Independent Research Paper
ERP (Enterprise Resource Planning) – What is it? Why and how is it used? How does it relate to DBMS selection and use?
CIS 5105 – IT Process Management
November 21, 2011
- 1. Introduction
New type of application software ERP (Enterprise Resource Planning) has emerged over the past decade and has also become a multi-billion industry. It integrates all the business processes and maps them with existing functionalities to provide a single viewpoint and a single system IT architecture. Most global giants have already adapted ERP and increasingly also small and medium scale enterprises are finding ERP a necessity due to increasing competition and cost-effectiveness of ERP. (Gable, Klaus, Rosemann, 2000)
1.2. Study on ERP and underlying DBMS
As ERPs have become much of a necessity in this competitive world, this paper focuses basically on what led to the increasing adaptation of ERP in today’s world. Section 2 focuses on the basic idea behind ERP and on the evolution of ERP. Section 3 focuses on why does an organization needs ERP and how do we use ERP. Section 4 focuses on importance of selection and correct use of DBMS in ERP. Section 5 concludes the paper with the general advantages and disadvantages of ERP along with possible future advancements.
2. ERP – What is it? How did it evolve?
2.1 What is ERP?
2.1.1 Definition of ERP concept
ERP is software that brings together all the processes and functions in an organization, maps them and integrates into a single system satisfying all the needs and customized requirements of the organization. ERP serves as a solution or answer to the stand-alone systems used and provides help and functionalities for various business units such as finance, sales, purchase, human resources etc. (Sutherland, 2003)
The design and model structure of ERP are built that they automate basic processes across the organization over a centralized database eliminating the need of disparate systems maintained by various divisions of the organization. ERP typically has modular hardware as well as software units and functionalities that communicate on a local area network. This modular design of ERP allows a business organization to add or modify various modules (perhaps from different vendors) while preserving data integrity in one shared database that could be centralized or distributed. (Bhatti, 2010)
2.1.2 ERP as a one-stop solution to all needs
ERP could act as a company-wide Information System built on a single as well as central database. It would integrate various fields such as finance, supply chain management, human resources etc. of an organization.
It is a difficult task to build software like ERP that serves all the departments of the organization from finance to human resource as well as other business units. Each of those departments typically has its own system and set of functionalities optimized for the specific ways that the department does its work. But ERP combines together all these departments and their specific work-set into a single, integrated software program that operates through a single database so that the various departments can more easily share information and communicate with each other. (Sutherland, 2003)
2.2 Evolution of ERP
2.2.1 Early methods before ERP
Around 1960s, computers were huge, made lot of noise and did not have the characteristics of standard operating systems. Stand alone systems, without an integrated environment, at that time were not capable of processing planning requirement of an enterprise, which became a need in adopting Materials Requirement Planning
In 1975 IBM initiated Manufacturing Management and Account System (MMAS). Accounts receivable transactions occurred from customer orders while accounts payable transactions through purchase order activities. In 1978 SAP released the SAP R/2 system. R/2 allowed interoperation between modules. (Jacobs, Weston Jr., 2006)
According to Roy, A.(2009), in 1980s, MRP II came up. MRP II had new features for businesses such as distribution management, project management, finance, human resource & business process engineering.
MRP II’s evolution also at the same time when there were developments in fields of RDBMS, UNIX and C. Hence, for organizations that were already using MRP II, it gave them the ability to simulate future forecasting requirements in supply & demand using external variables and also the ability for dynamic management. (Raman, Diwan, 2000)
2.2.2 Why ERP took over MRP and MRP II?
ERP was introduced in early 1990s to integrate other business functionalities which were missing in MRP as well as MRP II. It is not just limited to manufacturing but covers all facets of organization like human resource, finance, supply chain management, project management and warehouse management. ERP vendors came up with new features such as Graphical User Interface (GUI). A huge factor in ERP’s growth at that time was the Y2K problem (year 2000). Big as well as small and medium-sized enterprises were quick to adopt the new ERP system as one of the possible ways to solve the needed fixes to legacy systems software that were not compliant with Y2K. (Jacobs, Weston Jr., 2006)
3. ERP – Why do we use it? How do we use it?
3.1 Why do we use ERP?
Stand-alone systems were being separately operated during 1960s-70s for business processes. Each process system or department worked differently and had their own database. It was difficult to manage such independently-operating businesses. ERP systems hence came up to replace chunks of disparate information by integrating these company-wide departments.
