Role of Information Management in ERP

Role of Information Management in ERP

Enterprise resource planning (ERP) is business management software usually a suite of integrated applications that a company can use to collect, store, manage and interpret data from many business activities, including:

Product planning, cost

Manufacturing or service delivery

Marketing and sales

Inventory management

Shipping and payment

ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track business resources cash, raw materials, production capacity and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across the various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data. ERP facilitates information flow between all business functions, and manages connections to outside stakeholders.^[

1 Functional areas

An ERP system covers the following common functional areas. In many ERP systems these are called and grouped together as ERP modules:

          Financial accounting: General ledger, fixed asset, payables including vouchering, matching and payment, receivables cash application and collections, cash management, financial consolidation

          Management accounting: Budgeting, costing, cost management, activity based costing

          Human resources: Recruiting, training, fostering, payroll, benefits, 401K, diversity management, retirement, separation

          Manufacturing: Engineering, bill of materials, work orders, scheduling, capacity, workflow management, quality control, manufacturing process, manufacturing projects, manufacturing flow, product life cycle management

          Order Processing: Order to cash, order entry, credit checking, pricing, available to promise, inventory, shipping, sales analysis and reporting, sales commissioning.

          Supply chain management: Supply chain planning, supplier scheduling, product configuration, order to cash, purchasing, inventory, claim processing, warehousing (receiving, put away, picking and packing).

          Project management: Project planning, resource planning, project costing, work breakdown structure, billing, time and expense, performance units, activity management

          Customer relationship management: Sales and marketing, commissions, service, customer contact, call center support - CRM systems are not always considered part of ERP systems but rather Business Support systems (BSS).

          Data services : Various "self–service" interfaces for customers, suppliers and/or employees

2 Components

          Transactional database

          Management portal/dashboard

          Business intelligence system

          Customizable reporting

          Resource planning and scheduling

          Analyzing the product

          External access via technology such as web services

          Search

          Document management

          Messaging/chat/wiki

          Workflow management

3 Connectivity to plant floor information

ERP systems connect to real time data and transaction data in a variety of ways. These systems are typically configured by systems integrators, who bring unique knowledge on process, equipment, and vendor solutions.

Direct integration ERP systems have connectivity (communications to plant floor equipment) as part of their product offering. This requires that the vendors offer specific support for the plant floor equipment their customers operate. ERP vendors must be experts in their own products and connectivity to other vendor products, including those of their competitors.

Database integration ERP systems connect to plant floor data sources through staging tables in a database. Plant floor systems deposit the necessary information into the database. The ERP system reads the information in the table. The benefit of staging is that ERP vendors do not need to master the complexities of equipment integration. Connectivity becomes the responsibility of the systems integrator.

Enterprise appliance transaction modules (EATM)-These devices communicate directly with plant floor equipment and with the ERP system via methods supported by the ERP system. EATM can employ a staging table, Web Services, or system–specific program interfaces (APIs). An EATM offers the benefit of being an off–the–shelf solution.

Custom integration solutions-Many system integrators offer custom solutions. These systems tend to have the highest level of initial integration cost, and can have a higher long term maintenance and reliability costs. Long term costs can be minimized through careful system testing and thorough documentation. Custom integrated solutions typically run on workstation or server-class computers.

4 Implementation

ERP's scope usually implies significant changes to staff work processes and practices. Generally, three types of services are available to help implement such changes consulting, customization, and support. Implementation time depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. Modular ERP systems can be implemented in stages. The typical project for a large enterprise takes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years. Customization can substantially increase implementation times.

Besides that, information processing influences various business functions e.g. some large corporations like Wal-Mart use a just in time inventory system. This reduces inventory storage and increases delivery efficiency, and requires up-to-date-data. Before 2014, Walmart used a system called Inforem developed by IBM to manage replenishment.

5 Process preparation

Implementing ERP typically requires changes in existing business processes. Poor understanding of needed process changes prior to starting implementation is a main reason for project failure. The problems could be related to the system, business process, infrastructure, training, or lack of motivation.

It is therefore crucial that organizations thoroughly analyze business processes before they implement ERP software. Analysis can identify opportunities for process modernization. It also enables an assessment of the alignment of current processes with those provided by the ERP system. Research indicates that risk of business process mismatch is decreased by:

Linking current processes to the organization's strategy

Analyzing the effectiveness of each process

Understanding existing automated solutions

ERP implementation is considerably more difficult (and politically charged) in decentralized organizations, because they often have different processes, business rules, data semantics, authorization hierarchies, and decision centers. This may require migrating some business units before others, delaying implementation to work through the necessary changes for each unit, possibly reducing integration (e.g., linking via Master Data management) or customizing the system to meet specific needs.

A potential disadvantage is that adopting "standard" processes can lead to a loss of competitive advantage. While this has happened, losses in one area are often offset by gains in other areas, increasing overall competitive advantage.

6 Configuration

Configuring an ERP system is largely a matter of balancing the way the organization wants the system to work with the way it was designed to work. ERP systems typically include many settings that modify system operations. For example, an organization can select the type of inventory accounting FIFO or LIFO to use; whether to recognize revenue by geographical unit, product line, or distribution channel; and whether to pay for shipping costs on customer returns.

7 Two tier enterprise resource planning

Two-tier ERP software and hardware lets companies run the equivalent of two ERP systems at once: one at the corporate level and one at the division or subsidiary level. For example, a manufacturing company uses an ERP system to manage across the organization. This company uses independent global or regional distribution, production or sales centers, and service providers to support the main company‘s customers. Each independent center or subsidiary may have its own business models, workflows, and business processes.

