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Enterprise Resource PlanningINTRODUCTION

Enterprise Resource Planning, or ERP, is a system that is used to combine


all of the information or operations of a company into a single unit. The standard
ERP system will utilize both computer hardware and software in order to achieve
this. One of the most important parts of the ERP system is the Central database.
ERP is a commercial software package that promotes seamless integration of all
the information flowing through a company.
Enterprise resource planning (ERP) based enterprise systems (ES) solutions
was in high demand initially from multinational corporations and later from the
Indian private and public sectors. The ERP systems were gradually been
designed, developed and improved by ERP vendors in response to changing
technologies and emerging business requirements.
As a result, the packaged enterprise systems from the leading vendors now
include not only the basic ERP functionalities but also Customer Relationship
Management (CRM), Supply Chain Management (SCM), Business Intelligence
Systems (BIS) and Corporate Performance Management (CPM) functionalities.
These are now called Enterprise Systems (ES) or ERP-II systems.
The implementation of ERP-ES promises to provide an integrated
application environment with fast and seamless access to a single unified
business wide information system, hence becoming a catalyst for business
process change. An international research organization, Gartner, has declared that
ERP-ES will become a basic infrastructure to run a business enterprise.
Therefore ERP has been widely adopted globally, initially by consumer
products and industrial and distribution companies and recently by utilities,
insurance, banks and even governments and universities. Today, almost all large
companies are standardizing their business processes on ERP systems. An ERP
project costs between Rs 50 lakh to Rs 500 crore depending on the size of the
organization.

ERP is a fully integrated business management system covering logistics


(materials, production, sales and distribution, plant maintenance, quality
management, project management, production planning, etc.) accounting (finance
and controlling) and human resources, while at the same time incorporating
industry-specific solutions and the best business practices. It provides real-time,
online information for decision-making or analysis.
That is, whenever data is entered into the system, it is processed and stored
immediately. Since the transactions are simultaneous, the information or data
based on these transactions is also up to date and readily available at any given
time.
It is basically a software suite that integrates the whole enterprise, covering
the entire internal supply chain from vendors and suppliers to customers. With
the best industry practices built into software, it acts as a strong enabler in
improving business performance, productivity and efficiency.
It streamlines a companys data flow and provides the top management with
direct access to a wealth of real-time operating information and consolidated
current reports.
The goal of ERP is to unify the various functions of an institution. However,
the use of Enterprise Resource Planning is not simply limited to corporations. It
is commonly used by non-profit organizations, government agencies, and other
institutions. In order for system to be recognized as an ERP, it must meet a
certain requirement.
The software must be capable of giving functionality to one unit that would
commonly have to use multiple systems. For example, a system that was able to
combine two elements into a whole, such as a system that combined payroll with
accounting, would be an Enterprise Resource Planning System.
However, ERP can be much more complex than this. The reason why it is so
powerful is because it reduced the need to have an outside interface available for
two separate systems. In addition to this, the cost of maintenance is lower, and a
standard is created. Another powerful aspect of ERP is that the reporting
functions of the system are greatly improved.
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There are a number of organizations that could greatly benefit from using
ERP applications. Some of these organizations are supply chains, financial
companies, and human resources. The most important aspect of ERP is integration.
The information or data from various parts of an organization must be compressed
into a single entity.
The best way to accomplish this is to have the ERP connected to one
database. In most cases, a number of software modules will be used in
conjunction with this. Each module will provide various forms of data from
different departments within the organization. It is possible for an organization to
only use certain portions of an ERP unit.
They can create an interface for systems that are stand-alone. As of this
writing, it is quite rare for a company to use a total ERP system. Most of the
institutions that use ERP are very large, and they have specific needs that
standard systems cannot meet.

ERP can be represented diagrammatically as shown below :

HISTORY AND EVOLUTION OF ERP


Before ERP was introduced, the departments within an institution would
each have their own computer networks. For instance, the Human Resource
Department would have their own network of computers, while the financial
department might have a separate network. Each computer system would be
comprised of information that was directly related to that department. The
personal information of the employees might be listed, and this would generally
be combined with a reporting structure. The Financial department would be
responsible for storing information that was related to the payroll of the
employees, and it would also deal with the financial aspects of the company.
Each department would be dependent on specific information that would
allow them to communicate with each other. A number of processes would have
to take place in order for information to be transferred from one department to
another.
In most cases, one department may not have been interested in the various
aspects of another department. While this may have seemed logical at first, it
gave rise to a number of problems. If the two departments didnt work together
on specific issues, it could lead to complications that could disrupt the operations
of the company, thus leading to a loss in profits or the productivity of employees.
The introduction of ERP solved a number of these problems. It did this by
taking the data from multiple applications, and once this data was collected, it
could make the organization operate more efficiently. A standard was created.
The number of software packages that a company used could be greatly reduced.
In addition to making the company more efficient, it also allowed the company to
save money on the cost of software and frequent updates.
Earlier generation ERP packages were based on MRP(Material Requirement
Planning) concepts. ERP was introduced by research and analysis firm Gartner in
1990. The focus of manufacturing systems in the 1960s was on inventory control.
Most of the software packages then were designed to handle inventory based
traditional inventory concepts.

