Enterprisewide Resource Planning Theory and Practice

Transcription

1 Enterprisewide Resource Planning Theory and Practice Rahul V. Altekar

2 Enterprisewide Resource Planning

3 Enterprisewide Resource Planning Theory and Practice Rahul V. Altekar Senior Functional Architect, JDA India Hyderabad and Visiting Faculty: NITIE, Prin. Welingkars, and XIM, Mumbai New Delhi

4 ENTERPRISEWIDE RESOURCE PLANNING: THEORY AND PRACTICE Rahul V. Altekar 2004 by PHI Learning Private Limited, New Delhi. All rights reserved. No part of this book may be reproduced in any form, by mimeograph or any other means, without permission in writing from the publisher. ISBN The export rights of this book are vested solely with the publisher. Seventh September, 2011 Published by Asoke K. Ghosh, PHI Learning Private Limited, M-97, Connaught Circus, New Delhi and Printed by Mudrak, 30-A, Patparganj, Delhi

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6 To My Son Prachetas

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8 8 Contents Preface xi Part I THEORY OF ERP 1. INTRODUCTION 3 7 What is ERP Concept? 4 Reasons for the Growth of the ERP Market 6 Exercises 7 2. ORIGIN, EVOLUTION AND STRUCTURE 8 19 Conceptual Model of ERP 8 The Evolution of ERP 9 The Structure of ERP 13 Two-tier Architecture 14 Three-tier Architecture 14 Architecture Overview of SAP R/3 ERP 17 Architecture Overview of Baan s ERP 17 Cost of ERP 18 Exercises THE BEST PRACTICES IN ERP The Concept of Best Practice 20 Style of Manufacturing 21 Manufacturing Industries 21 Project Industries 22 Service Industries 22 Demand Management 25 Sales and Operations Planning 25 Significance and Advantages of S&OP 27 S&OP Practice in ERP 28 vii

9 viii Contents Organization Structure and Elements 32 Activity Based Costing (ABC) 33 Basic ABC Principles 34 Elements of ABC 35 Costing Methods 36 Exercises ERP VENDOR ANALYSIS Introduction 38 SAP 39 SAP Industry Solutions 39 Oracle 40 Oracle Industry Specific Solutions 41 Oracle Implementations in India 42 PeopleSoft 42 Industry Solutions 43 Baan 43 Product Functionality 44 Baan Industry Specific Solutions 44 Baan Implementations in India 45 J.D. Edwards 45 Products 45 J.D. Edwards in Industry Specific Solutions 46 Ramco 47 Ramco Implementations in India 47 QAD 48 Products 48 ERP Domain Expertise 49 Oracle Financials 49 mysap ERP 52 Baan Manufacturing 54 PeopleSoft Human Capital Management 55 Summary 56 Exercises BASIC FUNCTIONAL MODULES IN ERP Manufacturing Requirements 59 Distribution Requirements 59 Financial Requirements 59 Item Control Module in ERP 60 General Data 61 Inventory Data 61 Purchase and Sales Data 62 Order Data 63 Production Data 63 Cost Price Information 64

10 Contents ix Formula Management/BoM Module of ERP 65 Concept of Bill of Materials 65 Bill of Material Functions 65 Concept of Formula Management 66 Baan Approach of Handling Formula Management 66 Unique Requirements of a Process Industry 71 Ramco ERP Solutions for Process Industries 72 Financial Accounting Module in ERP 73 Financial Accounting in Oracle ERP 74 SAP R/3 Financial Accounting 77 Master Production Scheduling (MPS) Module in ERP 80 Objectives of MPS Module 81 Functions of MPS Module 81 MPS Control for Items 82 Master Scheduling Activities 82 Material Requirement Planning (MRP) Module in ERP 84 Production Scheduling 87 CRP Module in ERP 89 Visual Resource Planner 91 Work Center Load Report 93 Purchase Control Module in ERP 93 The Purchasing Document 94 Structure of Purchasing Document 95 Purchasing Functions 95 Conditions and Price Determination 96 Exercises ERP IMPLEMENTATION Introduction 97 Implementation Approach 98 BPR and ERP Inseparable Twins or Chicken-Egg Paradox 98 Elements of Implementation Methodology 100 Problems in ERP Implementation 102 Cost of ERP 102 Steps in ERP Implementation 103 Exercises 106 Part II MAKING ERP A SUCCESS 7. ERP AS IS Current Market Scenario 109 Claimed Tangible Benefits 112 Implementation Realities 112 The Indian Scenario 114

