Thursday, August 16, 2018


An Executive Information System (EIS) is a type of management information system intended to facilitate and support the information and decision-making needs of senior executives by providing easy access to both internal and external information relevant to meeting the strategic goals of the organization. It is commonly considered as a specialized form of a Decision Support System (DSS)  The emphasis of EIS is on graphical displays and easy-to-use user interfaces. They offer strong reporting and drill-down capabilities. In general, EIS are enterprise-wide DSS that help top-level executives analyze, compare, and highlight trends in important variables so that they can monitor performance and identify opportunities and problems. EIS and data warehousing technologies are converging in the marketplace. In recent years, the term EIS has lost popularity in favor of Business Intelligence (with the sub areas of reporting, analytics, and digital dashboards). 
Traditionally, executive information systems were developed as mainframe computer-based programs. The purpose was to package a company’s data and to provide sales performance or market research statistics for decision makers, as such financial officers, marketing directors, and chief executive officers, who were not necessarily well acquainted with computers. The objective was to develop computer applications that would highlight information to satisfy senior executives’ needs. Typically, an EIS provides data that would only need to support executive level decisions instead of the data for all the company. Today, the application of EIS is not only in typical corporate hierarchies, but also at personal computers on a local area network. EIS now cross computer hardware platforms and integrate information stored on mainframes, personal computer systems, and minicomputers. As some client service companies adopt the latest enterprise information systems, employees can use their personal computers to get access to the company’s data and decide which data are relevant for their decision makings. This arrangement makes all users able to customize their access to the proper company’s data and provide relevant information to both upper and lower levels in companies. 
The components of an EIS can typically be classified as: 
When talking about hardware for an EIS environment, we should focus on the hardware that meet the executive’s needs. The executive must be put first and the executive’s needs must be defined before the hardware can be selected. The basic computer hardware needed for a typical EIS includes four components: 
Input data-entry devices. These devices allow the executive to enter, verify, and update data immediately, 
The central processing unit (CPU), which is the kernel because it controls the other computer system components,  
Data storage files. The executive can use this part to save useful business information, and this part also help the executive to search historical business information easily,  
Output devices, which provide a visual or permanent record for the executive to save or read. This device refers to the visual output device or printer.  

In addition, with the advent of local area networks (LAN), several EIS products for networked workstations became available. These systems require less support and less expensive computer hardware. They also increase access of the EIS information to many more users within a company. 

Choosing the appropriate software is vital to design an effective EIS, Therefore, the software components and how they integrate the data into one system are very important. The basic software needed for a typical EIS includes four components: 
Text base software. The most common form of text is probably documents,  
Database. Heterogeneous databases residing on a range of vendor-specific and open computer platforms help executives access both internal and external data,  
Graphic base. Graphics can turn volumes of text and statistics into visual information for executives. Typical graphic types are: time series charts, scatter diagrams, maps, motion graphics, sequence charts, and comparison-oriented graphs (i.e., bar charts),  
Model base. The EIS models contain routine and special statistical, financial, and other quantitative analysis.  

Perhaps a more difficult problem for executives is choosing from a range of highly technical software packages. Ease of use, responsiveness to executives' requests, and price are all reasonable considerations. Further, it should be considered whether the package can run on existing hardware 
User Interface 
An EIS needs to be efficient to retrieve relevant data for decision makers, so the user interface is very important. Several types of interfaces can be available to the EIS structure, such as scheduled reports, questions/answers, menu driven, command language, natural language, and input/output. It is crucial that the interface must fit the decision maker’s decision-making style. If the executive is not comfortable with the information questions/answers style, the EIS will not be fully utilized. The ideal interface for an EIS would be simple to use and highly flexible, providing consistent performance, reflecting the executive’s world, and containing help information. 
As decentralizing is becoming the current trend in companies, telecommunications will play a pivotal role in networked information systems. Transmitting data from one place to another has become crucial for establishing a reliable network. In addition, telecommunications within an EIS can accelerate the need for access to distributed data. 
EIS enables executives to find those data according to user-defined criteria and promote information-based insight and understanding. Unlike a traditional management information system presentation, EIS can distinguish between vital and seldom-used data, and track different key critical activities for executives, both which are helpful in evaluating if the company is meeting its corporate objectives. After realizing its advantages, people have applied EIS in many areas, especially, in manufacturing, marketing, and finance areas. 
Basically, manufacturing is the transformation of raw materials into finished goods for sale, or intermediate processes involving the production or finishing of semi-manufactures. It is a large branch of industry and of secondary production. Manufacturing operational control focuses on day-to-day operations, and the central idea of this process is effectiveness and efficiency. To produce meaningful managerial and operational information for controlling manufacturing operations, the executive has to make changes in the decision processes. EIS provides the evaluation of vendors and buyers, the evaluation of purchased materials and parts, and analysis of critical purchasing areas. Therefore, the executive can oversee and review purchasing operations effectively with EIS. In addition, because production planning and control depends heavily on the plant’s data base and its communications with all manufacturing work centers, EIS also provides an approach to improve production planning and control 
In an organization, marketing executives’ role is to create the future. Their main duty is managing available marketing resources to create a more effective future. For this, they need make judgments about risk and uncertainty of a project and its impact on the company in short term and long term. To assist marketing executives in making effective marketing decisions, an EIS can be applied. EIS provides an approach to sales forecasting, which can allow the market executive to compare sales forecast with past sales. EIS also offers an approach to product price, which is found in venture analysis. The market executive can evaluate pricing as related to competition along with the relationship of product quality with price charged. In summary, EIS software package enables marketing executives to manipulate the data by looking for trends, performing audits of the sales data, and calculating totals, averages, changes, variances, or ratios. All of these sales analysis functions help marketing executives to make final decisions. 
A financial analysis is one of the most important steps to companies today. The executive needs to use financial ratios and cash flow analysis to estimate the trends and make capital investment decisions. An EIS is a responsibility-oriented approach that integrates planning or budgeting with control of performance reporting, and it can be extremely helpful to finance executives. Basically, EIS focuses on accountability of financial performance and it recognizes the importance of cost standards and flexible budgeting in developing the quality of information provided for all executive levels. EIS enables executives to focus more on the long-term basis of current year and beyond, which means that the executive not only can manage a sufficient flow to maintain current operations but also can figure out how to expand operations that are contemplated over the coming years. Also, the combination of EIS and EDI environment can help cash managers to review the company’s financial structure so that the best method of financing for an accepted capital project can be concluded. In addition, the EIS is a good tool to help the executive to review financial ratios, highlight financial trends and analyze a company’s performance and its competitors. 
Advantages and Disadvantages 
Easy for upper-level executives to use, extensive computer experience is not required in operations 
Provides timely delivery of company summary information  
Information that is provided is better understood 
Filters data for management  
Improves to tracking information 
Offers efficiency to decision makers 

Functions are limited, cannot perform complex calculations  
Hard to quantify benefits and to justify implementation of an EIS 
Executives may encounter information overload 
System may become slow, large, and hard to manage 
Difficult to keep current data  
May lead to less reliable and insecure data 
Small companies may encounter excessive costs for implementation 
Too detailed Oriented  

