UNIT-1 ERP

UNIT I : ERP Introduction

Benefits, Origin, Evolution and Structure: Conceptual Model of ERP, the Evolution of ERP,
the Structure of ERP, Components and needs of ERP,ERP Vendors; Benefits & Limitations
of ERP Packages.
Introduction to ERP
ERP stands for Enterprise Resource Planning. ERP systems are the kind of
software tools that are used to manage the data of an enterprise. It helps different
organizations deal with different departments of an enterprise. Different departments like
receiving, inventory management, customer order management, production planning,
shipping, accounting, human resource management, and other business functions. This
article focuses on discussing an ERP system in detail.
What is ERP?
Enterprise Resource Planning (ERP) is a software system that is used by organizations to
manage and integrate the important parts of the businesses. It is the practice of
consolidating an enterprise’s planning, manufacturing, sales, and marketing efforts into one
management system.

1. It can integrate all the processes that are needed to run a company.
2. It helps to improve efficiency, better reporting, and enhanced data security.
3. These systems can be customized according to the specific needs of the different
industries.
4. ERP systems are crucial for large organizations.

Before ERP

Before an ERP system, there were different databases of different departments which they
managed on their own. The employees of one department does not know anything about the
other department.

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After ERP

After the ERP system, databases of different departments are managed by one system called
the ERP system. It keeps track of all the databases within the system. In this scenario,
employees of one department have information regarding the other departments.

Features of ERP
Below are the core features of ERP systems:

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1. Financial Management: ERP systems are used to manage financial transactions,
produce financial statements such as balance sheets, manage companies’ tangible and
intangible assets, and track money owned by and to the organization.
2. Supply Chain Management: ERP systems help to monitor the stock levels, track
inventory movement, manage the movement of goods, and automate the purchasing
process.
3. Human Resources: In an organization, ERP systems help to manage employee records,
automate payroll processing, and manage recruitment and onboarding.
4. Customer Relationship Management (CRM): ERP systems help in sales automation,
automate marketing campaigns, track customer interactions, and improve customer
satisfaction.
5. Project Management: ERP systems support project planning and scheduling, and
monitor project time and expenses for accurate cost estimation.
6. Manufacturing: ERP systems help in production planning, list all the raw materials
required for product manufacture, and monitor the production process.

1.2 History of ERP

Timelin Key
Description
e Development

Material Requirements Planning (MRP) systems were

1960s Beginnings introduced that were focussed on inventory
management and production planning.

Material Requirements Planning (MRPII) is

MRP introduced with a few additional manufacturing
1970s
Expansion processes added to MRP such as capacity planning,
shop floor control, and quality management.

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Timelin Key
Description
e Development

 This era marks the introduction of ERP which

integrated various business functions like finance,
Introduction
1980s HR, and procurement into a single system.
of ERP
 Relational Databases were introduced that
improved data storage and retrieval.

 In this era there was a shift from Mainframe to

Growth and
1990s Client-Server Architecture.
Adoption
 ERP systems became more customizable.

 ERP systems enabled remote access and cloud-

Web-based based solutions.
2000s
ERP  Emergence of SaaS ERP solutions offered lower
initial costs and easier maintenance.

 There was widespread adoption of cloud-based

Cloud and ERP solutions.
2010s
Mobile ERP  Mobile apps and mobile-friendly ERP interfaces
were introduced.

 Integration of AI and ML in ERP systems for

predictive analysis and enhanced decision-making.
 Introduction of Blockchain Technology in ERP
Intelligent
2020s transactions enhanced security and transparency of
ERP
the transactions.
 Use of IoT devices in ERP systems for real-time
data collection and monitoring.

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1.3 Benefits of ERPs
Here are the key benefits of implementing the ERP systems:

1. Improved Efficiency: ERP systems reduce the manual effort and risk of errors by
automating repetitive processes.
2. Integrated Business Processes: ERP systems streamline operations by integrating
various business processes and enable seamless data flow across the departments.
3. Reduced Redundancy: ERP systems eliminate duplicate data entries and improve
data integrity.
4. Timely Data Access: ERP systems provide real-time data access, thus helping in
making timely and informed decisions.
5. Reduced IT Costs: ERP systems consolidate IT systems, thus lowering the
infrastructure and maintenance costs.
6. Maintain Compliance: It help to maintain compliance with industry standards.
7. Enhances Customer Service: ERP systems helps to improve service delivery by
providing quick access to customer information and data.
Weakness of ERPs
ERP systems offer numerous benefits but they also come with several weaknesses and
challenges. Here are some of the weaknesses of ERP systems:

1. High Implementation Costs: Implementing an ERP system can be expensive and

time-consuming. It requires significant investment in hardware, software, and
personnel, as well as training and consulting costs.
2. Complex Customization: Customizing an ERP system to meet the specific needs of
an organization can be complex and require specialized knowledge. This can lead to
delays and additional costs.
3. Resistance to Change: ERP systems often require significant changes to an
organization’s processes and workflows, which can be met with resistance from
employees who are comfortable with existing practices.
4. Data Security Risks: Centralizing sensitive business data in an ERP system creates
potential security risks, especially if the system is not properly secured or if there are
vulnerabilities in the software.

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5. Limited Flexibility: ERP systems are designed to provide standardization and
control, which can limit the flexibility of an organization to respond to changing
business needs and market conditions.
6. Dependence on Vendor Support: Organizations that use ERP systems are often
heavily dependent on the vendor for support, maintenance, and upgrades. This can
create a risk of vendor lock-in and limit an organization’s ability to switch to other
systems or providers.

1.3 Conceptual model of ERP

The below figure shows the conceptual model on which ERP theory is based. ERP defines
the five measures that govern business policies:

1. Process-based flat organization

2. Assemble-to-order or Make-to-order philosophy
3. Empowered employees
4. Customer and supplier integration
5. Sophisticated IT systems

These business policies lead to critical elements for the ERP system. The success of ERP
depends on the level of its adoption in the organization.

ERP can be defined in the following ways by keeping the above-mentioned concept in mind
:

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1. It is a planning methodology or philosophy that is based on the smooth integration of
all the business processes of an enterprise.
2. It is a set of software casing major business areas e.g. economics, plans, sales,
materials, manufacturing, distribution, all so tightly integrated with one another that
any business activity recorded at one place is immediately reflected in all other
places.
3. It is the finest expression of the consistency of Info-tech and business. An enterprise-
wide system with enabling technology and effective managerial tool for integrating
all the levels and improving report ability.
The above definitions explain the fundamental design feature of ERP as a
system-based business solution. ERP integrates the various departments and
functions throughout the organization. It attempts to comprehend everything into a
single system that can serve every department and functional needs. While doing so,
it focuses on the business plan areas and addresses those problems with an integrated
planning approach.

To understand how ERP is a system based business solution, we have to first

critically examine the two key words ‘System’ and ‘solution’.

System :

In the present context, we can say that ERP is a system for a specific set or
arrangement of elements that are organized to accomplish a pre-defined goal through the
processing of information. This goal invariably could be to support an existing business
function, improve the transparency of data, improve efficiency in business, improve
decision-making, and provide improved customer satisfaction. The key resource elements of
such a system are hardware, software, users, databases, etc.

Solution :

A business solution can be explained as a framework encompassing strategy,

organization structures, key performance indicators, measurements, and IT, which must be
aligned to the business processes. Conventionally, there are three kinds of business
processes- acquiring and paying for input resources, converting inputs into finished goods
and services provided.

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Thus ERP as a combination of system and business solution provides the user with a
productive planning tool.

1.4 Evolution of ERP System

Enterprise Resource Planning (ERP) is made to automate any task. With ERP, it is
easy to manage every department under one single database. This consumes not much time
and is an easy and fast way to do work.

Example:

Any enterprise’s planning, manufacturing, sales, and marketing efforts are put under
one management system and then it combines into one single database system.

Evolution of ERP System:

1. Material Requirement Planning (MRP)

Developed in the 1970s, Material Requirement Planning is a widely used approach

for production planning and scheduling in industry. It is the approach embedded in many
commercially available software applications. The function of MRP is to provide material
availability i.e., it is used to produce requirement quantities on time. This process involves
monitoring of stocks and demand, leading to the automatic creation of procurement
proposals for purchasing or production. The main objective of MRP is to determine which
material is required, quantity required and by when it is required.

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2. Manufacturing Resource Planning (MRP II) –

Developed in 1980s, Manufacturing Resource Planning is an expansion of closed

loop MRP for managing an entire manufacturing company. This system provides an
information that is useful to all functional areas and encourages cross-functional
interactions. It supports sales and marketing by providing and orders promising capability.
It is a broad-based resource co-ordination system involving other areas of a firm in planning
processes, such as marketing, finance and HR.

