ENTERPRISE RESOURCE PLANNING

Nikhil Naikawadi, Pune

I.

ERP - A CURTAIN RAISER

The business environment has changed more in the last five years than it did over the previous decades. The pace of change continues to accelerate and corporations around the world seek to revitalize, reinvent and resize in an effort to position themselves for success in the21st century. The ability to respond to new customer needs and seize market opportunities as they arise. Successful companies today recognize that a high level of interaction and coordination along the supply chain will be a key ingredient of their continued success. Enterprises are continuously striving to improve themselves in the areas of quality, time to market, customer satisfaction, performance and profitability. Making informed business decisions in this manner would enable organizations to accomplish their business growth and the same time and enable them to utilize the information to competitive advantage. To make it possible for the companies to execute this vision there is a need for an infrastructure that will provide information across all functions and locations within the organization. The enterprises resource planning (ERP) software fulfills this need. Information technology is revolutionizing the way in which we live and work. It is changing all aspects of life and lifestyle. To survive, thrive and beat the competition in today's brutally competitive world, one has to manage the future. Managing the future means managing information. In order to deliver high quality information to the decision makers at the right time, in

order to automate the process of data collection and refinement, organizations have to make information technology an ally, harness its full potential and use in its best possible way. Enterprise Resource Planning is the latest high end solution, information technology has lent to business application. The ERP solutions seek to streamline and integrate operation processes and information flows in the company to synergise the resources of an organisation namely men, material, money and machine through information. Initially implementation of an ERP package was possible only for very large Multi National Companies and Infrastructure Companies due to high cost involved. Today many companies in India have gone in for implementation of ERP and it is expected in the near future that 60% of the companies will be implementing one or the other ERP packages since this will become a must for gaining competitive advantage. II. ERP - DEFINITION ERP is an acronym for Enterprise Resource Planning, and signifies the techniques and concepts employed for integrated management of the businesses as a whole from the viewpoint of the effective use of management resource to improve the efficiency of an enterprise. Enterprise Resource Planning is a business management system that integrates all facets of the business, including planning, manufacturing, sales and marketing. As the ERP methodology has become more popular software applications has emerged to help business

managers implement ERP in business activities such as inventory control, order tracking, customer service, finance and human resource. III. EVOLUTION OF ERP In the ever growing business environment the following demands are placed on the industry :
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to the information needs and hence the demand for ERP systems. V. A PRE ERP SCENARIO Isolated information systems -Although information technology was provided in most of the organization, the developers restricted it to the need based, isolated and piecemeal information systems that were non compatible. This is why the then IT implementations automated only the existing applications and not the business functions. Most of this happened because IT was not integrated into the corporate strategy. VI. TODAY'S ERP SCENARIO In today's competitive world most companies have adapted to ERP systems. ERP software is designed to model and automate many of the basic processes of a company, from finance to the shop floor, with the goal of integrating information across the company and eliminating complex, expensive links between computer systems that were never meant to talk to each other. ERP systems' set of generic processes, produce the dramatic improvements that they are capable of only , when used to connect parts of an organization and integrate its various processes seamlessly. VII. ERP AND RELATED TECHNOLOGIES ERP systems serves and important function by integrating separate business functions materials, management, product planning, sales, distributions, finance and accounting and others into a single application. There are many technologies that help to overcome these limitations. These technologies when used in conjunction with the ERP package help in overcoming the limitations of a standalone ERP system and thus, help the employees to make better decisions.
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Aggressive Cost control initiatives Need to analyze costs / revenues on a product or customer basis Flexibility to respond to changing business requirements More informed management decision making Changes in ways of doing business

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IV.