Future Trends 
The future of executive info systems will not be bound by mainframe computer systems. This trend allows executives escaping from learning different computer operating systems and substantially decreases the implementation costs for companies. Because utilizing existing software applications lies in this trend, executives will also eliminate the need to learn a new or special language for the EIS package. Future executive information systems will not only provide a system that supports senior executives, but also contain the information needs for middle managers. The future executive information systems will become diverse because of integrating potential new applications and technology into the systems, such as incorporating artificial intelligence (AI) and integrating multimedia characteristics and ISDN technology into an EIS 



A management information system (MIS) is a subset of the overall internal controls of a business covering the application of people, documents, technologies, and procedures by management accountants to solving business problems such as costing a product, service or a business-wide strategy. Management information systems are distinct from regular information systems in that they are used to analyze other information systems applied in operational activities in the organization. Academically, the term is commonly used to refer to the group of information management methods tied to the automation or support of human decision making, e.g. Decision Support Systems, Expert systems, and Executive information systems. 
At the start, in businesses and other organizations, internal reporting was made manually and only periodically, as a by-product of the accounting system and with some additional statistics, and gave limited and delayed information on management performance. In their infancy, business computers were used for the practical business of computing the payroll and keeping track of accounts payable and accounts receivable. As applications were developed that provided managers with information about sales, inventories, and other data that would help in managing the enterprise, the term "MIS" arose to describe these kinds of applications. Today, the term is used broadly in a number of contexts and includes (but is not limited to): decision support systems, resource and people management applications, project management and database retrieval application.

An 'MIS' is a planned system of the collecting, processing, storing and disseminating data in the form of information needed to carry out the functions of management. According to Philip Kotler "A marketing information system consists of people, equipment, and procedures to gather, sort, analyze, evaluate, and distribute needed, timely, and accurate information to marketing decision makers." The terms MIS and information system are often confused. Information systems include systems that are not intended for decision making. The area of study called MIS is sometimes referred to, in a restrictive sense, as information technology management. That area of study should not be confused with computer science. IT service management is a practitioner-focused discipline. MIS has also some differences with Enterprise Resource Planning (ERP) as ERP incorporates elements that are not necessarily focused on decision support. Before one can explain management information systems, the terms systems, information, and management must briefly be defined. A system is a combination or arrangement of parts to form an integrated whole. A system includes an orderly arrangement according to some common principles or rules. A system is a plan or method of doing something. The study of systems is not new. The Egyptian architects who built the pyramids relied on a system of measurements for construction of the pyramids. Phoenician astronomers studied the system of the stars and predicted future star positions. The development of a set of standards and procedures, or even a theory of the universe, is as old as history itself. People have always sought to find relationships for what is seen or heard or thought about. A system is a scientific method of inquiry, that is, observation, the formulation of an idea, the testing of that idea, and the application of the results. The scientific method of problem solving is systems analysis in its broadest sense. Data are facts and figures. However, data have no value until they are compiled into a system and can provide information for decision making.
Information is what is used in the act of informing or the state of being informed. Information includes knowledge acquired by some means. In the 1960s and 70s, it became necessary to formalize an educational approach to systems for business so that individuals and work groups and businesses who crossed boundaries in the various operations of business could have appropriate information. Technical developments in computers and data processing and new theories of systems analysis made it possible to computerize systems. Much of this computerization of systems was an out growth of basic research by the federal government. Management is usually defined as planning, organizing, directing, and controlling the business operation. This definition, which evolved from the work of Henri Fayol in the early 1900s, defines what a manager does, but it is probably more appropriate to define what management is rather than what management does. Management is the process of allocating an organization's inputs, including human and economic resources, by planning, organizing, directing, and controlling for the purpose of producing goods or services desired by customers so that organizational objectives are accomplished. If management has knowledge of the planning, organizing, directing, and controlling of the business, its decisions can be made on the basis of facts, and decisions are more accurate and timely as a result. Management information systems are those systems that allow managers to make decisions for the successful operation of businesses. Management information systems consist of computer resources, people, and procedures used in the modern business enterprise. The term MIS stands for management information systems. MIS also refers to the organization that develops and maintains most or all of the computer systems in the enterprise so that managers can make decisions. The goal of the MIS organization is to deliver information systems to the various levels of corporate managers. MIS professionals create and support the computer system throughout the company. Trained and educated to work with corporate computer systems, these professionals are responsible in some way for nearly all of the computers, from the largest mainframe to the desktop and portable PCs. Background Management information systems do not have to be computerized, but with today's large, multinational corporations, computerization is a must for a business to be successful. However, management information systems began with simple manual systems such as customer databases on index cards. As early as 1642, the French mathematician and philosopher Blaise Pascal invented the first mechanical adding machine so that figures could be added to provide information. Almost two hundred years later, Charles Babbage, a professor of mathematics at Cambridge University in England, wanted to make a machine that would compute mathematical tables. He attempted to build a computing machine during the 1880s. He failed because his ideas were beyond his technical capabilities, not because the idea was flawed. Babbage is often called the father of the computer. With the advent of the computer, management information systems became automated. In the late 1890s, because of the efforts of Herman Hollerith, who created a punch-card system to tabulate the data for the 1890 census, it was possible to begin to provide data-processing equipment. The punch card developed by Hollerith was later used to form a company to provide data-processing equipment. This company evolved into International Business Machines (IBM). Mainframe computers were used for management information systems from the 1940s, 50s, 60s, and up until the 1970s. In the 1970s, personal computers were first built by hobbyists. Then Apple computer developed one of the first practical personal computers. In the early 1980s, IBM developed its PC, and since then, the personal computer industry has mush roomed. Almost every management information system revolves around some kind of computer hardware and software. Management information systems are be coming more important, and MIS personnel are more visible than in the 1960s and 1970s, when they were hidden away from the rest of the company and performed tasks behind closed doors. So remote were some MIS personnel from the operations of the business that they did not even know what products their companies made. This has changed because the need for an effective management information system is of primary concern to the business organization. Managers use MIS operations for all phases of management, including planning, organizing, directing, and controlling.

The MIS Job Today

MIS personnel must be technically qualified to work with computer hardware, software, and computer information systems. Currently, colleges and universities cannot produce enough MIS personnel for business needs, and job opportunities are great. MIS managers, once they have risen through their technical ranks of their organization to become managers, must remember that they are no longer doing the technical work. They must cross over from being technicians to become managers. Their job changes from being technicians to being systems managers who manage other people's technical work. They must see themselves as needing to solve the business problems of the user, and not just of the data-processing department. MIS managers are in charge of the systems development operations for their firm. Systems development requires four stages when developing a system for any phase of the organization:
                        Phase I is systems planning. The systems team must investigate the initial problem by determining what the problem is and developing a feasibility study for management to review.
                        Phase II identifies the requirements for the systems. It includes the systems analysis, the user requirements, necessary hardware and software, and a conceptional design for the system. Top management then reviews the systems analysis and design.
                        Phase III involves the development of the systems. This involves developing technical support and technical specifications, reviewing users' procedures control, designing the system, testing the system, and providing user training for the system. At this time, management again reviews and decides on whether to implement the system.
                        Phase IV is the implementation of the system. The new system is converted from the old system, and the new system is implemented and then refined. There must then be ongoing maintenance and reevaluation of the system to see if it continues to meet the needs of the business.

