Enterprise Resource Planning

Management for Professionals

For further volumes

http://www.springer.com/series/10101

K. Ganesh • Sanjay Mohapatra

S. P. Anbuudayasankar • P. Sivakumar

Enterprise Resource

Planning

Fundamentals of Design and Implementation

1 3

ISSN 2192-8096         ISSN 2192-810X (electronic)

ISBN 978-3-319-05926-6    ISBN 978-3-319-05927-3 (eBook)

DOI 10.1007/978-3-319-05927-3

Springer Cham Heidelberg New York Dordrecht London

Library of Congress Control Number: 2014938398

© Springer International Publishing Switzerland 2014

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K. Ganesh

Supply Chain Management - Center of

Competence

McKinsey Knowledge Center (McKC) |

McKinsey & Company, Inc.

Ascendas International Tech Park

TamilNadu

India

Sanjay Mohapatra

Xavier Institute of Management

Bhubaneswar

India

S. P. Anbuudayasankar

Department of Mechanical Engineering

Amrita School of Engineering

Coimbatore

India

P. Sivakumar

Vickram College of Engineering

Enathi, Sivagangai

India

v

Preface

This book is designed to meet the needs of researchers and students. The text as￾sumes that the reader knows basic system analysis and design (SAD). The SAD

techniques required for understanding some advanced topics are incorporated in

individual chapters.

This book’s main objective is to introduce, in a unique manner, the fundamental

principles of understanding business requirements and fitting enterprise resource

planning (ERP) to meet these business needs. The book also helps to understand

the usage of ERP for monitoring and controlling business processes. A sufficient

number of topics has been covered in detail to enable the readers to follow without

much difficulty.

The first three chapters of this book introduce multiple deployment consider￾ations, project initiation and core process analysis. These chapters provide an over￾view of prerequisites, activities, deliverables and critical success factors of project

initiations and core process analysis. We believe that once you understand the basic

principles of detailed activities, creating solutions to critical success factors is a

matter of fact.

Chapters 4 through 6 present techniques and strategies for conference room pi￾lot, customization, interface and conversion for improving aligning ERP with busi￾ness models.

Chapters 7 through 11 suggest system integration testing, training and user ac￾ceptance test. These chapters offer recommendations regarding effective and pro￾ductive testing techniques before production goes live.

Finally, Chap. 12 explores project management and its objectives. This last chap￾ter provides detailed activities and deliverables for project management. We also

discuss decision matrices and critical success factors for implementation.

vii

Contents

1 ERP as a Business Enabler........................................................................ 1

1.1  Introduction......................................................................................... 1

1.2  Evolution of ERP ................................................................................  2

1.2.1  Scope for MRP-I......................................................................  3

1.2.2  MRP-II.....................................................................................  4

1.3  Need for ERP ......................................................................................  6

1.4  Overview of ERP ................................................................................  7

1.5  Modules of ERP..................................................................................  8

1.5.1  Components of Material Management Module.......................  8

1.6  ERP Life Cycle....................................................................................  9

1.7  How ERP Improves Productivity of Business Processes.................... 11

1.8  Benefits of Automation Through ERP ................................................ 12

1.8.1  Collaboration Approach........................................................... 12

1.8.2  Cross Functional Barrier is Broken ......................................... 13

1.8.3  Integration of Island of Automation ........................................ 13

1.8.4  Key Principles for Integration of Islands................................. 14

1.9  ERP Products....................................................................................... 17

1.9.1  SAP.......................................................................................... 17

1.9.2  PeopleSoft................................................................................ 18

1.9.3  Oracle ...................................................................................... 18

1.9.4  Microsoft Dynamics................................................................ 19

1.9.5  Comparison of ERP Packages................................................. 19

1.10  Trend in ERP: Open-Source ERP........................................................ 25

1.10.1  Definition of Open Source....................................................... 26

1.10.2  Advantages of Using Open-Source ERP ................................. 26

1.10.3  Conclusion............................................................................... 27

1.11  MIS and ERP....................................................................................... 29

1.12  Summary ............................................................................................. 30

1.13  Glossary............................................................................................... 30

1.14  Review Questions................................................................................ 31

1.15  Project Work........................................................................................ 31

1.16  Case Study........................................................................................... 32

viii Contents

1.16.1 Background.............................................................................. 32

1.16.2 Current Situation ..................................................................... 33

1.16.3 Challenges ............................................................................... 34

1.16.4 Discussion Points..................................................................... 34

1.16.5 Notes that will help in Discussion........................................... 34

Further Reading............................................................................................ 35

