The Main Features Of Erp

Published Date: 02 Nov 2017

ERP is an information system that integrates business activities across departmental boundaries which including planning, manufacturing, sales, accounting, marketing and so forth, into a single system with a common database. Recently, many companies have invested in ERP in order to integrate all departments and functions of a company onto a unified system that can serve all different departments’ particular needs and create an opportunity for value added business processes. ERP replaces stand-alone applications by providing various modules according to a common database and similar application interfaces that service the whole organization rather than parts of it (Valacich, Schneider & Behl, 2012). Furthermore, users are able to access real time information on all aspect of business and enhance the efficiency of companies as it can increase competitive advantage in the global market.

ERP system will automatically generate information such as financial and business information with the data that is entered into the system manually with no further instruction. Thus, users can easily keep track of the work flow across various departments and reduce the operational costs which include in manually tracking. A good ERP system is essentially consists of a common centralized database management system which also known as DBMS. All the data are entered and stored only once that is where the data originate and then used by all the departments and modules simultaneously. For instance, when users are using an ERP system, both inbound logistics and operations have access to current inventory data as both business activities have access to the same information. This help to reduce routine data and information in gathering and processing the data.

The modular design of an ERP system is to integrate several business modules such as manufacturing, financial, accounting and distribution while sharing one database and aid the users in responding to real time information. For example, a customer calls in wondering about the status of an order, the customer service representative can answer the customer by accessing the database which stored in ERP system. Since the modules are totally separate, it can generate the information independence and also provide a seamless flow of data between the different modules. The separate modules work in real time with internet-enabled and batch processing capabilities. In addition, the data stored in central database of ERP system is centrally coordinated in implementation and operation.

Mechanism of the Enterprise Resources Planning System

ERP system; a system being used so commonly by the business industries because of its massive software architecture, supporting the streaming and also the distribution of enterprises information which is scattered all across its functional units. It is a common practice to use the same database for the entire company for the purpose of storing data collected from all available departments in a company.

There are 3 mains functional areas having their responsibility are distributed among the clients and servers. Database component or the server itself served as the first function. It is the central repository which all the data sent or received from client must go through. Next are the clients of the company. Client purchase the system with one simple purpose, which is processing data. Raw data by itself will not carry any meaningful information, thus the system will process the inputted data and provide information when is required. Finally, the application component; acting as an intermediary between the client and database. The process distribution will vary from each successive implementation.

In simpler explain, server is the database and the clients is the business processes of a company. Business processes of a company included Human Resources, Supply Chain Management, Customer Relationship Management, Finance and accounting, Manufacturing and Logistics. Recall back to the last paragraph, these business processes or departmental will enter the daily data in database from the ERP system. For example, when the staff of Customer Relationship Management enters the information of the customer information, the customer data will automatically stored in the company’s huge database and available to accessed by other business process.

For another example, finance and accounting department of the company can be easily to getting the information about the payroll from the human resources department via a database. The staffs of the financial department in the company don’t need to correct payroll data in the human resources department because the data is available in the database and ready to be accesses. This will improve the company’s effectively and efficiency. Therefore, better decision can be made from the Manager because of all information was available in the company database developed by the ERP system.

Without the ERP system, these business processes is stand alone software applications only, and generally work with their own applications, database, and network. This leads to less effective of performance by a company. But if a company implement the ERP system, all the functional area in this company will integrated with all data or information from the functional areas will be stored on a single unique database for ERP system.

Benefit and Cost of ERP system

Benefits of ERP

In this dynamic and force of globalization and innovation of new technology, ERP systems offer flexibility to respond to regularly changing needs of the enterprise and also assist in decision making process. For example, by providing up-to-date information besides real time facility access, this can help the users to track their order, inventory, sales forecasting and any other related business activities. As a result, the manager of the company can make the better decision during decision making process on the company’s policy or decision making on a potential project based on the newest information that frequently update in their company to gain competitive advantage.

