Unit-I

Evolution of ERP system:

ERP systems surfaced in the market in the late 1980s and the beginning
of the 1990s, targeting mainly large complex business organizations.
During the 1960s, most organisations designed, developed, and implemented
centralised computing systems, mostly automating their inventory control
systems using inventory control (IC) packages.
Material requirements planning (MRP) systems were developed in the 1970s
and involved mainly planning the product or parts requirements according to
the master production schedule.
Following this route, new software systems called manufacturing resources
planning (MRP II) were introduced in the 1980s with an emphasis on optimizing
manufacturing processes by synchronising the materials with production
requirements. MRP II included areas such as shop floor and distribution
management, project management, finance, human resource, and engineering.
Based on the technological foundations of MRP and MRP II, ERP systems
integrate business processes including manufacturing, distribution, accounting,
finances, human resource management, project management, inventory
management, service and maintenance, transportation providing accessibility,
visibility, and consistency across the enterprise.
ERP software Why is Important for Business?
ERP tools help in managing accounts, employee records and internal and
external factor affecting the company.
It reduces cost in the long term by increasing the productivity.
Reduces the time and effort of managing records as compared to the
paper records.
The merger of financial and operational information allows the company
to analyse the business needs and act in a more effective manner.
By combining all the records in one whole, ERP makes the management
of data easier and more productive.
Apart from records, ERP also helps in the management of material and
ensures that no material is lost or stolen. It would also automate the
process of buying and maintaining material after analyzing the stock.
Helps the company to predict market trends and decide the course of
action accordingly.
Allows the company to expand business using the internet.
ERP
 ERP is a high-end sophisticated software solution that reduces the pressure and workload of the
managers and provides accurate, timely information for taking appropriate business decisions.
 Enterprise Resource Planning is the latest high end solution that information technology has lent to
business application.

Defination

 An Enterprise resource planning system is a fully integrated business management system

covering functional areas of an enterprise like Logistics, Production, Finance, Accounting and
Human Resources.
 It organizes and integrates operation processes and information flows to make optimum use of
resources such as men, material, money and machine.
 Enterprise resource planning promises
o one database,
o one application,
o one user interface
for the entire enterprise, where once disparate systems ruled manufacturing, distribution, finance
and sales.

ERP Characteristics:
Any system has to possess few key characteristics to qualify for a true ERP solution.
These features are:
1. Flexibility : An ERP system should be flexible to respond to the changing needs of an enterprise.
The client server technology enables ERP to run across various database back ends through Open
Database Connectivity (ODBC).
2. Modular & Open : ERP system has to have open system architecture. This means that any
module can be interfaced or detached whenever required without affecting the other modules.
It should support multiple hardware platforms for the companies having heterogeneous collection of
systems. It must support some third party addons also.
3. Comprehensive : It should be able to support variety of organizational functions and must be
suitable for a wide range of business organizations.
4. Beyond The Company : It should not be confined to the organizational boundaries, rather support
the on-line connectivity to the other business entities of the organization.
5. Best Business Practices : It must have a collection of the best business processes applicable
worldwide. An ERP package imposes its own logic on a company’s strategy, culture and
organization.

Features of ERP : Some of the major features of ERP and what ERP can do for the business
system are :
 ERP provides multi-platform, multi-facility, multi-mode manufacturing, multi-currency, multi-
lingual facilities.
 It supports strategic and business planning activities, operational planning and execution
activities, creation of Materials and Resources.
 ERP covering all functional areas like manufacturing, selling and distribution, payables,
receivables, inventory, accounts, human resources, purchases etc.
 ERP performs core activities and increases customer service, thereby augmenting the corporate
image.
 ERP bridges the information gap across organisations.
 ERP provides complete integration of systems not only across departments but also across
companies under the same management.
 ERP is the solution for better project management.
 ERP allows automatic introduction of the latest technologies like Electronic Fund Transfer (EFT),
Electronic Data Interchange (EDI), Internet, Intranet, Video conferencing, E-Commerce etc.
 ERP eliminates most business problems like material shortages, productivity enhancements,
customer service, cash management, inventory problems, quality problems, prompt delivery etc.
 ERP provides intelligent business tools like decision support system, Executive information
system, Data mining and easy working systems to enable better decisions.

