ERP Systems -- Using IT to gain a competitive advantage
Shankarnarayanan S
In the past decade the business environment has changed dramatically. The world has become a small and very dynamic marketplace. Organizations today confront new markets, new competition and increasing customer expectations. This has put a tremendous demand on manufacturers to; 1) Lower total costs in the complete supply chain 2) Shorten throughput times 3) Reduce stock to a minimum 4) Enlarge product assortment 5) Improve Product quality 6) Provide more reliable delivery dates and higher service to the customer 7) Efficiently coordinate global demand, supply and production. Thus today's organization have to constantly re-engineer their business practices and procedures to be more and more responsive to customers and competition. In the 1990's Information technology and Business Process re-engineering, used in conjunction with each other, have emerged as important tools which give organisations the leading edge.
ERP Systems - Evolution
The focus of manufacturing systems in the 1960's was on Inventory control. Most of the software packages then (usually customized) were designed to handle inventory based on traditional inventory concepts. In the 1970's the focus shifted to MRP (Material Requirement Planning) systems which translated the Master Schedule built for the end items into time-phased net requirements for the sub-assemblies, components and raw materials planning and procurement.
In the 1980's the concept of MRP-II (Manufacturing Resources Planning) evolved which was an extension of MRP to shop floor and Distribution management activities. In the early 1990's, MRP-II was further extended to cover areas like Engineering, Finance, Human Resources, Projects Management etc i.e. the complete gamut of activities within any business enterprise. Hence, the term ERP (Enterprise Resource Planning) was coined.
In addition to system requirements, ERP addresses technology aspects like client/server distributed architecture, RDBMS, object oriented programming etc. ERP Systems - Bandwidth ERP solutions address broad areas within any business like Manufacturing, Distribution, Finance, Project Management. Service and Maintenance, Transportation etc. A seamless integration is essential to provide visibility and consistency across the enterprise.
An ERP system should be sufficiently versatile to support different manufacturing environments like make-to-stock, assemble-to-order and engineer-to-order. The customer order decoupling point (CODP) should be flexible enough to allow the co-existence of these manufacturing environments within the same system. A typical example here could be Godrej & Boyce Mfg.Co., which has businesses spread over all these manufacturing environments. It is also very likely that the same product may migrate from one manufacturing environment to another during its produce life cycle.
The system should be complete enough to support both Discrete as well as Process manufacturing scenario's. The efficiency of an enterprise depends on the quick flow of information across the complete supply chain i.e. from the customer to manufacturers to supplier. This places demands on the ERP system to have rich functionality across all areas like sales, accounts receivable, engineering, planning, Inventory Management, Production, Purchase, accounts payable, quality management, production, distribution planning and external transportation. EDI (Electronic Data Interchange) is an important tool in speeding up communications with trading partners.
More and more companies are becoming global and focusing on down-sizing and decentralizing their business. ABB and Northern Telecom are examples of companies which have business spread around the globe. For these companies to manage their business efficiently, ERP systems need to have extensive multi-site management capabilities. The complete financial accounting and management accounting requirements of theorganization should be addressed. It is necessary to have centralized or de-centralized accounting functions with complete flexibility to consolidate corporate information.
For companies undertaking large scale and complex EPC projects, tools should be available for cost-effective project management, project planning and project control. After-sales service should be streamlined and managed efficiently. A strong EIS (Enterprise Information System) with extensive drill down capabilities should be available for the top management to get a birds eye view of the health of their organisation and help them to analyze performance in key areas.
Evaluation Criteria
Some important points to be kept in mind while evaluating an ERP software include: 1) Functional fit with the Company's business processes 2) Degree of integration between the various components of the ERP system 3) Flexibility and scalability 4) Complexity; user friendliness 5) Quick implementation; shortened ROI period 6) Ability to support multi-site planning and control 7) Technology; client/server capabilities, database independence, security 8) Availability of regular upgrades 9) Amount of customization required 10) Local support infrastructure 11) Availability of reference sites 12) Total costs, including cost of license, training, implementation, maintenance, customization and hardware requirements.
ERP Systems -- Implementation
The success of an ERP solution depends on how quick the benefits can be reaped from it. This necessitates rapid implementations which lead to shortened ROI periods. Traditional approach to implementation has been to carry out a Business Process Re-engineering exercise and define a ``TO BE'' model before the ERP system implementation. This led to mismatches between the proposed model and the ERP functionality, the consequence of which was customizations, extended implementation time frames, higher costs and loss of user confidence.The BAAN approach is to conduct a concurrent Business Process Re-engineering during the ERP implementation and aim to shorten the total implementation time frame. Two scenario's can be distinguished:
1) Comprehensive Implementation Scenario: Here the focus is more on business improvement than on technical improvement during the implementation. This approach is suitable when: Improvements in business processes are required. Customizations are necessary Different alternative strategies need to be evaluated High level of integration with other systems are required Multiple Sites have to be implemented.
2) Compact Implementation Scenario: Here the focus is on technical migration during the implementation with enhanced business improvements coming at a later stage. This approach is suitable when; Improvements in business processes are not required immediately Change-minded organization with firm decision making process Company operating according to common business practices. Single site has to be implemented.ERP Systems - The Future
The Internet represents the next major technology enabler which allows rapid supply chain management between multiple operations and trading partners. Most ERP systems are enhancing their products to become ``Internet Enabled'' so that customers worldwide can have direct to the supplier's ERP system. ERP systems are building in the Workflow Management functionally which provides a mechanism to manage and control the flow of work by monitoring logistic aspects like workload, capacity, throughout times, work queue lengths and processing times.Recognizing the need to go beyond the MRP-II and ERP vendors are busy adding to their product portfolio. BAAN for example has already introduced concepts like IRP (Intelligence Resource Planning), MRP-III (Money Resources Planning) and has acquired companies for strategic technologies like Visual Product configuration, Product Data Management and Finite Scheduling.
(The author is Senior Consultant with Baan Infosystems India Pvt.Ltd.)