In the 1970s, the focus shifted to MRP systems which translated the master
schedule built for the end items into time-phased net requirements for the subassemblies, components and raw materials planning and procurement.
In the 1980s, the concept of MRP-II (Manufacturing Resources Planning)
evolved, which was an extension of MRP to the shop floor and distribution
management activities.
In the early1990s, MRP-II was further extended to cover areas like
engineering, finance, human resources, sales and distribution, project
management, etc. ,that is the total range of activities within any business
enterprise. Hence the term ERP (Enterprise Resource Planning) was coined. ERP
is focused within an enterprise.
MRP-II was based on mainframe technology and hence was highly
centralized and server-centric. ERP is based on client-server computing
architecture and, hence, is distributive in nature.
To fully understand ERP, it is first important to understand the concept of
Best Practices. When an ERP system was utilized by a company, the company
had to decide if the software would be customized or if they would simply
modify that existing procedures.
The next important part of ERP is called implementation. In order for an
ERP system to function properly, it must have a great deal of software written for
it. Adding a complex system such as ERP to a company takes considerable
resources. In most cases, a company would need to use programmers, analysts,
and end users in order to make sure it functioned correctly. While the
introduction of the Internet has greatly sped up this process, it can still take time
to set up. If professionals are not used to set up the ERP system, the process can
become exceptionally expensive.
The cost involved with ERP has only allowed it to be adopted mostly by
multinational corporations. However, it is possible for medium sized business to
use it. If a company uses the services of a professional, an ERP system can be
implemented in about six months.

There are number of similarities between ERP systems and logistics


automation and supply chain maintenance. In some cases, these elements can be
used to extend the capabilities of ERP. The process of setting up ERP is very
important. In most cases, the company will have to hire an ERP vendor.
Consultants are commonly used as well. The consultation process of ERP will
generally be comprised of three categories, and these are top level architecture,
process consulting, and technical consulting.
The systems architect is the individual who will be responsible for dealing
with the flow of data. The business consultant will analyze the existing processes
of the company, and they will compare them with ERP processes. This will modify
the ERP system in a way that makes it useful to the organization. The software will
need to be altered in a way that allows it to be useful for the company.
A number of sources have stated that the most challenging part of ERP is
customizing it to suit the needs of the organization that wishes to utilize it. Because
of these challenges, it can be quite costly. A number of ERP systems available on
the market today were not originally designed to be modified. That is why best
practices must be used when the system is actually implemented.

IMPLEMENTATION OF ERP

Objectives Of ERP Implementation :


Objectives are the major high-level characteristics that can have the great impact
upon the success of an ERP project. The objectives include characteristics such as :
1) Speed
2) Scope
3) Resources
4) Risk
5) Complexity
6) Benefits

1) Speed
Speed of a project is directly related to the amount of time that a company
has before the completion of the ERP implementation or the amount of time
that the company would like to take for the implementation.
The speed of the project in the context is how much time the company
would like to take in implementing the system. The amount of time that the
company actually takes may be dramatically different. The amount of time that the
company would like to take should be the figure used when developing a project
plan.

2) Scope
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The scope of the project includes all of the functional and technical
characteristics that the company wants to implement. A company installing a fullfledged ERP system would have a much greater scope than a company installing a
few modules.

3) Resources
Resources are everything that is needed to support the project. This includes
people, hardware systems, software systems, technical support and consultants. All
the different resources of an implementation have one thing in common money.

4) Risk
The risk of a project is a factor that impacts the overall success of the ERP
implementation. Success is measured by factors such as overall user acceptance,
return on investment (ROI) , time to implement, etc. High-risk situations are less
likely to possess these characteristics.

5) Complexity
Complexity is the degree of difficulty of implementing, operating and
maintaining the ERP system. Companies of different sizes, business environments
and organizational cultures have different levels of complexity. A multinational
corporation that has production facilities and teams spread across different parts of
the world and working in different time zones is generally much more complex
than a company with 50 employees occupying one geographical location.

Implementation
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Enterprise resource planning software systems can be quite complex.


Installing such a system almost certainly requires major changes within the
companys work practices. A specialist will typically have to be employed in order
to soothe the transition; as such systems are not typically in house skills.
How long it takes to install such a system depends on how large the
business is, as well as the extent of the changes being made. Smaller projects can
be installed within a period of three months. In order to install a large system,
however, it could take several years. What is most important, however, is for the
company who has purchased the enterprise resource planning system to eventually
take control over it. First, they will generally have to employ a consulting company
to help them. Consulting companies generally help the company in three phases:
consulting, customization, and support.
The consulting phase takes care of the enterprise resource planning system
implementation and helps the system go live. The tailoring involve might include
product training, the creation of process triggers as well as workflow optimization,
advice on how to improve the way the system is being used in the business, the
optimization of the overall system, as well as help with writing reports or assisting
in the implementation of Business Intelligence. The consulting operation also
includes planning and testing the system. This part of the process should not be
forgotten about it is of vital importance for the systems future functionality.
The three levels of enterprise resource planning system consultation include
systems architecture, business process consulting, and technical consulting.
The systems data flow will have to be designed by a systems architect; this design
should include a future data flow plan. The firms current business processes will
then be studied in depth by the consultation team, who will match the current
business processes with the enterprise resource planning systems capabilities and
configure all the firms needs.

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The process of technical consulting might include programming operations.


Most of the businesses that sell enterprise resource planning system software will
allow their software to be modified in order to suit particular business needs.
The customization process involves changing how the firms system works
via the writing of new user interfaces as well as application codes. Typically, these
operations are not included in the enterprise resource planning system software and
must be done by a specialist team.
It can be incredibly expensive to customize an enterprise resource planning
system. Most of these packages are not designed to support extensive
customization. As a result, the vast majority of firms choose to utilize Best
Practices. On the other hand, there are some enterprise resources planning systems
that are so general that customization will have to take place on every level. For
such packages, it is advisable to purchase third party plug-ins that interface well
with the enterprise resource planning system software.
Once the system has been successfully implemented, your consultant should
provide you with support in order to assist your company with any enterprise
resource planning system related problems that may occur in the future. This
ensures that the system stays running. It is advisable to create a committee to be
headed by the consultant using a participative management approach throughout
the design stage in order to provide hands on management control and minimize
additional costs for the units that are going to be affected by the new enterprise
resource planning system.
Usually, a maintenance agreement program supplies the business with all the
patches of the current version, including major and minor releases. Your staff
should be allowed to make support calls whenever necessary. The price of this type
of agreement is usually around twenty percent of the enterprise resource planning
systems user licenses.