Why Companies Undertake ERP

1. Integrate financial information : As the CEO tries to understand the company’s overall
performance, he may find many different versions of the truth. ERP creates a single version of
the truth that cannot be questioned because everyone is using the same system.
2. Integrate customer order information : ERP systems can become the place where the
customer order lives from the time a customer service representative receives it until the loading
dock ships the merchandise and finance sends an invoice. By having this information in one
software system companies can keep track of orders more easily, and coordinate
manufacturing, inventory and shipping among many different locations simultaneously.
3. Standardise and speed up manufacturing processes : Manufacturing companies -especially
those with an appetite for mergers and acquisitions—often find that multiple business units
across the company make the same transaction / recording / report using different methods
and computer systems. ERP systems come with standard methods for automating some of the
steps of a manufacturing process.
4. Reduce inventory : ERP helps the manufacturing process flow more smoothly, and it
improves visibility of the order fulfilment process inside the company. That can lead to reduced
inventories of the materials used to make products (work-in-progress inventory), and it can help
users better plan deliveries to customers, reducing the finished good inventory at the
warehouses and shipping docks.
5. Standardise HR information : Especially in companies with multiple business units, HR may
not have a unified, simple method for tracking employees’ time and communicating with them
about benefits and services. ERP can fix that.

The Ideal ERP System

An ideal ERP system is when a single database is utilized and contains all data for various software
modules. These software modules can include:
1. Manufacturing: Some of the functions include; engineering, capacity, workflow management, quality
control, bills of material, manufacturing process, etc.
2. Financials: Accounts payable, accounts receivable, fixed assets, general ledger and cash management,
etc.
3. Human Resources: Benefits, training, payroll, time and attendance, etc
4. Supply Chain Management: Inventory, supply chain planning, supplier scheduling, claim processing,
order entry, purchasing, etc.
5. Projects: Costing, billing, activity management, time and expense, etc.
6. Customer Relationship Management: Sales and marketing, service, commissions, customer contact,
calls center support, etc.
7. Data Warehouse: Usually this is a module that can be accessed by an organizations customers,
suppliers and employees.

Benefits of ERP
1. Improved efficiency: This is achieved by reduction of cycle time, inventory reduction, order
fulfillment, improving support to supply chain, management, etc.
2. Business integration: ERP packages are integrated, i.e. Exchange of data among related business
components is possible. In the large companies timing of system constructions, directive differs for
each product and department function.
3. Better decision making: The decision making procedure become easier because of highly structured
programmed process. These processes governs days to day operations and produces reports in structured
form, which are further used by top management of organization to meet with its basic goals and
objectives and to monitor the whole organization.

4. Quick response time to customers: The system is easy to operate so, that not much computer skills are
required to handle the operations. Because of its comprehensive nature the system avoids
unnecessary duplication and redundancy in data gathering and storage. Thus the response time to
customer is reduced.
5. Business integration: ERP creates the common database across the organization which is used by
various departments within the organization. The ERP supports the flow of information within
department automatically. This business integration capabilities makes it easy to group business
details in real time and carry out various types of management decision in time. The support systems
like DSS can use this common database. Thus information and the data are on the fingertip of top
level management.
6. Analysis and planning capabilities: Though different types of decisions support systems and
simulation function, ERP makes the analysis of data easier. The DSS also supports the middle and
top management for tactical and strategic planning.
7. Technology support: Utilization of latest development in Information technology is quickly adapted
by the ERP packages. Distributed system, open system, client server technology, internet, intranet, E –
commerce, CALS (Computer aided Acquisition and Logistic Support) are some examples of flexible
environment adopted by ERP. The ERP packages itself design in a way that they can incorporate with
latest technology even during the customization, maintenance and expansion phases.

Limitations of ERP
ERP systems have three significant limitations:
1. Managers cannot generate custom reports or queries without help from a programmer and this inhibits
managers from obtaining information quickly so that they can act on it for competitive advantage.
2. ERP systems provide current stafus only, such as open orders. Managers often need to look past the
current stafus to find trencls and patterns that aid better decision-making.
3. The data in the ERP application is not integrated with other enterprises or division systems and does
not include external intelligence.

Overcoming the Limitations

 There are many technologies that help ERP systems to overcome the limitations, that reduces its
usefulness.
 These technologies, when used in conjunction with the ERP package will help in overcoming the
limitations of a standalone ERP system and thus help the employees in making better decisions.
 organizations are constantly innovating methods to improve operational efficiency, reduce costs,
provide high-quality and personalized customer servicing improve customer satisfaction and
increase profit margins.
 Companies that use technology, integrate it into the core of their business planning and are ready
to face the challenge of conducting business in this Internet age are called e-businesses.
ERP and its related technologies

ERP system plays an important role in the organization by integrating different business tasks-such
as materials management, product planning, sales distribution in one application.

1. Business Process Reengineering (BPR)

The process of examining current processes and redesigning those processes to increase the efficiency
and effectiveness of an organization is called BPR. Every company that intends to implement ERP has to
reengineer its processes in one form or the other. This process is known as Business Process
Reengineering (BPR).

Defination:

BPR is the fundamental rethinking and radical redesign of processes to achieve dramatic
improvement, in critical, contemporary measures of performance such as cost, quality, service and
speed,”
 Dramatic achievement means to achieve 80% or 90% reduction (in say, delivery time, work
in progress or rejection rate) and not just 5%, 10% reduction.
 Radical redesign means BPR is reinventing and not enhancing or improving. In a nutshell, a
“cleansiate approach” of BPR says that “Whatever you were doing in the past is all wrong”,
do not get biased by it or reassemble you new system to redesign it afresh.
 Fundamental rethinking means asking the question “why do you do what you do”, thereby
eliminating business process altogether if it does not add any value to the customer.