3. Enterprise Resource Planning (ERP)

Developed in 1990s, Enterprise Resource Planning is foundation system for domestic

and global operations, supporting most or all functional areas in their daily operations. is
one of more common categories of business software, especially with large-scale
businesses. It is a business strategy and a set of industry-domain-specific applications that
build customer and shareholder communities value network system by enabling and
optimizing enterprise and inter-enterprise collaborative operational and financial processes.
ERP at its core is an effective way of centralizing information and workflow processes
through data management. Because ERP keeps all of your workflow data in one place.

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4. Enterprise Resource Planning(ERP II)

Developed in 2000s, ERP II is name now use to describe ERP. Basically, it is

successor of ERP. It is a business strategy and set of collaborative operational and financial
processes internally and beyond enterprise. These new business models reflect an increased
business focus on internal integration. It’s domain is in all sectors and segments. Data in
this is internally and externally published and subscribed. It includes departmental modules,
CRM, SCM and other stakeholders modules. It emphasis on intangible assists.

1.5 The Structure of ERP

The essence of ERP is the fundamental approach that takes an integrated view of the
subject. The established application systems, which the organization generally employs,

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treat each deal separately. They are built around the strong boundaries of specific functions
that a specific application is meant to carter.

Features of the Structure of ERP :

Here, we will discuss the basic features of the Structure of ERP as following.

 ERP considers them to be part of the interlinked processes that make up total
business and financial impact. Almost all the typical application systems are nothing
but data manipulation tools.
 They store data, process them, and present them inappropriately whenever requested
by the user.
 In this process, the only problem is that there is no link between the application
system being used by different departments.
 An ERP system also does the same thing but in a different manner. There are a
hundred such data tables that store data generated as a result of the diverse deal, but
they are not confined to any departmental or functional boundaries.
 These are rather integrated for speedy and precise results required by multiple users,
for multiple purposes, for multiple sites, and at multiple times.
ERP Advantages :
Here, we will discuss the advantages of ERP. Let’s have a look.

 Flexible –
In response to changing needs of an enterprise, it should be flexible. The client-server
technology authorizes ERP to run across various database backend via open database
connectivity.

 Modular –
The ERP system has to have modular implementation architecture. This means that
many performances are logically clubbed into the different business procedure and
structured into a module which can be interfaced or detached whenever need without
influence the other modules. It should support multiple hardware platforms for the
companies having a heterogeneous collection of systems. It must support some third-
party add-ons also.

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 Comprehensive –
It should be able to support a diversity of organizational functions and must be suitable
for a wide range of business organizations.

 Beyond the company –

It should not be confined to authoritative boundaries, rather, it should support the on-line
connectivity to other business entities of an organization. These features are the recent
development and such ERP solution is referred to as E-ERP.

 Belonging to the best business practices –

ERP system must be updated with the best practices and must have a collection of the
best business processes applicable worldwide

1.5 ERP Components

An Enterprise is a group of people which has certain resources as its control to
achieve its goal. It acts as a single entity. This single entity is different from traditional
approach. It is an integrated software that integrates many small modules to become a big
organization. These small modules are said to be the components of ERP. It has the ability
to manage many fields like finances, manufacturing , customers, projects and many more.
With ERP systems , we can adapt to changes leading to an improved and efficient working
of organizations.

Five Main Components of the ERP system are as follows :

1. Finance :

It keeps a track on all your financial data including Accounts receivable, Accounts
payable, General ledger, costs, budgets and forecasts. It helps to keep a record of cash flow,
lower costs, increase profits and make sure that all the bills are paid on time. The growing
complexity of the business makes important the need to have a single system to manage all
of the financial transactions and accounting for multiple business units or product lines.

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2. Human Resources (HR) :

It is a software handling all personal-related tasks for managers and employees.

Employees play a very important role in any organization, without them business would not
exist. This component is responsible for automated payments to employees, payment of
taxes, generating performance reports, attendance tracking, promotions, deciding working
hours and holiday hours of the staff.

3. Manufacturing and logistics :

It as a group of applicants for planning, production, taking orders and delivering the
products to the customers. It provides you a view of the demanded and achieved levels
which is very important to check whether you are achieving your targets or not. It provides
all the stock summary and production plans beneficial for the business. It includes
Production planning , order entry and processing also the warehouse management.

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4. Supply Chain Management (SCM) :

A supply chain management is a network of facilities that perform the procurement

of the materials and transformation of these materials into intermediate and finalized
products and distribution of these products to the customers. Planning, Manufacturing,
Marketing, Distribution and the purchasing organizations through a supply chain operate
independently. These organizations have their own goals and objectives.

5. Customer Relationship Management (CRM) :

This component interacts with the customers using data analysis to study large
amount of information. They target the audience and observe what is beneficial for them.
The component gathers customer data from multiple channels. Hence, CRM stores detailed
information on overall purchase history, personal info, and even purchasing behavior
patterns. The benefit it gains is by keeping a track on the customer’s buyer history and
suggesting additional purchases.

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Customer Relationship management(CRM)

1.6 Need of ERP

ERP systems are critical for modern businesses and organizations. Below are some of the
points highlighting why ERP systems are important:

1. Reduces Manual Work: ERP systems help to reduce manual work, thus freeing up
employees for more strategic activities.
2. Improved Efficiency: These systems help to improve efficiency by integrating different
business processes and ensuring smooth operations.
3. Up-to-Date Information: ERP systems provide real-time data enabling timely and
improved decisions.
4. Fosters Collaborations: These systems ensure that all the teams work on the same data
thus reducing misunderstandings.
5. Reduces Operational Costs: They help in cost saving by streamlining the processes and
improving productivity.
6. Intergates CRM: ERP systems help to manage customer interactions and improve
satisfaction.
7. Tracks KPIs: ERP systems allow for better performance management by tracking KPIs
and other metrics.
How does ERP Work?
ERP systems typically work through a centralized database by integrating various business
processes and functions into a unified system.

1. Centralized Database
An ERP system stores all the data in a central database and ensures that all the users have

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access to the most current data. This helping different departments to access and share
information seamlessly, thus helps them to make informed decisions.

2. Modular Structure

ERP systems are composed of interconnected modules, focussing on specific business

functions allowing data to flow between them.

3. Business Process Integration

ERP systems automate workflows across various departments and support end-to-end
business processes, ensuring all the steps are streamlined.

4. User Interface and Access

In ERP systems users have specific roles and permissions according to which they are
granted access to relevant modules. They are also provided with dashboards and reporting
tools to monitor KPIs.

5. Customization

ERP systems are customized according to the specific needs of the organization. It also
allows for adjustments when the business grows ensuring ERP systems remain aligned with
the business goals.

6. Data Collection and Analytics

ERP systems capture data from various sources and use built-in analytics tools to process
data and generate actionable insights helping businesses to make strategic decisions.

7. Compliance and Security

ERP systems ensure that all business processes comply with relevant regulations and
standards and implement robust security measures to protect sensitive data.

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8. Implementation and Training

This involves planning, configuring, testing, and deploying the ERP systems. It also
involves conducting training programs to ensure all users are proficient in using ERP
systems.

How ERP is Developed?

ERP is developed by the three Main Person’s which are:

 Vendors.
 Consultants.
 End User.
1. VENDORS :
Vendors are the people who develop ERP packages, they spent a huge amount of time and
effort in research and development to create the package solution which flexible, easy to
use, and efficient. ERP vendors spent a large amount of money so that they become experts
to develop flexible ERP Package.

Roles of Vendors:

 The vendors should supply product and its documentation as soon as the contract is
signed.
 Vendor is responsible to fix bugs that are found during implementation process.
 Vendor also provides training to the company’s users and also to the people who are
involved in implementation process.
 Vendors take care of quality control factors while developing ERP.
 Vendors participate in all phases of an implementation in which he gives advice,
answers to all technical questions about product and technology.
2. CONSULTANTS :
Consultants are professional people who develop the different methods and techniques to
deal with the implementation process and with the various problems that will help during
implementation. They are experts in the field of Administration, management, and control
activities.

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They have experience that ensures successful implementation. The only limitation to
Consultants is that they are expensive.

Roles of Consultants:

 They have to make a plan to carry activities in the right direction during the
implementation process.
 They provide best optimum result such as reduction in cycle time, increased response
time, improved productivity to satisfaction of customers.
 They have to make ERP implementation for an organization as their own business.
3. END USERS :
End users are the people who use the ERP system once it has been developed. End-users are
given training as to how to use various functions that are automated in the software.

