The rise of Enterprise Resource Planning (ERP)
By Prof. Dr. Khawaja
Amjad Saeed, FCA, FCMA*
Sep 11 - 17, 2000
The world is being driven swiftly with changes.
New management tools are being innovated. Information Technology is
interweaving itself with all business disciplines. 20th Century has
seen the rise of ERP. This piece looks at the following aspects:
Each of the above aspects is now explained.
Enterprise relates to a business firm or a company
enegaged in an economic or commercial activity.
Resource refers to collective means possessed by an
enterprise for its own support or assistance or activity. Generally
four Ms characterize the resources namely, Men, Material, Machine and
Planning indicates proposed or intended course of
action for the future.
Annex "A" shows various definitions
contained in accredited dictionaries.
Goal of ERP System: With an ERP system, the goal is
to enter a customer order once into a computer and have it
automatically synchronize the following resources required to get it
into the hands of customers: Men; Material; Machinery; Warehouse;
Users have obtained the following benefits:
Customers exactly know where their orders stand.
Significant reductions in inventory, procurement,
distributions and manufacturing costs have been seen.
Eye-popping cycle-time improvements have occurred
in order fulfillment and financial closing.
The focus of ERP goal for customers is on right
products, right quantity, right quality, right time and right price.
Evolution of ERP: Table No. 1 highlights the
evolutionary rise of ERP. For determining material requirements hynch
was used. Later this was replaced by a scientific approach.
Subsequently MRP and MRP II were introduced. Now the era belongs to
Table No. 1
Evolution of ERP
Based on experience, material needed for
production was determined.
1. Table was prepared to ascertain
the lowest total (ordering cost and carrying cost) and the
most economic quantity of material to be ordered was
2. "Q" model was invented
to determine the most economic order unit for placing an
1. MRP means Material Requirements
Planning. This dominated the world during 1970s and followed
linear planning approach.
2. MRP II means Manufacturing
Resource Planning. This dominated the world during 1980s. Main
focus was on closed loop planning. It is essentially a
Everything now except an ERP system is as
archaic as the bell bottom.
Some views above ERP are stated as under:
Industrial Experts Views:
They claim that ERP is their invention.
Accountants' View: They claim that ERP was
developed from processing of accounting information. Later it tilted
towards MRP (Manufacturing Requirements Planning) and then towards SCM
(Supply Chain Management). These days ERP systems are recognized as
total business solution providers.
The market for ERP Software grew very rapidly
during 1990s. The major reason was that ERP system has been
instrumental in ending huge inefficiencies that resulted when
different business functions and business units did not collect
information the same way and use the same data.
Computer Skills have been undergoing changes. The
stages of changes are as under:
Regime No. 1
WordStar - Lotus - dBase
Regime No. 2
Windows, Ms Word and Excel
Regime No. 3
Everything now except an ERP seems to be as archaic as the bell
Famous Plavers of ERP Systems:
Some of the famous players of ERP systems are listed below:
J. D. Edward
SAP's role in developing ERP System is now briefly
SAP & ERP Systems
SAP was established in 1972 and is today ranked as the world's 5th
largest software company. SAP is the name of the company and the name
of computer system. SAP is a German Company. It operates globally with
28 subsidiaries and affiliates and six partner companies maintaining
offices in forty countries. The SAP system comprises a number of fully
integrated modules which cover every aspect of business management. It
offers a unique system that supports nearly all areas of business on a
Approach: It provides an opportunity to
replace large numbers of independent systems that have been developed
and implemented in established organizations with one single modular
system. Each module performs a different function. However it is
designed to work with others. It is fully integrated and offers
compatibility across business functions.
Markets served: SAP markets its products
globally to almost every industry, Government, educational
institutions, hospitals, etc.
SAP R/3 Applications:
Scope of applications
include the following:
A comprehensive treatment is needed to cover all
the above aspects. However an abridged summary of the components of
each modules are given in Table No. 2
Table No. 2
Components of Modules
Financial Accounting, Controlling,
Investment Management, Treasury, Integrated Enterprise
Management (IEM) and Enterprise Controlling (EC).
Product Data Management
Sales and Distribution, Production Planning
Purchasing, Inventory Management, Warehouse
Management, Invoice Verification, Inventory Control, Quality
Management, Service Management.
Personnel Administration, Human Resource
Information System (HRIS) and Executive Information System (EIS),
Recruitment Management, Open Positions, Selection and Hiring,
Travel Management, Benefits Administration, Personnel Cost
Planning, Payroll Accounting, Time Management, Time
Evaluation, Integration and Interface, Shift Planning,
Qualifications and Requirements, Career & succession
Planning, Additional Education & Training Programmes,
Training Management, Training Programmes & Business
Events, Registration and booking, Change Determination and
Invoicing, Trends & Highlights, Internet and Intranet, SAP
Business Workflow and Employee Self Service.
Integrated ERP System:
In short, today
accounting systems are the sub-set of total ERP. ERP is the hub around
which various parts of an organization revolve. This is illustrated
Data flow description is described in Table No. 4.
Table No. 4
Data Flow Description
Marketing & Sales (MS)
Enter sales forecast budget to the system
and carry out sales planning through simulation facilities
available in the system.
Supply Chain Management
Material requirement planning is undertaken
and then material data are sent to arrive at procurement
It carries out capacity planning through
the system after supplying the system the required parameters.
Total Cost of production is obtained by Cost Centres.
Distribution & Warehouse
It does distribution planning and sends the
distribution data and costs to the system.
Administration & Support Services (ASS)
It informs the system their expenditures
Order is entered and revenue is
generated in the system.
ERP provides management an integrated
information about costs, profits, capacity, excess resources,
resources needed, etc.
The foregoing details show how data are captured
and processed in the company at a single site. However, boundaries of
ERP do not limit themselves to a single site. All the sites of the
business can be located anywhere in the world but can be tied together
with through a common ERP system as is illustrated below:
ERP & Delotte Consulting Company:
following aspects are worth noting:
1. Delotte Consulting teamed with
Benchmarking Partners and Hammer and Co. in 1998 and 1999 on an
extensive study of nearly 100 large Companies around the globe with US
one billion dollar in revenue.
2. Payoff from ERP was mixed.
3. Thirty Seven (37%) of the Companies
reported significant and quantifiable benefits from ERP.
Some of the benefits are listed below:
a . Process Manufacture
A process manufacture cut inventory working capital by US $ 10 million
and logistics costs by US $ 45.
b. Hi-Tech Company
A hi-tech company was able to handle twice the business with few
additional investments in manufacturing and distribution.
C. A Manufacturing Company
A manufacturer online delivery rose from 70% to 90%.
4. Some 15% of Companies got nothing out of
their ERP systems.
5. Some 25% had modest results.
6. Remaining 23% were unable to report any
specific quantifiable benefits. The major reason was that the
installation was new and benefits could not be tracked.
The above case study can be summarized on Table 6.
Table NO. 6
Delotte Consulting Research on ERP System
(N = 100)
Companies reported significant and
Companies with modest results
Could not track benefits
Could not get anything out of ERP
7. Major reasons for achieving success in
ERP system were as under: a.
b. Wholesale changes in manufacturing,
supply chain and financial operations.
c. Rewriting job descriptions and training
people extensively for jobs requiring much higher levels of skills.
8. Prerequisites for improving chances of
success are as under:
a. Focus on right destinations should exist.
Attention should be given to the following:
i) Strategic goals should be kept highly
ii) Critical process changes should be undertaken.
iii) Training programs be implemented.
b. Progress should be periodically assessed.
c. Ensure continuous improvements.
d. Make ERP "a way of life"
e. Program must be continuously measured.
Tributes to ERP
Several scholars have given befitting tributes to
the benefits derived from ERP. Given below are excerpts from the
famous CIO magazine, the leading resource for information executives
published by CIO Communications, Inc., USA.
The hidden costs of enterprise software
(January 15, 1998 - CIO Enterprise)
Software packages - SAP's R/3, Baan, People Soft
and their ilk - promise great benefits.
Living with ERP (December 01, 1998 - CIO) It is
time we acknowledged ERP systems are here for the long hault and start
adapting to permanent life with them.
An erp package for you — and you — and you —
and even you
(February 15, 1999 - CIO)
All men are created equal, but off-the-shelf ERP
software packages are not. And choosing the right one for your
business involves a lot more than you might think.
The ties that bolt
(April 15, 1999 - CIO)
There is no escaping it. You need bolt-ons so that
your ERP software can share data with legacy and other systems. Four
strategies for making integration work were identified.
From team Techie to enterprise leader
(October 15, 1999 - CIO)
After leading an ERP team, David Jhon discovered
that he had learned everything management knew it too.
The most important team in history
(October 15, 1999 - CIO)
After a company turns on its ERP software, the only
people who understand how the business works are on the implementation
1. Muhlemann, Alan, Oakland, John, Lockyer,
Keith, Production and Operations Management, London. Pitman
2. Garg, Vinod Kumar, Venkitakrishnan, N.K,
Enterprise Resource Planning: Concepts and Practice, New Delhi:
Prentice-Hall of India Private Limited, 1999.
1. McCann Greg, and Lucas, Tony,
"Making ERP spell ROI", Charter, Sydney, March, 2000, pp
2. Sridbaran, R. "The Skilled
Accountant", The Chartered Accountant, New Delhi, p 80.
1. Webster's Encyclopedic Unabridaed
Dictionary of the English Language, New York: Gramercy Books, 1983.
2. The New Lexicon Webster's Dictionary of
the English Language, New York: Lexicon Publications, Inc. 1991.
3. The New Shorter Oxford English Dictionary
on Historical Principles, Oxford: Clarendon Press, 1993.
4. Merriam - Webster's Collegiate
Dictionary, Online download from: http://www.m-w.cgi-bin/dictionary on
July 18, 2000.
[Source: CIO Magazine (the leading Resource for
Information Executives), 1995-99 CIO Communications, Inc.]
What is ERP?
How long will an ERP project take?
What will ERP fix in my business?
What.will ERP really cost?
When will I get payback from ERP - and how much will it be?
What are the unforeseen costs of ERP?
How do you configure ERP software?
How do companies organize their ERP projects?
How does ERP fit with electronic commerce?
Dean: Executive Programs, Punjab College of
Business Administration, Lahore. Member, Governing Council, IFAC
(1997-2000) Chairman, Seminars & Conferences Committee, ICMAP