Enterprise Resource Planning (ERP) is defined as an Integrated Computer based planning technique used in Organizations and Enterprises for management and resource planning. Resources here mean both internal and external resources of an organization. Various resources of an organization can include financial resource, tangible resource, human resource and also various material requirements. ERP can also be defined as an application and software architecture that facilitates Information flows between various business functions inside and outside of an organization. It consolidates business environment into a uniform system environment. Basically what ERP systems do is that it integrates and automates processes within an entire organization regardless of the organization’s behavior.
A traditional definition of Enterprise Resource Planning (ERP) as given by APICS – The Educational Society for Resource Management is given as, ERP is a method for effective planning and control of all resources needed to take, make, ship and account for customer orders in a manufacturing, distribution or service company.
ERP are used in various Industries and organizations like manufacturing, distribution, transportation, education, healthcare, banking and others. ERP delivers a single database that contains all data for the various software modules. It typically addresses areas such as:
- Manufacturing resource planning: Engineering, bills of materials, scheduling, capacity, workflow management, quality control, cost management, manufacturing process, manufacturing projects and manufacturing flow.
- Supply chain management: Order to cash, inventory, order entry, purchasing, product configuration, supply chain planning, supplier scheduling, inspection of goods, claim processing and commission calculation.
- Financial management: General ledger, cash management, accounts payable, accounts receivable, fixed assets.
- Project management: Billing, time and expense, performance units, activity management.
- Human resource management: Human resources, payroll, training, time and attendance, roistering, benefits.
So, ERP can be describes to integrate all departments and functions across a company onto a single computer system that can serve all those different departments’ particular needs. Hence, it is extremely important to know how to use effectively Enterprise Resource Planning for a success implementation. In order for Enterprise Resource Planning system to succeed, it must be capable of successfully integrating manufacturing with the other processes of a company. Besides that, Enterprise Resource Planning is not the cure to all the problems a business will face. A number of advantages and disadvantages exists to this technology, and those who know this will be the most likely to succeed.
By the implementation of Enterprise Resource Planning, it comes up with a number of advantages that helps to solve a number of problems that have plagued large organizations in the past and used to integrate the many processes of a company or organization. Scalability is also an advantage, like Enterprise Resource Planning also helps to improve the production levels and to control costs more efficiently, and this enabled us to control the whole enterprise more efficiently.
As a result, Enterprise Resource Planning is no longer just a competitive advantage in this globalized world. It is very important requirement for every enterprise. To truly be effective, it may be necessary to combine the benefits of Enterprise Resource Planning with those of Customer Relationship Management (CRM).
Mini Case Study: Enterprise Resource Planning (ERP) Implementation at Nestlé
By October 1997, a group of 50 top business executives and 10 senior IT professionals had been congregated to device the SAP project to come up with a set of best practices that would become common work procedures for every Nestlé division which are manufacturing, purchasing, accounting and sales by adopted new pan-Nestle’ way.
Firstly, in order to implement the technical side, a common structure across the company, the vanilla would be code 1234 in every division. The SAP system customize around the uniform affair procedure. The group decided that they are not to use SAP in supply chain because the ERP supply chain module adopted was brand-new and therefore risky. Furthermore, Manugistics supply chain module followed all the SAP standards and could easily be integrated.
Nestlé implement five SAP modules which are purchasing, financials, sales and distribution, accounts payable and accounts receivable and the Manugistics supply chain module which deployed across every Nestlé division, by March 1998. Besides that, the purchasing company for confections pursues the identical best practices and information as the purchasing company for beverages.
To beat the Y2K deadline, the best project group had overlooked the integration points between the modules. All purchasing departments now used general names and systems, and followed a general process, but their system was not integrated with the financial, planning or sales groups. A salesperson may have given a valuable customer a discount rate and entered it into the new system, however the accounts receivable department wouldn’t know about it. Hence, it would appear to the accounts receivable operative as though the invoice were only partially paid as customer paid the discounted rate. The project team had essentially replaced divisional silos with process silos to unify the company’s separate brands.
The time constraints necessitated by Y2K had put too much pressure on the people in charge of executing the changes. The project team had lost the big picture of how the various components would work together. Hence, the existing modules had to be integrated and the team still needed to roll out another two more SAP modules which are sales and distribution on the domestic side, and accounts receivable as well as a new module for the supply chain. Since Jeri Dunn, vice president and CIO of Nestlé USA, had rejected the SAP supply chain module two years before, therefore, it leads to decision to replace all but a couple of parts of the Manugistics system with APO.
The last state of design was completed on April 2001 and giving the project teams a highly detailed road map to follow. One month later, Tom James came on board as director of process change for the Best project with the responsibility as a connection between the divisions and the project team. He was so surprised by the poor relationship between divisions and project team. They conducted surveys that were involved of how the workers affected by the new systems were dealing with the changes and the feedback was the users were not prepared to make process alter.
ERP projects are famous and need a long period and a lot of money to done it. Dunn maintains the slow and steady wins the race. Nestlé United State accomplishes the significant ROI with the greatest bulk of savings from better demand forecasting.
The old process included a sales man giving a number to the those men and demand planner do not know what the hell they are talking about then the factory changes the number again.
With SAP in place, general databases and business processes lead to more trustworthy demand forecasts for the various Nestlé products. Furthermore, because all of Nestlé United State also using the same data then Nestlé can forecast down to the distribution center level to diminish the inventory and the redistribution expenses that occur when too much of a product is sent to one place and not enough to another. The supply chain improvements accounted for a major chunk of the $325 million has saved from SAP.
- Nestlé Struggles with Enterprise Systems (Pearson)
- Nestlé’s Enterprise Resource Planning (ERP) Odyssey (CIO)
Related Case Study – Case Study of China Telecom: ERP Implementation