Namaskar Friends.
Welcome to the last session of our course
on Operations Management.
And today our focus is on enterprise resource
planning.
In the last week, we have discussed the latest
trends in operations management, we have covered
the concept of JIT that is just in time, we
have covered the concept of Kanban, we have
covered the concept of materials requirement
planning, and today we are discussing the
enterprise resource planning.
So, in these two and half hours, we have just
tried to discuss or we have just tried to
highlight the important concepts that have
developed in the last 10 to 15 years time
in the field of operations management.
Most of the companies these days are focusing
on these concepts to make their system more
robust, to make their systems more efficient
effective and productive.
They want to minimize the waste either in
terms of manpower, or in terms of money, or
in terms of time, or in terms of maybe the
other kinds of waste that may be creeping
in the industry that may be the unnecessary
movement of men and machines, may be unnecessary
utilization of space, or unnecessary may be
say wastage of space.
So, the optimization may be in terms of money,
man, machine, movement, anything, but the
focus these days is to make the systems more
and more efficient, to make the production
more and more effective, and in overall maybe
the target has been to improve the productivity
of an organization.
So, in the last maybe 59 sessions, our focus
has been on both the theoretical aspects also,
we have tried to cover the numerical problems
also wherever possible, and overall we have
tried to give a picture of the complete operations
starting from what has to be produced, that
has to be decided in the product design and
development stage.
Then how much has to be produced, we have
answered in the sales forecasting or demand
forecasting session; where we must locate
our organization or our factory, we have discussed
in plant location.
Then how our machines have to be laid out,
we have discussed in plant layout.
Then how to manage the time for manufacturing?
We have covered in project management in terms
of CPM and PERT.
Then we have seen, the production control
sequencing scheduling of our operations, thereafter
we have covered the quality concept we have
covered the materials management aspects.
So, currently we are covering the JIT, Kanban,
materials requirement planning or MRP and
ERP systems.
So, basically we have tried to address all
aspects related to the overall concept of
operations management.
And today the last topic that we are going
to cover is going to integrate, all the functions
related to the operations or the process of
conversion of a raw material into the final
product.
So, the complete enterprise has to be managed
as a single entity, and all the resources
have to be planned have to be executed centrally,
so that the information is available with
all stakeholders within the enterprise, in
order to better coordinate cooperate, as well
as execute the work related to the organization.
So, our focus today will be to understand
the basic concept of enterprise resource planning,
most of the time we have heard this word ERP,
and most of the engineers know the word ERP,
we will try to understand it from the context
of the manufacturing unit that where the product
is getting converted into the final, or maybe
the raw material is getting converted into
the final product.
And we will try to see that what are the advantages
we can derive, if we have a centrally managed
system, instead of a decentralized system
where we have different nodes of information,
and sometimes there may be lack of coherence
between the different nodes of information.
So, it is always better that you have a central
facility where you have all the information
available, and this central facility can control
, the overall operations of the organization.
So, let us now try to understand the concept
of enterprise resource planning, in the next
20 to 22 minutes.
So, enterprise resource planning what is the
definition, now ERP is a process of managing
all resources, now all resources means men,
machine, equipment, material, money so everything
included.
So, ERP is the process of managing all resources,
and their use in the entire enterprise in
a coordinated manner, so everything has to
be centrally coordinated, all the resources
in terms of man, material, machine, money,
equipment has to be controlled centrally.
And it is a complete enterprise wide control
mechanism, it is not distributed control;
it is a centralized control of a system or
of the organization.
So, again for your understanding I will again
read the definition, a ERP or enterprise resource
planning is a process of managing all resources,
and their use in the entire enterprise in
the coordinated manner.
What is ERP now, the practice of consolidating
an enterprise’s planning, manufacturing,
sales and marketing efforts into one management
system?
Now, you can see the planning activity or
the planning part, the manufacturing part,
the sales part, the marketing part even the
financial part, the human resource department
all have to be coordinated and integrated
into one central management system.
It combines all databases across departments
into a single database that can be accessed
by all employees.
Here I would slightly like to emphasize that
the access, may be limited to different levels
of hierarchy, or different levels within the
organization.
Maybe the top level management may have access
to more information, as compared to the bottom
most level of hierarchy within the organization.