Types of Systems
Management information systems can be used as a support to managers to provide a competitive advantage. The system must support the goals of the organization. Most organizations are structured along functional lines, and the typical systems are identified as follows:
                        Accounting management information systems: All accounting reports are shared by all levels of accounting managers.
                        Financial management information systems: The financial management information system provides financial information to all financial managers within an organization including the chief financial officer. The chief financial officer analyzes historical and current financial activity, projects future financial needs, and monitors and controls the use of funds over time using the information developed by the MIS department.
                                   Manufacturing management information systems: More than any functional area, operations have been impacted by great advances in technology. As a result, manufacturing operations have changed. For instance, inventories are provided just in time so that great amounts of money are not spent for warehousing huge inventories.
                        In some instances, raw materials are even processed on railroad cars waiting to be sent directly to the factory. Thus there is no need for warehousing.
                        Marketing management information systems: A marketing management information system supports managerial activity in the area of product development, distribution, pricing decisions, promotional effectiveness, and sales forecasting. More than any other functional area, marketing systems relies on external sources of data. These sources include competition and customers, for example.

Human resources management information systems: Human resources management information systems are concerned with activities related to workers, managers, and other individuals employed by the organization. Because the personnel function relates to all other areas in business, the human resources management information system plays a valuable role in ensuring organizational success. Activities performed by the human resources management information systems include, work-force analysis and planning, hiring, training, and job assignments. The above are examples of the major management information systems. There may be other management information systems if the company is identified by different functional areas The Management Information Systems (MIS) program is designed to provide students with a strong educational foundation preparing them as information system (IS) professionals. MIS consists of a specially designed curriculum which emphasizes conceptual, analytical, technical and interpersonal skills.  The MIS program provides comprehensive training in the application, use, and management of information systems preparing students to provide effective information services and support.  Management Information System (MIS.) is basically concerned with processing data into information. This is then communicated to the various departments in an organization for appropriate decision-making. Data Information Communication Decisions Data collection involves the use of Information Technology (IT) comprising: computers and telecommunications networks (E-Mail, Voice Mail, Internet, telephone, etc.) Computers are important for more quantitative, than qualitative, data collection, storage and retrieval, Special features are speed and accuracy, and storage of large amount of data. 



Business process reengineering (often referred to by the acronym BPR) is the main way in which organizations become more efficient and modernize. Business process reengineering transforms an organization in ways that directly affect performance.  The impact of BPR on organizational performance
The two cornerstones of any organization are the people and the processes. If individuals are motivated and working hard, yet the business processes are cumbersome and non-essential activities remain, organizational performance will be poor. Business Process Reengineering is the key to transforming how people work. What appear to be minor changes in processes can have dramatic effects on cash flow, service delivery and customer satisfaction. Even the act of documenting business processes alone will typically improve organizational efficiency by 10%. Business process reengineering (BPR) is, in computer science and management, an approach aiming at improvements by means of elevating efficiency and effectiveness of the business
process that exist within and across organizations. The key to BPR is for organizations to look at their business processes from a "clean slate" perspective and determine how they can

Business process reengineering is also known as BPR, Business Process Redesign, Business Transformation, or Business Process Change Management.
Business process reengineering (BPR) began as a private sector technique to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. A key stimulus for reengineering has been the continuing development and deployment of sophisticated information systems and networks. Leading organizations are becoming bolder in using this technology to support innovative business processes, rather than refining current ways of doing work. 

Reengineering guidance and relationship of Mission and Work Processes to Information Technology
Business process reengineering is one approach for redesigning the way work is done to better support the organization's mission and reduce costs. Reengineering starts with a high-level assessment of the organization's mission, strategic goals, and customer needs. Basic questions are asked, such as "Does our mission need to be redefined? Are our strategic goals aligned with our mission? Who are our customers?" An organization may find that it is operating on questionable assumptions, particularly in terms of the wants and needs of its customers. Only after the organization rethinks what it should be doing, does it go on to decide how best to do it. Within the framework of this basic assessment of mission and goals, reengineering focuses on the organization's business processes--the steps and procedures that govern how resources are used to create products and services that meet the needs of particular customers or markets. As a structured ordering of work steps across time and place, a business process can be decomposed into specific activities, measured, modeled, and improved. It can also be completely redesigned or eliminated altogether. Reengineering identifies, analyzes, and redesigns an organization's core business processes with the aim of achieving dramatic improvements in critical performance measures, such as cost, quality, service, and speed.  Reengineering recognizes that an organization's business processes are usually fragmented into sub processes and tasks that are carried out by several specialized functional areas within the organization. Often, no one is responsible for the overall performance of the entire process. Reengineering maintains that optimizing the performance of sub processes can result in some benefits, but cannot yield dramatic improvements if the process itself is fundamentally inefficient and outmoded. For that reason, reengineering focuses on redesigning the process as a whole in order to achieve the greatest possible benefits to the organization and their customers. This drive for realizing dramatic improvements by fundamentally rethinking how the organization's work should be done distinguishes reengineering from process improvement efforts that focus on functional or incremental improvement.

Monday, August 13, 2018


Business Process Mapping refers to activities involved in defining exactly what a business entity does, who is responsible, to what standard a process should be completed and how the success of a business process can be determined. Once this is done, there can be no uncertainty as to the requirements of every internal business process. A business process illustration is produced. The first step in gaining control over an organization is to know and understand the basic processes (Deming, 1982, Juran, 1988, Taylor, 1911). ISO 9001 requires a business entity to follow a process approach when managing its business, and to this end creating business process maps will assist. The entity can then work towards ensuring its processes are effective (the right process is followed the first time), and efficient (continually improved to ensure processes use the least amount of resources). The first structured method for documenting process flow, the flow process chart, was introduced by Frank Gilbreth to members of ASME in 1921 as the presentation “Process Charts—First Steps in Finding the One Best Way”. Gilbreth's tools quickly found their way into industrial engineering curricula. In the early 1930s, an industrial engineer, Allan H. Mogensen began training business people in the use of some of the tools of industrial engineering at his Work Simplification Conferences in Lake Placid, New York. A 1944 graduate of Mogensen's class, Art Spinanger, took the tools back to Procter and Gamble where he developed their Deliberate Methods Change Program. Another 1944 graduate, Ben
S. Graham, Director of Formcraft Engineering at Standard Register Corporation, adapted the flow process chart to information processing with his development of the multi-flow process chart to display multiple documents and their relationships. In 1947, ASME adopted a symbol set derived from Gilbreth's original work as the ASME Standard for Process Charts.
Recent Developments
Process mapping has in recent years developed due to software tools that can attach metadata to activities, drivers and triggers to provide a more complete understanding of processes. For example, data elements, KPIs, Times, Volumes, documents, files, databases, and compliance applying to an activity can be attached to improve understanding and achieve several business goals simultaneously. Valuable analysis might include identification of duplicated use of data elements, proof or lack of proof of compliance. The developments mean that process mapping is no longer two-dimensional but multi¬dimensional, capable of achieving several important business goals:
Business process re-engineering
Regulatory compliance
Activity analysis
Service level agreement (SLA) role clarity (RACI)

Making process maps available using a web-browser only means that communication to, and access by stakeholders, is achievable - thus improving compliance, training and end-to end process understanding. Legislation such as "The Sarbanes-Oxley Act" (also known as SOX) has increased the requirements for improved process understanding and visibility of compliance issues. Quality improvement practitioners have noted that various graphical descriptions of processes can be useful. These include: detailed flow-charts, work flow diagrams and value stream maps. Each map is helpful depending on the process questions and theories being considered. In these situations process map implies the use of process flow and the current understanding of the causal structure. The purpose of these process maps is to document and stimulate the understanding of y=f(x), where the “y” represents the outputs of a process and x represents the various inputs. These inputs would include sources of noise otherwise described as nuisance variables.



MTO stands for Make to Order. In this mode of manufacturing no finished product is kept in inventory. When a customer places an order the company produces the item specifically for that customer. All job shops operate as MTO manufacturers. Other modes of manufacturing include engineer-to-order, assemble-to-order, and make-to-stock, repetitive and mixed-mode. For different product lines a single company may operate in several of the modes simultaneously.
As companies implement lean manufacturing many companies are making the transition from make to stock (MTS) towards make to order (MTO).
Many vendors of Enterprise Resource Planning (ERP) systems claim that their products are widely applicable - configurable to meet the needs of any business, whatever the product or service offering. However, producers of high-variety and bespoke products, such as Make-To-Order (MTO) companies, present particular challenges to implementation, it remains unclear whether ERP systems can cater for their needs.. This paper provides a state-of-the-art review of ERP systems and an assessment of the applicability of ERP to the MTO sector. While several comprehensive reviews of the ERP literature have previously been presented, these either do not focus on the MTO sector, or seek to assess the applicability of ERP systems, or give sufficient attention to recent developments in the fast moving ERP industry. In assessing applicability, this paper considers factors such as the planning and control stages of relevance to MTO companies, the typical size and supply chain positioning of MTO companies, and market-related features. The assessment concludes that there is a significant gap between the requirements of MTO companies and the functionality of ERP systems. One such gap is between the customer enquiry management and design & engineering processes of MTO companies and those supported by ERP systems. Eight key areas in need of further research are described. These include: providing effective decision support tools for customer enquiry management activities in the MTO sector, linking ERP systems with production planning and control concepts of relevance to MTO companies, and conducting an in-depth empirical study into existing applications of ERP systems in MTO companies and their impact on performance


Friday, August 10, 2018


Do Small Businesses Need ERP?

Ever since the early 1990s, Fortune 500 companies across the world have been on the ERP bandwagon. With millions of dollars required to implement and well-publicized coverage of ERP failures, many wonder if ERP is worth the cost and risk to small businesses. The topic of small businesses and ERP has been of interest to me, especially lately. Approximately 75% of our new clients and prospects interested in having us conduct an ERP assessment and vendor selection are companies with annual revenues under $100 million. In fact, one of our recent contract signings for this type of work is for a company with annual revenue of $15 million. Ten years ago, this type of small business interest in ERP was very uncommon. 
The key things driving small businesses to ERP seems to be 1) growth of the small business sector, and 2) more focus on the small business market from ERP software vendors. Most of our small business clients are considering or implementing ERP because of their rapid growth and the corresponding strain it puts on their legacy systems. In addition, large ERP vendors that typically focused solely on the Fortune 500 market are now developing lower-cost solutions with more appropriate functionality for smaller businesses.
A third and final possible reason is because many niche ERP players have entered the marketplace to provide functional solutions for specific industries. Open technologies such as .net have reduced barriers to entry into the ERP market, so many smaller, industry-specific niche players are able to fill the voids left by the big ERP companies at a lower cost.
Although this increasing focus on small business is good for companies with limited capital budgets, it also poses additional risks. Now, there are more choices than ever, and some vendors' products are much more proven than others. So small businesses should be especially thorough when evaluating and selecting an ERP package. They should engage in a vendor selection process that ensures they choose a solid software package that provides a strong ROI to the company
ERP for small business calls for voluminous investments. The amount was fairly affordable to small business entities. There is no doubt or two say about its benefits.  But the question that kept ringing in the market was can everyone afford it. The answer was a stubborn no initially but not anymore. ERP outsourcing, Open Source ERP's and ERP applications designed for S.M.E.'s (Small and medium Enterprises) have successfully overcome the above said limitations. 
Some relevant issues concerning ERP for S.M.E.'s are the following:

Evolution of ERP in S.M.E.'S
Enterprise Resource planning was a term restricted purely to elite class. This scene was witnessed in the IT market for some long time ever since ERP was introduced. The large organizations went ahead with ERP process unmindful of negative consequences, not to forget mentioning the fact that they took every proactive measure to curb the same. Needles to say firms were interested in serving such large players. So the fate of Small and Medium enterprises remained unanswered. ERP for S.M.E's remained a mere dream.

ERP Vendors and Corporate giants
It so happened that the number of larger companies without ERP turned out to be nil. Thanks to the awareness created by vendors and IT researchers. No doubt companies were initially hesitant lot and apprehensive on just hearing the word ERP. However the industry proved them otherwise. Then came a stage where a company could not exist but without ERP. Even if their performance was satisfactory they were not able to gain any competitive advantages.
This explanation of how goliaths adapted to ERP has lot of significance in studying their intervention with S.M.E. These bigger companies were not providing the required business to ERP vendors. Even though there are many big companies the number of vendors was always greater in multiples. This means only the best could strike deals and there was no possibility for mediocre or average vendors (in terms of performance).The best players also found that they had none to serve after a point of time because almost every company in the market successfully established ERP (whether on the first or further attempts). 

Stabilization of ERP in S.M.E s
SO they had to naturally look for greener and fresher pastures. S.M.E.'S was the only answer. The next question was how to provide best services at an affordable cost and still make profit. In this case the vendors had to be worried only about the number of sales they could make and not the quantum of profits because the number of vendors was few and far between when compared with the number of S.M.E.'S choosing to go for ERP. As the saying goes "necessity is the mother of Invention" vendors had to devise cost effective applications to meet the demands of the Small and Medium enterprises. This was the origin of ERP for S.M.E.'S. This benefited them in terms of business .On the other hand the firms enjoyed greater benefits by making use of this application. Hence ERP and S.M.E. was weighed on the same scale. 
S.M.E.'s are becoming the popular choice of ERP vendors. There is an increasing awareness of ERP in S.M.E. market. It has practically helped to unravel the myth that ERP is exclusively meant to business empires. ERP and S.M.E have become important part of enterprise studies.