2 Introduction................................................................................................ 37

2.1 Target Audience................................................................................... 39

2.1.1 Multiple Deployment Sites/Multiphase Considerations.......... 39

2.1.2 Structure of the Document....................................................... 40

2.2 Project Initiation.................................................................................. 41

2.2.1 Objective.................................................................................. 41

2.2.2 Prerequisites ............................................................................ 43

2.2.3 Detail Activities....................................................................... 44

2.2.4 Decision Matrix/Checklist....................................................... 46

2.2.5 Critical Success Factors........................................................... 47

3 Core Process Analysis................................................................................ 49

3.1 Objective ............................................................................................. 49

3.2 Prerequisites........................................................................................ 50

3.2.1 Business Requirement Definition............................................ 50

3.2.2 Business Requirement Mapping.............................................. 50

3.3 Detail Activities................................................................................... 51

3.3.1 Business Requirement Definition............................................ 51

3.3.2 Core Process Analysis: Key Process Owners Training ........... 56

3.3.3 Core Process Analysis: Business Requirement

Mapping and Gap Analysis/Resolution................................... 59

3.4 Deliverables (Table 3.11) .................................................................... 67

3.5 Decision Matrix/Checklist (Table 3.12).............................................. 67

3.6 Critical Success Factors ...................................................................... 67

4 Conference Room Pilot.............................................................................. 71

4.1 Objective ............................................................................................. 71

4.2 Business Flow Diagram: Conference Room Pilot .............................. 73

4.3 Prerequisite.......................................................................................... 73

4.4 Detailed Activities............................................................................... 74

4.4.1 Prepare Instance Strategy ........................................................ 74

4.4.2 Prepare Backup Strategy ......................................................... 74

4.4.3 Define Application Instance Management Procedures............ 74

4.5 Install the CRP Instance ...................................................................... 75

4.5.1 Define Application Setup ........................................................ 75

4.5.2 Unit Testing and CRP.............................................................. 78

4.6 Deliverables (Table 4.2)...................................................................... 82

Contents ix

4.7  Decision Matrix/Checklist (Table 4.3)................................................ 82

4.8  Critical Success Factors ...................................................................... 82

5 Customizations........................................................................................... 85

5.1  Objective ............................................................................................. 85

5.2  Process Flow Diagram: Implementation of Customization ................ 85

5.3  Implementation Schedule—Customization ........................................ 85

5.4  Prerequisite.......................................................................................... 86

5.5  Detail Activities................................................................................... 87

5.5.1  Gap Analysis............................................................................ 87

5.5.2  Analyze Dependency ............................................................... 87

5.5.3  Design...................................................................................... 88

5.5.4  Development............................................................................ 88

5.6  Deliverables......................................................................................... 89

5.7  Decision Matrix/Checklist .................................................................. 89

5.8  Critical Success Factors ...................................................................... 89

6 Interface and Conversion.......................................................................... 91

6.1  Objective ............................................................................................. 91

6.2  Business Flow Diagram ...................................................................... 91

6.3 Implementation Schedule—Interface.................................................. 93

6.4  Prerequisite.......................................................................................... 93

6.5  Detail Activities................................................................................... 93

6.5.1  Identify Interfaces and Tools................................................... 93

6.5.2  Prepare Interface-Building Plan .............................................. 94

6.5.3  Interface Designing ................................................................. 94

6.5.4  Interface Development ............................................................ 95

6.5.5  Interface Integration Testing.................................................... 96

6.5.6  User Acceptance Testing.......................................................... 96

6.5.7  Identify and Freeze Source Data Files..................................... 97

6.5.8  Load and Validate Source File for Data Migration.................. 97

6.5.9  Load and Validate Backlog Transaction Data.......................... 98

6.6  Deliverables......................................................................................... 98

6.7  Decision Matrix/Checklist .................................................................. 99

6.8  Critical Success Factors ...................................................................... 99

7 System Integration Testing........................................................................ 101

7.1  Objective ............................................................................................. 101

7.2  Business Flow Diagram ...................................................................... 101

7.3 Implementation Schedule—System and Regression Testing

(Table 7.1) ........................................................................................... 102