So, maybe the access may be limited in context
of the designation of the various employees,
but all the databases will be integrated into
one single central management system.
So, ERP automates the task involved in performing
a business process, so you have now a central
management system, and it will help you to
better manage all the processes involved in
running a business.
Now, major reasons why one should go for an
ERP system, it integrates the financial information,
integrates the customer order information,
standardize and speed up the operations or
the processes, reduces the inventory, standardized
HR information or human resource information.
So, maybe these are just few of the reasons
for adopting ERP.
The advantages when we will see, we will ourselves
be able to make a long list of reasons why
a company must go for an ERP system.
Now, let us take an example, the source is
given here, it is from the slide share dot
net, a presentation which is available you
can go through the complete presentation,
download the presentation and look at the
other aspects of ERP system there.
But from the explanation point of view, this
is a conventional maybe system without an
ERP system in place.
So, here normally what happens is this is
the customer, so the customer orders a part,
so to the sales department, then sales department
gets in touch with the warehouse, the checking
the availability whether we have the ordered
part available with us or not.
Suppose it is not available again, it will
send an order to the purchasing department,
purchasing department will get in touch with
the vendor, and then the vendor will produce
the part, and then we may be able to supply
the order.
Similarly, there will be accounting department
also which will be the complete loop.
So, we have seen that once we have placed
an order here, how it will function.
First of all order the part, we check for
the parts, parts are not available, we need
the parts, we will send an order to the purchasing
department, purchasing department will get
in touch with the vendor.
So, once the parts are procured we ordered
the parts, call back to the sales that we
do not have the parts in stock and then we
will give an information, we have ordered
the parts.
So, the sales department will be in touch
with the customers and updating them, regarding
the status of their order.
So, maybe we can see that there are different
nodes of information or different sources
of information at different positions.
But we want to integrate them into the common
system, so that the sales department can directly
check that, what is the status of stocks,
whether we must take the order or we must
postpone the order, or we must go for maybe
back ordering, we can talk to the customer
that we will be able to meet the target by
such and such date.
Because at the sales department only they
must be able to check in the centralized management
system, that what is the stock of the material
available, and that is the basic concept of
enterprise resource planning.
And in today’s scenario where IT enabled
manufacturing is being done, or IT enabled
management is being done.
It is very easy to check sitting in the sales
office that what is the stock of material
available, in the warehouse?
So, that is basically the overall concept
of integrating, all the functions into one
function of management.
So, all functions such as finance, sales,
marketing, production or HR, have to be integrated
into a single function.
So, here we can see the information travels
quite a lot, from one section to the another
section, then to the third section, and then
to the next section, and this flow of information
sometimes may be distorted things may get
delayed.
So, these things can be avoided if we integrate
all these functions into a common single platform,
and that is the major objective of enterprise
resource planning.
So, here we can see a typical business process
that whatever was happening, in the previous
diagram.
A typical enterprise has many departments
or business units, these departments continuously
communicate and exchange data with each other
as was happening, in the previous diagram
sales department gets an order they get in
touch with the warehouse, the warehouse get
in touch with the purchasing department, purchasing
department gets in touch with the financial
department or accounting department, then
they get in touch with the vendors.
So, you can see there are different business
units are different departments who are interacting
with each other.
The success of any organization lies in effective
communication and data exchange within the
departments, as well as associated third party
such as vendors, outsourcers or the customers.
So, this is a kind of a decentralized system
where there is communication among the various
departments or the business units.
Now, what can be the problems, this is the
system which is already existing every company
is having a most of the companies, which do
not have a ERP system, have a decentralized
system only, and what can be the problems
associated with such companies, we can see
numerous disparate information system are
developed individually over the time.
Integrating that data becomes time and money
consuming, so we do not have an integrated
data at a single place.
Inconsistencies and duplication of data is
there, sometimes we do not have a consistent
data for example, in a particular college
there is an academic office, and there is
a student welfare office.
Many times there is inconsistency in data;
the student welfare office may have a different
number of students registered with them.
And the dean academic office, may have our
academic office, may have a different number
of students registered with them.
So, you have an inconsistency within the same
institute, two different offices; have two
different number of students at the same time,
which may be the inconsistency in the data.
So, high inventory is involved usually, because
we do not have online data or a centralized
data available with us, and material and human
resource cost is also high.