There are a number of powerful advantages to Enterprise Resource Planning. It has been used to solve a number of problems that have plagued large organizations in the past. At the same time, it is not without a number of disadvantages. Being able to weigh the two will allow a company to decide if this solution will properly meet their needs.
It should first be noted that companies that fail to utilize systems such as ERP may find themselves using various software packages that may not function well with each other. In the long run, this could make the company less efficient than it should be.
There are a number of processes that a company may need to integrate together. One of these processes is called design engineering. When a company is in the process of designing a product, the process of actually creating it is just as important as the end result. ERP can be useful in helping a company find the best design process. Another area where ERP can be useful is order tracking. When a company receives orders for a product, being able to properly track the orders can allow the company to get detailed information on their customers and marketing strategies. If different software packages are being used, this data may not be consistent.
Perhaps one of the most important advantages of ERP is its accounting applications. It can integrate the cost, profit, and revenue information of sales that are made, and it can be presented in a granular way. Enterprise Resource Planning can also be responsible for altering how a product is manufactured. A dating structure can be set up which can allow the company to be informed of when their product should be updated. This is important, because it will allow the company to keep better track of their products, and it can allow the products themselves to be produced with a higher level of quality. Another area where ERP can be an indispensable tool is the area of security. It can protect a company against crimes such as embezzlement or industrial-espionage.
However, with all the advantages that ERP offers, there are a number of disadvantages as well. Perhaps one of the biggest disadvantages to this technology is the cost. At this time, only large corporations can truly take advantage of the benefits that are offered by this technology. This leaves most small and medium sized businesses in the dark. A number of studies have shown that the biggest challenges companies will face when trying to implement ERP deals with investment. The employees must be continually trained on how to use it, and it is also important for companies to make sure the integrity of the data is protected.
According to Anthony, R. A, organizational processes fall into three levels -strategic planning, management control and operational control. Even though much of ERP success has been in facilitating operational coordination across functional departments, successful implementation of ERP systems benefit strategic planning and management control one way or other.

Help reduce operating costs 
ERP software attempts to integrate business processes across departments onto a single enterprise-wide information system. The major benefits of ERP are improved coordination across functional departments and increased efficiencies of doing business. The immediate benefit from implementing ERP systems we can expect is reduced operating costs, such as lower inventory control cost, lower production costs, lower marketing costs and lower help desk support costs.

Facilitate Day-to-Day Management 
The other benefits from implementing ERP systems are facilitation of day-to-day management. The implementations of ERP systems nurture the establishment of backbone data warehouses. ERP systems offer better accessibility to data so that management can have up-to-the-minute access to information for decision making and managerial control. ERP software helps track actual costs of activities and perform activity based costing.

Support Strategic Planning  
Strategic Planning is "a deliberate set of steps that assess needs and resources, define a target audience and a set of goals and objectives, plan and design coordinated strategies with evidence of success, logically connect these strategies to needs, assets, and desired outcomes, and measure and evaluate the process and outcomes." Part of ERP software systems is designed to support resource planning portion of strategic planning. In reality, resource planning has been the weakest link in ERP practice due to the complexity of strategic planning and lack of adequate integration with Decision Support Systems (DSS).

Industry wise advantages 
Manufacturing Sector Speeding up the whole process.Distribution and retail Stores Accessing the status of the goods  Transport Sector Transmit commodities through online transactions. Project Service industry  Fastens the compilation of reports. The advantage and disadvantage of ERP is best understood by studying them under differentcategories. Hence the next paragraph presents information on corporate as a whole because the advantage of ERP systems in a company is different when compared industry wise.

Advantages in a corporate entity 
The accounts department personnel can act independently. They don't have to be behind the technical persons every time to record the financial transactions. Ensures quicker processing of information and reduces the burden of paperwork. Serve the customers efficiently by way of prompt response and follow up. Disposing queries immediately and facilitating the payments from customers with ease and well ahead of the stipulated deadline. It helps in having a say over your competitor and adapting to the whims and fancies of the market and business fluctuations. The swift movement of goods to rural areas and in lesser known places has now become a reality with the use of ERP. The database not only becomes user friendly but also helps to do away with unwanted ambiguity. P is suitable for global operations as it encompasses all the domestic jargons, currency conversions, diverse accounting standards, and multilingual facilities .In short it is the perfect commercial and scientific epitome of the verse "Think Local. Act Global". ERP helps to control and data and facilitates the necessary contacts to acquire the same.



ERP software is made up of many software modules. Each ERP software module mimics a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible.

ERP Production Planning Module  
In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.

ERP Purchasing Module 
Purchase module streamlines procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software.

ERP Inventory Control Module 
Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Integration of inventory control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports.

ERP Sales Module  
Revenues from sales are live blood for commercial organizations. Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module.

ERP Market in Module  
ERP marketing module supports lead generation, direct mailing campaign and more.

ERP Financial Module 
Both for-profit organizations and non-profit organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements.

ERP HR Module  
HR (Human Resources) is another widely implemented ERP module. HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees. Advanced HR module is integrated with knowledge management systems to optimally utilize the expertise of all employees


Thursday, August 9, 2018


Having ERP in India is like an investment that most business houses look up to. ERP or enterprise resource planning can be defined as an integrated, multi-module system that assimilates all the data and processes of an organization into a unified system. To attain this goal, it is essential to strike a successful combination of both hardware and software. The whole concept of enterprise resource planning originated in the large industrial types of companies where the system was used to simplify their processes and workflow. However, with the passage of time, ERP has evolved as a more comprehensive system and now it is largely available to companies of all types and sizes. It serves and supports a wide range of business functions like manufacturing, order entry, accounts receivable and payable, general ledger, purchasing, warehousing, transportation and human resources.
The ERP Scenario in India
There are several positive and negative factors as far as the ERP scenario in India is concerned. Though having ERP in companies of India mostly provides a profitable source of income and quality customer service, there are several challenges to the introduction of ERP in India. This includes change management, organizational intervention, replacing outdated software, shifting from function view to process view, hiring ERP-literate staff and faith in package software in the place of custom-built software.
Certain concerns that have never used ERP software are intimidated whereas some view ERP as a takeover to there IS professionals. Most of the Indian corporations have large in-house IS shops and they consider ERP as a threat to their very existence. Moreover, ERP places more value on the domain knowledge of functions rather than IT skills. The communication infrastructure needed to implement ERP are lacking in some of the indigenous companies.
In spite of all these, the growth of ERP in India is quite promising. Several well-known business houses in India like Cadbury India, Mercedes Benz India, Siemens, Haldia Petrochemicals, L&T, TISCO, and UTI use SAP while Kellogg’s India Ltd., Maruti Udyog Ltd., Sony India Pvt Ltd. and CESC are Oracle users. India’s most valuable contribution to ERP came in 1980s when the country launched the world class ERP product Marshall from Ramco Systems, by using the technology of the 80’s. Marshall is the first successful large scale software from India and several companies like HDFC Bank, Hyundai, Nestle Limited and Standard Chartered Bank use this ERP package. Actually, this product is a formative ERP called virtual splat. A virtual splat enables merging of accounting and manufacturing practices in an easy-to-use, implemented package and is used by small start-up companies.
The benefits of ERP in India
ERP will provide the companies in India the facility to have information available freely, thus making the generation of enquiry or report easier. These systems automatically adhere to most of the standard company rules and compliances, making it easier for the organization to follow. The developed performance modules help the businesses to develop refined analysis, insights, and innovative schemes for improvement. ERP systems in India will also produce more dynamic jobs and improved customer care service and it will also enhance product values. As more and more Indian companies become accustomed to ERP, they can develop a successful broader scale of products for consumers. Last but not the least, having ERP in India implies not having to go and develop software products in foreign countries and distributing them back to India.
Justification of ERP
The expected return on investment provides the cost justification and motivation for investing in ERP. There are quantifiable benefits as well as intangible benefits in the ERP investment decision. The quantifiable benefits have a bottom-line impact on profitability, asset turnover, and a potential effect on stock value. This section discusses the quantifiable and the intangible benefits of an ERP system, which compares firm performance before and after implementing ERP. Other scenarios are encountered in justifying ERP investments. For example, a firm may be considering replacement versus upgrade or re-implementation of an ERP software package. There are significant costs for not successfully implementing an ERP system. Manufacturers often pay more for the lack of systems than they would have paid for improved systems. They carry excess inventory or provide poor customer service, for instance. And manufacturers may invest in ERP without gaining the benefits because the systems are partially implemented, unsuccessfully implemented, or usage deteriorates over time. This is Part One of a four-part article reprinted from Maximizing Your ERP System by Dr. Scott Hamilton. Bridging the theory and realities of current ERP systems, Maximizing Your ERP System provides practical guidance for managing manufacturing in various environments. Drawing on case studies from Dr. Hamilton’s first-hand experience in consulting with more than a thousand firms, it covers common problems and working solutions for how to effectively implement and use ERP systems. The book can be ordered on  This excerpt on “Justification of ERP Investments” is presented in four parts:
  Quantifiable benefits from an ERP system
  The intangible effects of ERP
  Costs of implementing an ERP system
  Replacing or re-implementing an ERP system