The implementation of ERP enables the organization to reduce the transaction costs of the business and enhance its productivity, customer’s satisfaction and profitability. Storing data in a single unified database and making it available to existing users within organization to enable them be aware of the current state of business and perform their job better. The automatic and coherent work flow from one department to another, across the entire company will ensure the smooth transition or completion of process. With the ERP system, a department on company can easily share or get information from other departmental in company. For example, financial department can get the information of worker’s payroll in the database that human resources department shared. This will improved the company’s performance and productivity by using the ERP system. The customer satisfaction will be create and lead to profitability to the company.

The single database of ERP system empowers the centralized storage and backup of all necessarily enterprise data. Backup can avoid the risk of company when the system of a company failure. The system can and will fail every now and then for the of reasons such as hardware failure, viruses in the computer system, or Fire, flooding, longer power failures and other related reason. ERP systems is more secure as centralizations of the security policies can be applied and also every transactions occurs through the systems will be recorded for tracking. A single unique database is the only thing a company needs to focus on because the ERP is capable of storing almost all and any kinds of information, not to mention how much it will help in cost reduction.

Costs of ERP

The main function of the ERP is system is to support the most important internal activities of the organization which is production of product and services. This is what the whole ERP core components are designed for. If the system is being used for value system activities management, including integration of value chains regardless of suppliers, business partners or customers, it may not fit into the system. Due to the system complexity, many organizations have failed to implement the system successfully, for some may not use the system at its full potential.

Complexity again may lead to another problem which is time consumption. ERP is a system that requires a lot of time for tailoring and configuring in order to be fit into the company business’s functions. A fully functional ERP system may take up to 3 to 4 years to be completely configured. Setting up the system is only one of the problems, training the staff to use it is another. Although the system is perfectly fit for the company, it is also very important that the staff know how to operate the system. This will create an extra cost for the company to train their employees the correct way of handling the ERP system. Once again, this will requires more time before the system can be effectively handled as the features and main procedures need to be clearly explained or else the system will fail; resulting in waste of money and investment.

Indirect cost may occur such there is a need to improve the IT infrastructure; adding up into the actual implementation cost which is already at a high level. This is also the main reason why only large company implements ERP system. The average cost of implementing the system is about $ 5.8 million to $ 6.4 million. Restructuring of the company internal infrastructure is sometimes required in order to fit the ERP system with the business nature. Again, the cost without any doubt will rise. If the employees, handling the system are not well trained, a failure of the system could mean the whole business is stunted causing huge loses to the company.

Example of an organization (AirAsia Berhad)

To be further explaining in the Enterprise Resources Planning System (ERP), we chosen the Air Asia as the example of the successful organization in implemented the ERP system. AirAsia Berhad is a Malaysian low-cost airline headquartered in Kuala Lumpur. Air Asia had implemented Enterprise Resource Planning system (ERP system) powered by Microsoft Business Solutions (MBS) on Microsoft technology platform in May 2005 by Avanade consultants.

The integration of the ERP systems with comprehensive software, enable the IT system to function in a more effective and efficient level. Manufacturing, production, finance and accounting functions, sales and marketing, human resources are the main function and business processes of Air Asia are now integrated by the ERP system so that all data will be collected and stored in a single central data repository known as database. Now, every department can access all the information directly through the database, allowing a better collaboration between departments when they are required to work together. Air Asia Berhad benefits from this implementation because their managers can now decide on how to make the best decision as the database provide support in the planning and controlling of the business. Effectiveness and efficiency from the integration will help Air Asia gain competitive advantages against their competitors.

In order to identify the lowest cost for business activities, Air Asia managed to implement the ERP system in the maximized information system. Integrated comprehensive system to improve the effectiveness and efficiency of the IT system can be done through ERP. Air Asia is aiming to successfully maintain their process integrity, reducing financial end closing processing time, and speeding up reporting and data retrieval. The ability to focus in capturing daily transactions made can help improve efficiency of the business operation besides helping Air Asia to reduce their cost.

Just- In -Time (JIT)

Introduction

First of all, Taiichi Ohno was developed just-in-time (JIT) concept which adopted by most Japanese manufacturing industries in 1980 and the main objective is to increase global market competitiveness in the world.