Hammer and Champy, the founders of this concept, suggested seven principles of reengineering to
streamline the work process and thereby achieve significant levels of improvement in quality, time,
management and cost.
According to Hammer, lack of sustained management commitment and leadership, unrealistic scope and
expectations, and resistance to change prompted management to abandon the concept of BPR and
embrace the next new methodology, Enterprise Resource Planning (ERP).
Principles of reengineering
1. Organize around outcomes, not tasks.
2. Identify all the processes in an organization and prioritize them in order of redesign urgency.
3. Integrate information processing work into the real work that produces the hformation.
4. Treat geographically dispersed resources as though they were centralized.
5. Link parallel activities in the workflow instead of just integrating their results.
6. Put the decision point where the work is performed, and build control into the process.
7. Capture information once and at the source.

Data Warehousing
Data warehousing is the process of constructing and using a data warehouse. A data warehouse is constructed by
integrating data from multiple heterogeneous sources that support analytical reporting, structured and/or ad hoc queries,
and decision making. Data warehousing involves data cleaning, data integration, and data consolidations.

A data warehouse is a subject-oriented, integrated, time-variant and non-volatile collection of

data in support of management's decision making process.

Characteristics of Data Warehousing

According to Bill Inmon, author of building the data warehouse and the guru who is widely considered to be the originator of
the data warehousing concept, there are generally four characteristics that describe a data warehouse:
1. Subject oriented: Data are organized according to subject instead of application e.g. an insurance company using a data
warehouse would organize their data by customer, premium, and claim, instead of by different products (auto, life, etc,).
The data organized by subject contain only the information necessary for decision support processing.
2. Integrated: When data resides in many separate applications in the operational environment, encoding of data is often
inconsistent. For instance, in one application, gender might be coded as “m” and “f” in another by 0 and 1. When data are
moved from the operational environment into the data warehouse, they assume a consistent coding convention e.g.
gender data is transformed to “m” and “f”.
3. Time variant: The data warehouse contains a place for storing data that are five to 10 years old, or older, to be used for
comparisons, trends, and forecasting. These data are not updated.
4. Non volatile: Data are not updated or changed in any way once they enter the data warehouse, but are only loaded and accessed.

Data Mining
Data mining refers to extracting or mining knowledge from large amounts of data. data mining can be defined as “the
process of discovering interesting knowledge from large amounts of data stored in databases, data warehouses, or other information
repositories.”
Data Mining is defined as the procedure of extracting information from huge sets of data. In other words, we can say that data mining is
mining knowledge from data.

Tasks of Data Mining

Data mining involves six common classes of tasks:
Anomaly detection (Outlier/change/deviation detection) – The identification of unusual data records, that might
be interesting or data errors that require further investigation.
 Association rule learning (Dependency modelling) – Searches for relationships between variables. For
example a supermarket might gather data on customer purchasing habits. Using association rule learning,
the supermarket can determine which products are frequently bought together and use this information
for marketing purposes. This is sometimes referred to as market basket analysis.
 Clustering – is the task of discovering groups and structures in the data that are in some way or another
"similar", without using known structures in the data.
 Classification – is the task of generalizing known structure to apply to new data. For example, an e-mail
program might attempt to classify an e-mail as "legitimate" or as "spam".
 Regression – attempts to find a function which models the data with the least error.
 Summarization – providing a more compact representation of the data set, including visualization and
report generation

Benefits of Data Mining:

 Data mining technique helps companies to get knowledge-based information.
 Data mining helps organizations to make the profitable adjustments in operation and production.
 The data mining is a cost-effective and efficient solution compared to other statistical data
applications.
 Data mining helps with the decision-making process.
 Facilitates automated prediction of trends and behaviors as well as automated discovery of hidden
patterns.
 It can be implemented in new systems as well as existing platforms
 It is the speedy process which makes it easy for the users to analyze huge amount of data in less
time.

DECISION SUPPORT SYSTEM (DSS)

 DSS are interactive information systems that rely on an integrated set of user friendly software and
hardware tools, to produce and present information targeted to support management in decision making.
 DSS facilitates the decision making process, helping the decesion makers to choose between alternatives.
 DSS serve the management, operations, and planning levels of an organization and help to make decisions,
which may be rapidly changing and not easily specified in advance.
 A DSS can help close the information gap and allow mangers to improve that quality of their decisions.
Examples of a decision support application are:
inventories of information assets
comparative sales figures between one period and the next,
projected revenue figures based on product sales assumptions.
DSS are designed to support decision-making processes involving semi structured and unstructured
problems.