Enterprise Resource Planning (ERP)

Session-1
Kushal Anjaria

What are Information Technology and Information Systems? When it comes to ERP (Enterprise Resource Planning)
systems, they play a crucial role in optimising and enhancing
Information Technology (IT): these value chain activities. Let's explore how ERP relates to
Information Technology refers to the entire spectrum of the value chain:
technologies involved in developing, maintaining, and using 1. Primary Activities and ERP:
computer systems, software, and networks to process and
distribute data. This encompasses various elements, including Inbound Logistics: These are activities related to receiving,
computer hardware, software, networking solutions, and storing, and disseminating inputs to a product. ERP systems
devices that store, retrieve, transmit, and manipulate data, streamline this process through inventory management,
such as computers, servers, smartphones, and networking warehouse management, and automated order entry.
equipment.
Operations (Production): These activities transform inputs
Information Systems (IS): into the final product. ERP aids in production planning,
quality management, and manufacturing process
Information Systems involve a combination of software, management.
hardware, data, procedures, and the people who use them. The
primary purpose of an IS is to support an organisation's Outbound Logistics: Once the product is ready, it needs to be
operations, management, and decision-making functions. delivered to customers. ERP systems assist with order
Information Systems can be as simple as a spreadsheet system processing, transportation management, and warehousing.
that handles accounting data or as complex as an enterprise
resource planning (ERP) system that manages multiple Marketing & Sales: Activities that persuade clients to
organizational processes. purchase the product and facilitate its sale. ERP can manage
customer relationships, automate sales processes, and
integrate sales data with other business functions.

Relation between IT and IS: Service: After-sales support provided to customers. ERP can
handle warranty management, service level agreements, and
At the core, Information Systems are a subset of Information customer support.
Technology. While IT deals with the entire range of digital
technologies and infrastructure used for managing data, IS 2. Support Activities and ERP:
focuses on using and applying these technologies to solve
business problems and support business processes. Infrastructure: The company's organisational structure,
culture, and functions. ERP provides the backbone,
All IS are facilitated by IT, but not all IT components are part facilitating various organisational processes, accounting, and
of a structured information system. For example, a computer other managerial tasks.
(an IT component) might be used for various purposes. Still,
when that computer is used explicitly with specific software Human Resource Management: Activities concerned with
and procedures to manage customer relationships, it becomes recruiting, development, and compensation. ERP systems
part of a Customer Relationship Management (CRM) system, often have a Human Resources module for payroll,
an IS. recruitment, performance evaluation, and training tasks.

IS is about the interaction between technology (IT), people, Technology Development: Research and development
and business processes, while IT is more about the activities, and other technology-related processes. ERP
technologies themselves. assists by tracking R&D activities, product development, and
integration with production processes.
In summary, while Information Technology deals with the
tools and infrastructure, Information Systems focus on how Procurement: The process of getting the raw materials the
these tools are used to meet the needs, objectives, and goals firm needs. ERP systems manage supplier relationships,
of businesses and organisations. automate purchase requisitions, and provide analytics for
strategic sourcing.