Besides that, definition of just-in-time had derived into various ways. Just-in-time meant the company produces and sent the finished products on time to sell-off to customers or retailers. In addition, JIT concept can be explained that a system to manufacture the required products with qualities needed by the customers. This concept has philosophy that centers on reduce of waste during production process. According to White, JIT purchasing defined as an inventory that control philosophy whose goal is to remain just enough material in the right place at just the right time to produce right amount of goods. (White, 1980) On the other hand, JIT had created flexible environment that keep the inventory as simple as they can.

Basically, there are two factors that important for just-in-time inventory systems which are effective communication and coordination with the suppliers to deliver production requirement into the manufacturing process. Long-term perspective is the main feature of just-in-time system. Company which use this system need to focus their development of products and what supplier need the most in long-term period. In addition, there are few changes such as product offer, specification of raw materials and productivity. These changes must be established and coordinated between the suppliers and manufacturers.

Next, they have to ensure the stable and constant stream of materials for production support by the needed coordination intensely using automated purchasing system. This system is to ensure get the higher level of satisfaction from their customers. Establishment of agreement and contracts are necessary with a limited numbers of suppliers so that ordering and processing process is based on the agreement. When the suppliers wish to increase the order, they can send electronic message to the manufacturer to reorder the amount and requirement of the products needed.

Last but not least, strong relationship between the producer and suppliers is essential by using JIT concept because suppliers were became extension of the primary company. By open communication and free available of information is useful to support tight supply coordination. The essential feature is efficient in supplying process by using JIT system. Efficiency is important in order to competitive in global market. Therefore, companies should set high standard to conform by raw materials and products since there is minimize error. Besides that, they need to train own staff on how to identify error in early stage of production and take corrective actions immediately. This is the only way to make sure efficient in production line and get higher level of confidence from their customers or users.

Mechanisms of Just-In-Time systems

The first process of implementing JIT is to "getting the ball rolling", which determine the foundation for the whole JIT implementation. It can be broken into few stages; they are basic understanding, preliminary education, cost/benefit analysis, top management commitment, a go/no decision, project team and pilot plant identification. These stages must be going through attentively in order to design the strategies which help the designer to obtain maximum benefits from JIT systems.

Education is the second step, which decides the degree of success in JIT implementation. Comprehensive education program must be given to staffs who playing a role in JIT system to ensure they understand their missions since JIT involved a major shift in philosophy within the whole company.

After that, process improvement need to be go through. The improvement involves the manufacturing processes which must obtain the ability to produce small batches with short lead times, and included set-up time reduction and also move to product family flow lines.

The next process is improving the control, the simplified shop layouts, which simple and visible shop floor control are required by JIT implementation. Pull / kanban systems, which are simple control arrangements that pull work through the factory always favored by this mechanism due to the operation is visible to the shop floor personnel, besides, amount of work-in-progress and manufacturing lead times had been limited automatically.

The 5th step is vendor or customer linking, which helps enlarge the JIT systems. The improving included the gradual move to single-source high volume vendors but the improvement should implement carefully to avoid the company become vulnerable.

Cost and Benefit Analysis

In order to produce and deliver the goods just-in-time, there are some hidden cost and benefit of this system. There are seven items should be included in order to ensure JIT system is a success; pull scheduling, purchasing and supplier relations, plant layout, computer integrated manufacturing (CIM), setup reduction, total quality control (TQC) and flexible workforce. Several hidden costs should be discussed which are labor union leverage, problems with flexible manufacturing system (FMS), problems developing a flexible workforce, difficulties with supplying commodities by using JIT, increased expenses for suppliers, and increased space that needed for JIT machinery or others equipment.

The purpose of JIT is used to minimize finished goods on hand and it gives advantage to labor union. In contrast, the company will face substantial loss of income if large number of workers confirmed to walk out due to low level of finished inventories from the company. At the same time, the reputation will be destroyed and economic of that particular country will be affected due to high unemployment rate. In addition, union activity off-side from company is also a serious problem and it happened in India.