Quantifiable Benefits from an ERP System:
Studies that surveyed manufacturers about the impact of ERP systems on firm performance indicate that company size and industry do not affect the results. Benefits have been indicated for large and small firms, whether they make standard or custom products or are in discrete or process manufacturing environments. This section explains the quantifiable benefits in terms of several areas of improvement.
Typical Benefits:
The most significant quantifiable benefits involve reductions in inventory, material costs, and labor and overhead costs, as well as improvements in customer service and sales. Improved planning and scheduling practices typically lead to inventory reductions of 20 percent or better. This provides not only a one time reduction in assets (and inventory typically constitutes a large proportion of assets), but also provides ongoing savings of the inventory carrying costs. The cost of carrying inventory includes not only interest but also the costs of warehousing, handling, obsolescence, insurance, taxes, damage, and shrinkage. With interest rates of 10 percent, the carrying costs can be 25 percent to 30 percent.
ERP systems lead to lower inventories because manufacturers can make and buy only what is needed. Demands rather than demand insensitive order points drive time phased plans. Deliveries can be coordinated to actual need dates, orders for unneeded material can be postponed or canceled. The bills of material ensure matched sets are obtained rather than too much of one component and not enough of another. Planned changes in the bills also prevent inventory build up of obsolete materials. With fewer part shortages and realistic schedules, manufacturing orders can be processed to completion faster and work-in-process inventories can be reduced. Implementation of JIT philosophies can further reduce manufacturing lead times and the corresponding inventories.
Material cost reductions. Improved procurement practices lead to better vendor negotiations for prices, typically resulting in cost reductions of 5 percent or better. Valid schedules permit purchasing people to focus on vendor negotiations and quality improvement rather than on expediting shortages and getting material at premium prices. ERP systems provide negotiation information, such as projected material requirements by commodity group and vendor performance statistics. Giving suppliers better visibility of future requirements helps them achieve efficiencies that can be passed on as lower material costs.
Labor cost reductions. Improved manufacturing practices lead to fewer shortages and interruptions, and less rework and overtime. Typical labor savings from successful ERP are a 10 percent reduction in direct and indirect labor costs. By minimizing rush jobs and parts shortages, less time is needed for expediting, material handling, extra setups, disruptions, and tracking split lots or jobs that have been set aside. Production supervisors have better visibility of required work and can adjust capacity or loads to meet schedules. Supervisors have more time for managing, directing and training people. Production personnel have more time to develop better methods and improve quality and throughput.
Improved customer service and sales. Improved coordination of sales and production leads to better customer service and increased sales. Improvements in managing customer contacts, in making and meeting delivery promises, and in shorter order to ship lead times, lead to higher customer satisfaction and repeat orders. Sales people can focus on selling instead of verifying or apologizing for late deliveries. In custom product environments, configurations can be quickly identified and priced, often by sales personnel or even the customer rather than technical staff. Taken together, these improvements in customer service can lead to fewer lost sales and actual increases in sales, typically 10 percent or more.
ERP systems also provide the ability to react to changes in demand and diagnose delivery problems. Corrective actions can be taken early, such as determining shipment priorities, notifying customers of changes to promised delivery dates, or altering production schedules to satisfy demand.
Improved accounting controls. Improved collection procedures can reduce the number of days of outstanding receivables, thereby providing additional available cash. Underlying these improvements is fast accurate invoice creation directly from shipment transactions, timely customer statements, and follows through on delinquent accounts. Credit checking during order entry and improved handling of customer inquiries further reduces the number of problem accounts. Improved credit management and receivables practices typically reduce the days of outstanding receivables by 18 percent or better. Trade credit can also be maximized by taking advantage of supplier discounts and cash planning, and paying only those invoices with matching receipts. This can lead to lower requirements for cash-on-hand.
ERP System Benefits on the Balance Sheet
Benefits from improved business processes and improved information provided by an ERP system can directly affect the balance sheet of a manufacturer. To illustrate this impact, a simplified balance sheet is shown in figure 1.3 for a typical manufacturer with annual revenue of $10 million. The biggest impacts will be on inventory and accounts receivable. In the example, the company has $3 million in inventory and $2 million in outstanding accounts receivable. Based on prior research concerning industry averages for improvements, implementation of an ERP system can lead to a 20 percent inventory reduction and an 18 percent receivables reduction.
Current Improvement Benefit
Current assets
Cash and other 500,000
Accounts receivable 2,000,000 18% 356,200
Inventory 3,000,000 20% 600,000
Fixed assets 3,000,000
Total assets $8,500,000 $956,200
Current liabilities xxx,xxx
Non current liabilities xxx,xxx
Stockholder's equity xxx,xxx
Total liabilities and xxx,xxx
Figure 1: Summarized balance sheet for a typical $10 million firm
Inventory Reduction. A 20 percent inventory reduction results in $600, 000 less inventory. Improved purchasing practices (that result in reduced material costs) could lower this numbereven more. Accounts Receivable. Current accounts receivable represent seventy-three days of outstanding receivables. An 18 percent reduction (to sixty days' receivables) results in $356, 200 of additional cash available for other uses.
ERP Benefits on the Income Statement
A simplified, summary income statement for the same $10 million manufacturer is shown in figure 2. For many manufacturers, the cost of sales ranges from 65 to 75 percent of sales (the example will use 75 percent). Using industry averages for each major benefit, the improved business processes and associated information system almost double the current pretax income. Inventory Reduction. A 20 percent reduction in the current inventory of $3 million results in ongoing benefits of lower inventory carrying charges. Using a carrying cost of 25 percent results in $150,000 in lower carrying charges each year, identified here as part of the administrative expenses. Material Cost Reductions. A 5 percent reduction in material costs because of improved purchasing practices results in annual savings of $225, 000. Labor Cost Reductions. A 10 percent reduction in labor costs because of less overtime and improved productivity results in annual savings of $100,000. Increased Sales. Improvements in customer service typically lead to a 10 percent sales increase, this is not shown in figure 1.3 Annual benefits totaling $475, 000 in this example almost equals the current pretax income of $500, 000.
 Typical Current Improvement Benefit
Sales $10,000,000 10%
Cost of sales 7,500,000
Material 4,500,000 60% 5% $225,000
Labor 1,000,000 13% 10% $100,000
Overhead 2,000,000 27%
Administrative expenses 2,000,000 $150,000
Pretax income $ 500,000 $475,000

Figure 2: Summarized income statement for a typical $10 million firm
ERP Impact on Key Financial Ratios
Ration analysis provides another way to look at the impact of an ERP system. Three ratios illustrate the effect---two related to liquidity and one to operating performance. Inventory turnover (Cost of Sales/Inventory). Low inventory turnover can indicate possible overstocking and obsolescence. It may also indicate deeper problems of too much of the wrong kind of inventory which can create shortages of needed inventory for production and sales. High turnover indicates better liquidity and superior materials management and merchandising. Given the example $10 million company, the current number of inventory turns is 2.5. With a 20 percent inventory reduction, the number of inventory turns increases to
3.1. Days of Receivables (365 * 1/ (Sales/Receivables)). This ratio expresses the average time in days that receivables are outstanding. It is a measure of the management of credit and collections. Generally, the greater the number of days outstanding, the greater the probability of delinquencies in accounts receivable. The lower the number of days, the greater the cash availability. With an 18 percent reduction in receivables, the current days receivable of seventy-three days can be reduced to sixty. This means $356,200 is available for other purposes. Return on Assets (Profit before Taxes/Total Assets). This ratio measures the effectiveness of management in employing the resources available to it. Several calculations are necessary to determine the return on assets. In this example, the return on assets can be improved from 5.9 to 12.9 by effectively implementing an ERP system.
Performance evaluation based on ratio analysis can also use comparisons between one's own company and similar firms in terms of size and industry. The Annual Statement Studies provide comparative ratios for this purpose. This use of comparative ratio analysis will use the same three ratios for inventory turnover, days receivable, and return on assets. To perform the analysis, you identify the median and upper quartile ratios for firms in the same industry. These roughly correspond to average and good performance. By comparing the ratios with your firm's current performance, you can calculate how much better your company should be performing to be competitive. The same analysis can be performed using the “” website. Using the inventory turns ratio for the example $10 million manufacturer, assume the Annual Statement Studies indicate that the median and upper quartile are four and six turns for other firms in the same industry. Average performance of four inventory turns translates into an expected inventory of $1.875 million ($7.5 million divided by four). If the example firm had this ratio, it would have had $1.125 million less in inventory. With inventory carrying costs at 25 percent, this would produce savings of $281,250 each year. For the days receivable ratio, assume the Annual Statement Studies indicate that sixty and fifty days are the median and upper quartile. The days receivable in the example $10 million manufacturer is currently seventy-three days, an improvement to sixty days would reduce receivables by $356,200 (using a daily sales rate of $27,400 and a thirteen day reduction). This means that cash is available for other purposes. Note that the return on assets ratio is 5.9 for the example company. Assuming the Annual Statement Studies indicate the return on assets is ten and fifteen for firms in the same industry at the median and upper quartiles, improving the return on assets to equivalent levels would mean increased profits or asset turnover. ERP Impact on Stock Price If the integration and improved information of an ERP system results in a better balance sheet and increased profits, these improvements should impact stock price for the company. Although stock price is affected by a variety of factors, the typical effect of improved profits and balance sheet ratios can be estimated. Using the already described example of $10 million manufacturer and typical benefits, and assuming 100,000 shares outstanding and an existing stock price of $30.00 per share, , the stock price exhibits the effects of an effective ERP, as figure 3.3 shows. With a price/earnings multiplier of six, the stock price for the example company could be increased from $30 to $58.80 per
Calculating the potential stock appreciation

Before ERP After ERP
Before tax profit $500,000.00 $980,000.00
Earnings per share $ 5.00 $9.80
Current stock price $30.00 6 * 9.80 = $58.80
Multiplier 6 6
These calculations suggest that ERP systems can lead to significant impacts on financial results, including the balance sheet, income statement, key ratios, and stock price. This concludes Part One of a four-part article reprinted from Maximizing Your ERP System by Dr. Scott Hamilton. Bridging the theory and realities of current ERP systems, Maximizing Your ERP System provides practical guidance for managing manufacturing in various environments. Drawing on case studies from Dr. Hamilton’s first-hand experience in consulting with more than a thousand firms, it covers common problems and working solutions for how to effectively implement and use ERP systems. This excerpt on “Justification of ERP Investments” is presented in following parts.
  The Intangible Effects of ERP
  Effects on Accounting
  Effects on Product and Process Design
  Effects on Production and Materials Management
  Effects on Sales
  Effects on the MIS Function

The Intangible Effects of ERP
The intangible or non-financial benefits of an integrated enterprise resource planning (ERP) system can be viewed from several perspectives. For illustrative purposes, the discussion will focus on the benefits for accounting, product and process design, production, sales, and management information system (MIS) functions. From the overall company standpoint, ERP provides a framework for working effectively together and providing a consistent plan for action. Each of the intangible effects could be quantified in terms of cost savings. Duplicate data maintenance; for example, requires personnel time in entering data (and possibly managerial time in determining which set of data should be used for decision making). Expediting efforts have a visible effect of consuming personnel time. These quantified cost savings can also be used to show impacts on financial results.
Effect on Accounting
With a common database from ERP, accounting no longer requires duplicate files and redundant data entry. Product costing, for example, can be performed using accurate and up to date product structures. Product costing simulations can be used to analyze the impact of changing material costs, labor rates, and overhead allocations as well as planned changes to bills and routings. Differences between actual and standard costs are highlighted as variances. Order related variances help pinpoint problem areas. Customer invoices can be based on actual shipments (without duplicate data entry), which helps speed invoice processing. Payables can use purchase order and receipt data for three way matching with supplier invoices.
As manufacturing transactions are recorded, the financial equivalents are automatically generated for updating the general ledger. This provides a complete audit trail from account totals to source documents, ensures accurate and up to date financial information, and permits tracking of actual versus budgeted expenses. Detailed transaction activity can also be easily accessed on line for answering account inquiries.
Since manufacturing transactions automatically update the general ledger, time consuming manual journal entries can be eliminated. Period end closing procedures can be performed in hours or days, rather than weeks. This improves reduces clerical accounting work, and improves the timeliness of financial reports.
Financial reports can be easily customized to meet the needs of various decision makers. Financial projections can be based on detailed ERP calculations for future requirements. Cash planning, for example, can account for current and projected sales orders and planned purchases, as well as current receivables and payables. Decision support tools (such as spreadsheets, graphics packages and data managers) can use the financial data maintained in the ERP database.
Effects on Product and Process Design
The product structure database offers engineering much greater control over product and process design, especially in terms of engineering change control. Planned changes can be phased in and emergency changes can be communicated immediately.
ERP systems offer numerous analytical tools for the engineering function. When diagnosing the impact of changes to materials and resources, for example, engineers can check where used information to identify the affected products. Lead time reduction efforts can use critical path analysis of item lead times in multi-level bills to focus attention on those key components affecting cumulative manufacturing lead time. Costed multi-level bills can be used to focus cost reduction efforts on high value items. Bill comparisons can be used to highlight differences between products or between revisions of the same product such as to identify upgrade kit requirements.
ERP systems support custom product configurations. Rules-based configurations reduce the need for expert assistance from engineers, and ensure sales personnel (or even customers) can develop timely accurate configurations. Cost estimates and pricing for custom product configurations can also be quickly calculated.
Effects on Production and Materials Management
ERP systems help establish realistic schedules for production and communicate consistent priorities so that everyone knows the most important job to work on at all times. Visibility of future requirements helps production prepare for capacity problems, and also helps suppliers anticipate and meet your needs. As changes to demands or supplies do occur, ERP helps identify the impact on production and purchasing.
Finite scheduling capabilities in ERP ensure production activities get scheduled based on capacity, tool and material constraints. Scheduling rules help minimize setup times and optimize sequencing. Changes in factory demands, as well as changes in available machine time, labor headcount and skill levels, tools, and material, can be immediately simulated to assess the impact on production and purchasing. ERP helps eliminate many crisis situations, so people have more time for planning and quality. Buyers can spend more time in vendor negotiation and quality improvement. When the shortage list is no longer used to manage the shop, the quality of working life can improve.
Effects on Sales
Customer service can be improved by making valid delivery promises and then meeting those promises. Custom product quotations can be developed faster and more accurately, which improves job estimating. Delivery lead times can be shortened and customer inquiries on order status can be answered immediately. E-commerce capabilities enable customers to place orders and check status over the internet at any time. In addition to customer convenience, this reduces the time requirement for sales and customer service personnel.
Effects on the MIS Function
An ERP system implemented as an integrated software package offers several advantages to the MIS function. The software package can offer a growth path from simple to comprehensive applications built on top of a database management system. It provides an upgrade path to technology and functional enhancements supported by the software vendor. It can reduce the development time and cost for software, documentation, and training classes. These costs would be incurred before the firm can start obtaining the benefits of an ERP system. It permits the MIS staff to focus their attention on organizational change and servicing user needs for customization and professional assistance.
1 Costs of Implementing an ERP System
2 One-Time Costs
3 Ongoing Annual Costs

Costs of Implementing an ERP System
Enterprise resource planning (ERP) implementation costs can be divided into one-time costs and ongoing annual costs. Both types of costs can be segmented into hardware, software, external assistance, and internal personnel. The cost of an ERP software package varies widely, ranging from $30,000 (USD) for micro-based packages to several million for some mainframe packages. The number of concurrent users generally drives the software costs, so that smaller systems cost less. For illustrative and general guideline purposes, the software package costs range from $50,000 to $200,000 (USD) for smaller manufacturers. In addition to the ERP software package, one-time costs may include systems software, development of customized software, or integration with other applications.
  Hardware. Hardware selection is driven by the firm’s choice of an ERP software package. The ERP software vendor generally certifies which hardware (and hardware configurations) must be used to run the ERP system. Hardware may need to be replaced or upgraded. As a general rule, small to medium-size manufacturers already have microcomputers and a local area network, so that a micro-based ERP system built on de facto standards requires little additional investment in hardware.
  External Assistance. External assistance includes the consulting and training costs to implement the ERP package. The software vendor, reseller or independent consultant groups may provide external assistance. The amount of required external assistance is dependent on several factors, such as the complexity of the ERP package, the experience or knowledge of internal personnel, and the extent to which external personnel are used in place of internal personnel to implement the system. A general guideline for these costs has been the ratio with the cost of the ERP software package. A comprehensive micro-based ERP package typically has a .5 to 1.0 ratio, the manufacturer requires $.50 to $1.00 (USD) of external assistance for each dollar of software package costs. The elapsed time for implementation of the entire ERP application typically requires four to six months. Many of the mainframe ERP packages have a three to five ratio for the costs of external assistance. The software package typically costs more, and the elapsed time for implementation requires nine to twenty-four months.
  Internal Personnel. Internal personnel time reflects the time commitments for the implementation project team, the executive steering committee, the users in various functional areas, and management information system (MIS) personnel. The time commitments include training classes, development of internal procedures for using the system, developing customized reports and applications, preparation of the data, meetings with external consultants, and team meetings. A general guideline for internal personnel costs can also be expressed as a ratio with the ERP software costs, where a typical ratio is .5 to 1.0.

One-Time Costs
The one-time costs for implementing an ERP system can be simplistically estimated using typical ratios with ERP software costs. In many cases, the use of de facto standard hardware means that a firm already has the hardware for an ERP system.
On Going Annual Costs
  Software. Ongoing software costs should include the annual customer support agreement with the ERP software and vendor. This customer support typically provides telephone assistance and software upgrades and is typically priced around 15 percent to 20 percent of the software price. Upgrades to system software releases will also be required. The upgrade path for new releases of the ERP software package is critical. New releases contain enhancements for functionality and bug fixes, and ensure the software runs on the latest technology platform. From the user’s point of view, the upgrade path enables the manufacturer to take advantage of hundred of man-years of development efforts undertaken by the ERP software vendor (and other technology vendors) with minimal investment. From the vendor point of view, it is much easier to support users on the latest releases. However, user changes to source code and other user customizations can make it very expensive or even impossible to upgrade. Additional costs must then be incurred to ensure the customizations work with the latest upgrade. A phased implementation approach may mean that additional software must be purchased. A data collection system, for example, may be implemented as part of a second phase.
  Hardware. Ongoing hardware costs will reflect new requirements specified by the ERP vendor to run the software.
  External Assistance. External assistance should be used as part of a continuous improvement program to effectively use an ERP system application for running the company. Training and consulting can focus on improved business processes, new or poorly used software functionality, and training of new personnel. A phased implementation approach requires additional assistance at each phase. Additional customizations may be required, especially with evolving user sophistication. As shown in the example estimates in figure 3.4, a ratio of .1 to .2 could be used for total annual costs related to external assistance.
  Internal Personnel. The implementation project team does not necessarily end its responsibilities at time of system cutover. A phased implementation approach and continuous improvement efforts will require ongoing time commitments. Employee turnover and job rotation will also require ongoing training efforts. The nature of the ERP software package (and associated system software and hardware) typically mandates the number and expertise of MIS personnel needed for ongoing support. It may range from a part-time clerical person (for administering a micro-based ERP package) to a large group of MIS experts (for some mainframe ERP packages). As shown in the example estimates in figure 3.4, a ratio of .1 to

Replacing or re-implementing an ERP system
1 Replacing or Re-implementing an ERP System
2 Classifications of ERP Success

Replacing or Re-implementing an ERP System
An investment analysis focusing on enterprise resource planning (ERP) benefits frequently applies to those firms initially justifying an ERP implementation. It can also be used to justify a “re-implementation” when the initial efforts have failed to produce desired results. The box describing “Classifications of ERP success” identifies situations where the ERP implementation falls short of producing desired benefits.