Enterprise Resource Planning (ERP)

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Table of Content

1. Abstract
2. Functional Areas / Modules
3. Available Options
4. Advantages of ERP System
5. Disadvantages
6. How to choose
7. Why Implementations fail to achieve its objectives
8. Cloud, In-Premises or Hybrid?
9. Advantages of Cloud
10. Disadvantages

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Abstract:

 Enterprise resource planning (ERP) is the integrated management of core business

processes in real-time through software and technology.

 ERP software is a suite of integrated applications that an organization can use to

collect, store, manage, and interpret data from different departments within the
organization.

 All ERP systems are based on a “common database” and a “modular software
design”.

o The common database can allow every department of a business to store and
retrieve information in real-time.

o The modular software design means that depending on the requirement and
available budget, any organization can either purchase the whole package, or
can acquire a certain number of modules they need, mix and match modules
from different vendors, and add new modules of their own to improve business
performance at any time.

 In a nutshell, the ERP software integrates different departments of an organization

into a single computer system to serve the needs of these departments and to
streamline processes and information across the entire organization.

Functional Areas / Modules:

All ERP systems cover the following common functional areas/modules:

 Financial Accounting & Controlling (FICO)

 Materials Management (MM)
 Warehouse Management (WM)
 Sales & Distribution (SD)
 Project Systems (PS)
 Plant Maintenance (PM)
 Funds Management (FM)
 Quality Management (QM)
 Human Capital Management (HCM)
 Production Planning (PP)
 Basis

Available Options:

 In Pakistan, there are two types of ERPs, one, that are locally developed and the
others which are prepackaged and have foreign origin.

 SAP, Oracle E Business Suite, and Microsoft’s Dynamics AX are major foreign
players trying to claim the market in Pakistan, alongside dealing with the local ERPs.

 As for local ERPs, there are several players in the market, providing standalone
solutions as well as a complete suite of applications.

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  As per the available statistics of 2017, globally SAP was dominating the market with
19% share, Microsoft Dynamics 16%, Oracle and Infor 13% each whereas in
Pakistan SAP is holding the top position with approximately 35% market share,
Microsoft Dynamics 25%, and Oracle JD Edwards 15-20% while rest by small
players.

 Large pool of value-added resellers (VARs) of leading foreign ERPs is available in

Pakistan whereas local ERPs does not provide this freedom.

Advantages of ERP System:

 ERP systems provide better company-wide visibility and hence enable better/faster
collaboration and decision making across all the departments.

 Automates core business operations such as procure-to-pay cycle, plant

maintenance, inventory management, financial / controlling processes etc.

 Automated and coherent workflow from one department to another, to ensure a

smooth transition and quicker completion of processes.

 A unified and single reporting system to analyze the statistics/status etc. in real-time,
across all functions/departments.

 Improved business insight from real-time information generated by reports.

 Business Intelligence functionalities that can give overall insights on business

processes, accurate forecasting and identify potential areas of
problems/improvements.

 Since a Database system is implemented on the backend to store all the information
required by the ERP system, it enables centralized storage/back-up of all enterprise
data.

 ERP systems are more secure as centralized security policies can be applied to
them. All the transactions happening via the ERP systems can be tracked.

 ERP systems are especially helpful for managing globally dispersed operations,
better.

 Lower operational costs through defined and more streamlined business processes.

 Consistent infrastructure – same look and feel.

 Reduce risk through improved data integrity and financial controls.

 Improves financial compliance with regulatory standards.

Disadvantages:

 High cost of ERP Software, planning, customization, configuration, testing,

implementation, training etc.

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  High additional indirect costs on IT infrastructure.

 ERP deployments are highly time-consuming – projects may take 1-3 years (or more)
to get completed and fully functional.

 ERP implementations are difficult to achieve in decentralized organizations with

disparate business processes and systems.

 Too little customization may not integrate the ERP system with the business process
& too much customization may slow down the project and make it difficult to upgrade.

 The cost savings/payback may not be realized immediately after the ERP
implementation & it is quite difficult to measure the same.

 The participation of users is very important for successful implementation of ERP

projects – hence, exhaustive user training and simple user interface might be critical.
But ERP systems are generally difficult to learn (and use).

 Migration of existing data to the new ERP systems is difficult to achieve. Integration
with legacy systems is equally difficult (if possible) and may consume a lot of time,
money & resources.

 Evaluation prior to implementation of ERP system is critical. If this step is not done
properly and experienced technical/business resources are not available while
evaluating, ERP implementations can become a failure.

How to choose:

 Conduct a process review and GAP analysis. Define and document current
business processes, pain points, and strengths. This analysis should also include
what you think your processes should look like in the future (your "to-be" state) and
the corresponding business requirements. These processes and requirements
should eventually be used for potential software vendors to demonstrate their
product's capabilities within the context of your business needs.

 Evaluate the technical fit. A potential software solution should align with your
current infrastructure. For example, if your current infrastructure is dominated by
Microsoft, you're likely to find a better technical fit with ERP software products built
on a Microsoft platform.

 Calculate the total cost of ownership. Workout the costs and risks associated with
purchasing any ERP. Identify "hidden costs" associated with ERP, including
implementation costs, licensing costs, hardware upgrades, allocation of project team
resources, software maintenance, etc.

 Develop a realistic implementation plan. It's important to develop a

comprehensive project plan that includes not just the activities required to implement
the software, but the ones that are required to ensure that the solution is fully
functional, tested, and accepted. This plan should be developed prior to the final
software decision so as to fully understand the cost and resource commitments
required to make the project a success. Implementation project plan should include

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 everything from business process and workflow design to data migration, multiple
test iterations, and key organizational change management activities.

 Look for objective and independent advice. Hire external ERP experts for GAP
analysis and to propose the system however internal IT department needs to play a
leading role in the process because their experience and insight on the operations
can have a major impact on the success of the ERP implementation as a consultant
might have a better understanding of the software and even the industry but internal
IT team plays a critical role by applying their knowledge of the company to ensure a
successful ERP selection project.

Why ERP Implementations Fail to Achieve Objectives:

 Poor understanding of business process. GAP analysis is a must to identify gaps

between as-is and best-industry practices.

 Over customization.

 Insufficient testing.

 Company’s reluctance to abandon / change old working processes and adopt

recommended best practices.

 Incapable internal IT team.

 Wrong choice of ERP software

 Poor learning skills of employees

 Poor training methodology

 Poor infrastructure

 Poor after-sale support by the VAR.

Cloud, In-Premises or Hybrid?

 A cloud ERP means that the application is hosted on a platform, or remote servers,
that can be accessed through any web browser instead of opening up a program
installed on computer desktop.

 On-premise software is bought and installed locally on company’s own hardware and
servers. Company has to install, maintain, and manage the software however for
cloud software is not required to be maintained on own servers rather the vendor
gives access to servers that they own and maintain remotely and deliver the software
as a service, which you can access via the internet. That’s why cloud ERPs are
usually referred to as SaaS (software-as-a-service).

 The cloud offers a more affordable alternative for ERP that lowers both operational
expenses (OpEx) and capital expenses (CapEx) because it eliminates the need to
purchase software and hardware or hire additional IT staff to support costly
infrastructure.

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  Cloud-based software is priced under a monthly or annual subscription basis, while
on-premise software is usually priced under a one-time perpetual license fee.

 On the other end of the spectrum, on-premise ERP systems are known to be more
customizable and offer greater control over data. However, the implementation
process can take longer and organizations have to pay associated hardware and IT
costs. Organizations will find that cloud-based ERP systems are more mobile-friendly
compared to their on-premise counterpart.

Advantages:

 Shorter implementation time, great stability with frequent updates from the vendor
and no additional hardware investments.

 Access to more features: Having applications on the cloud has the advantage of
being able to access more standard features.

 Updates on the cloud are easier compared to upgrading an on-premise ERP system.

 Moving away from heavily customized legacy systems

Disadvantages:

 Less customizable functionalities and an organization’s possible less peace of mind

that comes with data security being in the vendor’s hands.

 Limited applications range as compared to in-premises (although this is changing

now) which means integrating existing on-premise applications with newer cloud
products which can potentially lead to additional costs, more complex process flows.

 Cost considerations: Though, overall cloud solutions are quite cost effective, there
are cost considerations to be looked into when talking about long-term costs for
licenses and support. When considering a move to a cloud application look at the 5
and/or 10 year Cost of Ownership. The cost advantage of cloud product might not be
as great as initially thought.