Finance: Includes tools, such as Costing (CST), Accounts Payable (ACP),
Accounts Receivable (ACR), Billing (BIL), General Ledger (GLD), Cash
Management (CSH), Multiple Currencies (MLT), Currency Translation
(CTR), Financial Assistant (FIN), Fixed Assets (FXA), and Payroll (PAY).
Planning: Consists of applications, such as Forecasting (FOR), Master
Production Scheduling (MPS), Material Requirements Planning (MRP),
Capacity Planning (CAP), Distribution Resource Planning (inter facility)
(DRP), and Planner's Assistant (PLN).
Distribution: Involves various applications, such as Inventory (INV),
Purchasing (PUR), Customer Order Processing (ORD), Billing (BIL), Sales
Analysis (SAL), Promotions and Deals (PRO), and Performance
Measurement (PRF).
Manufacturing: Includes tools, such as Bill of Material (BOM), Inventory
(INV), Shop Floor Control (SFC), Master Production Scheduling (MPS),
Material Requirements Planning (MRP), Capacity Planning (CAP),
Laboratory Management (LMS), Just-in-Time (JIT), and Advanced Process
(chemical) Industries (API).

34. System Software Associates (SSA), Inc. was established in 1981 by
_______________.
35. The main reason for the early growth of SSA was its unique
__________ system.

36. SSA uses the CASE technology for developing AS series.

(True/False)
37. A new product line of SSA called ___________ enables an
organisation to automate its maintenance tasks, perform safety
inspections, and track warranty.
38. _________ application suite is used for performing distribution and
manufacturing activities efficiently.
14.9 QAD
QAD was established in 1979 and operates in more than 20 countries with a
workforce of more than 1000 people. Its products are MFG/PRO, On/Q,
service/support management, decision support, and Qwizard. QAD provides
a wide range of ERP software to different industries, such as medical,
automotive, consumer products, electronics, food and beverage, and
industrial products.
QAD’s flagship product MFG/PRO is an ERP package which provides
integrated global supply chain management (SCM) solutions to multinational
organisations. The product supports several international languages.
QAD’s Decision Support is a tool used by organisations to get easy and
rapid access to information required for informed decision making. However,
QAD’s Qwizard acts as an interactive mentor for the users of MFG/PRO
software.
14.9.1 MFG/PRO application

MFG/PRO software is considered as one of the successful client/server
ERP applications. The application helps an organisation to improve its
operational efficiency. It is comprehensive, open, flexible, scalable, and
interactive software that is developed to serve the manufacturing
requirements of an organisation.
MFG/PRO includes a set of applications that supports the manufacturing,
distribution, financial management, supply chain management, and
service/support management functions of an organisation. It uses Oracle or
Progress databases and can run on different operating systems, such as

UNIX, Windows and Windows NT. MFG/PRO is also available with

Windows Character User Interface (CUI) or Graphical User Interface (GUI).
14.9.2 Modules
MFG/PRO is an integrated ERP package that can be used for different
manufacturing processes, such as make-to-stock, configure-to-order, and
repetitive manufacturing. The following are the different modules of
MFG/PRO:
Distribution Module (DM): It is used for tracking inventory and making
timely delivery of products.
Manufacturing Module (MM): It helps an organisation to manage its overall
manufacturing process.
Financial Module (FM): Monitors the financial activities of an organisation.
It is used in integration with the distribution and manufacturing modules of
MFG/PRO.
Supply Chain Management (SCM) Module: It is used for managing the
supply chain activities of an organisation.

39. __________ was established in 1979 and operates in more than 20
countries with a workforce of more than 1000 people.
40. The main product of QAD is ___________, which provides integrated
global supply chain management solutions to multinational
organisations.
41. Another popular QAD's product is _________, which is an extended
supply chain application.
42. _____________ is a tool used by organisations to get easy and rapid
access to information required for informed decision making.
14.10 Summary
 ERP software is developed and provided by a large number of
organisations, which are known as ERP vendors. Some of these

vendors include SAP-AG, Baan Company, Oracle Corporation,

PeopleSoft, JD Edwards World Solutions Company, SSA, QAD,
Microsoft, and Ramco systems.
 Systems Application and Products in Data Processing (SAP)-AG was

established in 1972, Germany. It provides two versions of ERP software,
namely mainframe version (SAP R/2) and client/server version (SAP
R/3). Among them, SAP R/3 is most commonly used by organisations.
SAP ERP has various advantages, such as functionality, user-friendly,
highly-customised and flexible structure.
 Baan Company developed the first and widely used ERP software,
which is named as Baan ERP. This software provides unique
functionality across an organisation through its various modules, such as
manufacturing module, finance module, project module, and distribution
module.
 Oracle Corporation has a division named Oracle Application that

provides packaged and integrated ERP solutions to different
organisations. Oracle Application consists of more than 45 enterprise
modules, which can be divided into various categories, such as
financials, projects, human resources, manufacturing, supply chain, and
front office.
 System Software Associates (SSA), Inc. was established in 1981 and is

one of the world’s leading software providers for different industries.
Some of the products provided by SSA are Business Planning Control
System (BPCS), Business Performance Management (BPM), Customer
Relationship Management (CRM), Financial Management (FM), Human
Resource Management (HRM), Product Lifecycle Management (PLM),
Supply Chain Management (SCM), and Supplier Relationship
Management (SRM).
 QAD offers a wide range of ERP software to different industries, such as

medical, automotive, consumer products, electronics, and industrial
products.

 Microsoft provides ERP solutions under the brand name Microsoft

Dynamics. Some of these products are Microsoft Dynamics AX,
Microsoft Dynamics GP, Microsoft Dynamics NAV, and Microsoft
Dynamics SL.
14.11 Glossary
Graphical user interface: A way through which users interact with
computers using windows, icons, and menus.
Internet Computing Model: A model that enables users to access the
required information from a shared network easily and rapidly.
Vertical Solutions: The solutions that cater to the needs of a particular
industry.

1. Write a short note on the products and technology of SAP-AG.
2. What are the advantages of SAP ERP?
3. Elaborate on Baan ERP modules.
4. Discuss Oracle Application.
5. Write a short note on the products provided by PeopleSoft Inc.
6. Shed light on Microsoft Dynamics GP.
7. Write a short note on JD Edwards World Solutions Company.
8. Explain the products and technology of SSA.
14.13 Answers

1. True
2. ERP vendors

3. False
4. 1972
5. SAP
6. mainframe version (SAP R/2)
7. True
8. False
9. Customer Relationship Management (CRM)
10. Supplier Relationship Management (SRM)
11. SAP R/3
12. real-time, three-layer architecture
13. True
14. Presentation Layer
15. graphical user interface
16. Netherlands
17. Baan Company
18. True
19. Dynamic Enterprise Modeller (DEM)
20. multi-layer architecture
21. Baan ERP
22. Baan Global Support
23. Baan Consulting
24. 1977
25. Internet computing model
26. True

27. Oracle's Warehouse Technology Initiative
28. Oracle Application
29. Oracle Financials
30. Microsoft Dynamics AX
31. True
32. False
33. Chennai, India
34. Roger E. Covey
35. distribution
36. True
37. Main/Tracker
38. BPCS
39. QAD
40. MFG/PRO
41. On/Q
42. QAD’s Decision Support
Terminal Questions
1. SAP ERP is one of the most popular products of SAP-AG. The recent
version of SAP ERP is SAP ERP 6.0, which is previously called R/3.
Refer to Section 14.3 SAP-AG, which discusses the products and
technology of SAP-AG.
2. SAP ERP automates all the business processes of an organisation and
can be customised as per the requirements of an organisation. Refer to
Section 14.3 SAP-AG, which lists the advantages of SAP ERP.

3. The different modules of Baan ERP are manufacturing module, finance

module, project module, and distribution module. Refer to Section 14.4
Baan Company, which explains the Baan ERP modules.
4. Oracle Application, a division of Oracle Corporation, provides ERP

solutions for the rapid execution of strategies and mitigation of various
business risks. Refer to Section 14.5 Oracle Corporation, which
discusses Oracle Application.
5. The products provided by PeopleSoft Inc. help organisations in human

resource management, accounting, treasury management,
performance management, project management, sales and logistics,
and materials management. Refer to Section 14.5.4 PeopleSoft, which
explains the business management solutions of PeopleSoft Inc.
6. Microsoft Dynamics GP integrates the financial and operational

processes of an organisation. Refer to Section 14.6 Microsoft
Corporation, which discusses about Microsoft Dynamics GP.
7. JD Edwards provides three main application suites, namely OneWorld,

WorldSoftware, and WorldVision. Refer to Section 14.4.5 J D Edwards
World Solutions Company, which provides information related to JD
Edwards World Solutions Company.
8. SSA is one of the world’s leading providers of ERP software for

different industries. Refer to Section 14.8 Systems Software
Associates Inc. (SSA), which explains the products and technology of
SSA.
14.14 Case Study: ERP Implementation in PQR Ltd.

PQR Ltd. is the world’s third largest manufacturer of electronic products.
The organisation generates annual revenue of more than US$ 1 billion
dollars. From quite a few months, it has been facing the following problems:
 Ineffective business operations

 Undue delays in product delivery

 Lack of coordination among different departments
To overcome these problems, PQR intends to install an ERP system. After

conducting a research, the organisation decided to implement the Oracle
ERP system. This system is able to integrate with other legacy systems of
PQR. Moreover, the system streamlined the manufacturing, distribution,
procurement, financial accounting processes of the organisation.
After implementing the Oracle ERP system, the organisation obtained the
following benefits:
 Increase in Return on Investment (ROI)
 Improved inflow and outflow of cash
 Automation of different business processes
 On-time delivery of products
 Effective flow of information
Questions:
1. Why did PQR decide to implement an ERP system?
2. What is the role of an ERP vendor in the implementation of an ERP
system?

Planning.


E-References
 http://www.sap.com/india/index.epx
 http://www.buci.org/company.htm
 http://www.oracle.com/index.html
 http://www.oracle.com/us/products/applications/jd-edwards-
world/overview/index.html
 http://en.wikipedia.org/wiki/PeopleSoft
 http://www.qad.com/erp/

Unit 15 Future Directions in ERP
Structure
15.1 Introduction
Objectives
15.2 New Trends in ERP
15.3 ERP to ERP II-Implementation of Organisation-Wide ERP
15.4 Development of New Markets and Channels
15.5 Latest ERP Implementation Methodologies
15.6 ERP and E-business
15.7 Market Snapshot
15.8 The SOA Factor
15.9 Summary
15.10 Glossary
15.12 Answers
15.13 Case Study: ERP Implementation in an Airline
15.1 Introduction
As you know, the era of Enterprise Resource Planning (ERP) began in early
1990s, when first generation ERP systems were developed. These systems
were able to support all the business processes of organisations. Moreover,
they were capable of sharing common data across an organisation for
decision making. Developing and maintaining these ERP systems was too
expensive for organisations. These systems also required comprehensive
customisation efforts in order to meet the requirements of different
organisations. To overcome these problems, the quest for next generation
ERP systems started. Consequently, ERP II was developed. ERP II is a
user-friendly application that provides immediate access to business

information to the different stakeholders of an organisation anywhere in the

world.
In the past few years, ERP systems have been evolving rapidly to keep
pace with the latest technological advancements. This has led to the
emergence of various new trends in ERP. Some of these trends are open
source ERP, Web-enabled ERP, and wireless ERP. In addition, ERP
vendors have started providing products to medium and small-scale
organisations at affordable prices.
In this unit, you will study about the new trends in ERP. Next, you will study
about the evolution of ERP II from the traditional ERP. The development of
new ERP markets and channels has also been discussed in the unit.
Further, you will study about the latest ERP implementation methodologies.
In addition, the unit sheds light on the relationship between ERP and e-
business. The market snapshot of an ERP system has also been given in
the unit. In the end, you will be familiarised with the SOA factor.
Objectives
 explain new trends in ERP
 discuss the evolution of ERP II
 explain the development of new markets and channels
 identify the latest ERP implementation methodologies
 describe the relationship between ERP and e-business
 discuss the market snapshot of an ERP system
 describe the Service-Oriented Architecture factor
15.2 New Trends in ERP

As you have already studied, the ERP system was developed to overcome
the drawbacks of MRP and MRP II. Initially, the system was developed
especially for large-scale organisations. ERP systems provided integrated
and up-to-date information to these organisations about their different
business activities. This enabled organisations to streamline their business
processes effectively, thereby, increasing their efficiency and productivity.

Considering the increasing importance of ERP systems, various medium

and small-scale organisations also desired to implement these systems in
order to improve their efficiency. However, the implementation of ERP
systems involved high cost and efforts. ERP vendors recognised the needs
of medium and small-scale organisations and developed ERP systems for
them. Later, ERP systems were integrated with other systems such as
Customer Relationship Management (CRM) and Supply Chain Management
(SCM).
Now, most organisations have integrated their SCM functions with the
Internet. This enables suppliers to access business information from
anywhere in the world. Apart from this, organisations keep upgrading and
modifying their ERP systems continuously using new and advanced
technologies. However, the advent of continuous modifications in ERP
systems has increased pressure on ERP manufactures to fulfil the demands
of their customers (vendors and organisations). To do so, ERP
manufacturers need to analyse current trends in the ERP market.
The following are the latest trends in ERP:
Open Source ERP: Refers to an ERP system whose access code is
available publicly. It allows organisations to access the code of an ERP
system and customise it according to their requirements without paying
extra charges for customisation and licensing to vendors.
Web-enabled ERP: Allows organisations and its various stakeholders
(customers, employees, suppliers, distributors, and other parties) to access
business information as and when required from anywhere in the world.
Wireless ERP: Facilitates information sharing with the help of the Internet
and various other devices. It allows outsiders (customers, suppliers, and
shareholders) to access business information anytime. It allows access to
ERP via mobile devices.
SaaS ERP: Enables organisations to get a ERP software package on rent
or on license for a defined period of time instead of purchasing it. This helps
organisations to reduce the costs of purchasing and implementing ERP
software.
1. ERP system was developed to overcome the drawbacks of MRP
and__________.

2. _________refers to an ERP system whose access code is available

publicly.
3. _________allows organisations and its various stakeholders
(customers, employees, suppliers, distributors, and other parties) to
access business information as and when required from anywhere in
the world.
4. __________facilitates information sharing with the help of the Internet
and various other devices.
15.3 ERP to ERP II- Implementation of Organisation-Wide ERP

The evolution of an ERP system dates back to 1990s. The system was
developed to satisfy the information requirements of organisations. It helped
organisations to make timely delivery of products, improve product quality,
and maintain an adequate level of inventory, thereby, increasing their
competitive strength. However, over the passage of time, all these core
competencies became a necessity for the survival of every organisation.
Thus, using the existing ERP systems was not sufficient for organisations to
achieve an edge over their competitors.
Considering the on-going situation, ERP manufacturers developed an
extended form of ERP, called ERP II. ERP II is regarded as the next
generation of ERP. It provides several advantages over the traditional ERP.
ERP II is a more Web-friendly and flexible application, which provides quick
access to business information to different stakeholders of an organisation
from any location. It provides a number of security tools that prevent the
misuse of critical business information. The system includes several
comprehensive features to serve the requirements of different industries.
5. The evolution of an ERP system dates back to__________.
6. _________ is regarded as the next generation of ERP.
7. It provides a number of security tools that prevent the misuse of
critical business information. (True/False)
8. _________ is a more Web-friendly and flexible application, which
provides quick access to business information to different
stakeholders of an organisation from any location.

15.4 Development of New Markets and Channels

Now, you must be aware of the fact that the demand for ERP systems is
increasing rapidly worldwide. According to a research conducted by AMR
Research Inc., the demand for ERP systems will keep increasing
significantly for the next five years.
You have already studied that large-scale organisations remained the main
market for ERP vendors for a long time. The saturation of this market forced
vendors to identify new markets for their products. As a result, ERP vendors
started focusing on medium and small-scale organisations by taking various
initiatives, which are:
 Increasing their direct sales force
 Reducing ERP implementation cost
 Developing ERP systems with reduced functionality
 Reducing the time consumed in the implementation of an ERP system
 Modifying ERP systems to support various operating systems such as

Microsoft Windows NT
Earlier, ERP systems were confined to the manufacturing sector only.

However, over the passage of time, ERP vendors introduced their products
to various other industries such as retail and health care. This was made
possible only through continuous modification and upgrading of ERP
systems.
In order to enter new markets, ERP vendors, such as SAP AG Inc. and
Oracle Corporation, have constructed various reseller channels worldwide,
so that they can provide complete ERP solutions.

9. ___________organisations remained the main market for ERP
vendors for a long time.
10. Earlier, ERP systems were confined to the ___________sector only.
11. Over the passage of time, ERP vendors introduced their products to
various other industries such as retail and health care. (True/False)

12. In order to enter new markets, ERP vendors, such as SAP AG Inc.
and Oracle Corporation, have constructed various
__________channels worldwide, so that they can provide complete
ERP solutions.
15.5 Latest ERP Implementation Methodologies

Earlier, the implementation of ERP involved huge cost, time, and efforts of
organisations. In spite of this, it was found that about 40% of such
implementations led to failure, as they were not able to meet the ever-
changing demands of organisations. In order to implement an ERP system
faster, the vendors made certain changes in their products. For example,
they started using the UNIX platform instead of mainframe. Moreover, they
applied several model-based approaches for the easier integration of
business processes.
SAP has introduced a method called Accelerated SAP (ASAP), which
reduces the time consumed in the implementation of the SAP ERP.
Similarly, Oracle uses a methodology called Fast Forward, which speeds up
the overall ERP implementation process.
One Point Implementation Methodology (OPIM) is a disciplined approach to
implement an ERP system. This approach enables organisations to:
 Reduce time and mitigate risks associated with ERP implementation
 Improve operational efficiency
 Achieve its strategic goals
 Gain a competitive edge in the market

13. Earlier, the implementation of ERP involved huge cost, time, and
efforts of organisations. (True/False)
14. SAP has introduced a method called ___________, which reduces
the time consumed in the implementation of the SAP ERP.
15. Oracle uses a methodology called____________, which speeds up
the overall ERP implementation process.
16. ___________is a disciplined approach to implement an ERP system.

Activity 1:
Using the Internet, find out some other ERP implementation
methodologies.
15.6 ERP and E-business

To assess the importance of ERP and e-business for an organisation, let us
first explain these two terms separately.
You have already studied that ERP is an integrated software used to
maintain a smooth flow of information across the different departments of an
organisation. It enables an organisation to re-design its business processes
by identifying and eliminating non-value-added activities.
On the other hand, e-business (electronic business) is a form of business, in
which an organisation performs its different business activities electronically
using the Internet. E-business has enabled organisations to achieve a
competitive advantage in terms of reduced costs, increased revenue, and
higher customer satisfaction.
So, you can say that both ERP and e-business play a vital role in the growth
of an organisation. An ERP system integrates the different business
processes of an organisation, while e-business allows the organisation to
establish a comprehensive value chain across different markets and
industries. Therefore, organisations are integrating their ERP systems with
e-business to obtain maximum benefits.
For example, you are a beverage manufacturer and your business yields an
annual revenue of `700 crores. You sell your products through various
general stores and cafes across the country. In such a case, it is difficult for
you to manage your supply chain effectively. You can overcome this
problem by implementing an ERP system integrated with your e-business.
The system will help salespeople to conduct online promotion of your
products, identify sales opportunities, receive customer feedback, and
enhance their performance. In addition, it would provide quick access to
business information to all your distributors across the country, thereby,
achieving higher customer satisfaction and improved organisational
efficiency.


17. __________is an integrated software used to maintain a smooth flow
of information across the different departments of an organisation.
18. ___________is a form of business, in which an organisation performs
its different business activities electronically using the Internet.
19. E-business has enabled organisations to achieve a competitive
advantage in terms of reduced costs, increased revenue, and higher
customer satisfaction. (True/False)
20. Both ERP and e-business do not make any difference in the growth
of an organisation. (True/False)
Activity 2:
Find out how the integration of an ERP system with e-business will be
helpful for a retail store.
15.7 Market Snapshot

You have studied in previous units that SAP is a leading provider of ERP
systems. However, some other ERP vendors are also growing rapidly.
Oracle has also come forward as an aggressive ERP vendor, which targets
middle-scale organisations with its high-quality products.
Nowadays, in order to achieve a higher market share, ERP vendors are
striving hard to integrate their products with new and advanced
technologies, such as Sales Force Automation (SFA) and CRM.

21. __________ is a leading software provider in the ERP market.
22. _______has also come forward as an aggressive ERP vendor that
targets middle-scale organisations.
23. In order to achieve a higher market share, ERP vendors are striving
hard to integrate their products with new and advanced technologies,
such as SFA and CRM. (True/False)

15.8 The SOA Factor

Service-Oriented Architecture (SOA) is a set of methodologies used for
software development. This set of methodologies enables organisations to
develop customised software depending on the needs of their customers.
Most of the ERP vendors are using SOA for developing ERP systems. SOA
has brought radical changes in the overall structure of ERP systems.
Moreover, it helps an organisation in change management.
Apart from this, SOA enables an organisation to customise an ERP system
according to its unique processes and policies, present business information
as per its requirements, and develop its own workflow.

24. __________ is a set of methodologies used for software
development.
25. SOA is a set of methodologies that enables organisations to develop
customised software depending on the needs of their customers.
(True/False)
26. SOA has brought radical changes in the __________of ERP
systems.
27. _________enables an organisation to customise an ERP system
according to its unique processes and policies, present business
information as per its requirements, and develop its own workflow.
15.9 Summary
 The latest trends in ERP are Open Source ERP, Web-enabled ERP,
Wireless ERP, and SaaS ERP.
 An ERP system was designed to integrate different business functions
and processes for the smooth flow of information throughout the
organisation. This further helps in improving the product quality,
maintaining adequate level of inventory, and making timely delivery of
products, thereby, providing a competitive edge to the organisation.

 With increasing competition in the market, the benefits provided by the

ERP system were not sufficient for organisations. As a result, a need of
an updated ERP system was felt. Consequently, the ERP II system was
developed, which is a Web-friendly and flexible application that provides
quick access to business information to the stakeholders of an
organisation from anywhere at any time.
 Initially, the main focus of ERP vendors was on large-scale
organisations. However, with the saturation of this market, the focus of
ERP vendors shifted to medium and small-scale organisations, and they
started taking initiative to capture this market. In addition, ERP vendors
started providing products to the service sector along with the
manufacturing sector.
 The ERP system integrates the business functions of an organisation,
whereas e-business helps in building a comprehensive value chain
across different markets and industries. Thus, an organisation can
maximise its benefits by integrating these two systems.
 In the ERP vendor market, SAP is the leader, and Oracle is also trying
to capture a major share in this market.
 SOA refers to a set of methodologies used for software development.
These methodologies help organisations to develop customised
software as per the needs of their customers. Thus, ERP vendors use
SOA for developing ERP software so as to provide highly-customised
products to its customers.
15.10 Glossary
Value Chain: A sequence of activities performed by an organisation in
order to provide value to its customers.
Change Management: A systematic approach to deal with any type of
changes in the organisation such as change of job profile, technology,
working environment, and business processes.
Accelerated SAP (ASAP): A method developed and used by SAP to
reduce the time involved in ERP implementation.

E-business: A type of business in which an organisation performs its

various business operations electronically using the Internet.

1. Discuss new trends in ERP.
2. Discuss the evolution of ERP II from traditional ERP system.
3. Define ERP II.
4. Write a short note on the development of new ERP markets and
channels.
5. Describe some of the latest ERP implementation methodologies.
6. Explain the relationship between ERP and e-business.
7. Provide a snapshot of the ERP market.
8. What is SOA?
15.12 Answers

1. MRP II
2. Open Source ERP
3. Web-enabled ERP
4. Wireless ERP
5. 1990s
6. ERP II
7. True
8. ERP II
9. Large-scale
10. Manufacturing
11. True

12. Reseller
13. True
14. Accelerated SAP
15. Fast forward
16. One Point Implementation Methodology
17. ERP
18. E-business
19. True
20. False
21. SAP
22. Oracle
23. True
24. Service-Oriented Architecture
25. True
26. Overall structure
27. SOA
Terminal Questions
1. The new trends in ERP are Open Source ERP, Web-enabled ERP,
Wireless ERP, and SaaS ERP. Refer to Section 15.2 New Trends in
ERP, which discusses new trends in ERP.
2. The ERP system was developed to meet the information requirements

of organisations in the 1990s. However, this system was unable to
provide a competitive edge to organisations. As a result, an extended
version of ERP was developed, called ERP II. ERP II involves various
comprehensive features to serve the requirements of different
industries. Refer to Section 15.3 ERP to ERP II-Implementation of
Organisation-Wide ERP, which explains the evolution of ERP II from
the traditional ERP system.

3. ERP II is the next generation of ERP. It provides several advantages

over the traditional ERP. ERP II is a more Web-friendly and flexible
application, which provides accurate business information that is easily
available to different stakeholders of an organisation from any location.
Refer to Section 15.3 ERP to ERP II-Implementation of
Organisation-Wide ERP, which defines ERP II.
4. Large-scale organisations remained the main market for ERP vendors
for a long time. However, the concentration of this market forced
vendors to identify new markets for their products. Consequently, ERP
vendors started focusing on medium and small-scale organisations by
taking various initiatives. Refer to Section 15.4 Development of New
Markets and Channels, which elaborates on the development of new
ERP markets and channels.
5. Earlier, 40% of ERP implementation led to failure due to various
reasons in spite of huge cost, time, and efforts. Considering the on-
going situation, ERP vendors made certain changes in their products,
for example, they started using the UNIX platform instead of mainframe
as well as model-based approaches for easier integration of business
processes. Refer to Section 15.5 Latest ERP Implementation
Methodologies, which discusses some of the latest ERP
implementation methodologies.
6. An ERP system integrates an organisation’s business processes, while
e-business enables the organisation to develop a comprehensive value
chain across different markets and industries. Refer to Section 15.6
ERP and E-business, which explains the relationship between ERP
and e-business.
7. SAP is a leading provider of ERP systems in the market. However,
some other ERP vendors, such as Oracle, are also growing rapidly with
high-quality products. Refer to Section 15.7 Market Snapshot, which
provides a snapshot of the ERP market.
8. SOA is a set of methodologies used for software development. These
methodologies help organisations in developing customised software
depending on the needs of their customers. Refer to Section 15.8 The
SOA Factor, which defines SOA.

15.13 Case Study: ERP Implementation in an Airline

ABC is one of the leading airlines in India. For many months, the
organisation has been facing severe problems such as increased
operational cost, ineffective business processes, and inaccurate flight
schedules. This has declined the overall efficiency of ABC.
Considering the situation, ABC has decided to implement an ERP system
called PPX. The system is able to manage the overall operations of the
organisation effectively and reduce the total cost. Moreover, it is a user-
friendly system that supports various operating platforms such as Linux,
Netware, Windows 95/98/ME, and Windows XP/2000/NT.
The PPX system helps the organisation by keeping track of random
booking, overstaffing, understaffing, earned or unearned revenue, daily
transactions, and expense records. Apart from this, the system can be
easily customised as per the requirements of the organisation.
Questions:
1. What was the need for the implementation of an ERP system in ABC?
2. How did the system help the organisation?

Planning.
E-references
 http://www.best-in-class.com/bestp/domrep.nsf/products/emerging-
trends-in-erp-systems
 http://www.erppandit.com/Different-ERP-Implementation-
Methodologies.html
 http://www.slideshare.net/Monojit.Banerjee/evolution-of-erp-10579857
 http://www.oracle.com/us/products/middleware/soa/overview/index.html

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Enterprise Resource Planning Unit 1

Unit 1 Enterprise: An Overview

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individuals, who work together to accomplish common goals and objectives.

 define the relationship between the business functions and business

 assess the importance of information

 analyse the importance of information system in an enterprise

 evaluate the significance of Enterprise Resource Planning

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1.2 Business Functions and Business Processes

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Figure 1.1: Business Functions

 Accounting and finance

Each of these business functions consists of numerous business

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Operational Processes: Refer to processes that form the core business of

 Advertising and marketing

Supporting Processes: Refer to the processes that support the core

1.2.1 Relationship between business functions and business

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Figure 1.2: Relationship Between Business Functions and

Self Assessment Questions:

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4. All business functions and processes together form the internal

1.3 Importance of Information

1.3.1 Characteristics of information

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1.3.2 Types of information

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to business productivity, profit and cash flow forecasts, and prices of

Self Assessment Questions:

1.4 Information System

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IS comprises two terms, namely, information and system. As discussed

Figure 1.3: Working of an Information System

1.4.1 Components of an information system

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 End Users: Involve individuals who use information produced by an IS.

Hardware Resources: Include physical devices and materials used for

1.4.2 Different types of information systems

Information System Description

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Information System Description

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Information System Description

1.4.3 Management information system

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 Processes, analyses, and summarises the collected data

 Transforms the collected data into useful and meaningful information

 Disseminates information to the intended users

 Stores information at a centralised location, so that it can be easily

Advantages and limitations of MIS

 Provides quick and reliable referencing of information

 Provides easy access to relevant data and documents

 Requires lesser number of employees

 Saves time and cost of an enterprise

In spite of many benefits, MIS has certain limitations, which are:

 Ignores non-qualitative factors such as morale and attitude of

 Reduces effectiveness due to frequent changes in management

 Produces output that depends entirely on the quality of input

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MIS provides information specific to particular departments. However, to