Secondly, system which machines and manufacturing tools that enable to do multiple tasks at once time is known ad flexible manufacturing system (FMS). The system is helpful because it can reduce changeover time. Although it is useful but there still have few disadvantages and one of its do not sustain to handle large amount of processing tasks oftenly such as assemble of engine. The main drawbacks is there has hidden cost by using FMS system. Company need to spend double amount of the original cost from traditional push system if they implement flexible manufacturing system for the production. Besides that, there are incurred in expenses for development of flexible workforce. Employees and staffs need to send for further training and it will be costly.

Thirdly, there are two ways to cause the suppliers incur more expenses are satellite warehouse and increment for frequency of shipments. Furthermore, satellite warehouse is used to store facilities suppliers build close to their customer to provide efficient service. However, company need to bear extra expenses on these building if they are using JIT system. Suppliers need to increase total number of shipment since force by JIT system and it has increases the shipping costs at the same time. JIT companies need to increase the price of manufacture goods in order to recover their expenses. Machines that used in just-in-time system will increase the space used as well as the cost for storage warehouse although objectives of it is reduced the space requirement due to less inventory storage.

In contrast, the benefit that use JIT system is reduced several costs. It will reduce the cost to employ workers. Number of workers had been reduced due to implementation and development of manufacturing technologies in the company. They just need to employ expertise to monitor the condition of machine during production process. Since JIT system is used to produce and deliver the goods with customer’s requirement, they do not need to buy large amount of raw material to store it. At the same time, company had saved more costs such as storage and buying costs. This enables company to earn higher level of profit and high quality of products and services.

Example of Organization (MacDonald)

MacDonald is one of the organization which successfully in using JIT systems. There is two main competitive advantages that MacDonald obtain form its JIT systems.

The 1st competitive advantage is quality improved; the fresher burger usually better tastes, that is, MacDonald doesn’t pre-cook a batch of burgers and reheat them or keep warm since nowadays MacDonald already using modern technology to cook the burger immediately as per order made. Not only food quality had been improve, Customer services also had been improved as well since MacDonald has faster burger producing ability, customers just need to wait for a moment then can get their meal already; if Macdonald doesn’t has this ability, the order or service cost will be increased significantly.

Besides, MacDonald can have lower cost advantage from its JIT systems. The main cost reduction is its holding costs for burger parts because MacDonald’s JIT systems help it to reduce the spoilage cost since its only make the burger when customer ordered: compared to older systems, MacDonald produced at a level that gave high inventories to serve customers faster, but after a short period of time, the burger was scrapped, so its price is actually higher to cover the scrap costs. In other words, MacDonald gains price advantages due to its cost reduction.

Features of Total Quality Management

There are seven main features in Total Quality Management (TQM) system, which are customer focus, product design, employee empowerment, continuous improvement, use of quality tools, process management and managing supplier quality.

One of the features of TQM is Customer focus. Customer focus means the company’s focus on their customer. The good and service’s quality provided often defined as exceed customer expectation. Therefore, we can say that quality is customer driven. From this features, the company’s goal is to identity and fulfill customer’s needs and wants. Due to the changes of preferences, tastes, demographic trends or general economic problems, it is hard for the company to determine their needs, for examples fashion and style industry. If company fails to adapt changes in customer, they will lose customers or might facing sales deteriorate. Therefore, company should gather information continuously by customer survey or customer interviews in order to stay tune with customers. Next is product design. The design of the product is very important to meet customer expectation. To get customer satisfaction and attraction on the product, the company has to focus on customer requirement. They can survey and interview on their customer to find out specifically what they actually looking for and their expectation on the product.

Next is Employee empowerment. Employee empowerment means non-managerial staff members allow to make decision without consulting their managers. The degree of power is depends to the company. In the old days, employees were scared to identify problems because fear that they would be admonished. With this new concept of TQM, employees are empowered to make decisions relative to the quality in the process. They are expecting to seek out, identify and correct quality’s problems. The employee’s contributions are highly valued and their suggestions are implemented. In order to make this system works, training is provided by the company for their employees. Empowering employees can actually help to increase their satisfaction towards the company thus, they believe that they control their own success though their effort and hard work which can leads to the success of the entire organization. Employee empowerment leads to the following feature which is use quality of tools. If the employees want to identify and learn to correct quality problems, they need some proper training. Employees need to understand how to access quality by using a variety of quality control tools. There are seven types of quality control tools. For examples, cause-and-effect diagrams, flowcharts, checklist, control chart and etc.

In the process management, TQM system claims that a quality product comes from quality process which means that quality at the source. It is a belief that better to solve the source of quality problems before the products produced. For examples, if the company’s products were produced and they found the problem, they have to send back or discarded the products; this will increase the company cost and wasting of time. Olden days, company had to focus on inspecting goods after they were produced, now new concept is focus on identifying quality problems at the source and immediately correcting them. This will link to the following feature which is managing supplier quality. With TQM, companies do not have to check their materials quality. They will ensure that the suppliers engaged in the same quality practices. All the materials do not have to be inspected if they meet the quality standards. For example, Apple company using supplier registration form which are Apple’s Supplier Information Database (SID). Apple then will reviews the supplier information and seeks for the potential supplier to ensure they meet the quality standard.

Lastly is the continued improvement concept, there are two approaches which are the plan-to-do-study-act (PDSA) cycle and benchmarking. These two approaches can help the company to improve. Company has to continue improve so that they can compete with their competitors and can boost up their profit. The PDSA cycle also known as Deming Wheel.

https://encrypted-tbn1.gstatic.com/images?q=tbn:ANd9GcSORRCLJEhNDwUGkBpqdzLrn5_3ZJ2luMKmkmu5K1aXpqu5IESZ

First step of the PDSA is plan. Firstly, manager have to evaluate the process and start to plan based on the problem they currently facing by collecting data, identifying problems and then develop a plan for improvement. The next step in this cycle is Do. During the process, manager should record all the changes had been made and collect data for evaluation and then study the data that had been collected which is the following step of PDSA. Lastly is Act. Act is the basis of the results of the first three phases. After company acted, they need to repeat the cycle all over again. Besides, benchmarking means a measurement of the quality of organization’s policies, products, strategies and programs and their comparison with standard measurement of its peers. The most critical part to continue improvement in the company is to learn and study how other organization do things. It can help the company to improve product quality and increasing sales and profits.

Mechanism of Total Quality Management

Total quality management is a structure approach to an organizational structure to improve the quality of the product and the services provided by the company .Total quality management is able for use in many types of organizations such as school, hotel management church and also highway maintenance.

The process of Total quality is divided into four categories which are plan, do, check, and act, the PDCA cycle. For planning stage, organization find out the problem, they need to know what is going wrong, by collecting relevant data and come out with a solution. The second stage will be the doing stage, people develop and implement a solution for the problem and testing for the solution that come out whether the changes will going to work or not.

The third stage for total quality management is check. In this stage we determine the small scale or experimental change is achieving the goal or target or not. Study the actual result and compare it with the expected outcome. In the final process is act, we analyze the result of the experimental, if the experiment is successful we implement a larger scale. Determine where to apply the changes so that could bring an improvement in the process.

Pros and cons of implementing total quality management

The benefits of implementing total quality management program are reducing the costs.

Reduction in manufacturing cost

By going through total quality management the manufacturing cost are reduced in cash flow which achieved through attrition and reduce the use of those temporary employees.

Reductions in material scrap.

Scrap reduction are normally occur in the production line. The program divide the material into fewer categorizes by type and source and reduced though efforts of all different department and also suppliers. By certifying with supplier the company or organization can reduce the number of lots of rejected.

Reduced service calls

A organization or company that practice total quality management process will always receive less complain or service call from customer. The process is highly ensuring the production of the product or services before serve to the customer.

Greater productivity

 Total quality management implementing effective quality and productivity initiatives that can increase the profitability and competitiveness of organizations. When the productivity increases the expenses on paying expensive wages for workers for overtime will be reduce. Focusing on quality leads to more productive production by eliminating mistakes and improving productivity contributes to accomplishment of targets faster.

Cons of total quality management

There are always have cons followed by pros. For the cost of using Total Quality Management (TQM) are prevention costs, appraisal cost, internal failure cost and also external failure costs.

Prevention costs are all costs incurred in the process of preventing poor quality from occurring. They include quality planning costs, such as the costs of developing and implementing a quality plan. Also included are the costs of product and process design, from collecting customer information to designing processes that achieve conformance to specifications. Employee training in quality measurement is included as part of this cost, as well as the costs of maintaining records of information and data related to quality.

Appraisal costs are incurred in the process of uncovering defects. They include the cost of quality inspections, product testing, and performing audits to make sure that quality standards are being met. Also included in this category are the costs of worker time spent measuring quality and the cost of equipment used for quality appraisal.

Internal failure costs are associated with discovering poor product quality before the product reaches the customer site. One type of internal failure cost is rework, which is the cost of correcting the defective item. Sometimes the item is so defective that it cannot be corrected and must be thrown away. This is called scrap, and its costs include all the material, labor, and machine cost spent in producing the defective product. Other types of internal failure costs include the cost of machine downtime due to failures in the process and the costs of discounting defective items for salvage value.

External failure cost are all costs incurred to fix problems that are detected after the product/service is delivered to the customer, the cost if a defective product reaches the customer and fail during use. For external failure cost is generally the highest cost among 4 of the cost of quality. The most common component for this cost normally are warranty work and returns. These costs can be particularly damaging because customer faith and loyalty is hard to regain. A final component of this cost is lost sales and lost customers. For example, Perodua Myvi a local car manufacturer announced a statement for those owner of Perodua Myvi who get their car from January 2011 to February 2012 send their car back to centre due to problem that occur on break system. External failure can sometimes put a company out of business almost overnight. Many company that consider quality is playing a important role in product, so the invest heavily in prevention and appraisal cost in order to prevent external failure cost. For company the earlier defects are found, the less costly they are to correct.

Example of company that successfully implement TQM

Organization that has successfully implemented this system, Total Quality Management (TQM) is Motorola Company. Based on research, Motorola Company has successfully maintains their company’s competitive advantages by using TQM system. Motorola Company objective is "everyone’s overriding responsibility", which means Total Customer Satisfaction and also quality is for CEO and Motorola. Motorola Company has won the Baldrige award and they are corporate leaders in TQM. Therefore, they strongly believe that implement TQM system was a sound business decision and a matter of survival for their company.

In the year 1980, Motorola Company was being forced out by Japanese supplier with better and cheaper products. Motorola Company then decided to change using TQM system tries to beat their competitor. They realized that quality is a tool of change. Therefore, they focus on quality of the product and services with the concept of best quality with lower cost. Motorola use all available ways and become more competitive among the competitor. For example, Motorola Company lobbying in Washington to obtain protection and entering R&D consortium for semiconductors. Besides, Motorola Company also forging strategic alliances with a major Japanese competitor, Toshiba. It is because they want to receive new competitive DRAM technology in exchange for Motorola’s world-class microprocessor technology.

In order to maintain good quality of good and services, Motorola Company uses a contract book to guide and control their development projects. The contract book provides clear specific rules on resource to be used and the development time and result required. Based on TQM, quality process is very important so during the course of project, Motorola Company makes a frequent follow-up meeting to make sure everything is on the right track and pace. In addition, Motorola also installed a highly positioned general manager as a full-time corporate quality director to monitor the quality management control.

Besides, Motorola Company also using employee empowerment, one of the features of TQM. Their policy and key goals are set by the top management and communicated downwards, which mean their participation comes on other levels. In order to increase motivation of changes, Motorola Company using benchmarking strategy. Motorola has put the focus on their Japanese competitors. They identifying and analyzing what Japanese and other excellent companies were doing then they combine all good ideas from the excellent competitors into their own practice. In order to stand still in the competitive market, the tool box must be developed gradually starting from a focus on production and continuous improvement.