NEED FOR ERP

Most organizations across the world have realized that in a rapidly changing environment, it is impossible to create and maintain a custom designed software package which will cater to all their requirements and also be completely up-to-date. Realizing the requirement of user organizations some of the leading software companies have designed Enterprise Resource Planning software which will offer an integrated software solution to all the functions of an organisation. Integrated, uniform, relevant and up to date information is vital for the very existence of an enterprise. ERP bring together people who work on shared task within the same enterprise or in their dealings with supplier and customers. With the liberalization of Indian economy and consequent competition, enterprises in India have realized the need to adopt ERP solutions. The fact that technological advancements in India have kept pace with innovation in the world has helped the advancement of ERP in India. Customer in fields such as automobiles, FMCG, steel and pharmaceuticals have already found that integrated system have provided tangible as well intangible benefits to their organization. The role of technology has evolved form simply a supporting operation to become an integral part of the business. As a result, software vendors develop sophisticated all-encompassing and integrated software packages to address the needs of modern business. Companies find these packages to be feasible solutions

BUSINESS PROCESS REENGINEERING (BPR)

BPR has been around for quite sometime and a lot has been written in both the practitioner trade press and the academic research journals. The BPR is defined as "The fundamental rethinking and radical redesign of the business process to achieve dramatic improvement in critical, contemporary measures of performance such as cost, quality, service and speed. One of the main tools for making these changes is the information technology. Any BPR effort that fails to understand the importance of information technology and goes through the pre-BPR analysis and planning phase

without considering the various information technology options available, and the effect of the proposed information technology solutions on the employees and the organization, is bound to crash during take off.
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by the decision maker with little or no assistance from a computer professional.

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MANAGEMENT-INFORMATION SYSTEMS (MIS)

DSS makes general purpose models simulations capabilities and other analytical tools available to the decision maker.

In the past most pay roll systems were data processing systems that did little more than process time feed, prints pay roll checks and keeps totals of annual wages and deductions. MIS is a computer based system that optimizes the collection, collation, transfer and presentation of information throughout an organization through an integrated structure of data bases and information flow. The main characteristics of MIS are :
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EXECUTIVE INFORMATION SYSTEMS (EIS)

MIS supports the data processing functions of transactions handling and record keeping. MIS uses an integrated database and supports a variety of functional areas. MIS provides operational, tactical and strategic levels of the organization with the timely, but for the most part structured information. MIS is flexible and can be adapted to the changing needs of the organization.

The line dividing DSS and EIS is very thin. EIS can be considered as a better and sophisticated DSS. Top level executives and decision makers face many problems and pressures. They have to make the right decision at the right time to take the company forward. In today's competitive world reaction times are shrinking and time to make decisions is very less. EIS is a decision support system especially made for senior level executives and EIS concerned with how a decision affects an entire organization and EIS takes the following into consideration:
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The overall vision and mission of the company and the company goals. Strategic planning and objectives. Organizational structures. Crisis management / contingency planning. Strategic control and monitoring of overall operations.

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DECISION SUPPORT SYSTEM (DSS)

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Managers spend a lot of time and effort in gathering and analyzing the information before making the decisions. DSS were created to assist managers in this task. DSS are interactive information systems that rely on integrated set of user-friendly soft wares and hardware tools. To produce and present information targeted to support management in the decision making process. DSS facilitates the decision making process, helping the decision makers to choose between alternatives. Some DSS can automatically rank the alternatives, based on the criteria given by the decision maker. DSS also helps in removing the monotony and tedium of gathering and analyzing data. Characteristics of DSS are:
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DATA WAREHOUSING SYSTEMS

If operational data is kept in the database of the ERP systems, it can create a lot of problems. As the time passes, the amount of data will increase and this will affect the performance of ERP system. So it is better to achieve the operational data once its use is over. The prime concept of data warehousing is that the data stored for business analysis can be accessed most effectively by separating it from the data in operational system. The main reason for needing automated computer systems for intelligent data analysis in the enormous volume of existing and newly appearing data that requires processing.
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A DSS is designed to address semi structured and unstructured problems. The DSS mainly supports decision making at the top management level. DSS is interactive; user friendly can be used

ON-LINE ANALYTICAL PROCESSING (OLAP):