3.1.1 Issues and problems in an organization
Without ERP in an organization, various issues arise such as: availability of the items cannot be checked at the time of accepting sales order. On-line material status is not available for reference purposes. There is poor material planning for manufacturing purposes. There is always a common complain about poor customer service. There is also poor payroll management which leads to various misunderstandings and error-based calculations at times. There is mismanagement of inventory. There is poor checking of items in-stock and items-needed. Most importantly, it is totally paper-based data, not a central repository. The working comprises of less automated technology, especially for QC (Quality Control.). There is poor Quality Management, which is now a need in any kind of organization to succeed. Hence, various reasons as those mentioned above set up a strong need for ERP to address these issues before losses caused become more severe.
3.1.2 Solutions through ERP
Incorporating ERP would help us to facilitate a company-wide system. It would help perform automated tasks when needed. It would also provide better customer service as data retrieval is enhanced. There would be optimization of data entry systematically. It would help to have a fully synchronized online system with all the modules very well integrated. It would thus make many processes human-independent. ERP would help to enhance authorization and security. It would help to minimize data redundancy by removing duplicate entries. ERP would help to create a flexible system, so that future business changes can be easily incorporated.
In short, ERP would enable the organizations to provide its customers a more value added service.
3.2 How do we use ERP?
3.2.1 ERP Implementation
ERP implementation can be carried out stepwise as below:
Establishment of project:
This phase deals with setting up of project teams and requirements planning.
Development of procedures:
This phase deals with developing the different applications that would be needed.
Customization of application software:
This phase deals with mapping of actual procedures with already available applications in ERP software according to Customization requirement specification document.
This phase typically deals with testing of quality measures and satisfaction of end users.
Training of end users:
This phase deals with training all the end users with ERP software.
Conference room trial:
This phase deals with trying of the actual software in a business environment.
This phase deals with loading all the available and needed data in the single ERP database.
This phase deals with the actual working and usage of the ERP software.
3.2.2 Integration among different ERP modules
There are many different types of modules or possibly sub-sections of ERP. All these modules or sub-systems are tightly integrated under ERP. Different possible modules of the ERP system could be:
Purchase module, accounts receivable and payable module, raw materials module, payroll module, human resource module, production planning module, scheduling module, financial accounting module, sales and dispatch module, export process module, marketing module, customer relationship module, inter office communication, event tracking inter office data synchronization, engineering & maintenance module etc.
An organization can use ERP for practically all of their functionalities within the company through a series of modules provided. Each module can be configured for a particular task.
Purchase module: To place the purchase order along with receipt for the same.
Sales module: To check the amount of sales.
Quality Control module: To check for quality at various stages of the implementation phase.
Payroll module: To automate salary-calculation according to various specifications.
Cash management module: To maintain a list or record of all cash and bank transactions done till that moment.
Asset Management: To keep track of fixed assets..
Budgetary control (BC) module: To plan and compare actual results with budgeted amount.
Accounts Payable Module (AP): Managing the entry as well as payment of purchases and credit notes received from vendor.
Accounts Receivable Module (AR): Pending customer payments could be tracked through this module.
Production module: Set up for use through Bill of materials (BOM) and routing functionality (which tells the method or route to follow for manufacturing).
4. Importance of DBMS in ERP systems
4.1 Relation of ERP to DBMS use
With an ERP system, data needs to be entered only once. All ERP vendors support native, well known and some open source databases. Centralized storage along with ACID properties of DBMS (Atomicity, consistency, isolation, durability) give data independency and possibility of abstraction depending of customer needs. From end-user point of view, DBMS gives a possibility of having different approaches to the same data concerning business needs. It gives us the possibility to choose level of security in accessing DBMS, tables, fields and even data, depending on values inside each field. It provides us with a level of abstraction between conceptual schemes, defining logical database data structure and the physical scheme describing database index fields. Hence, ERP is virtually on its own, totally independent from the underlying physical DBMS. (Cunovic, 2005)
4.2 Selecting the right DBMS
According to Cunovic (2005), some key factors to be considered while selecting a DBMS should be:
Query Language: To determine the query language to be provided.