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ADVANTAGES OF ERP
1) Integration
2) Efficiency
3) Cost reduction
4) Less personnel
5) Accuracy

1) Integration
Integration can be the highest benefit of them all. The only real project
aim for implementing ERP is reducing data redundancy and redundant data entry.
If this is set as a goal, to automate inventory posting to G/L, then it might be a
successful project.
Those companies where integration is not so important or even dangerous
tend to have a hard time with ERP. ERP does not improve the individual efficiency
of users, so if they expect it, it will be a big disappointment. ERP improves the
cooperation of users.
2) Efficiency
Generally, ERP software focuses on integration and tends to not care about
the daily needs of people. I think individual efficiency can suffer by implementing
ERP. The big question with ERP is whether the benefit of integration and
cooperation can make up for the loss in personal efficiency or not.

3) Cost reduction
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It reduces cost only if the company took accounting and reporting


seriously even before implementation and had put a lot of manual effort in it. If
they didn't care about it, if they just did some simple accounting to fill mandatory
statements and if internal reporting did not exists of has not been financiallyoriented, then no cost is reduced.
4) Less personnel
Same as above. Less reporting or accounting personnel, but more sales
assistants etc.
5) Accuracy
No People are accurate, not software. What ERP does is makes the lives of
inaccurate people or organization a complete hell and maybe forces them to be
accurate (which means hiring more people or distributing work better), or it falls.

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DISADVANTAGES OF ERP

1) Expensive
2) Not very flexible

1) Expensive
This entails software, hardware, implementation, consultants, training, etc.
Or you can hire a programmer or two as an employee and only buy business
consulting from an outside source, do all customization and end-user training
inside. That can be cost-effective.
2) Not very flexible
It depends. SAP can be configured to almost anything. In Navision one can
develop almost anything in days. Other software may not be flexible.

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Top 10 ERP Vendors


SAP
PeopleSoft
Oracle
Computer Associates
Baan
J. D. Edwards
System Software
Associates
Geac Computer Corp.
IBM
JBA Holdings

WHAT IS SUPPLY CHAIN

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A supply chain is a system of organizations, people, technology, activities,


information and resources involved in moving a product or service from supplier to
customer. Supply chain activities transform natural resources, raw materials and
components into a finished product that is delivered to the end customer. In
sophisticated supply chain systems, used products may re-enter the supply chain at
any point where residual value is recyclable. Supply chains link value chains.
Diagrammatical representation of Supply Chain is shown below :

SUPPLY CHAIN MANAGEMENT

In the 1980s, the term Supply Chain Management (SCM) was developed to
express the need to integrate the key business processes, from end user through
original suppliers. Original suppliers being those that provide products, services
and information that add value for customers and other stakeholders. The basic
idea behind the SCM is that companies and corporations involve themselves in a
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supply chain by exchanging information regarding market fluctuations and


production capabilities.
If all relevant information is accessible to any relevant company, every
company in the supply chain has the possibility to and can seek to help optimizing
the entire supply chain rather than sub optimize based on a local interest. This will
lead to better planned overall production and distribution which can cut costs and
give a more attractive final product leading to better sales and better overall results
for the companies involved.
Incorporating SCM successfully leads to a new kind of competition on the
global market where competition is no longer of the company versus company
form but rather takes on a supply chain versus supply chain form.
The primary objective of supply chain management is to fulfill customer
demands through the most efficient use of resources, including distribution
capacity, inventory and labor. In theory, a supply chain seeks to match demand
with supply and do so with the minimal inventory. Various aspects of optimizing
the supply chain include liaising with suppliers to eliminate bottlenecks; sourcing
strategically to strike a balance between lowest material cost and transportation,
implementing JIT (Just In Time) techniques to optimize manufacturing flow;
maintaining the right mix and location of factories and warehouses to serve
customer markets, and using location/allocation, vehicle routing analysis, dynamic
programming and, of course, traditional logistics optimization to maximize the
efficiency of the distribution side.
There is often confusion over the terms supply chain and logistics. It is now
generally accepted that the term Logistics applies to activities within one
company/organization involving distribution of product whereas the term supply
chain also encompasses manufacturing and procurement and therefore has a much
broader focus as it involves :::::

Multiple enterprises, including suppliers, manufacturers and retailers,


working together to meet a customer need for a product or service.
Starting in the 1990s several companies chose to outsource the logistics
aspect of supply chain management by partnering with a 3PL, Third-party logistics
provider. Companies also outsource production to contract manufacturers.
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Supply chain management (SCM) is the management of a network of


interconnected businesses involved in the ultimate provision of product and service
packages required by end customers (Harland, 1996). Supply Chain Management
spans all movement and storage of raw materials, work-in-process inventory, and
finished goods from point of origin to point of consumption (supply chain).
Another definition is provided by the APICS Dictionary when it defines
SCM as the "design, planning, execution, control, and monitoring of supply chain
activities with the objective of creating net value, building a competitive
infrastructure, leveraging worldwide logistics, synchronizing supply with demand,
and measuring performance globally."

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Fig. Supply Chain Management

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Definitions of SCM
More common and accepted definitions of Supply Chain Management are:

Supply Chain Management is the systemic, strategic coordination of the


traditional business functions and the tactics across these business functions
within a particular company and across businesses within the supply chain,
for the purposes of improving the long-term performance of the individual
companies and the supply chain as a whole (Mentzer et al, 2001).

