Definition of ERP
We call an ERP system a single, using a common database and communication environment, a system of functional tools, covers all aspects of the management of the company and provides employees from all division with the opportunity to receive immediately all the information necessary for the performance of their duties.
All data relating to an operation registered in the system should be reflected immediately without further processing in all related areas and made immediately available to all interested parties.
In order to overcome the maximum number of problems of the organization, control, forecasting, planning and management of the business,business people and applied specialists in many areas have developed and continue to develop ERP (Enterprise Resource Planning) systems.
The exact translation of the term is “Enterprise Resource Planning System” and in Bulgarian the term “Business Management System” has been approved.
The ERP concept implies maximum informational connection of own actions with those of customers, suppliers, competitors, government authorities and all other potentially related to the enterprise entities.
Its main highlights are:
• single database;
• functional comprehensiveness;
• maximum opportunities for modification in case of changes in business and environment;
• full and immediate usability of all data;
• full information connectivity of all specialists.
The conclusion from what has been said so far is that even if a seperate system works for each application area, their multitude cannot meet the modern requirements for effective business management.
The functional areas that should be covered by any system implementing the ERP concept are:
• procedures and operations relating to actual and potential customers and suppliers;
• managing the structure and life cycle of each product or service;
• forecasting, planning and reporting on the processes of creating company products and services;
• human resource management;
• fixed assets;
• projects and investments;
• accounting services and financial management;
• business analysis and decision making.
Functionality related to customers
The vital goal of any enterprise – increasing the number of satisfied customers – determines the variety of data and the “cross-sections” in which they are considered.
Information needed about:
• the characteristics, habits and behaviour of the client;
• its requirements for delivery terms and the value of satisfying them;
• completed, current and expected operations;
• commercial policy – prices, discounts, etc.
For packages offering such functionality, the following classification is validated:
• CRM (Customer Relationship Management) – collecting and processing information about each customer with a focus on their requirements and behavioural patterns;
• SCM (Supply Chain Management) – data and procedures to optimize delivery processes to the customer using business information shared with the partner;
• OSL (Order processing, Sales and Logistics) – accepting and confirming the feasibility of orders, making sales by applying an individualized sales policy and ensuring the feasibility of deliveries under dynamic conditions;
• E-commerce – conducting real-time commercial transactions through the capabilities of the Internet or other communication environments.
As can be seen, there are no hard dividing lines – the functions of each “package” intersect with the functions of the others. The choice of one class or another is determined by the specific focus on each enterprise.
Functionality related to suppliers
The functions that ensure our relationship with suppliers are a mirror image of those connected to customers. All of the above should be repeated “with a reversal of direction”. However, a certain specificity should be highlighted:
• General deficit forecasting – with multivariate assessment of commitments with varying degrees of confirmation, instantaneous stocks and already planned deliveries from own or external sources;
• Inventory data and/or forecasts for the supplier and its suppliers;
• Incoming flow planning – by nomenclature, batches and deadlines;
• Selection of suppliers – based on diverse and often difficult to assess criteria such as reliability, flexibility, etc.;
• Forming and awarding orders.
The overall objective of the funds of this group is to minimize the quantities and value of stocks throughout the chain of connected enterprises.
Functionality from the considered direction is as desirable as it is difficult to implement. In this range of issues, we should actually integrate all the information available to us from the CRM system about market expectations, our own current and planned capabilities, the current state and development plans of our suppliers.
Perhaps this is the reason for improsing only one abbreviation: PLM or Product Lifecicle Management.
This class of applications brings together CRM – technologies, design, modelling, technological realization, qualitative analysis, organization of supply, production and operational maintenance, analysis of market reactions, complementarity and interchangeability of products, etc.
ERP systems have historically arisen from production management systems and store these functions for and are an integral part of them. This class of functions includes anything relating to a description of the structure of the product by stage of production;the general planning of interconnected procdurement; assessment of the accessibility and load of different types of resources; quantitive and qualitive results.
The following feature packages are available on the market:
• BM or Bill of Materials – formal description of the product structure, developed with consideration of required technological and human resources, time characteristics, feasibility in different ways;
• MPS or Master Production Schedule – the timing and technological space of multiple individual production orders in order to achieve certain results at a given time;
• MRP or Material Requirments Planning – optimization of stocks of production raw materials;
• CRP or Capacity Requirments Planning;
The pooling and development of the functional packages listed above has consistently led to:
• MRP II or Manufactiring Resource Planning;
• CSRP or Customer Synchronized Resource Planning.
Human Resource Management
This group of functions includes data and procedures for:
• people as a production resource – consideration of qualification categories, interchangeability, workload, individual value of personnel in the production process;
• psychological aspects of staff – defining behavioural profiles and team compatibility;
• remuneration of labour – measurement and evaluation of individual contribution, formation and payment of wages;
• qualification management – identification of qualification needs management of qualification and retraining programmes; implementation of company policy for work engagement on the basis of development plans;
• social aspects of personnel – statutory and company insurance and social programs for company employees and their families.
The separation of functions from this group is necessary due to their traditional undervaluation in Bulgaria, or their reduction to a purely accounting effect of the processes of drepreciation of the asset.
From an ERP point of view, the following are essential:
• the usability of each asset for different technological purposes;
• the dinstiction between the concepts of “accrued depreciation” and “cost of use” in the production or provision of services;
• taking into account the degree of depletion of the operational and inter-repair resource of each asset and the related rehabilitation, revaluation, transformation, etc.;
• an analysis of the cost-effectiveness of the use of assets in the light of the current maket price of the analogues concerned and/or the cost of execution at the same production stages by external contractors.
• dynamic market revaluation of assets;
• the use of accounting amortization methods stimulating both the efficient use of assets and reinvestments ensuring the modernization of production.
ERP functions from this group (CA – Cost Accounting) imply possibilities for:
• determing the full delivery cost of the purchased goods and services;
• determing the full delivery cost of the purchased goods and services;
• forming the value of direct and indirect costs and their multi-criteria distribution between batches of different products;
• tracking the components of the full cost of products and services in terms of the use of inputs varying from case to case;
• maintaining the characteristics of profit or cost centres; distribution and weighting of indirect income and expenses by profit or expense centres; formation of revenue and cost balances for each center.
Projects and investments
Project Management is usually associated with:
• defining common to all budgets, planning periods and budget items intended for the subsequent analysis of multiple budgets for different projects;
• formation of separate budgets – different approaches imply different links between revenue and expenditure items, different structure (levels) of budgeting;
• procedures and techniques for reporting with varying degrees of automation of the implementation of individual budgets;
• project planning and reporting: general and specific conditions; programs; calendar and network schedules; commodity and operational flows;
• means and techniques for multi-criteria analyses of the degree of risk, return on investment; portfolio formation and management; stock analyses and forecasts.
Accounting services and financial management
It is generally believed that the functions of accounting services and financial management (FM – Financial Management) are best known and developed in the products offered in our country.
Therefore, we will focus only on unpopular opportunities necessary from the point of view of the ERP concept and especially important for enterprises with multinational capital on structure:
• Use of many different charts of accounts, each of which meets some national or functional requirements;
• Recording of accounting operations reflecting one event in different chart of accounts;
• Parameterized transfer of operations from one chart of accountsto another for the purposes of consolidated accounts;
• Immediate generation of accounting operations upon confirmation of business operations, ensuring the immediate multifaceted interpretation of all data generated by a business transaction;
• Definition of various accounting procedures, guaranteeing not only the rapid formation of final results for the period, but also for procedural optimization of the type “What if?”;
• Restatement of the basic financial and accounting statements into a specified currency at a selected rate determined for different dates;
• Maintaining forecast operations and transforming them into real ones with or without changing dates and currencies;
• Calculation of interest on counterpart credit operations;
• User generation of various balance sheets and post-balance sheets and reports of the financial position of the enterprise.
The functional capabilities of this group, usually called BI (Business Intelligence), practically justify all of the above capabilities.
In ERP systems, the functions of business analysis are usually distributed among all “application” directions. For this reason, we usually talk about commercial, marketing, production, financial, etc. analyses.
The set of analyses, reports and forecasts can be divided into the following main types:
• factual – data about a particular information object or event;
• chronological – data on operations related to classified resource flows – commodity, monetary, etc.;
• turnover – aggregated data on classified resource flows;
• correspondent – data on resource flows classified by flow factors;
• comparative – by units and by periods of time – comparison of data according to selected classification criteria;
• statistical – summary data on flows, most often aimed at determining weight characteristics (ranking of the set);
• balance sheet and post-balance sheet;
• cascading – data about the sequence (cascade) of events that occurred as a result of a certain event (decision).
It is particularly important that at least these functions are used by the managers of the upper echelon of the enterprise without intermediaries.
Advantages of ERP-systems
Many years of using ERP-systems proved their advantages:
• complex rethinking and reassessment of company organization, policy and practice when implementing this class of products;
• awareness of the interconnectedness of employee actions;
• improving the quality of management decisions as a consequence of better information;
• rapid and adequate reaction to changes in market, technological and financial conditions;
• strong reduction in delays, restocking, deficits, deviations from standards, etc;
• improving debt collection and return on investment;
• reducing the prime cost of products and services;
• more efficient use of resources, assets and staff;
• full control over all processes in the enterprise.
Each of these advantages is linked to increasing the competitiveness and profitability of the enterprise.
ERP system implementation costs
Evaluating the investments required to implement an ERP-system users usually reort only the cost of the selected software product and technical computer and communication equipment. In fact a number of other, non-obvious costs (remembering that time is money) should also be taken into account:
• for education of new management methods and to implement the new toolkit in practice;
• for application design;
• to select and convert existing data;
• for the preparation of a pilot application, and here the choice should not be in a certain application subfield (for example, accounting, trade, stocks), but in a limited number of technological chains passing through all application areas;
• to analyse the results of the pilot run and adjust the baseline model;
• to document new operating procedures;
• for backing up data from old systems;
• for consultations duting the design period;
• for subscription support of the software product.
The use of the ERP-concept brings awareness of the role of a new person in the management of the enterprise. Some call it “ERP-Manager”, others – “Application Administrator”. The job title does not matter. What matters more is who these people are and how they can contribute maximum value to the enterprise.
• are able to think of the whole enterprise and all its disparate processes as a single harmonious whole;
• notice all the “cracks” and through seemingly insignificant changes manage to achieve incredible results;
• like to stick their noses everywhere and ask strange questions;
• do not recognize authorities and do not see themselves as great;
• seem disorganized sometimes, but who knows why they have authority in front of everyone.
Such people are needed, but no university prepares them. The company that needs them must create them themselves.
Do you require an ERP system?
Do not you think your profit is unjustifiably small?
Does competition attract you old and new clients?
Does it seem to you that your sales department is clumsy in its pricing policy?
Are you late with deliveries and do customers complain?
Is the cost of products unreasonably high?
Do you happen to have excess stocks of some materials and shortages of others?
Do not you get the feeling that some of the staff are only simulating employment?
Does not it seem to you that your accounting department serves virtually only the state?
Do you sometimes think that the management of your company is slipping away?
If you answer “Yes” to 3 or more of these questions, start researching the business management systems market.
The predictable surprises associated with ERP systems
In the process of implementing and operating an ERP system, the vast majority of managers find that:
• many of their specialists “speak different languages”;
• low- and middle-level managers driven by vested interests are resisting new technologies implicitly but fiercely;
• regardless of the “implemented” systems so far – a significant part of the key information “is kept in minds”; too many decisions are taken intuitively; too many “beautiful” reports are not based on real data; too many interrelated internal standards are conflicting;
• real surpluses of some resources and shortages of others have reached threatening operations;
• the hitherto “only possible” and therefore “optimal” organization of creating a product or service is actually quite chaotic and uneconomical;
• people, so far overshadowed by “authorities”, show remarkable professional qualities;
• the advice of the consultants rejected at the beginning is accepted under duress but after a huge waste of time, nerves and money;
• the “saved” funds at the beginning for consultancy services turn into significant losses at a later stage;
• in the process of using the ERP system new ideas arise and more and more of its possibilities are being realized;
• the role of management professionals as a specific professional field is becoming increasingly important.
Author: Nedyalko Todorov