Enterprise resource planning (ERP) is a software system used to manage and coordinate all the resources, information, and functions of a business from shared data stores. It was developed in the year 1990 by a research and analysis firm Gartner. The new technical system attracted mass attention in the year 1990, when companies faced the Y2K problem in their legacy systems. That was the time when many companies began replacing their legacy information systems with an ERP.
An ERP system is used across various processes of an organisation—manufacturing, distribution, logistics, inventory, shipping, invoicing, and accounting. It can monitor and control various business activities, right from sales, marketing, delivery, production and inventory management, billing to quality management and human resource management.
This kind of facility is finding its grip in non-manufacturing nonprofit organisations and government departments as well. It is an extended part of manufacturing resource planning and computer integrated manufacturing.
ERP in past was traditionally implemented in various discrete manufacturing businesses such as consumer packed goods, and industrial manufacturing and then moved to continuous process industries such as oil & gas and chemicals. These industries have gained a lot from ERP implementations but it is still a weak solution for segments such as media, transportation and logistics, insurance, banking and telecom— essentially the services sector.
ERP in action In an ERP, all functional departments that are involved in operations or production are integrated in a single system which is cross-functional and enterprise-wide. It works with the objective of achieving strategic development by connecting enterprise applications. This vision is being achieved within financial, human resources and other corporate functions. Today, every well-organised plant floor has an ERP system.
AR Subramanian, CFO & Company Secretary, Schwing Stetter India Pvt Ltd, says,“Benefit is always there in an ERP for any industry as long as the user realises and utilises its potential in full. The user should tame the ERP to his requirement, rather than becoming a slave to it.” Is using ERP to drive plant execution the best way to leverage such investment? Yes, will definitely be the answer. To summarise—manufacturers now seek to be more competitive. K Ravi, Managing Director, Hassia Packaging Pvt Ltd, states, “Selection of an ERP system is worked out on a specific requirement basis. It is known to handle multi-company, multi-divisions and multiplant requirements.” Most ERP systems were designed as a centralised, corporate application to consolidate and simplify disparate corporate applications, such as human resources management and financial reporting. The goal of implementing a single instance of ERP was driven by the need for accurate reporting; multiple versions meant a reconciliation process must be completed prior to running any reports, risking the potential for errors. To explain further the relevance of a centralised architecture, every time a change is needed to update or modify a plan, connectivity must first be established from the plant, warehouse or remote location to ERP, assuming a ‘single instance’ of the application. A complex reconciliation process must be done prior to aggregating global operational data, clearly a lesser desirable configuration in instances where each plant has its own version of ERP. Gary Jones, Vice President— Information Technology, Asia Pacific, Eaton Corporation explains, “ERP is not about implementing an IT system. Ninety percent of ERP is about people, process and culture. An ERP implementation must be driven and sponsored from the top with dedicated resources, and an agreed-upon scope must be set and relentlessly managed. It is also extremely important to recognise that go-live is the mid-point of the implementation and not the end.” ERP II, the new version of ERP, was launched in the year 2000. This software is web-based, and allows both internal employees and external resources, such as suppliers and customers, real-time access to the data stored within the system. Organisations can use any one of these options while installing an ERP system, that is, they can customise this software or can modify their business processes according to the software. Milind Joshi, Vice President— Manufacturing, Patni Computer Systems, says, “Most ERP implementations today use business analytics based on SAP BI/BO or Oracle BI as the reporting engine or interface. It is also possible to develop reports using programming interfaces, but the ability to generate ad-hoc reports on request will be possible only if a data warehousing solution is in place.” By using ERP for manufacturing execution, one can achieve benefits such as better data access for planning and management, improved procurement, faster ramp up, reduced complexity, effective information sharing and maintenance of consistent corporate standards. In an ideal situation, these benefits could be achieved to enable real-time, global visibility, agility and control. “Leading manufacturers have found that the best way to achieve operational performance excellence is by combining a platform dedicated to real-time manufacturing operations with their enterprise systems”, explains Jim Henderson, President and CEO at Apriso Corporation. By taking a platform approach to global manufacturing operations and interoperating across this platform with other ERP, best-in-class manufacturers have created automated workflows and real-time visibility to manage adverse events. A number of Leading manufacturers have found that the best way to achieve operational performance excellence is by combining a realtime manufacturing operations management platform with enterprise systems such as ERP to achieve ‘best-in-class’ performance.