Importing and exporting tables: To determine the types of formats that could be read and written (HTML, XML, plain text etc.)
Scalability: To find out the possible limits, if any, to the number of rows, columns, table-size, total number of tables and maximum possible file-size that DBMS could handle.
Indexing: To find out the possible native indexing facilities available.
System resources: To estimate the size of installed system, user-privileges and required disk space.
Interfaces and APIs: To find out which external interfaces (JDBC, ODBC etc.) and which APIs along with different types of programming languages are available.
Remote access: To check whether there is any provision for remote invocation.
Distributed databases: To check whether there is support for distributed databases or not.
Parallelism: To check for any support or set-up for parallelism.
Security management: To find out what facilities have been provided to control the ownership and access to individual tables.
System installation: To estimate the amount of effort that would be required to install the DBMS.
System management: To estimate the effect of DBMS on effort to manage the system and the effort required by Database administrator (DBA) to run the ERP system.
4.3 The concept of RDBMS for ERP
ERP systems suit the best with RDBMS. RDBMS stands for relational database management systems. The main highlights of RDBMS are hat it allows to formulate the data in table format. It also allows relations enables between data elements in tables. It supports one database to be utilized for all applications. Hence, RDBMS is what could be actually considered when we think of a DBMS system type for ERP as it serves an extension to DBMS suitable for ERP.
5.1 Advantages of ERP
There are many advantages of using ERP system. The forecasting requirement of ERP allows the companies to be more profitable and give them a competitive advantage for future events or occurrences. The tracking feature is a great functionality, which starts right from the time an order is accepted up to the time it gets shipped or delivered. Tracking at each and every step helps the organization as well as the customer up-to date with the progress. Integration among various modules and departments helps to develop good working skills and better communication to increase the overall productivity. Also, at each and every step receipt is available for keeping records of all transactions done up till now. Data centralization by ERP offers the advantage of overcoming any possibility of synchronization problems between multiple systems. Some security features such as internal controls are also provided to guard the ERP system against any possible internal crime. Also, the graphic based and user-friendly interface makes it easy and efficient to operate. There are also readily made solutions available to many problems inside the ERP system. (Bhatti, 2010)
5.2 Disadvantages of ERP
In spite of ERP being so beneficial and having lot many advantages, there are few disadvantages associated with it too. For many companies, ERP systems or software can prove to be too expensive, that it would be difficult to incorporate an ERP. ERP comes with many built-in functionalities and customization to already existing ERP software would be a problem to many companies. ERP software at times becomes difficult for companies to incorporate into their business processes, proving it to be the main cause of failures. Still at times sharing sensitive data between the departments can cause a problem to the smooth and efficient working of the ERP software. A very famous analogy relating to the toughness of adapting ERP is: ERP is like a nine-month root canal. (Bhatii, 2010)
5.3 Future of ERP
Customization or specifications tailored according to needs of the company is the segment where ERP systems would focus in future. Generic ERP software is already in increased demand and getting more and more popular. Also various hardware as well as software changes along with translation facility built in to the software which would allow data in any amount, language and format to get transferred, translated and stored with ease. More advanced and optimized data mining techniques along with intelligent expert systems would increase the productivity and ease in the business units of the company. A simulated environment would also prove very beneficial in the future for ERP systems through its advantages in cost, accounting, forecasting and other sections. (Jacobs, Weston Jr., 2007)
Choosing an ERP system is a very hard thing to undertake. It demands the knowledge and understanding of a variety of business units. On the other side, choosing DBMS relates to the ERP system chosen. But, an organization shouldn’t choose an ERP without taking into consideration possible underlying DBMS’s. DBMS vendors claim to be the best around and they all can also give out a list of notes of their satisfied customers.
Implementing ERP is a strategic decision, which involves human as well as financial resources and requires proper evaluation and business process re-engineering. There must be commitment and efforts from all sections. An unsuccessful attempt or an implementation which fails could lead to the organization becoming bankrupt.
To conclude, ERP systems are currently one of the biggest needs of any organization presently. They provide an organization with enormous advantages related to cost, speed, efficiency, productivity and decision making. (Bhatti, 2010)