7.4  Prerequisite.......................................................................................... 102

7.5  Detail Activities................................................................................... 103

7.5.1  Define Testing Requirement and Strategy............................... 103

7.5.2  Prepare Testing Environment .................................................. 103

x

7.5.3  Perform System Integration Testing ........................................ 104

7.5.4  Regression Testing................................................................... 105

7.6  Deliverables (Table 7.6)...................................................................... 106

7.7  Decision Matrix/Checklist (Table 7.7)................................................ 106

7.8  Critical Success Factors ...................................................................... 106

8 Training....................................................................................................... 109

8.1  Objective ............................................................................................. 109

8.2  Workflow Diagram of Training Process.............................................. 109

8.3  Implementation Schedule: Training (Table 8.1).................................. 110

8.4  Prerequisite.......................................................................................... 110

8.5  Detail Activity and Task List for Training .......................................... 110

8.5.1  Assess User Requirements....................................................... 110

8.5.2  Develop Training/User Procedures Strategy ........................... 113

8.5.3 Develop Training Curriculum and End User

Documentation ........................................................................ 114

8.5.4  Deliver Training....................................................................... 117

8.6  Deliverables (Table 8.6)...................................................................... 119

8.7  Decision Matrix/Checklist (Table 8.7)................................................ 119

8.8  Critical Success Factors ...................................................................... 121

9 User Acceptance Test ................................................................................. 123

9.1  Objective ............................................................................................. 123

9.2  Implementation Schedule—UAT........................................................ 124

9.3  Prerequisite.......................................................................................... 124

9.4  Detail Activities................................................................................... 125

9.4.1  UAT Strategy ........................................................................... 125

9.4.2  Prepare UAT Environment ...................................................... 125

9.4.3  Conduct UAT........................................................................... 126

9.5  Deliverables......................................................................................... 126

9.6  Decision Matrix/Checklist .................................................................. 126

9.7  Critical Success Factors ...................................................................... 126

10 Production Go Live.................................................................................... 129

10.1 Objective ............................................................................................. 129

10.2 Workflow of the Production Go Live phase

(Fig. 10.1; Table 10.1)........................................................................ 129

