Chapter 1

Components of ERP

1 Hardware
2 Operating System
3 Data Base System
4 Connectivity
5 Business Processing understanding & mapping
6 Consultants
7 Choice of ERP product to suite your Business

1 Hardware
This consists of Data Base server, Application servers
Clients.

Data Base servers store all the tranaction data that takes place due to different business
transactions in Finance, Costing, Material, Sales, Production planning, Plant
Maintenance, Quality etc.

We need to ensure that data is correctly transacted into the system. The data base servers
have something which is called CPU, (central processing system). This energies the
system to pick up data and return data to it’s designated place for easy retrival at later
date when ever needed.

The Data base servers have memory that are installed into the server to store data. These
are available in discs with designated sizes e.g: 9 gb, 81 gb etc. The size od data base is
decided by the number of discs installed in it. Ex: 9 discs of 81 gb would mean that it has
a capacity of 9x81 = 729 gb memory size.

The servers have 2 types of memories.

(a) Hard disc memory
(b) RAM (RANDOM Access Memory.

What we have described earlier in calculation 9x81 gb is called Hard disc memory
When we say RAM, we mean another memory that is used to ensure a place where the
data drawn from Hard Disc is collected for manipulation and calculations. After the
needful calculation etc is completed, the final data is returned to the Hard disc to be
stored in appropriate location in Hard disc.

We have examples like the Hard disc capacity is 40 GB and RAM as 2GB. Higher these
capacities, the faster the computer can work for us.

Application Servers is used to host the application software eg: SAP, PeopleSoft,
Oracle, BAAN etc.
These are products that are sold by vendors whose names have been mentioned in earlier
line. These products allows us to conduct our business through the business system that
are written in software. These softwares addresses all business functions and related
business processes. At one time when ERP started, the Data Base and Applications were
loaded on one system with either physical separation or logical separation in the Hard
Disc as well as the RAM. This meant that there was only one box that housed both these
systems. Under such circumstances we then had one box with these 2 systems and
another box that was used by the users of the system. This architecture was then call a 2-
Tier system.

As the complications in ERP systems increased along with the huge transaction volumes,
the Applications were loaded on another box. With arrangement, we now had a separate
box for Data Base, another box for applications and the final box for the users. This
arrangement came to be called 3-Tier system. Box where Data base was loaded was
called Data Base server, where applications was loaded was called Application server and
the box that was used by end user was called the client.

When internet became integrated with these systems, it brought in IAS (Internet
Application Servers) & ITS (Internet Transaction server). The system then came to be
called 4-Tier system and so on.

You must remember that there is no data that gets stored in application servers. All data
is stored in Data Base server only. Remember that Application server will have only
software programs that run business processes in each of the business applications such
as Finance, Materials, Plant Maintenance etc.

Client: Client is the machine used by end users. It could be a PC or Laptop with which
the transaction are triggered . These transacts are nothing but application programs that
are pulled from Application servers and data from the Data base server. On compketion
of one transaction, the application program returns to the application server and Data
goes and gets saved in the data base server.

Till 1993, most of the ERPs were run on the Main Frame computer systems. These were
essentially 2-Tier systems. The Main Frame systems were not the 4 GL (Generation
Language).and hence were not internet enabled. Further they were also not platform
independent.

What does platform independent mean?

In case we bought IBM systems, then we had to buy the data base, applications,
servers etc all from IBM and hence we could not use, HP, Compact servers or
clients.

Today we have no Main Frame systems. Instead we have Client Server

Architecture/ Technology. This means that we have RAM and Hard Disc
capabilities at each level e.g, Data Base server, Application Servers and also the
client. Further the Client Server Architecture is platform independent. We can use
any make of Hardware (computers) as servers. WE CAN USE ANY OPERATIONG
SYSTEM . DATA BASE SYSTEM in any combination and further it is Internet
empowered (internet based or Internet enabled)

2 Operating System
This is a software tool that helps to pull out the correct business processes/ applications
for conducting the transaction. Further it helps to draw out the correct data from the data
base system and after completion of the transaction helps to return the application
processes and data to the designated places in each of the servers. One must also
remember that Operating System also acts like a police man to regulate the data traffic in
the systems. It prioritises data travel, application programs call, locates and relocates data
at correct places, has the address of all these data that u have saved so that the same data
can be recalled correctly without wasteage of time.
Examples of Operation systems are: Unix, Linux, Windows NT etc

3 Data Base System:

This system is responsible to store and retrieve data rom the Hard Disc of the data base
system. This data base system is supposed to stor data, retrieve data, organize data
storage in different table, label the data and attach addresses to each data. With this close
interaction between the Operating system and Data Base systems, we are able to retrieve
and restore data in the Data Base system.
Examples are: Oracle, Informix etc

4 Connectivity:
Here we connect the different office, factories and godowns with the central servers. This
means that we have a centralized Data Base system and not a distributed Data base
system. This means that the data is captured and recorded in a Real Time & On-Line
manner. In this data & business transactions are captured on-line and in nano seconds.
This will happen only when all locations are centrally connected.

Such connections can be done in 2 ways:

a) Underground fibre optic cables used to connect these locations
b) VSATs (Very Small Aperture Terminals) are used.

These can be administered in 4 ways:

(i) TDM – Time Division Multiplexing
(ii) TDMA – Time Division Multiple Access
(iii) PAMA – Permanently Assigned Multiple Access
(iv) DAMA – Dynamically Assigned Multiple Access

When we use the Fibre optic cables, the data travels through these cables and hence
the transmission is without any HOOP.
 When we use the VSAT, the data is shot in the air as packets. These data packets
reach the assigned satellite of the service provider and returns to the service providers
HUB. Thereafter the data is once again thrown in the air to the satellite and then
reaches the destination that has been assigned to the data. This is called a double
HOOP system. One can clearly if that the data travelling through the Fibre optic
makes no HOOPs like the ones made in VSAT. Hence data transmission through
Fibre optics is musch faster than that through the VSAT. Further we will need much
smaller bandwidth to transfer data through the fibre optics.

5 Business Processing understanding & mapping

Whenever we want to uimplement ERP systems, we have to be very clear on certain
aspects:
a) Organization Structure
b) Business processes in each functional areas
We need to list down all details of business processes and functional areas. This means
that we should write down what all business processes are conducted at which all
locations, the frequencies, the data volunmes, the intervals, the authorization matrix, the
reporting structures, the various types of reports, it’s frequencies, the distribution lists etc.

In short it means that you do a complete revalidation of what all is reqd for the
organization and what all can be delivered without much change and problem resolution.

6 Consultants
These are prfessionals who understand the ERP Package that you have selected to be
implemented at your site. Since ERP is a Business man’s package and not a IT engineer’s
package, it will be best understood by business persons.

It is therefore essential for the customer to ensure that the consultants that are assigned to
implement ERP are having a through and through knowledge of the customers business.
They must have atleast 4 to 5 years of functional/ domain knowledge and must have
implemented atleast 2 to 3 full cycle implementation experience. It must also be
remembered that the consultants must be good communicators, mentors and finally good
traininers. The reason is that they must be able to explain the subject matter very clearly
and confidently. They must be bold leaders from front and hence be able to carry people
with them.

Success of all ERP implementations demands that we must have very good consultants.

7 Choice of ERP product to suite your Business

Different ERP Products like SAP, PeopleSoft, Oracle etc are available in the market. One
has to be very very careful to select the correct ERP product that will meet ur
requrements once implemented. It is therefore necessary to establish the experience
gained by each ERP vendor in your areas of business and the available requisite
consultants to conduct the ERP implementation.
Important criteria that you need to watch with each ERP vendors are:
a) no of accounts that each of these ERP vendors have in your business areas
b) annual ERP product sales year on year
c) investment in Research & Development
d) trained and certidfied consultants available with them
e) number of existing implementation partners in your country
f) types of hardware and infrastructures available for help
g) cost per user for each licemse purchased
h) annual maintenance cost as % of license fees
i) support during and post implementation stage
j) ERP vendors partnership witjh the Hardware, Operating Systems, Networking
and communications, Systems integrators etc.
k) Global connections and connectivities.

Chapter 2

Lolly Pop Diagram

This diagram represents the integration that is available in an ERP system.

At the centre of this diagram is a big ball. This represents the Architecture (2-Tier or 3
Tier Hardware system), Operating system, Data Base system, Connectivity etc
Next u can see all the functional areas connected to this central ball. This means that all
these functional areas are internally integrated with one another seamlessly.

HR – Human Resources
MM – Materials Mgt
SD – Sales & Distribution
PM – Plant Maintenance
PS – Project Systems
QM – Quality Mgt
FA – Financial Accounting
CO – Controlling
IS – Industry Solutions
OC – Office Communication

HR – Human Resources

Here we handle all the business processes that atke place in HR. We have Salaries and
other related aspects taken care off. We also address the recruitment processes, selction,
appraisals, career developments, training & development requirements, retrials &
separations, succession plans, job descriptions, job attributes , skills required and
matching with available skills of the concerned employuee.
We can also track travel on business & training, guest house or hotel booking, ticketing
and reservations as well.

MM – Materials Mgt

The main functions here are:

a) Procurement
b) Inventory Mgt

c) Procurement
Here we handle all activities that are connected with maintaining the material supply to
the company: either the consumable raw material or the capital goods.

During conducting this process, we extend functional business processes like. RFQ
(Request for Quotation), Qoutation receipt and processing, Negotiations, Purchase orders
preparation and Vendor selection, Placing of purchase orders and firming of contracts
and replenishment system.

Pricing and pricing components, values, mode of payment, period of payment, credit
limits setting, penalties and rewards for default or best performance etc are also settled
here.

Each of the above mentioned processes have a different Document type and also different
document numbering system.

Various types of reports are also available to ensure that the processes get managed well
and controlled well in advance

d) Inventory Mgt
Here we have the responsibility to receive materials against the Purchase orders (GRN),
Issue materials to various production orders, projects etc (GI- Goods issue), Inventory
valuation, manage store spaces, manage shelf lives of the various mteruials, inventory
stock taking at regular intervals as reqd by company.

Inventory mgt will also mean that we issue correct material in correct reqd quantities so
that there is no problem faced during production.

We therefore need to build up a correct Material Master, Vendor Master, define all these
material in material master at each location where these materuials need to be handled.

We also classify materials in different manner. Examples are: Raw Material, Semi-
Finished, Finish Goods, Consumable, Spares, Packing materials etc.

Each material type has a separate Number range for each type of amterial.
Each business process in the above 2 functional areas are defined with different
document type. Each has a different number range attached to each one.

SD – Sales & Distribution

Here we bare gearing to orgabnise to reach the markets where our customers are present.
Here essentially we will deal with customers in the same manner as we deal with the
vendors. Customers and vendors are mirror images of each other.

We also follow the same process in Sales as we did in materials. Only thing is that today
we will sell as against buying as in Material function.

All above statements made in Materials mgt are equallt valid for Sales by as a mirror
image.

We maintain different number ranges and doc types as mentioned earlier.

When we come to defining the finish goods then we must now be ab;le to attach the
finish goods to each of the Sales Organizations so that these finish goods can be sold
from these defined places.

PM – Plant Maintenance

Here we handle the plant maintenance activities at each of the manufacturing, storage
places, offices etc. The plant may refer to the manufacturing machines, cars, cranes,
dumpers , office Air conditioning, power supply etc.

We track all assets and keep track of when maintenance request was made. Resolved in
which manner and at what costs and after what lead time etc.

Hence defining and tracking each asset is utmost important

We can get all types of reports

PS – Project Systems

Here we keep track of all types of projects I n terms of work load, resources in hrs,
material consumption, timely completion, mile stones achievem,ents, delays and
overtimes etc.

We can then get staistics on how costly each plant is to us and can the plan the
replacements etc

Project systems can be managed in 2 ways:

i) Only in Finance by use of Jounal entries and with agreed dates of completion
and payaments
 ii) by Logistics path. Here we will integrate the following tools for performance
monitoring and control.
iii) The tools used could be MS Project system for laying down all activituies,
their dependencies, time for each actvities,the emergency actions that may be
needed to bring project on line and also attach payments against deliverables
that have been promised in the beginning.
iv) Monitoring through PERT, CPM methods. This integration helps to monitor
cash flows for project in terms of procurements and dispersements.

QM – Quality Mgt

Here we need to define the Quality Strategy, Quality Plan and finally the methods used to
administer thr quality at all levels. The different levels will be for Procurement, Work in
Progress and the Finish Products.

There will be different tools and instruments used to evaluate quality. There will also be
defined the various attributes that need to be measure regulatrly. We will also define the
top and bottom limits to get quality in place in terms of accepting or rejecting the material
at various stages.

It is agreed that we will not be able tpo do 100% inspection of all attributes and the
values as it comes. Hence we will have to resort to Statistical Quality control system.

This means that we will have to define the number of lots that we will inspect and also at
what intervals. The size of each sample for quality / inspection/ control will have to be
defined alongwith the appropriate number of samples to be taken and also the intervals.
The choice will have to be done keeping in mind what is the reliability level that u are
seeking. This means we will inteprete quality of the population from the observed results
of all the combined samples that we have chosen and also the number of samples and also
the interval between the samples. We can work out these details depending upon the
reluiability levels like 65%, 95%, 99% or 6-sigma.

This will mean that the population will be 65% reliably represented, or 95% or 99% or 6-
sigma.

FA – Financial Accounting

Here we track all financial transactions in terms of Accountants Payab;les, Accounts

Receivable and General Ledger.

All costs, budgets, budgets used, cash flows (inwards and outwards), financial funding in
terms of long term and short term.

The assets procurements, the depreciation, Balance sheet and Profit & Loss statements.
We need to keep track of product costs, product profitability, division profitability,
regional costs and sales etc.

Finally we must remember that finance is fully integrated with all functional areas. Every
material;l receipt of issue is totally integrated with finance. Hence every transaction
triggers a Finance entries in the background. It is because of this possibility that we can
create a Balance Sheet 0or a Profit and Loss Statements instantaneously any time.

Asset Management
We also manage Assets in this way. We track every asset for it’s performance and the
value it delivers.

We have Asset under construction, Assets that are bought outright, Assets retrials and
disposition etc.

A Asset register is created and further Assets are aslso categorized into different
catagories and appropriate depreciation % are applied appropriately

CO – Controlling

This in normal parlance is called Management Accounting in the world. SAP calls this
Controlling.

Here we talk about the following:

i) Cost Centres : Primary Cost Centres and Secondary Centres
ii) Profit Centre
iii) Product Profitability Analysis
iv) Management Reporting
v) Cost Elements: Primary Cost Element & Secondary Cost Elements
vi) Budgetting
vii) Fund Management

Cost Centres can only accumulate costs. They cannot capture Revenues or Sales.
Cost Centres are know as WHERE the money is spent.

Cost Elements are known as FOR WHAT the money is spent

IS – Industry Solutions
Here we talk of any special business Functions and Processes that may have to be added
in core SAP functions and business processes.

Examples can be any specific requirements of Oil &Gas industry. In this case these
additions are meant only for Oil &Gas Industry and nobody else will need this. Similarly,
one will develop something for Defence and Aerospace Industry. These developments for
Defence & Aerospace will not be needed by any one else.
OC – Office Communication
Here we will talk about integrating Office Communications softweare with basic SAP
System.
Examples could be email system, Document management system, GIS (Geographic
Information System,), CAD/ CAM ststem, Animation systems, FAX, Mobiles, Mobile
Commerce system etc.

Chapter 3

Critical success Factors

1 Selection of correct ERP system that meets ur business needs

2 Correct sizing of Hardware and communication systems
3 Correct selection of Operating System
4 Correctly sizing the end users. This makes the system acquisition
economical. Every extra SAP Lisence will cost more. Every extra
Bandwidth to transmit data will also cost more
5 Selecting the correct implementation partners. This means we must
have a partner who has enough back up in terms of number of
consultants with rich and appropriate knowledge of your business
needs and also SAP product
6 Correct selection of the subject matter experts from the customers side.
This means that we must put pon ciore team people with rich business
knowledge in their own field. This will help to guide the consultants in
right direction to make correct choice during configuration. These core
team people must also be polite, intelligent and can absorb SAP
Training in short time. Thety must also be good trainers so that whilst
preparing for GO-LIVE, they can train the end users. In shport all the
core team members must have a disposition to migrate themselves
frpm Business Specialit to becoming good trainers and Mentors.
7 Top Mgt ownership from both sides: Customers side as well as the
Consulting company side
8 The companty must have a strong Change Management team. During
implementation, many gaps will surface that will demand that u
change ur ways of working on the ERP system. Change Management
is the key to success. Hence it enjoys great challenge and importance.
9 Regular feedback seeking and guidance from Top Mgt is very essential
in an all round success of this impklementation
10 Post implementation, it will appear that a lot of jobs are identified as
non value added activities and hence redundant. Today some will be
doing this. Tomorrow when SAP is implemented, these jobs will not
exist. Hence these very people will bcome jobless. One needs to plan
for alternative deployments of these people. An important activity of
 Change Management. This means, unlearn & relearn new skills to
adapt to the changed situation.

Chapter 4

Evolution of ERP in India

Pl refer the Funnel Diagram. Pl note Funnel Diagram must accompany this answer.
Till 1993/94, we had island systems. Computer systems did exist but were in very small
shape and size. They addressed some simple applications like inventory mgt, sales
accounting, purchase accounting etc. The softwares and hardwares were sold by the same
company. This means, IBM had it’s own hardware and their softwares could run on only
IBM machines. Hence they were called proprietory systems.
Hence with this limitation, we had manual and computer systems co-existing together to
address business needs.

In some places one had completely manual systems and in some places semi manual
systems.

In 1994, there was presence of SAP, BAAN, PeopleSoft, Oracle in India. It was very
difficult to convince that these system could help organizations immensely. Only
Multinational companies could afford High costs of procuring these licenses and high
implementation costs. Hoechst Group of companies adopted the SAP system. SAP R/2
system existed in Hoechst Germany and hence had a mandate for all Hoechst companies
outside Germany to get started on SAP.

The systems till 1998 were more concentrating on integrating internal business functions
and Business processes. Hence we could see that once SAP was implemented, all manual
and semi automatic systems had to make way for SAP. There was a great amount of
change Management and hence a lot of redundant activites were eliminated. How ever
this integration was very much limited to internal customers.
Vendors and customers interacted with the convention way of business transaction
through exchange of paper and not electronically.

During 1999-2000, there were good developments on Internet. However these operations
were not so safe and secure to use, Hackers could play foul. Hence internet was used in a
very limited way with very few customers and vendors.

Post 2000, there were greater emphasis on internet securities and an assurance to the
business communities that we are very matured and safe. This added greater volumes on
internet basis. One could trade on hosted virtual market places that were provided by
CommerceOne & ARIBA.

We were now in an era of e-Commerce or eBusiness. We could see B2B, B2C, Email
systems etc.
On the other hand there were great developments in the areas of Enterprise Applications
Integration (EAI). It was now possible to make different ERP’s to talk to one another and
share information for report generation. Products like Hyperion, Tuxedo, TIBCO,
Crosslands etc helped immensely to make this global village through digitalization.
Today we can make any system interact with another and get all types of consolidation
reports.

You can clearly see the brick wall in the diagram disappearing significantly as we moved
from 1999 onwards.