Global Supply Chain Forum - Supply Chain Management is the integration


of key business processes across the supply chain for the purpose of adding
value for customers and stakeholders (Lambert, 2008).

According to the Council of Supply Chain Management Professionals


(CSCMP), Supply chain management encompasses the planning and
management of all activities involved in sourcing, procurement, conversion,
and logistics management. It also includes the crucial components of
coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers, and customers. In
essence, supply chain management integrates supply and demand
management within and across companies. More recently, the loosely
coupled, self-organizing network of businesses that cooperate to provide
product and service offerings has been called the Extended Enterprise.

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Key Components of SCM / Key Issues in SCM

We identified these twelve areas. Each area represents a supply chain issue
facing the firm.
These areas are as follows :
1) Location
2) Transportation and logistics
3) Inventory and forecasting
4) Marketing and channel restructuring
5) Sourcing and supplier management
6) Information and electronic mediated environments
7) Product design and new product introduction
8) Service and after sales support
9) Reverse logistics and green issues
10) Outsourcing and strategic alliances
11) Metrics and incentives
12) Global issues.

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1) Location
It pertains to both qualitative and quantitative aspects of facility location
decisions. This includes models of facility location, geographic information
systems (GIS), country differences, taxes and duties, transportation costs
associated with certain locations, and government incentives. Exchange rate issues
fall in this category. Decisions at this level set the physical structure of the supply
chain and therefore establish constraints for more tactical decisions.

2) The transportation and logistics


This category encompasses all issues related to the flow of goods through
the supply chain, including transportation, warehousing, and material handling.
This category includes many of the current trends in transportation management
including vehicle routing, dynamic fleet management with global positioning
systems, and merge-in-transit. Because of globalization and the spread of
outsourced logistics, this category has received much attention in recent years.
However, we will define a separate category to examine issues specifically related
to outsourcing and logistics alliances.
3) Inventory and forecasting
It includes traditional inventory and forecasting models.
Inventory costs are some of the easiest to identify and reduce when attacking
supply chain problems. A few years ago, multichelon inventory theory captured
most of the research in this area that would apply to supply chains. Supply chains,
unfortunately, confront the problem of multiple firms, each with its own decision
maker and objectives.

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4) Marketing and channel restructuring


It includes fundamental thinking on supply chain
structure and covers the interface with marketing that emerges from having to deal
with downstream customers. While the inventory category addresses the
quantitative side of these relationships, this category covers relationship
management, negotiations, and even the legal dimension. Most importantly, it
examines the role of channel management and supply chain structure.
5) Sourcing and Supplier Management
It looks upstream to suppliers. Make/buy decisions fall into this category.
The location category addresses the location of a firms own facilities, while this
category pertains to the location of the firms suppliers. Supplier relationship
management falls into this category as well.
Some firms are putting part specifications on the web so that dozens of
suppliers can bid on jobs. GE, for instance, has developed a trading process
network that allows many more suppliers to bid than was possible before. The
automotive assemblers have developed a similar capability; and independent
Internet firms, such as Digital Market, are providing services focused on certain
product categories. Other firms are moving in the opposite direction by reducing
the number of suppliers.
Determining the number of suppliers and the best way to structure supplier
relationships is becoming an important topic in supply chains. Much of the
research in this area makes use of game theory to understand supplier relationships,
contracts, and performance metrics.

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6) The information and electronic mediated environments


This category addresses long-standing applications of information
technology to reduce inventory and the rapidly expanding area of electronic
commerce. Often this subject may take a more systems orientation, examining the
role of systems science and information within a supply chain. Such a discussion
naturally focuses attention on integrative ERP software such as SAP, Baan and
Oracle, as well as supply chain offerings such as i2s Rhythm and Peoplesofts Red
Pepper. The many supply chain changes wrought by electronic commerce are
particularly interesting to examine, including both the highly publicized retail
channel changes (like Amazon.com) and the more substantial business to business
innovations (like the GE trading process network). It is here that we interface most
directly with colleagues in information technology and strategy, which again
creates opportunities for cross-functional integration.
7) Product design and new product introduction
It deals with design issues for mass customization, delayed differentiation,
modularity and other issues for new product introduction. With the increasing
supply chain demands of product variety and customization, there is an increasing
body of research available. One of the most exciting applications of "supply chain
thinking" is the increased use of postponed product differentiation.
Traditionally, products destined for world markets would be customized at
the factory to suit local market tastes. While a customized product is desirable,
managing worldwide inventory is often a nightmare. Using postponement the
product is redesigned so that it can be customized for local tastes in the distribution
channel. The same generic product is produced at the factory and held throughout
the world.
Thus if the French version selling well, but the German version is not,
German product can be quickly shipped to France and customized for the French
market. For these problems, we find an interface with engineering and
development, with clear implications for product cost and inventory savings.

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8) The service and after sales support


This category addresses the critical, but often overlooked, problem of
providing service and service parts. Some leading firms, such as Saturn and
Caterpillar, build their reputations on their ability in this area, and this capability
generates significant sales. Stochastic inventory models for slow-moving items fall
into this category, and there are many papers on this topic related to inventory
management and forecasting.
While industry practice still shows much room for improvement, several
well-known firms have shown how spare parts can be managed more effectively.
9) Reverse logistics and green issues
These are emerging dimensions of supply chain management. This area
examines both environmental issues and the reverse logistics issues of product
returns. Because of legislation and consumer pressure, the growing importance of
these issues is evident to most managers. Managers are being compelled to
consider the most efficient and environmentally friendly way to deal with product
recovery, and researchers have begun significant effort in modeling these systems.
The term product recovery encompasses the handling of all used and discarded
products, components and materials.
Thierry, Salomon, Van Nunen, & Van Wassenhove (1995) note that product
recovery management attempts to recover as much economic value as possible,
while reducing the total amount of waste. They also provide a framework and a set
of definitions that can help managers think about the issues in an organized way.
These authors examine the differences among various product recovery options
including repair, refurbishing, remanufacturing, cannibalization, and recycling. The
whole process of manufacturing begins, of course, with product design. Today,
firms are beginning to consider design for the environment (DFE) and design for
disassembly (DFD) in their product development processes. Unfortunately, AT&T
discovered that designing products for reuse can result in more materials and
complexity, thereby violating other environmental goals.