OLAP describes a class of technologies that are designed for life ad-havoc data access and analysis. While transaction processing generally realized solely

on relational data bases. OLAP has become synonymous with multi dimensional views of data. These multi dimensional views are supported by multi dimensional base and technology and provides technical basis for calculations and analysis require by business intelligence application. OLAP technology is been used in an increasingly wide range of applications the most common are sales and marketing and analysis; financial reporting and consolidation and budgeting and planning. Increasingly however, OLAP is been used for applications such as product profitability and pricing analysis; activity based costing; manpower planning; quality based analysis, or for that matter any management system that requires a flexible, top down view of an organization.
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Financial Accounting (General Ledger, Accounts Receivable/Payable. Special Ledgers, Fixed Assets Accounting, Legal Consolidation) Investment Management (Investment Planning / Budgeting / Controlling, Depreciation Forecast / Simulation / Calculation) Controlling (Overhead Cost Controlling, Activity Based Costing, Product Cost Accounting, Profitability Analysis) Treasury (Cash Management, treasury Management, Market Risk Management, Funds Management) Enterprise Controlling (Executive Information System, Business Planning and Budgeting, Profit Centre Accounting)
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SUPPLY CHAIN MANAGEMENT

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials to intermediate and finished products, and the distribution of these finished products to customers. Supply chains exists in both service and manufacturing organizations although the complexity of chain may vary greatly from industry to industry and firm to firm. VIII. ERP MODULES All ERP packages contain many modules. The number and features of this modules vary with ERP package. Some of the most common modules available in almost all packages.
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PURCHASE AND MANAGEMENT

PRODUCT

Purchase Management is increasingly essential in today's ever more competitive business environment because it enables a company to make the correct purchase decisions about quality and price. Purchase management includes online requisition, centralized contract management, just I time schedules and vendor management.
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PRODUCT PLANNING

Finance Purchase and Production Planning Sales and Distribution Quality Management Human Resource Inventory Management

Today, companies must be able to deliver customer specific products with the lead time of standard, off the shelf products. To help manage product and market shifts, the manufacturing module provides the freedom to change manufacturing and planning methods, as and when they need a change. Many manufacturing and planning methods can be combined within the same operation, with unlimited flexibility to choose the best method - or combination of methods- for each product, at each stage throughout its life cycle.
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SALES AND DISTRIBUTION

FINANCE

The objective of a good financial accounting system is to provide company wide control and integration of financial information that is essential to strategic decision making. The finance modules of most ERP systems have the following sub - systems:

To keep pace with the rapid changes, companies need an integrated and flexible enterprise systems that supports all aspects of their business with state of art functionality. This innovative solution should upgrade effortlessly and interface easily with third party applications, as well as have the ability to incorporate existing systems while extending its reach to the Internet and e-commerce.

The following are the sales related business transactions :

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Sales queries, such as inquiries and quotations Sales orders Outline agreements, such as contracts and schedquling agreements Delivery / Shipment Invoicing / Billing After Sales support.

of the next millennium, with its economic and technological challenges, will affect the HR managers must continually review and optimize their business processes. The HR modules of with the other modules and are thus, invaluable aids in improving productivity. They offer company-wide solutions for HR departments and make it possible for other departments to access specific employee data. The different ERP systems offer many different subsystems under the HR umbrella. They are as follows:? ? ? ? ? ?

A sales and Distribution module will contain the following sub - systems:
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Personnel Management Organisational Management Payroll Accounting Time Management Personnel Development

Master Data Management Order Management Warehouse Management Shipping Billing Pricing Sales Support Transportation Foreign Trade