ERP market watch The overall ERP software market is predicting an approximate growth of $24.5 billion by the end of 2009. According to a Gartner survey report for 2008, the total ERP software market was $23.8 billion. As per Gartner’s market share data for large and midmarket ERP software in 2007, the top five vendors in market share were SAP (28 percent), Oracle (14 percent), Sage (7 percent), Infor (6 percent) and Microsoft (4 percent). Training programme ERP is an enterprise wide system. ERP training needs to be delivered to all levels of the business at appropriate levels as per individual functions. The training needs to be tailored for each business model and delivered in the ‘train the trainer’ model, creating Subject Matter Experts. Thomas Abraham, Managing Director, Sage Software India (P) Ltd points out, “Fundamental understanding of business processes is the starting point. Employees need to be trained to ensure alignment within the organisation. Thorough training in the ERP system is also mandatory to ensure smooth usage. It is important that the key outputs are well defined and that everyone is oriented towards achieving these.” An educated manager understands that routine work can be automated. Data would be available for quality decisions and above all ERP will enhance their jobs and quality of output. Typically, company manager’s should provide orientation for the key ERP functionalities by walking through core business processes or screens during the initial blueprinting phase, to provide an understanding of the overall capabilities of the solution. The ERP at the end of blueprinting is a key checkpoint for validating the scope of the system with key users. Enduser training and navigation familiarity needs to happen before the user acceptance testing phase. This ensures that business users have some familiarity with functionality and navigation during final acceptance testing.
The biggest issue in training is ensuring people that they do not try to map their current legacy system screens and functionality in the context of ERP. It should be covered as part of the change management workshops. On safety stock Safety stock is the extra stock that is maintained below the cycle stock, in order to keep a buffer against stockouts. It is kept to counter uncertainties in supply and demand. Raghunath Mahalingam, Senior Vice President and Head of SAP Practices, Patni Computer Systems, says, “It also depends on the volatility of demand, which is industry-dependent, and manufacturing lead times, which are dependent on capacity and other constraints, including downstream supplier lead times for raw materials and component assemblies.” Safety stock should be based on the lead time for procuring the items and average consumption that might occur during the lead time, based on the planning table. It is indeed a cost to maintain a high level of safety stock. However, the cost incurred due to shortage of stock will be much higher than that. The key is to eliminate variability of demand, shorten lead times and appropriately set service level requirements so that safety stock can be reduced or eliminated. Accuracy in sales forecasting A sales forecast will never be 100 percent accurate. The key is to monitor the historical accuracy of the sales forecasts so that an appropriate hedge against uncertainty can be set. The sales forecast should be accurate to the extent of at least 98 percent. For a short-term period, it may be for the following two to three months, depending upon the production cycle time. Appropriate action should be taken online to adjust the plan according to the actual sales to see that shortage in sales is not rolled over to the next month’s production schedule. An appropriate rolling plan will have to be in place for this. It would also be appropriate to see that long lead items are de-linked from automatic indent generation of material requirement planning. These items could be addressed manually. JIT/ERP or MRPII JIT stands for ‘just-in-time’ and is most appropriate when a company has collaborative and integrated supply chain information systems with its major partners. It is also appropriate when there is predictability in demand requirements. ERP is an evolution of the earlier material requisition planning, which then moved into manufacturing requirements planning (MRPII). This was initially used for most back-office operations covering HR, finance and logistics but in the past six to eight years it has also covered CRM, SCM, BI, PLM and other extended functions. It is a common misconception that these are somehow mutually exclusive. The fact is that these models can co-exist quite effectively. MRP II will attempt to drive every process to become as JIT as possible and maintain inventory as close to zero as possible, and is a more sophisticated tool for dealing with variability. JIT can become an increasingly blunt implement as variability rises. Everyone wants to run an end-to-end pull system, but one needs to be very careful in determining where to apply it. Even in JIT environments, MRPII can remain the planning backbone. One does not need to execute MRPII plan but it can be a perpetual sanity check. This point will have to be looked into even before implementing ERP, namely, while signing the implementation contract with the IT company. At least four to eight weeks will have to be allowed for training in the contract. ERP coordinators will have to be nominated for the different modules of ERP, and these coordinators will have to be intensively trained by the implementing partner. These coordinators should also be trained to become trainers, to percolate the knowledge further in the organisation. Systems like ERP are installed to integrate processes to allow proper communication, productivity and efficiency in the organisation. Every industrial unit is geared towards acquiring maximum throughput when it comes to product delivery, and systems like this help in achieving this target, thus boosting profit margins. With such concepts gaining significance and focus, even small companies are now mulling over the benefits of installing such advanced systems in their workplaces. All of this adds up to a flourishing ERP market. |