Given the realities of globalization, enterprises continuously evaluate how to optimize their regional, divisional, and product or manufacturing strategies to support strategic goals and reduce time-to-market while increasing profitability and delivering value. With two-tier ERP, the regional distribution, production, or sales centers and service providers continue operating under their own business model separate from the main company, using their own ERP systems. Since these smaller companies' processes and workflows are not tied to main company's processes and workflows, they can respond to local business requirements in multiple locations.

Factors that affect enterprises' adoption of two-tier ERP systems include:

          Manufacturing globalization, the economics of sourcing in emerging economies

          Potential for quicker, less costly ERP implementations at subsidiaries, based on selecting software more suited to smaller companies

          Extra effort, (often involving the use of Enterprise application integration) is required where data must pass between two ERP systems Two-tier ERP strategies give enterprises agility in responding to market demands and in aligning IT systems at a corporate level while inevitably resulting in more systems as compared to one ERP system used throughout the organization.

8 Customization

ERP systems are theoretically based on industry best practices, and their makers intend that organizations deploy them as is. ERP vendors do offer customers configuration options that let organizations incorporate their own business rules, but often feature gaps remain even after configuration is complete.

ERP customers have several options to reconcile feature gaps, each with their own pros/cons. Technical solutions include rewriting part of the delivered software, writing a homegrown module to work within the ERP system, or interfacing to an external system. These three options constitute varying degrees of system customization with the first being the most invasive and costly to maintain. Alternatively, there are non-technical options such as changing business practices or organizational policies to better match the delivered ERP feature set. Key differences between customization and configuration include:

Customization is always optional, whereas the software must always be configured before use (e.g., setting up cost/profit center structures, organisational trees, purchase approval rules, etc.).

The software is designed to handle various configurations, and behaves predictably in any allowed configuration.

The effect of configuration changes on system behavior and performance is predictable and is the responsibility of the ERP vendor. The effect of customization is less predictable. It is the customer's responsibility, and increases testing activities.

Configuration changes survive upgrades to new software versions. Some customizations (e.g., code that uses pre–defined "hooks" that are called before/after displaying data screens) survive upgrades, though they require retesting. Other customizations (e.g., those involving changes to fundamental data structures) are overwritten during upgrades and must be re implemented.

Customization advantages include that it:

Improves user acceptance

Offers the potential to obtain competitive advantage vis-à-vis companies using only standard features

Customization disadvantages include that it:

Increases time and resources required to implement and maintain

Inhibits seamless communication between suppliers and customers who use the same ERP system uncustomized

Can create over reliance on customization, undermining the principles of ERP as a standardizing software platform

9 Extensions

ERP systems can be extended with third–party software. ERP vendors typically provide access to data and features through published interfaces. Extensions offer features such as:

          Archiving, reporting, and republishing

          Capturing transactional data, e.g., using scanners, tills or RFID

          Access to specialized data and capabilities, such as syndicated marketing data and associated trend analytics

          Advanced planning and scheduling (APS)

          Managing resources, facilities, and transmission in real-time

10 Data migration

Data migration is the process of moving, copying, and restructuring data from an existing system to the ERP system. Migration is critical to implementation success and requires significant planning. Unfortunately, since migration is one of the final activities before the production phase, it often receives insufficient attention.

The following steps can structure migration planning:

Identify data to migrate

Determine migration timing

Generate data templates

Freeze the toolset

Decide on migration-related setups

Define data archiving policies and procedure

Introduction

In any industry, some of the demands managers face is to be cost effective. In addition to that, they are also faced with challenges such as to analyze costs and profits on a product or consumer basis, to be flexible to face ever altering business requirements, and to be informed of management decision making processes and changes in ways of doing business.

However, some of the challenges holding managers back include the difficulty in attaining accurate information, lack of applications that mimic existing business practices and bad interfaces. When some challengers are holding a manager back, that is where Enterprise Resource Planning (ERP) comes into play.

Over the years business applications have evolved from Management Information Systems with no decision support to Corporate Information Systems, which offer some decision support to Enterprise Resource Planning. Enterprise Resource Planning is a software solution that tackles the needs of an organization, taking into account the process view to meet an organization's goals while incorporating all the functions of an organization.

Its purpose is to make easy the information flow between all business functions within the boundaries of the organization and manage the organization's connections with its outside stakeholders.

In a nutshell, the Enterprise Resource Planning software tries to integrate all the different departments and functions of an organization into a single computer system to serve the various needs of these departments.

The task at hand, of implementing one software program that looks after the needs of the Finance Department together with the needs of the Human Resource Department and the Warehouse, seems impossible. These different departments usually have an individual software program that is optimized in the way each department works.

However, if installed correctly this integrated approach can be very cost effective for an organization. With an integrated solution, different departments can easily share information and communicate with one another.

The following diagram illustrates the differences between non-integrated systems versus an integrated system for enterprise resource planning.

11 The Driving Force behind ERP

There are two main driving forces behind Enterprise Resource Planning for a business organization.

          In a business sense, Enterprise Resource Planning ensures customer satisfaction, as it leads to business development that is development of new areas, new products and new services.

Also, it allows businesses to face competition for implementing Enterprise Resource Planning, and it ensures efficient processes that push the company into top gear.

          In an IT sense: Most software‘s does not meet business needs wholly and the legacy systems today are hard to maintain. In addition, outdated hardware and software is hard to maintain.

Hence, for the above reasons, Enterprise Resource Planning is necessary for management in today's business world. ERP is single software, which tackles problems such as material shortages, customer service, finances management, quality issues and inventory problems. An ERP system can be the dashboard of the modern era managers.