10.3 Prerequisite.......................................................................................... 129

10.4 Detailed Activities............................................................................... 131

10.4.1 Define Transition Strategy....................................................... 131

10.4.2 Develop Contingency Plan...................................................... 131

10.4.3 Prepare Production Environment ............................................ 132

10.4.4 Set Up Applications................................................................. 133

10.4.5 Implement Production Support Infrastructure......................... 133

10.4.6 Verify Production Readiness ................................................... 134

10.4.7 Integrate Custom Components................................................ 135

Contents

xi

10.4.8 Data Migration....................................................................... 136

10.4.9 Begin Production................................................................... 136

10.4.10 Maintain System.................................................................... 137

10.5 Deliverables (Table 10.12).................................................................. 138

10.6 Decision Matrix/Checklist (Table 10.13)............................................ 138

10.7 Critical Success Factors ...................................................................... 138

11 Rollout......................................................................................................... 141

11.1 Objective ............................................................................................. 141

11.2 Business Flow Diagram (Fig. 11.1)..................................................... 142

11.3 Implementation Schedule: Rollout (Table 11.1) ................................. 142

11.4 Prerequisites........................................................................................ 142

11.5 Detailed Activities............................................................................... 143

11.5.1 Rollout Strategy (Table 11.2)................................................. 143

11.5.2 Analyze Site-Specific Requirement....................................... 143

11.5.3 Prepare Production Environment (Table 11.4) ...................... 144

11.5.4 Application Setup (Table 11.5).............................................. 144

11.5.5 Integrate Custom Components (Table 11.6).......................... 144

11.5.6 User Acceptance Testing (Table 11.7) ................................... 145

11.5.7 Data Migration (Table 11.8) .................................................. 145

11.5.8 Begin Production (Table 11.9)............................................... 145

11.5.9 Maintain System (Table 11.10).............................................. 145

11.6 Deliverables (Table 11.11)................................................................... 145

11.7 Decision Matrix/Checklist (Table 11.12) ............................................ 145

11.8 Critical Success Factors ...................................................................... 149

12 Project Management.................................................................................. 151

12.1  Objective ............................................................................................. 151

12.2  Project Management Life Cycle.......................................................... 152

12.2.1  Prerequisites .......................................................................... 152

12.2.2 Detailed Activities................................................................. 153

12.2.3  Risk Management: Broad Approach ..................................... 154

12.2.4  Issue/Problem Management: Broad Approach...................... 154

12.2.5  Change Control Management: Broad Approach ................... 154

12.2.6  Status Monitoring and Control: Broad Approach.................. 157

12.2.7  Problem Reporting and Escalation ........................................ 158

12.2.8  Project Completion................................................................ 159

12.2.9  Manage Acceptance Expectations Carefully ......................... 159

12.3  Deliverables......................................................................................... 160

12.4  Decision Matrix/Checklist .................................................................. 160

12.5  Critical Success Factors ...................................................................... 160

13 ERP in B School ......................................................................................... 161

13.1  Introduction......................................................................................... 161

13.2  Literature Review................................................................................ 161

13.3  Objective ............................................................................................. 163

Contents

xii

13.4 Methodology ....................................................................................... 163

13.5 Case Study XIMB............................................................................... 163

13.5.1 A Step Forward by XIMB...................................................... 164

13.6 Analysis............................................................................................... 165

13.7 Conclusion........................................................................................... 165

Further Reading............................................................................................ 166

Index.................................................................................................................. 169

Contents

1

Chapter 1

ERP as a Business Enabler

1.1 Introduction

In order to sustain and grow further, an organization must deal with all sales hold￾ers such as employees, stakeholders and the environment. The organization must

design an information system that would collect information as well as provide re￾quired information to all these stakeholders. Accordingly, business processes must

be organized in such a way that these processes use designed information systems

to operate efficiently and enhance the overall performance of the organization. The

business processes are organized in such a way that they provide value to their

stakeholders by prioritizing a strategy that would provide a faster and higher return

on investment (ROI). This prioritization ensures focus of these organizations in rela￾tion to their corporate objectives. Since resources are limited, efforts are prioritized

on certain business processes which would yield tremendous and faster benefits to

the stakeholders. To achieve this, information systems are designed across the entire

enterprise, which would help in providing information for tracking and monitoring

progress of different processes. These enterprise-wide applications (known as en￾terprise resource applications, ERPs) help in assisting in designing, integrating and

automating these prioritized information systems.

For example, raising an invoice for customers is a business process that involves

a set of activities. This set of activities is different in different organizations. Dif￾ferent activities in this business process can be collecting details of sales, looking

up the rate chart, arriving at the value of goods and printing an invoice. In some

organizations, these set of activities can be slow and inefficient, whereas in others

Learning Objectives

• To provide an understanding of enterprise systems and their impact on

business processes.

• To appreciate critical roles of enterprise resource planning (ERP) in auto￾mating business processes and meeting corporate objectives.

• How to integrate ERP with management information system (MIS).

K. Ganesh et al., Enterprise Resource Planning, Management for Professionals,

DOI 10.1007/978-3-319-05927-3_1, © Springer International Publishing Switzerland 2014

2 1 ERP as a Business Enabler

it can be fast and effective. One of the objectives of ERP is to design an efficient

information system by integrating and automating these set of activities to make it

faster and transparent. The degree of integration decides simultaneous publication

of the information with different stakeholders and helps improve the performance

of the organization. This also becomes the source of competitive strength and can

be the differentiating factor with respect to its competition. ERPs help organizations

to achieve this competitive advantage.

The ERP can be considered an integrated package of business processes. The

scope of the ERP determines the extent of automation of business processes. For

example, if the ERP covers human resource (HR) and finance business processes

only, then business process-related HR and finance are automated. Typically, busi￾ness processes that are automated in HR and finance are employee entry and exit

processes, allocation of employee ID, payroll, processing, income tax planning,

actual deduction, etc. There is a seamless flow of employee data and information

available at an effectively faster rate to take appropriate decisions. Figure 1.1 shows

a typical framework for ERP application where HR and finance have focus.