Value chain and ERP

An ERP system integrates various business processes and
The concept of the value chain was introduced by Michael functions across an organisation into a unified system. It
Porter in 1985. It describes the full range of activities required optimises, automates, and supports multiple functions that
to bring a product or service from conception to its end-use comprise the primary and support activities in a value chain.
and beyond. These activities can be classified into primary As a result, organisations can gain a competitive advantage
activities and support activities.
by reducing inefficiencies, increasing flexibility, and company's resources and helps manage processes.
improving decision-making processes. Such systems can provide real-time reporting and
allow the free exchange of information.
From MIS to ERP • ERP systems are the software tools used to manage
enterprise data. ERP systems help organizations deal
• MIS (Management Information System) is a with the supply chain, receiving, inventory
consolidated information base that stores all management, customer order management,
available data about separate business functions like production planning, shipping, accounting, human
finances, operational activities, personnel, and resource management, and other business functions.
working processes of an enterprise, and so on. • ERP is the particular case of MIS
• This software type’s primary role is collecting, • Important terms associated with ERP are
storing, processing, and distributing data, drawing “Automation” and “Integration.”
up data-driven reports, and providing information • Explain the advantage and tuning with the help of
support. production and sales
• MIS is initially adapted to a specific type of business • The diagram of ERP is shown in figure-1
function, which boosts operations’ efficiency and
profitability. Such systems are used in finance, Four signs you’re ready for an ERP system
marketing, manufacturing, IT, and many other
professional areas.
Most businesses start out using a variety of simple, standalone
• MIS users are defined in three layers: top
tools to manage different processes – such as QuickBooks or
management (Strategic control), Middle level
Excel spreadsheets. An ERP readiness assessment is the
managers (managerial control) and operations
process of analysing whether your company has the structure,
manager.
resources and personnel in place to successfully support an
The advantages of the MIS include:
ERP software implementation. Here are four signs you’ve
1. Centralized information base: Managers and
outgrown them and need a modern ERP system.
employees access all the information they need to
solve day-to-day tasks in one place. This helps
smooth out the flow of business operations since up- 1. You’re spending more time on daily activities. If it’s
to-date data is always at hand. Employees have the taking longer to manage key activities, like closing the
opportunity to standardize data collection methods books, too many disparate applications may be to blame.
using templates or questionnaires. ERP software integrates solutions and data into one
2. Task prioritization: There is no need to spend hours system with a common interface, making it easier for
storing or retrieving data manually. As a result, the business units to communicate and do their jobs
company saves on labor costs, and employees get effectively.
more space to keep productive. 2. You have many unanswered business questions. Can you
3. Minimized paperwork: Data is stored digitally, and easily answer important questions about your business,
access to a centralized database is provided over the such as revenue per product line or number of returns? If
company’s public network. This significantly speeds not, segregated systems and a lack of access to metrics
up reviewing documents and helps reduce the and KPIs may be holding you back. Enterprise resource
expenses for paper, printing devices, pens, ink, etc. planning software is designed to address these
MIS functionality focuses on gathering information from a challenges.
variety of sources, such as e-commerce web resources, 3. You have manual processes with multiple data sets. Are
customer reports, customer touchpoints, social media and most of your departments using their own applications
other information entry points, to help optimize workflows. and processes to get things done? If so, chances are
MIS has it all - customer communication, accounting, product you’re spending too much time on duplicate data entry.
output, production dynamics, sales and marketing campaign When information can’t flow between systems, reporting
data, and more. All that data wouldn't make much sense if it takes longer, errors happen often, and decision-making is
wasn't structured and segmented. That's what MIS does - it hampered.
converts information into a convenient and meaningful 4. You’re missing out on fast-moving opportunities. Are
format, which is then presented in the form of reports, graphs, you spending so much time running your business that
charts, tables, audio or video messages, images, etc., and then you can’t pursue exciting new opportunities? Newer ERP
the final information is passed on to the appropriate people or systems include advanced, intelligent capabilities, like
departments. machine learning and predictive analytics, that make it
On the other hand, MIS has the drawback related to easier to identify and capitalize on profitable new
automation and integration. MIS has automation-related ventures.
problems as standalone MIS cannot handle the details to the In a nutshell, for many growing businesses, it's not a matter
business processes’ level. of if they'll need enterprise resource planning (ERP) software,
but when. As a company grows, so does its amount of data
generated—and data sources to track. Managing all that
What is ERP? information across multiple platforms becomes costly, time-
consuming, and prone to mismanagement.
• Enterprise Resource Planning means an enterprise
resource management system. It is a remote-access
software for employees to plan future activities Describe the evolution of ERP.
using existing and projected resources. It may even
be called an operating system that has data about the
 • ERP evolved from the Material Requirement The 1980s saw the evolution of MRP systems into
Planning (MRP) system. Before that we had Manufacturing Resource Planning (MRP II) systems. MRP II
Inventory Management control systems systems expanded the scope of MRP by integrating additional
• MRP had two modules: 1. Production schedule, and aspects of the manufacturing process, such as capacity
2. A bill of material files with the list of materials planning, production scheduling, and shop floor control.
needed to produce the item. These systems also began to incorporate financial and
• Later, MRP was updated by the tools for sales accounting functions, providing a more comprehensive view
planning of the organization's operations.
• Then the MRP-II (Manufacturing Resource
Planning) system was developed with a financial 1990s - Enterprise Resource Planning (ERP):
accounting system. In the 1990s, the concept of Enterprise Resource Planning
(ERP) emerged as a further expansion of MRP II systems.
The evolution of ERP is described in the table-1 below: ERP systems integrated various functions across the entire
organization, including finance, human resources, sales, and
distribution, allowing companies to manage their resources
more effectively and streamline their business processes. ERP
Sr Types of Time Focus systems typically consisted of a central database and a suite
No system of software modules designed to handle different
organizational functions.

1 Material The Production and production 2000s - Web-enabled and Service-oriented ERP:
Requirement 1970s requirements With the rise of the internet in the 2000s, ERP systems
Planning
evolved to become web-enabled, allowing users to access the
(MRP) system
system from anywhere using a web browser. This era also saw
the emergence of service-oriented architecture (SOA), which
2 Manufacturing The Production + financial enabled organizations to build more flexible and modular
Resource 1980s accounting system ERP systems. Companies could now integrate ERP systems
Planning with other software applications and services more easily,
(MRP-II) enhancing their ability to adapt to changing business needs.

2010s - Cloud-based and Mobile ERP:

3 MRP-II with The Focus on the product + In the 2010s, cloud-based ERP solutions became
manufacturing 1990s financial accounting system + increasingly popular, allowing organizations to access their
execution service/upgrade/customization ERP systems via the internet without the need for on-premise
system based on customers’ needs hardware and software. Cloud-based ERP systems offer
several advantages, such as lower upfront costs, easier
scalability, and reduced maintenance requirements. This era
4 ERP The Supply chain, receiving,
also saw the development of mobile ERP applications,
(Enterprise late inventory management,
resource 1990s customer order management, enabling users to access ERP functionality from their
planning) production planning, shipping, smartphones and tablets.
system accounting, human resource
management, and other Present - Artificial Intelligence (AI) and Internet of Things
business functions. (IoT) in ERP:
Today, ERP systems are evolving further with the
Table-1 Evolution of ERP
integration of advanced technologies, such as artificial
intelligence (AI) and the Internet of Things (IoT). AI enables
The explanation of table-1 is as follows:
ERP systems to analyze large volumes of data, automate
1960s - Inventory Management and Control Systems:
tasks, and provide more accurate forecasts and predictions.
The origin of ERP systems can be traced back to the 1960s
IoT connectivity allows ERP systems to collect real-time data
with the development of inventory management and control
from various sources, such as sensors and smart devices,
systems. These early systems were designed to manage and
enhancing visibility and control over organizational
control inventory levels and stock, helping companies to
resources.
optimize their inventory management processes.
Understand the scenario before and after the ERP systems
1970s - Material Requirements Planning (MRP):
In the 1970s, Material Requirements Planning (MRP)
Described in table-2
systems emerged as an extension of inventory management
and control systems. MRP systems focused on managing the
materials and components required for the production Sr Parameters Before ERP After ERP
process. These systems used computer-based algorithms to no
calculate the optimal quantities of raw materials and
components needed for manufacturing, taking into account
factors such as lead times, production schedules, and 1 Information Standalone systems Integrated
available inventory. systems systems

1980s - Manufacturing Resource Planning (MRP II):

 performance. By automating and streamlining various
business processes, ERP systems increase efficiency, reduce
2 Coordination Lack of Supports
coordination coordination errors, and speed up response times. The integration of data
among business among business and processes across the organization enhances
functions (e.g., functions communication and collaboration among departments and
manufacturing, teams, promoting better coordination and decision-making.
sales) Modern ERP systems are also more flexible and scalable,
allowing organizations to adapt to changing business needs,
such as entering new markets, launching new products, or
3 Database Non-integrated Integrated implementing new regulatory requirements. In conclusion,
database database the implementation of ERP systems has led to increased
efficiency, better decision-making, and enhanced
competitiveness for organizations.
4 Interface Heterogeneous, Standard
different interfaces interface across
ACID properties of Transactions:
the system

The ACID properties are a set of four key characteristics that

5 Information Redundant, Consistent, guarantee the reliability and consistency of database
inconsistent real-time transactions, which is especially crucial in an ERP (Enterprise
information information Resource Planning) system where multiple users and
processes constantly access and modify data. Here's how they
apply in an ERP database:
6 System It May not be the Client-server
Architecture state of the art architecture
1. Atomicity

7 Cycle time Costly bottlenecks Time and Cost • Definition: A transaction is treated as a single,
reduction of indivisible unit of work. Either all the operations
Business within the transaction are completed successfully, or
Process none of them are.
• Example in ERP: Imagine an ERP system
processing a sales order. This might involve multiple
8 Business Fragmented Re-engineering steps like:
Process based complete
o Creating a sales order record
business
process that o Updating inventory levels
confirms best o Generating an invoice
practices o Updating customer account balance
Atomicity ensures that if any one of these
steps fails, the entire transaction is rolled
Table-2 Scenario before and after ERP back, preventing inconsistencies like an
invoice being generated without the
Table-2 is explained below: inventory being updated.

Before the implementation of ERP systems, organizations 2. Consistency

faced several challenges, including fragmented data, manual
processes, limited communication and collaboration, and
• Definition: A transaction must maintain the
inflexible systems. Data was siloed due to the use of separate
database's integrity constraints and rules. It can only
systems or software for different functions, making it difficult
bring the database from one valid state to another.
to obtain a comprehensive view of the organization's
• Example in ERP: An ERP system might have a rule
operations and performance. Many business processes, such
that prevents selling items if they are out of stock.
as order management, inventory control, and financial
Consistency ensures that a transaction attempting to
reporting, were performed manually or with limited
sell an out-of-stock item would be rejected,
automation, resulting in slower response times, higher error
preventing the database from entering an invalid
rates, and reduced efficiency. Departments and teams within
state.
an organization often worked in isolation, which led to poor
communication and collaboration, causing inefficiencies,
duplicative efforts, and inconsistencies in decision-making. 3. Isolation
Additionally, pre-ERP systems were often inflexible and
difficult to adapt to changing business needs, making it • Definition: Concurrent transactions are isolated
challenging for organizations to respond to new from each other. This means that one transaction
opportunities, competition, or regulatory requirements. cannot see the intermediate changes made by
another transaction until it is committed.
With the advent of ERP systems, organizations have • Example in ERP: Two users might be
experienced significant improvements in their operations. simultaneously updating the price of the same
ERP systems consolidate data from different functions into a product in the ERP system. Isolation ensures that
single, centralized database, eliminating data silos and each transaction sees a consistent view of the data,
providing a holistic view of the organization's operations and preventing conflicts and ensuring data accuracy.
4. Durability

• Definition: Once a transaction is successfully

committed, the changes are permanently stored in
the database, even in the event of system failures.
• Example in ERP: If an ERP system crashes after a
successful transaction, such as recording a payment,
durability ensures that the payment information is
not lost and remains recorded in the database when
the system recovers.

Why ACID is Crucial in ERP Systems

ERP systems manage critical business data, and any

inconsistencies or errors can have significant consequences.
ACID properties ensure:

• Data Integrity: Prevents data corruption and

ensures that data remains accurate and reliable.
• Concurrency Control: Allows multiple users to
access and modify data simultaneously without
interfering with each other.
• Fault Tolerance: Protects data against system
failures and ensures that committed transactions are
not lost.

By adhering to ACID properties, ERP databases provide a

reliable foundation for businesses to manage their operations
effectively.

Participants are requested to revisit the E-R diagram that they

have studied in detail in the MIS course. This is critical to
understanding ERP documentation.