INVENTORY CONTROL

QUALITY MANAGEMENT

With product quality under the microscope in all industries today, every company strives for superior quality in its products and services. This modules track quality control activities across the enterprise-from intermediate producers to finished goods. These systems allow a wide variety of characteristics and parameters to be specified in test and inspection operations and maintain an extensive history to improve product quality and identify recurring problems. The quality management Systems usually support the bench marking and use of optimal product design, process engineering and quality assurance data by all functional departments within the manufacturing enterprise, thereby facilitating definition of repeatable processes, root cause analysis and the continuous improvement of manufacturing methods.
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Inventory Management System allows you to manage your stocks on a quantity and value basis, plan, enter and check any goods movements and carry out physical inventory. In the Inventory Management system, the physical stocks reflect all transactions resulting in a change in stock and thus in updated inventory levels. The user can easily obtain an overview of the current stocks of any given material. IX. IMPLEMENTATION OF ERP Implementing an ERP package has to be done on a phased manner. Step by step method of implementing will yield a better result than big-bang introduction. The total time required for successfully implementing an ERP package will be anything between 18 and 24 months. The normal steps involved in implementation of an ERP are as below:
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Project Planning Business & Operational analysis including Gap analysis Business Process Reengineering Installation and configuration Project team training Business Requirement mapping

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HUMAN RESOURCE

Human resource management is an essential factor of any successful business. The competitive environment

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Module configuration System interfaces Data conversion Custom Documentation End user training Acceptance testing Post implementation/Audit support

X. ERP COSTS Total Cost of ownership (TCO) of ERP, includes hardware software, professional services and internal staff costs. The TCO numbers include getting the software installed and two years afterward, which is when the real costs of maintaining, upgrading and optimizing the system for your business are felt. Apart from these there are other costs which are overlooked by the organization and results in budget overrun. They are as follows training cost, integration and testing, customization and data conversion and analysis. Thus, the total cost varies from organisation to organisation depending on its size and application of the systems. XI. ERP MARKET The ERP market is a very competitive and fast growing market. According to AMR Research Inc., leading industry analysis firm specializing in enterprise applications and enabling technologies, the Enterprise Resource Planning (ERP) software market will grow at a compound annual growth rate of 37 percent over the next five years. Suppliers of ERP There are many numbers of ERP suppliers who are very active in the market. Some of the companies offering renowned international ERP products include:
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The above steps are grouped and sub-divided into four major phases namely
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Detailed discussions Design & Customisation, Implementation and Production.

The phases of implementation vis-a-vis their tasks and respective deliverables are as below: Detailed Discussion Phase: Task :- Project initialization, Evaluation of current processes, business practices, Set-up project organization Deliverables:- Accepted norms and Conditions, Project Organisation chart, Identity work teams Design and customisation Phase: Task :- Map organisation, Map business process, Define functions and processes, ERP software configuration and Build ERP system modifications. Deliverables :- Organisation structure, Design specification, Process Flow Diagrams, Function Model, Configuration recording and system modification. Implementation Phase: Task :- Create go-live plan and documentation, Integrate applications, Test the ERP customisation, Train users Deliverables :- Testing environment report, Customisation Test Report and Implementation report Production Phase: Task:- Run Trial Production, Maintain Systems Deliverables:- Reconciliation reports, Conversion Plan Execution

SAP Oracle JD Edwards Peoplesoft Baan SSA JBA Marcarn Intenia QAD Ramco Mamis Other Local Players

XII. CA and ERP In the present business environment, role of a Chartered Accountant is considered to be very important and inevitable. Chartered Accountants as managers, consultants, advisors or auditors play an important role in controlling, managing, and supporting the business. As the business needs are very complex in nature, the implementation of an ERP package needs Chartered Accountants with functional skills for evaluation, Business Process Reengineering (BPR), Mapping of Business requirements, Report designing, ensuring Business controls, customization of the package for the specific requirements, Documentation etc., Sooner or later a Chartered Accountant without the knowledge of ERP may feel as if he is a fish out of the bowl. By this article it is attempted to highlight various aspects of ERP and specific areas of ERP that are relevant for Chartered Accountants. A pertinent question one Chartered Accountant may ask is "How does an ERP matter for me?". As mentioned earlier the role of a Chartered Accountant in any business either as a Consultant, Auditor, Advisor or Manager is inevitable. CA as a Consultant: Implementation of ERP solutions is one of the largest drivers of growth in the consultancy business. The introduction of such a large and complex software like ERP, which enables an organisation to integrate their manufacturing, finance and marketing operations at all levels, is in itself a challenge, since it calls for technical and functional skills and a change in user mindsets. And therein comes a role of a consultant. CA as a Consultant will play a major role in implementation of an ERP solution. CA as an auditor: Assuming a situation where the client has implemented an ERP solution. If the auditor is aware of ERP he can make use of the features of ERP and thereby:
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loans and advances, The TDS deductions and payments are automated etc., ensures that the Accounting Standards are consistently followed across the company. Improves the quality of the reporting.

CA as an Advisor: As an advisor to a company a Chartered Accountant can participate in various stages of ERP implementation. It goes without saying that advising without the knowledge of the current trends and modern management techniques will prove to be a wrong advice and may have a negative impact on the growth of the client. CA as a Manager: By now one should be knowing that the ERP is a high end sophisticated software solution that reduces the pressure and work load of the Managers and provides accurate, timely information for taking appropriate business decisions. Chartered accountants as managers with knowledge of ERP will be able to achieve their targets and goals by proper implementation of ERP system in their organisation. In fact Managers are expected to translate the business rules and requirements for Mapping them into ERP software. Managers as representatives of the Organisation have to coordinate with Vendors, Consultants, Auditors etc., for a proper implementation of ERP package. The growing information needs of an enterprise make it imperative to improve or replace old systems. Especially under the present Indian business environment, where the globalization has been initiated, full convertibility is coined, Infrastructure Projects are nearing completion, and it is expected that the whole business system will undergo a major shift. Thus by being a proficient ERP consultant, Chartered Accountants will prove their commitment to the business world and modern management. XIII. FAILURE OF ERP Apparently, no single point of failure can be attributed to unsuccessful ERP implementations. Some of the causes cited for failed ERP projects include:
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ensures that the internal controls and checks are consistently maintained. ensures that the provisions of Income tax or other fiscal laws are not ignored e.g., one can control the payment of cash in excess of Rs.10000 for expenses or Rs.20000 as

Inherent complexity of ERP implementation Outside consultant issues Inadequate training

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Unrealistic expectations Over-customization of software Using IT to solve the problem Process risk and process barriers Corporate culture Timeline flexibility Infrastructure issues

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Helps to achieve competitive advantage by improving its business process. Improves supply-demand linkage with remote locations and branches in different countries. Provides a unified customer database usable by all applications. Improves International operations by supporting a variety of tax structures, invoicing schemes, multiple currencies, multiple period accounting and languages. Improves information access and management throughout the enterprise.

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XIV. BENEFITS OF ERP The benefits accruing to any business enterprise on account of implementing are unlimited. According to the companies like NIKE, DHL, Tektronix, Fujitsu, Millipore, Sun Microsystems, following are some of the benefits they achieved by implementing ERP packages:
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XV. CONCLUSION There are as many reasons for successful ERP implementations as there are for failed projects. However, success seems to often be measured by whether or not the project came in on time and under budget. Whereas, fully utilizing the system to achieve improved business practices appears to be ignored. Performance measures must be developed and standardized to give organizations a clearer picture of the benefits derived from Enterprise Resource Planning implementation. Much has been written about and learned from some well-publicized successes and failures in ERP implementations. Some of it has even been directly contradictory. However, most agree on some basic rules:
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Gives Accounts Payable personnel increased control of invoicing and payment processing and thereby boosting their productivity and eliminating their reliance on computer personnel for these operations. Reduce paper documents by providing online formats for quickly entering and retrieving information. Improves timeliness of information by permitting, posting daily instead of monthly. Greater accuracy of information with detailed content, better presentation, fully satisfactory for the Auditors. Improved Cost Control Faster response and follow up on customers More efficient cash collection, say, material reduction in delay in payments by customers. Better monitoring and quicker resolution of queries. Enables quick response to change in business operations and market conditions.

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Establish the business processes prior to selecting the software. Staff the project team with members of the user community in addition to IT staff. Develop an implementation plan and stick to it. Train the users thoroughly on the process changes and flow of information in addition to the actual software. The project doesn't end with "go-live", but must be continually monitored.

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