Now, how we can overcome these problems of
the decentralized system, we can do this with
the help of a centralized system.
Where we can see the customer’s order the
parts.
The sales department has the inventory data
already available with them, so they can check
that whether they can take the order or they
can refuse the order, or they can negotiate
with the customer regarding the due delivery
dates of the order.
Now accordingly once they check even if the
material is not available, immediately a message
can be sent to the purchasing department,
which will immediately order to the vendor,
and the vendor will ship the parts to the
warehouse and which will be booked in the
inventory, and the order can be may be honoured
or order can be delivered as per the contract
agreement, or as per the understanding with
the customer.
So, basically we can see if we have a centralized
system, immediately the trigger will be sent
to all the responsible departments, or business
units which will start their function immediately,
and we will be more responsive to the customer’s
demand as compared to a decentralized system.
And it will help us to be more efficient and
effective, we will be able to save time, we
will be able to save the resources, we will
be able to save the money for the organization.
So, we will try to list down all the advantages
of this centralized management system vis-a-vis
the decentralized management system.
So, what is the key observation here, data
is maintained at a central location and is
shared with all the departments.
Departments have access information, data
of the other departments also.
So, here one department can have or check
the data of the other department also.
So, therefore, you have a completely transparent
system in place, wherever all data is available
for everybody to use, as well as take decisions
accordingly.
Now what can be the benefits of the centralized
system let us try to understand.
It eliminates the duplication discontinuity
and redundancy in the data; moreover, I would
like to add another word that is inconsistency
in the data.
So, duplication discontinuity and redundancy
on top of that inconsistency in the data.
So that is something which is maybe possible
using a centralized system.
Provides the information across departments
in real times, as soon as some material has
been shipped from the inventory, immediately
the people in the purchase department can
get an idea, that this is the status of inventory
available in the warehouse and how they should
respond in order to replenish the inventors.
So, real time data exchange is possible with
between the various departments.
Provide control over the various business
processes, increase productivity I think this
productivity efficiency, effectiveness all
these words I have used may be number of times
in our discussion, because these are the keywords
with which we try to manage the operations.
If we do not use scientific methods of managing
our operation, still the operations can be
managed, but what we are compromising on,
we will be compromising on the efficiency,
we will be compromising on the effectiveness
of our operations, we will be compromising
on the productivity.
So, therefore, I have emphasized on these
words again and again, so that whatever we
are doing our major focus is to earn profit
for our organization.
Again if we implement the ERP system, it will
help us to increase the productivity, it will
help us in better inventory management, it
will promote quality, reduce the material
cost, as well as it will boost our profit.
So, overall benefits definitely will be there,
if we go for a centralized management system,
or the enterprise resource planning system.
Better customer interaction, increased throughput,
improves customer services.
So, we can see that we are able to respond
to the customers in a more, maybe effective
manner, if we are having the ERP system in
place.
The ERP implementation may be, we may not
be able to discuss in detail, but very quickly,
we can see that how an ERP can be implemented.
So, it will surely be one of the biggest IT
project that most companies have ever handle,
so why because it is a big project, where
all data has to be integrated into one single
platform.
Data may be related to the employees, in context
of employees also, their live records have
also to be made online, their gratuity, their
PPF, EPF, their retirement date all details
of HR also has to be integrated.
So, I have just taken one example, that is
HR department when it has to be integrated
into the main system, what all requirements
are there, what type of data will be required
for each and every employee all data has to
be entered.
Similarly, for purchase department all rules,
all checks, all balances, all quality control
processes everything has to be entered for
the purchase department also because all the
different organs or functions of the organization
have to be integrated into a single platform.
So, you can see this will be one of the biggest
project for any or biggest IT project for
any company, so it changes the entire company.
So, it is not going to affect maybe one section
of the company, or one department or business
unit of the company, it is going to affect
all the company, all sections, all business
units, all departments of the company.
It will have repercussions in all departments,
and divisions of the organization.
It is essential that all the clip key, all
the important players, all the key players
understand the scope of the project, and this
is an IT or information technology related
project.
Now there are majorly four phases of ERP implementation,
whenever a company decides to implement ERP
these are the four stages.
The first stage is the concept or the initiation,
or the kickoff of the ERP project, then the
development, implementation, closeout, operation
and maintenance common to most of the IT based
projects.