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10) Outsourcing and strategic alliances


It examines the supply chain impact of outsourcing logistics services. With
the rapid growth in third party logistics providers, there is a large and expanding
group of technologies and services to be examined. These include
fascinating initiatives such as supplier hubs managed by third parties. The rush to
create strategic relationships with logistics providers and the many well-published
failures have raised questions about the future of such relationships. In any case,
outsourcing continues to raise many interesting issues.

11) Metrics and incentives


It examines measurement and other organizational and economic
issues. This category includes both measurement within the supply chain and
industry benchmarking.
Because metrics are fundamental to business management, there are many
reading materials outside of the supply chain literature, including accounting texts
for instance. Several recent articles concentrate on the link between performance
measurement and supply chain improvement.
12) Global issues
It examines how all of the above categories are affected when companies
operate in multiple countries. This category goes beyond country specific issues, to
encompass issues related to cross boarder distribution and sourcing.
For example, currency exchange rates, duties & taxes, freight forwarding,
customs issues, government regulation, and country comparisons are all included.

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SUPPLY CHAIN MANAGEMENT PROBLEMS

Supply chain management must address the following problems:


1) Distribution Network Configuration:
Number, location and network missions of suppliers, production facilities,
distribution centers, warehouses, cross-docks and customers.

2) Distribution Strategy:
Questions of operating control (centralized, decentralized or shared);
delivery scheme, e.g., direct shipment, pool point shipping, cross docking, DSD
(direct store delivery), closed loop shipping; mode of transportation, e.g., motor
carrier, including truckload, parcel; railroad; intermodal transport, including TOFC
(trailer on flatcar) and COFC (container on flatcar); ocean freight; airfreight;
replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g.,
owner-operated, private carrier, common carrier, contract carrier).

3) Trade-Offs in Logistical Activities:


The above activities must be well coordinated in order to achieve the lowest
total logistics cost. Trade-offs may increase the total cost if only one of the
activities is optimized. For example, full truckload (FTL) rates are more
economical on a cost per pallet basis than less than truckload (LTL) shipments. If,
however, a full truckload of a product is ordered to reduce transportation costs,
there will be an increase in inventory holding costs which may increase total
logistics costs. It is therefore imperative to take a systems approach when planning
logistical activities. This trade-offs are key to developing the most efficient and
effective Logistics and SCM strategy.

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4) Information:
Integration of processes through the supply chain to share valuable information,
including demand signals, forecasts, inventory, transportation, potential
collaboration, etc.

5) Inventory Management:
Quantity and location of inventory, including raw materials, work-in-progress
(WIP) and finished goods.

6) Cash-Flow:
Arranging the payment terms and methodologies for exchanging funds
across entities within the supply chain.

Supply chain execution means managing and coordinating the movement of


materials, information and funds across the supply chain. The flow is bidirectional.

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DEVELOPMENTS IN SUPPLY CHAIN MANAGEMENT


Six major movements can be observed in the evolution of supply chain
management studies: Creation, Integration, and Globalization, Specialization
Phases One and Two, and SCM 2.0.

1. Creation Era
The term supply chain management was first coined by a U.S. industry
consultant in the early 1980s. However, the concept of a supply chain in
management was of great importance long before, in the early 20th century,
especially with the creation of the assembly line. The characteristics of this era of
supply chain management include the need for large-scale changes, re-engineering,
downsizing driven by cost reduction programs, and widespread attention to the
Japanese practice of management.

2. Integration Era
This era of supply chain management studies was highlighted with the
development of Electronic Data Interchange (EDI) systems in the 1960s and
developed through the 1990s by the introduction of Enterprise Resource Planning
(ERP) systems. This era has continued to develop into the 21st century with the
expansion of internet-based collaborative systems. This era of supply chain
evolution is characterized by both increasing value-adding and cost reductions
through integration.

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3. Globalization Era
The third movement of supply chain management development, the
globalization era, can be characterized by the attention given to global systems of
supplier relationships and the expansion of supply chains over national boundaries
and into other continents. Although the use of global sources in the supply chain of
organizations can be traced back several decades (e.g., in the oil industry), it was
not until the late 1980s that a considerable number of organizations started to
integrate global sources into their core business. This era is characterized by the
globalization of supply chain management in organizations with the goal of
increasing their competitive advantage, value-adding, and reducing costs through
global sourcing.

4. Specialization EraPhase One: Outsourced Manufacturing and


Distribution
In the 1990s industries began to focus on core competencies and adopted a
specialization model. Companies abandoned vertical integration, sold off non-core
operations, and outsourced those functions to other companies. This changed
management requirements by extending the supply chain well beyond company
walls and distributing management across specialized supply chain partnerships.
This transition also re-focused the fundamental perspectives of each
respective organization. OEMs became brand owners that needed deep visibility
into their supply base. They had to control the entire supply chain from above
instead of from within. Contract manufacturers had to manage bills of material
with different part numbering schemes from multiple OEMs and support customer
requests for work -in-process visibility and vendor-managed inventory (VMI).
The specialization model creates manufacturing and distribution networks
composed of multiple, individual supply chains specific to products, suppliers, and
customers who work together to design, manufacture, distribute, market, sell, and
service a product. The set of partners may change according to a given market,
region, or channel, resulting in a proliferation of trading partner environments,
each with its own unique characteristics and demands.

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5. Specialization EraPhase Two: Supply Chain Management as a

Service

Specialization within the supply chain began in the 1980s with the inception
of transportation brokerages, warehouse management, and non-asset-based carriers
and has matured beyond transportation and logistics into aspects of supply
planning, collaboration, execution and performance management.
At any given moment, market forces could demand changes from suppliers,
logistics providers, locations and customers, and from any number of these
specialized participants as components of supply chain networks. This variability
has significant effects on the supply chain infrastructure, from the foundation
layers of establishing and managing the electronic communication between the
trading partners to more complex requirements including the configuration of the
processes and work flows that are essential to the management of the network
itself.
Supply chain specialization enables companies to improve their overall
competencies in the same way that outsourced manufacturing and distribution has
done; it allows them to focus on their core competencies and assemble networks of
specific, best-in-class partners to contribute to the overall value chain itself,
thereby increasing overall performance and efficiency. The ability to quickly obtain
and deploy this domain-specific supply chain expertise without developing and
maintaining an entirely unique and complex competency in house is the leading
reason why supply chain specialization is gaining popularity.
Outsourced technology hosting for supply chain solutions debuted in the late
1990s and has taken root primarily in transportation and collaboration categories.
This has progressed from the Application Service Provider (ASP) model from
approximately 1998 through 2003 to the On-Demand model from approximately
2003-2006 to the Software as a Service (SaaS) model currently in focus today.

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6. Supply Chain Management 2.0 (SCM 2.0)


Building on globalization and specialization, the term SCM 2.0 has been
coined to describe both the changes within the supply chain itself as well as the
evolution of the processes, methods and tools that manage it in this new "era".
Web 2.0 is defined as a trend in the use of the World Wide Web that is meant
to increase creativity, information sharing, and collaboration among users. At its
core, the common attribute that Web 2.0 brings is to help navigate the vast amount
of information available on the Web in order to find what is being sought. It is the
notion of a usable pathway. SCM 2.0 follows this notion into supply chain
operations. It is the pathway to SCM results, a combination of the processes,
methodologies, tools and delivery options to guide companies to their results
quickly as the complexity and speed of the supply chain increase due to the effects
of global competition, rapid price fluctuations, surging oil prices, short product life
cycles, expanded specialization, near-/far- and off-shoring, and talent scarcity.

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BENEFITS OF SUPPLY CHAIN MANAGEMENT


Supply chain software provides numerous advantages to organizations,
empowering them to improve operations from end-to-end.

Four Key Benefits of Supply Chain Management :: ERP Software

Supply chain software can offer tremendous value to any company that
relies on the smooth planning and execution of related operations to achieve longterm profitability and maintain a solid competitive edge. Thats why more and
more organizations are purchasing and implementing supply chain applications. In
fact, the market for supply chain and related softwares is expected to reach $7.4
billion in 2008, according to a report by ARC Advisory Group.

1)Improve Your Supply Chain Network


Supply chain softwares provide complete, 360 degree visibility across the
entire supply chain network something that cannot be easily achieved with
disjointed manual processes.
With supply chain, users can monitor the status of all activities across all suppliers,
production plants, storage facilities, and distribution centers. This enables more
effective tracking and management of all related processes, from the ordering and
acquisition of raw materials, through manufacturing and shipping of finished goods
to customers or retail outlets. So the status of mission-critical activities can be
tracked at all times, and potential inefficiencies or problems can be identified and
corrected immediately, before they become unmanageable.

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2)Minimized Delays
Many supply chains particularly those that havent been enhanced with a
supply chain application are plagued by delays that can result in poor
relationships and lost business. Late shipments from vendors, slow downs on
production lines, and logistical errors in distribution channels are all common
issues that can negatively impact a companys ability to satisfy customer demand
for its products.
With supply chain software, all activities can be seamlessly coordinated and
executed from start to finish, ensuring much higher levels of on-time delivery
across the board.
3)Enhanced Collaboration
Imagine having the ability to know exactly what your suppliers and
distributors are doing at all times and vice versa.
Supply chain softwares make that possible, bridging the gap between disparate
business softwares at remote locations to dramatically improve collaboration
among supply chain partners. With supply chain softwares, all participants can
dynamically share vital information such as demand trend reports, forecasts,
inventory levels, order statuses, and transportation plans in real-time. This type
of instantaneous, unhindered communication and data-sharing will help keep all
key stakeholders informed, so supply chain processes can run as flawlessly as
possible.

4)Reduced Costs
A supply chain software can help reduce overhead expenses in a variety of
ways. For example, it can:

Improve inventory management, facilitating the successful implementation


of just-in-time stock models, and eliminating the strain on real estate and financial
resources caused by the need to store excess components and finished goods

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Enable more effective demand planning, so production output levels can be


set to most effectively address customer requirements without the shortages that
result in lost sales, or the waste that drains budgets
Improve relationships with vendors and distributors, so purchasing and
logistics professionals can identify cost-cutting opportunities such as volume
discounts.

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HOW HAS ERP FACILITATED SUPPLY CHAIN FUNCTIONS?


Supply chain is an important process that includes the controlling and deciding the
direction of resource movement in an organization.
It also includes all other sub process involved in coordinating them.
The concept of supply chain and its management is not a new one. It has
been in existence from yester years. However ERP has helped to reduce their
inaccuracies and increased the performance of "the chain /plan of action". It is
important to know about ERP and supply chain management.

Fig. ERP & Supply Chain Management


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Some of the issues concerning ERP for supply chain management are as
follows:

1)Manages change
By and large the whole process of ERP is known for the umpteen numbers
of changes in all areas right from organizational structure to the rules and
regulations. In this context the headache of managing changes is an important issue
for the senior management.
Infact the senior management themselves have to be convinced either by Inhouse IT personnel or Vendors/consultants. The task of creating awareness about
the change is not an easy one. Everybody is bound to react in a negative manner.
Irrespective of the consequences and aftermath action managements have to go for
ERP if they strongly feel so and if the market demands the same. Otherwise
negative changes will be reflected in the balance sheet in the form of increase in
expenditures and reduction in profits! No organization will tolerate them if it is
beyond a negligible quantum .Organizations will be prepared to lose on this small
scale only if there are unavoidable reasons.
Now the real difficulty lies in the hands of the organization. How do they measure
or map change? What are the ways to implement the required measures? How can
one find the rate and pace at which the organization is getting accosted to the
mammoth change namely ERP? Supply chain management is the one phrase
answer to all these three questions.
Supply chain is the tool which indicates how things go about in the
organization. This has increased the prospects of ERP supply chain software
market.
ERP and supply chain management helps in coordination of resources. The
organization should manage the supply chain process. This remains true in any
situation. ERP acts as a tool that helps the companies to execute the things in
required for managing the supply chain in a proper manner.
Any enterprise application be it MRP or MRP II or ERP is helpful for the
organization in planning and scheduling the required commodities. Since the
function of supply chain lies in calculating all these ERP can add value and
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meaning to this process by way of rendering technical expertise not only in


managing resources but also in handling crisis.

2)Identify mistakes
Errors are a part of human life. No organization however big and successful
can curb them once for all. The difference lies in identifying and rectifying them.
Organizations which don't identify them will find that they will never fulfill their
objectives even if means managing their supply chain flawlessly. The simple
reason is that their supply chain is itself not devoid of any errors and hence the
results will only be negative even because it is nothing better than rightly
managing a wrong process. There was no solution to this till erp and supply chain
management came together.
However all organizations don't find an opportunity to periodically asses their
mistakes and make correct things. This may be due to circumstances or various
reasons that are beyond the scope of repair. However when ERP is implemented in
an organization the first and foremost step is to identify the existing errors and
make changes. The knowledge of ERP helps the supply chain process to do that
very effectively and efficiently. The reason is that everything in the organization
will be tuned and restructured to become ERP friendly. This naturally means
redefining the supply chain and its constituents. This will be done to suit ERP
which equals to adapting to a new process and rectifying the old mistakes.
However there are still shortcomings of ERP in manufacturing supply chain
market.

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3) Set metrics
The organizations will be able to visualize and introduce some parameters.
These parameters will become effective means for measuring ERP, its impact and
the level of change, if it is compatible or in tune with the quantity desired and so
on. Unless ERP is implemented in an organization it becomes difficult to set these
parameters because there is no basis for measurement.Unless supply chain
functions properly in the organization there is a tool for making the above said
measurements. There for ERP and Supply chain management mutually helps each
other in this regard and also helps in scaling accountability for one another. This
can be easily done if one identifies the supply chain segments supported by ERP.

4) Assistance and results


ERP helps these organizations to deliver the necessary results. It also helps
in the functioning of the supply chain process. The supply chain process will
continue uninterrupted whether or not ERP exists in the organization. ERP helps to
increase the results, productivity and helps to ease the supply chain process.

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4 WAYS AN INTEGRATED ERP SYSTEM IMPROVES


SUPPLY CHAIN PERFORMANCE
Manufacturers in today's global markets are experiencing dramatically
reduced margins coupled with rising customer expectations. Being a successful
supply chain partner for your customers demands up-to-the-minute information
visibility. You need information on everything from supply chain inventories, to
production planning and shop-floor scheduling, to the increasingly robust set of
data collected on customer demographics and order preferences. The ability of
manufacturers to collect, analyze, and share this information has become a basic
operating requirement for global supply chain operations.
An integrated enterprise resource planning (ERP) system can help
manufacturers achieve the efficient and effective use of their manufacturing assets
and provide customers with the visibility they need. In addition, an ERP system
can provide a powerful opportunity for many manufacturers to gain critical insight
and competitive advantage by taking them beyond simply managing internal
business processes. You can find valuable information at the edge of the company
along those boundaries and interaction points that occur between the
manufacturer and its customers and suppliers.
Savvy manufacturers have recognized the benefits of investing in integrated
ERP systems, realizing that it enables them to fulfill their mission: to provide a
platform that enables effective response to the changing supply chain with reduced
long-term information technology (IT) costs.
Here are four ways an integrated ERP system can help improve supply chain
performance.

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1)Develop better customer insight and interaction


To build long-term relationships with customers today, you need to listen to
and understand them. This requires that you maintain a holistic view of those
customers. You can obtain such a broad-spectrum view from a variety of data
sources, including your supply chain systems; sales and marketing; customer
service and field service systems; internal database information; and knowledge
gathered from unstructured interaction with customers.
This integrated viewwhich an ERP system helps providecan enable
manufacturers to look beyond tactical order fulfillment and gain a better
understanding of customer wishes for customized products and serviceswhich
can help the company differentiate its offerings and increase profits. It can also
lead to insight and answers to questions such as: What are the buying patterns? Are
we driving larger orders to customers? What does our pipeline look like? Are we
seeing demand increases or downturns that we must react to?

2) Achieve global visibility in a demand-driven supply chain


It's critical in an age of tight cost management that manufacturers optimize
inventory investment and continue to provide excellent customer service. To do so,
manufacturers need to know where inventory is throughout the entire supply chain
which is information an ERP system can help to provide. Knowing when and
where inventory is needed enables manufacturers to develop the best plan for
production and resupply in critical customer relationshipsbuilding only what is
required for shipments.
Beyond having the right data for internal operations, manufacturers must also
be able to provide customers with visibility into inventory and product availability.
In a demand-driven world, real-time intelligencenot nightly batch updatesis
required to make timely and effective decisions. This now means systems must be
open to the new ways of workingincluding mobile and radio frequency
identification (RFID) technologies and support for tracing and other regulatory
compliance requirements. The right ERP system can help meet your needs in all
these areas.

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3)Lean manufacturing, global sourcing, and supplier integration


Managing to the lowest possible manufactured cost is essential. This means
applying lean manufacturing practices and connecting to the best suppliers on a
global basis.
Today, lean operations are driving an increase in speed and response time for
all supply chain participants. Unfortunately for most manufacturers, the new lean
business processes are not supported by their legacy systems and must be
implemented as manual processes, which can defeat the information visibility
crucial to state-ofthe-art supply chains.
Locating the best suppliers requires a comprehensive supplier database that
enables a manufacturer to recognize where new opportunities for lower costs exist
such as suppliers in emerging countries. This means that manufacturers must
have real-time connections to suppliers to respond to changing production
demands. Once identified, these new suppliers must be brought on board quickly
and cost effectively with the ability to shareand respond toreal-time demand
and production data, including new product designs and critical engineering
changes. The current generation of integrated ERP systems includes the processes
and capabilities to help ensure lean operation, including the need for real-time
production data exchange with suppliers.

4)Managing for higher performance


Executives know that measurement and performance are inextricably linked.
Whole new metrics, key performance indicators (KPIs), and benchmarks can give
advance warning of problems managers may face in their operations. The real
power of these metrics comes when managers can quickly access real-time data
that reflects the global domain of their operations. Done well, performance
analytics can make manufacturers significantly more agilean important
consideration in todays very lean supply chains.
However, measuring performance is often far too difficult in the world of
disparate legacy systems, the result being that most companies do not currently
have a standardized and automated performance analysis capability to manage for
higher performance.

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Integrated ERP systems today include business analytics that enable


executives to standardize metrics across the organization and monitor production
and profitability. In fact, ERP systems can provide actionable information to
employees at all levels of the organization and make it accessible through their
familiar desktop tools, bringing speed and quality to their decision making.
By integrating data, standardizing processes, and opening up visibility to the
global supply chain, an integrated ERP system can offer manufacturers a fast path
to reduced cost structures, increased speed, and improved transparency that can
improve customer satisfaction and company profitability. The bottom line: Today's
ERP systems have become an operating platform that can scale and deal with the
global competition that is in every manufacturer's future.

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CONCLUSION
ERP and supply chain management have greatly helped the manufacturing
sector. The shortcomings of ERP in manufacturing supply chain have to be
rectified in order to make it more effective.

ERP supply chain software market is encouraging provided one identifies


the supply chain segments that erp supports in the process of erp and supply chain
management.

ERP has a major impact on Supply Chain and most of that impact is
positive. During the boom period of the late 1990s, investors seem to throw money
at ERP without much of its appropriateness. Economic realities since 2000 have
proven the need for sound analysis.
ERP is not best for everyone. There are ways to implement it and not all
organizations need what it provides. However, the market has evolved to provide
very flexible products so that the firms can choose systems appropriate to them.
ERP needs to be considered by most organizations in order to utilize
information technology to manage business efficiently. Most of the ERP are failing
due to lack of user training. The most important factor, which is overlooked in
practice, is user training. Even though, ERP vendors have been very successful in
reducing installation time. It is important to get quality systems in place, but it is
also necessary to allow time to allow to employees to learn the new system and to
adapt to their work methods.
The findings fo the present study is related to the role of ERP in improving
the SCM. The general conclusion can be that one should not expect too much from
ERP for Supply Chain Management in extended enterprises.

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Once ERP is installed, there exists a process-oriented enterprise transaction


backbone, which can support within single firm developments in new area
including SCM. But ERP systems have never designed just to support SCM, and
certainly not across multiple enterprises. Their architecture advantage of being
fully integrated for one firm and becomes a strategic advantage in this new
business environment. Generally, ERP software focuses on integration and tends
to not care about the daily needs of people. I think individual efficiency can suffer
by implementing ERP.

Supply chain software can offer tremendous value to any company that
relies on the smooth planning and execution of related operations to achieve longterm profitability and maintain a solid competitive edge. Thats why more and
more organizations are purchasing and implementing supply chain applications.

By integrating data, standardizing processes, and opening up visibility to the


global supply chain, an integrated ERP system can offer manufacturers a fast path
to reduced cost structures, increased speed, and improved transparency that can
improve customer satisfaction and company profitability.

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ABBREVIATIONS

1. ERP Enterprise Resource Planning


2. SCM Supply Chain Management
3. CRM Customer Relationship Management
4. MRP Manufacturing Resource Planning
5. CSCMP - Council Of Supply Chain Management Professionals
6. GIS Geographic Information System
7. EDI Electronic Data Interchange
8. VMI Vendor Managed Inventory
9. RFID Radio Frequency Identification
10. KPIs Key Performance Indicators

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BIBLIOGRAPHY
Sr. No.
1.
2.
3.
4.

Book Name
Textbook of Enterprise Resource
Planning
Enterprise Resource Planning
ERP A Managerial Perspective
Enterprise Resource Planning

5.

ERP in Practice

WEBSITES
1) www.google.com
2) www.wikipedia.org
3) www.scribd.com
4) www.erpwire.com
5) www.exforsys.com
6) www.erp.com
7) www.supplychainmanagement.in

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Author
Jaiswal/Vanapalli,
McMillan
Alexis Leon
S Sadagopan
Parag Diwan &
Sunil Sharma
Jagan Nathan
Vaman