11 x Contents Features of Full Cycle Indian ERP Implementation 115 Why ERP is As Is? 118 I Can Leave My Soul But Not the Codification System 119 I Don t Know 119 ERP Demands More Entries Than Manual System 121 We Want Flexibility 123 Some Typical Cases 126 Customize It 128 Understanding of Existing Bad Practices 130 Integrated Approach 131 Disciplined Actions 131 Information 131 Planning Maturity 131 Master System 131 Exercises MAKING ERP TO BE Prerequisites of ERP 133 ERP Panchanga (Five Elements): Making ERP Success 134 The Client 135 The User 136 The Consultant 137 The Methodology 141 The ERP Brand 143 Conclusion 145 Exercises 146 Bibliography Index

12 8 Preface In one of the corporate training programmes, I had come across a person who motivated me to write this book. He was the key user of an ERP system in one of the biggest Indian companies and was totally frustrated to the extent that he had developed certain aversion against ERP and especially against ERP consultants. Even though I felt somewhat emotionally exhausted after interacting with him for long sessions, discussions with him motivated me to share the complete theory of ERP with ERP users as well as with the students of ERP. Then it took over three years to the development of this textbook from initial concepts. The book is primarily aimed at providing a stable foundation of knowledge for entry-level students through senior-level practitioners. The common understanding of ERP system today is that it is a large computer system that integrates all business application programs required by various functional entities, but the underlying principles and disciplines of ERP are not very clear to most of the ERP users and even to ERP consultants. Hence we find certain amount of dissatisfaction and underutilization of ERP systems in India. The fundamental idea that the ERP software such as SAP or Baan is not ERP but a tool for ERP is not yet understood by Indian companies. Unfortunately, we do not find a comprehensive literature that explains the ERP concepts with its associated theory, and the practical implementation guidelines with cases, especially in the Indian context. Keeping these requirements in mind, the presentation of the book is planned to provide the organized approaches to (ERP related) problem solving by highlighting the different ways to ERP adoption, not based on the whims of individual ERP software developers but on the cultural aspects coupled with the best practices. The book is divided into two parts. In Part I the overall theory of ERP is discussed, whereas Part II focuses on current ERP scenario in India and its possible optimization. Part I contains six chapters on ERP theory with a number of flowcharts, screenshots and figures. Chapter 1 introduces the reader to ERP and its general features. Chapter 2 highlights the conceptual model of ERP and its evolution over a period of time and also defines the basic architecture of ERP. Attempts are made here to make the reader grasp the complete necessities of ERP system. Chapter 3 details the important world-class practices and their practical implications. xi

13 xii Preface Further, it provides a generalized understanding of the core logic of ERP culture. Chapter 4 introduces the current ERP market scenario and strategies played by ERP vendors, especially in the Indian context. It explains the strengths of various ERP brands and how critical their selection procedure is. Chapter 5 provides the basic functionalities offered by any ERP software. It discusses at length various major modules like Manufacturing, Distribution and Financial, and submodules including Item Control, Formula Management, MPS Control, MRP Control, CRP Control, Purchase Control, Finance Control, etc. These discussions are supported with necessary diagrams, flowcharts and actual screen shots captured from reputed ERP brands. The idea is to help the reader get a feel of ERP functionalities and their strengths. Chapter 6 throws light on the fundamentals of ERP implementation methodology. It points out the importance of BPR in ERP implementation with its elements, costs and steps in execution. Various real-life examples of implementations are explained to make the theme clearer. Part II contains two chapters focusing on the practical side of ERP in India. Chapter 7 contains current As Is status of ERP in the Indian corporate sector. It has been emphasized that the chief issue of ERP is neither the process nor the technology but the people. The core strength of ERP consulting could be the ability to recognize the elemental human characteristics and their impact on ERP systems, especially in Indian companies. To support this view, a number of cases of ERP mishaps are explained with their root causes. To address these issues and to make ERP a success, in Chapter 8, I have conceptualized the ERP Panchaga (fiveelement) model to enable the consultants, project managers, key-users, or even students of ERP subjects to anticipate and resolve the difficulties involved and minimize the negative effects of ERP adoption programme in India. In sum, it is expected that this book would help readers understand the scope of ERP with its integration abilities, the need for third party consulting support, the overall expenses, and also the crucial role played by end-users. The target readers are management and final-year engineering students. Also, the book is so designed that those ERP professionals who have either experienced the ERP or preparing for it will receive fundamental inputs to strengthen their views and strategies to make ERP a success. I hope this work will meet its objectives and will contribute significantly to ERP literature. I take this opportunity to thank all my industry colleagues with whom I had long and fruitful discussions. I also wish to gratefully aknowledge the inputs and the real-life experience I have gained from Indian companies on the many facets and multidimensional aspects of ERP. I sincerely thank everyone who has helped me, directly or indirectly, in the preparation of this text. My special thanks are due to my family members, especially my wife who had put in extra efforts in reviewing many of the ideas presented in the book. Any constructive comments for improving the contents will be warmly appreciated. Rahul V. Altekar

14 PART I THEORY OF ERP

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