Now, what are the costs involved in ERP training
cost is involved, now because everything has
to be managed on the system paperwork will
be eliminated or it may even lead to paperless
management in the organization.
So, training is required for each and every
worker to understand that how he needs to
operate under the ERP environment.
Integration and testing cost is involved,
because now you have to integrate all the
functions of the organization into one single
platform.
Data conversion, data analysis, consultant’s
costs we need to pay replacing best and brightest
staff after implementation, there may have
to be maybe re reallocation of responsibilities
and accountable to some of the staff members,
who may become redundant after the implementation
of the ERP.
Implementation teams can never stop, because
always they will be finding new and new things
which can be integrated.
And then you have to wait for return on investment,
because the overall project will be a costly
project, it will require investment on part
of the organization and organization will
always look to get their ROI as quickly as
possible.
Now, what are the benefits lets quickly see
the benefits, it will improve integration,
flexibility will be more now, because everybody
has access to all type of data within the
organization.
Errors will be less here, because automated
system, computer driven system improved speed
and efficiency, I must say speed and efficiency
of decision making will become fast, because
now all information is available to you on
your desktop.
Complete access to information, lower total
cost in the complete supply chain, so the
cost will reduce, shorten the throughput times,
the manufacturing excellence can be achieved,
sustained involvement and commitment of the
top management, because now the top management
has access to all the information at a single
source.
So, we can see that there are a number of
benefits that we can derive, out of implementation
of a ERP system.
Now, other benefits are reduce a stocks to
minimum, so it will reduce our inventory,
enlarge the product assortment, improve product
quality, provide more reliable delivery dates
and higher service to the customer, efficiently
coordinate global demand, supply and production.
So, we can see that we can coordinate the
global demand, because if we have seen the
diagram, you try to understand from the diagram
that we are able to coordinate now with the
customers in a better manner as compared to
a decentralized system.
So, we can see that there is a long list this
list can further be improved or appended,
and we can further highlight the advantages
that we can draw by implementing that ERP
system.
Now, there are few risks involved with risk
with the ERP implementation that it is expensive,
because the system has to be customized as
per the four rules regulations, functions,
procedures of a particular organization.
Because all organizations have their own set
of rules, guidelines, procedures that have
to be integrated now into the standard platform
that is available, so it is expensive because
of the cost of customization, that is involved
it is time consuming, because all data has
to be integrated, and therefore requires lot
of time, great risk for the organization,
because sometimes the system may be functional
for, so many years things must already have
been optimized.
And now we spend some money to further integrate
the things together the benefits that we accrue
out of making huge investment, may not commensurate
with what we have thought of or the benefits
that we are deriving after implementation
of ERP.
Then transfer of knowledge is one also risk
involved, and then acceptance within the company
is also very very important, because many
times we all the employees have that concept
of resistance to change, and therefore once
they have to change from the normal filing
system to a new type of a filing system, which
is software based.
Sometimes the employees may feel that the
previous system was much better as compared
to the new system, and therefore may not feel
very very comfortable with the ERP way of
working within the organization.
But still we can say, that wherever the companies
have adopted the ERP system, they have been
benefited in numerous terms, inspite of making
huge investment the companies have gained
profit, and ROI has been achieved by most
of the companies.
And in future also companies are focusing
their attention on centralized management
system, because it gives us number of benefits.
So, with this I conclude the today’s session,
as well as I conclude the course on operations
management.
We have completed 12 weeks of our discussion,
and I think the course must have been enjoyable
for all of you, it has been enjoyable for
me as well as my team, and we have also learned
a lot during the course.
All your queries, questions are welcome, because
a single topic that we take there can be different
perspectives of looking at that particular
topic.
Different books, different sources, websites
may give different aspects of the topics,
but what I believe as a teacher; the basic
fundamental remains the same.
In case you feel that there is something which
needs to be addressed from a slightly different
perspective, you can write on the discussion
board, and me as well as my team would be
more than happy to discuss to see that whether
the things need improvement or we can have
a look at a topic from a different perspective
or a different angle also.
So, it is a learning process for all of you
as well as for me as and my team.
So, it has been a pleasure discussing all
these topics, and I wish that whatever we
have discussed will be of help to all of you,
in overall improvement of your knowledge in
this field of operations management.
Thank you.