Roles Of End Users:

 End users are the people who are doing functions that are automated by ERP System.
 They analyze and provide suggestions where customization needs to take place.
 They should be able to balance their loyalty to the client and project.
 Consultant should create a knowledge base and train people so that knowledge stays in
the organization when consultants leave the project.
Benefits of ERP

 Better reporting tools with real-time information

 A single source of truth – one integrated database for all business processes
 Better customer service:
 Better access to customer information
 Faster response times
 Improved on-time delivery
 Improved order accuracy
 Improved Inventory Costs:
 Only carry as much inventory as needed, avoid these common issues
 Too much inventory, and higher overhead costs
 Too little inventory, and longer customer fulfillment times
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 Boosted Cash Flow:
 Better invoicing and better collections tools to bring cash in faster
 Faster cash means more cash on-hand for the business
 Cost Savings:
 Improved inventory planning
 Better procurement management
 Better customer service
 Improved vendor relationship management
 Better Data & Cloud Security:
 Dedicated security resources
 Avoid installing malicious software
 Data distributed across multiple servers
 Business Process Improvements:
 Automate manual or routine tasks
 Implement smarter workflows
 Gain efficiency
 Supply Chain Management:
 Effective demand forecasting and lean inventory
 Reduce production bottlenecks
 Transparency through the business

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Cons of ERP – Important Factors & Disadvantages

1. Costs of an ERP Software

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 Third-party software add-ins
 Implementation costs
 Maintenance
 Initial and continuous training
2. Complex Data Conversion
 Developing a solid data conversion strategy can be difficult
 You have to define, examine and analyze data sources
 Bad data conversion will cause delays and increased costs
3. Requires thorough training
 Training needs to cover all of the ERP system’s features.
 ERP training sessions need to be in line with business processes
 IT users need to be trained for the technical aspects of the ERP System

1.8 ERP Vendors

ERP (Enterprise Resource Planning) vendors provide software solutions that help businesses
manaage and integrate important parts of their operations, such as finance, HR,
manufacturing, supply chain, services, procurement, and others. Some of the top ERP vendors
are:

1. SAP

Overview: SAP is one of the largest ERP vendors in the world, known for offering
highly customizable and scalable ERP solutions.

Best For: Large enterprises and multinational companies.

Key Products: SAP S/4HANA, SAP Business One, SAP Business ByDesign.

2. Oracle

Overview: Oracle provides cloud-based ERP solutions designed for large businesses
and enterprise-level organizations.

Best For: Companies needing a cloud-first solution with strong finance and HR
capabilities.

Key Products: Oracle ERP Cloud, NetSuite (acquired by Oracle), Oracle E-Business
Suite.

3. Microsoft Dynamics 365

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Overview: A suite of ERP and CRM applications, Microsoft Dynamics is deeply
integrated with other Microsoft tools like Office 365, Teams, and Azure.

Best For: Businesses already using Microsoft products, especially mid-market

companies.

Key Products: Dynamics 365 Finance and Operations, Dynamics 365 Business
Central.

4. Infor

Overview: Infor offers industry-specific ERP solutions, often used in manufacturing,

healthcare, retail, and distribution.

Best For: Mid-market businesses, especially those in manufacturing and supply chain
sectors.

Key Products: Infor CloudSuite, Infor M3, Infor LN.

5. Epicor

Overview: Epicor specializes in ERP for manufacturing, retail, and distribution

industries, with a focus on mid-market businesses.

Best For: Manufacturing, distribution, and retail industries.

Key Products: Epicor ERP, Epicor Kinetic, Epicor Prophet 21.

6. NetSuite (by Oracle)

Overview: Originally an independent company and now owned by Oracle, NetSuite is

a cloud-based ERP solution designed for small to medium-sized businesses.

Best For: Growing mid-sized businesses, especially those in eCommerce or SaaS.

Key Products: NetSuite ERP, NetSuite OneWorld.

7. Workday

Overview: Workday is known for its cloud-based ERP software with a strong
emphasis on human capital management (HCM) and financial management.

Best For: Businesses focused on HR and finance operations.

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Key Products: Workday Financial Management, Workday Human Capital
Management.

8. Sage

Overview: Sage offers ERP software tailored for small and medium-sized businesses,
with a focus on simplicity and ease of use.

Best For: SMBs in need of an easy-to-implement ERP system.

Key Products: Sage X3, Sage Business Cloud, Sage 100cloud.

9. Acumatica

Overview: Acumatica is a cloud-based ERP solution designed for small to mid-sized

businesses, with a focus on ease of use and flexibility.

Best For: Small to mid-sized businesses, especially those that need flexible cloud
solutions.

Key Products: Acumatica Cloud ERP, Acumatica Financial Management.

10. Syspro

Overview: A global ERP vendor that offers end-to-end ERP solutions with a focus on
manufacturers and distributors.

Best For: Manufacturers, distributors, and businesses needing a highly customizable

ERP solution.

Key Products: SYSPRO ERP, SYSPRO Cloud.

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