1.2 Evolution of ERP

Integration of information systems started even before ERPs came into being. This

form of integration had limited focus; nevertheless, using information systems for

tracking and monitoring business processes were central to the existence in manu￾facturing organizations. Material requirement planning (MRP-I) was practiced in

the 1960s and 1970s by many manufacturing organizations. MRP-I was a software

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1.2  Evolution of ERP 3

which automated production planning and inventory control so that all the business

related to manufacturing was completed in a seamless manner. The objectives of

this system were as follows:

1. Required input materials are available for production.

2. Required products are made from input material and delivered to the customers.

3. Maintain an optional level of investors.

4. Schedule manufacturing activities to meet delivery schedules for the customer.

5. Schedule purchasing activities to meet manufacturing activities.

1.2.1 Scope for MRP-I

Manufacturing industries, in general, deal with invention management all the time.

The day-to-day problems lie with customers and suppliers. Customers want the

products to be available in a short time irrespective of the cycle time required for

producing them. The organization also needs to control both quantity and quality of

materials that they get from the suppliers; and these materials should be available

at the lowest possible cost. There could be a different combination of problems that

the organization would face:

• If quantities purchased were lower, it would lead to a stock-out situation for

customers.

• If the wrong quality or wrong input material is purchased, then the quality of the

final product will not match that required by the customer.

• If excessive quantities are purchased, it would lead to excess inventory; this

means funds are held up in the form of inventory leading to less inventory and

consequently less profit.

These kinds of problems are tackled by MRP-I; thus, MRP- I helps to solve prob￾lems like:

• What items are required?

• What is the quantity of each item?

• What is the time frame for availability of these items?

Problems with MRP-I

MRP-I was able to satisfy simple manufacturing business processes. In business

processes, where bought-in items and sub-assemblies were involved, the situa￾tion became complex. In these complex situations, a bill of material needs to be

handled effectively to take care of details of required materials, details of com￾ponents and sub-assemblies to make each product. MRP-I was not able to handle

these complex situations effectively. The problems faced with MRP-I are listed

as follows:

4 1 ERP as a Business Enabler

1. In these bills of material, integrity of data creates a major problem. Any incorrect

input in bill of materials inventory data would result in incorrect manufacturing

scheduled. In the 1960s, MRP-I was often considered inappropriate, because of

incorrect inventory data.

2. Lead time taken to manufacture a product from its component parts needs to be

stated explicitly. Any wrong data in this respect will bring out a wrong schedule

for production. The assumption here is that in each manufacturing cycle, the lead

time remains constant. Thus, any change in external facts would change this lead

time and MRP-I was not able to handle these changes.

3. There were manufacturers who had factories at different locations. These loca￾tions could be at quite far-off places. For efficient manufacturing, material

needs to be transferred from one location to another depending on the cost fac￾tor involved in this transfer. MRP-I was not cost-effective in transferring goods

from one location to another.

4. Customization was also handled by MRP-I. This meant that dynamic changes

in the environment, including in customer needs, could not be handled by

MRP-I.

5. MRP-I also never considered the capacity available in the factory. Thus, utiliza￾tion of capacity could not be factored in while using MRP-I for scheduling.

All these problems were dealt with in MRP-II.

1.2.2 MRP-II

MRP-II came as an improvement of MRP-I in the 1980s. This, as the name sug￾gests, was an extension of MRP-I. Its scope covers manufacturing, scheduling,

operational planning and financial planning along with distribution management.

Unlike MRP-I, this was not a software alone, but a combination of planning skills,

data integrity skills and computing resources. Thus, it gave birth to the concept

of managing different departments simultaneously by effectively using resources.

Figure 1.2 shows how MRP-II is represented.

As Fig. 1.2 indicates, MRP-II integrates strategic planning, tactical planning,

shop from operation and market forecasting. For the first time, a concept was born

which took care of enterprise-level planning. Unlike MRP-I (which was a software

alone), MRP-II changed the perspective of planning and integration of different

departments.

Benefits of MRP-II

The integration of different aspects of an organization ensured that there was no

duplication of data, high data integrity and accuracy in forecasting using customer

feedback. The benefits from this integration can be summed up thus: