Abstract:
In today's competitive world where IT solutions has become one of the backbone of the industry for proper and efficient working of their systems, various companies in manufacturing and service industry are incorporating Enterprise Resource planning (ERP) into their business process .As there was boom of IT industry, many software's were developed for manufacturing and various industries so that it can be incorporated in various business so that flow of information is on the plant floor and in overall business can be smooth and accurate. One of these software was ERP as ERP aims to strengthen the cooperation between parties, internally or externally involved in logistics process. As we know due to global sourcing these days, majority of firms are focusing on their core competency and outsourcing rest of items or work so that they can excel in business by keeping their competency intact and cutting the cost at non necessary level and ERP helps in achieving this target as it helps to check that final product delivered or service provided is accurate and correct to the customer or the firm which had asked for the service. Also it check on improving the indicators in the process be it logistics or in general so that firm can have an overall improvement due to increase in flexibility of the system. In this paper, we like to discuss the growth of ERP application in logistics industry.
Definition of Enterprise Resource planning (ERP):
Enterprise Resource planning or ERP as it is called is term used to describe a set of activities which is integrated by various module application which is combined in one software that helps a manufacture or any firm to manage the key elements of their business. Enterprise Resource planning (ERP) tries to integrate internal and external information across the organization through an integrated software application. Thus ERP facilitate the flow of information between all business functions inside the organization and manage the connections to outside stakeholders.
Various elements include can be purchasing, inventory management, planning, Transportation etc and ERP helps to make sure that each of element in the system included in logistics process or supply chain is working properly or not. This further helps in ensuring the future work like final delivery of the product or any which need to be provided on the given date. It also helps to know that whether the product has reached properly to customer or not and in a way in which the customer had asked for, be it final delivery or service. These days the main focuses of companies are to enhance their core competencies and give a final product at much better quality and better service. This helps in maintaining the market share which a firm wants along with profit with proper and on-time delivery of products to customer.
Evolution of ERP:
ERP has been in developing for last 40 years. This is due to evolution and continuous improvement; it has developed into a strategic tool for managing business. Basically ERP has developed from various software's used in inventory management for ensuring smooth functioning of the system. One of the basic software used in 1960's was Economic order quantity (EOQ). In this method, every item in stock was analyzed for ordering and inventory carrying cost. Trade off was established on phased out expected demand of one year and this way economic ordering quantity was decided . Along with EOQ, there were various inventory models like periodic order method, fixed order quantity etc where were popular before MRP era.
Later Material requirement planning also known as MRP was introduced. In this technique, product demand was obtained from MPS for a specified product which was taken from Bill of Materials into detailed schedule of purchase orders considering inventory in hand. It was highly effective in reducing inventory; production and delivery lead time by improving co-ordination and avoiding delays which lead to assured delivery on time. Only problem with this module was that it was highly time consuming. In 1980's there was need felt to integrate financial resource with manufacturing and other activities. Thus a more evolved version of MRP was introduced called Manufacturing Resource planning or MRP II.
The transition from MRP II to ERP took place between later half of decade of 1980 and beginning of 1990 decade. MRP II had few shortcomings as limited focus to manufacturing activities, poor budgetary and costing controls and assumption of mass or repetitive production set ups. This lead to need to development of integrated solution and thus ERP was developed which tried to integrate transaction of organization to produce best possible plan. Today ERP has become one of the basic software implemented in various industries for smooth functioning of the system and evolution of web based technology has helped ERP for wider application.
Basic providers of ERP system:
ERP providers are part of a very competitive market and in order to remain in this competitive market, they have to improve continuously on various fronts like meeting customer demand, creating and implementing new technologies, supporting customer. ERP systems can easily be created and designed as per custom requirement and application or can be purchased ass standard solutions. Out of more than 120 ERP service and software's providers worldwide, SAP, Oracle, JD Edwards, PeopleSoft and Baan were once collectively called "JBOPS" or Big Five of ERP software vendors where they control approximately 70 per cent of the ERP market share as per survey (Mabert Coffey Everdingen et al 2000). Also there are middle end products which include SSA, BPCS, Inertia Movers, etc that were able to offer good functionality and operation ability for firms which has less IT infrastructure and which could be implemented faster than big ones. Not to forget the low end products like MFG, QAD etc, which could be implemented very fast, but they offer limited functionality as they can be implemented for specific structure only. Some of the popular ERP software includes SAP, JD Edwards, BAAN IV, Marshal(R), MFO/PRO, IFS/AVALON, Microsoft Dynamics and PeopleSoft
SAP was basically established in Germany by 5 engineers in 1972 to produce and market an integrated business solution for the market. Today SAP is one of the largest ERP vendors with more than 20,000 employees, 75000 customers and 12 million users in more than 100 countries. SAP initially had products like R/1 which has now evolved into flagship products such as R/3which is a powerful client/server architecture product, which gives around 1000 preconfigured business process and it helped SAP gained a big market share. SAP R/3 is an integrated software module of finance, manufacturing, distribution, logistics, quality control and human resources application systems and can address or help changes in the business processes.SAP continue to dominate the market in European countries with net turnover of $6.7 Billion and having a comfortable 30% market share worldwide.
Oracle is next to SAP in ERP market breadth, depth and share. It offers a comprehensive, multilingual and multi currency solution, mostly through its channel partners. It is the first to implement internet computing model for developing and deploying its product. Oracle also took over various ERP solution providers during 2000 such as People Soft, JD Edwards, Retek (retail industry solution), and Siebel (customer relationship management software). It has taken up project Fusion (based on Service Oriented Architecture) to integrate various products, outcome of which is keenly awaited.
PeopleSoft was founded in 1987 and dedicates its products to human resource and client/server technology. It developed software called Human Resource Management system which was very useful for Human resources. In certain cases, firms have chosen some other ERP (e.g. Baan /SAP) for all other modules and have implemented PeopleSoft for human resources. PeopleSoft had continued to prove its value in enterprise-wide applications in human resources also later they added financial and supply chain applications. PeopleSoft used to targets the sector especially service sector with products created and designed according to company needs so that they can handle their predefined costs. In 2003-2005, Oracle bought PeopleSoft and created a consolidated business.
JD Edwards which was formed in 1977 initially used MRP (Manufacturing Resources Planning) which evolved into MRP-II as a more accessible extension to shop floor and distribution management activities. Later it was recognized as an industry-leading supplier of applications software for the highly successful IBM AS/400 minicomputers. Later JD Edwards was bought by PeopleSoft which in turn was bought by Oracle to create a consolidated business for ERP.
Baan was founded in Netherlands in 1978 to provide financial and administrative consulting service. However later Bann decided to focus their development in manufacturing sector. Bann has approximately 4,000 clients in 6,000 sites worldwide. It develops and sells manufacturing software to various companies that were wary of SAP and other product and it mainly considers or depends on small software suppliers, which are able to provide in a wide variety of product offerings. They continue to develop various enterprise applications in areas such as manufacturing were SAP and Oracle are less competitive.
In general all systems have something in common; they are based on a central and relational database which can be easily accessed anywhere, they are built on client/server architecture and they consist of various functional modules which can work in various industries. In addition to a base module, there are were modules for accounting, doing budgeting, fixed assets, sales order management, procurement management , inventory management, customer service management, etc. ERP systems were also able to support most functional units and processes of a company - if its structure and working procedures were integrated in mainstream business.
ERP in Logistics:
Logistics management cover the activities related to physical flow of materials, raw materials, products and transportation from sale of product until it reaches to customers. This also includes storage of the products, production and distribution of the products. The integrated logistic environment is reached through integration of all activities that are included in the process. The process of ERP in logistic could be considered in three related layers- internal integration , external integration and total integration which should be analyzed separately as well as whole.
The decision to implement ERP allows the overall process to make daily tasks simpler through proper control of logistic, production. The possibility of tracking back the system in time provides a clear and reliable sight of origin and destiny of the product. Thus proper planning of the transport can be done with rates previously defined. With this purchasing and selling of products is easy to handle as we have prearranged dates for delivery of the product and for collection of payment. ERP system is also helpful in calculating cost of financing, transport, storage and also cost of carriage payments, profit margins, benefits and intermediaries.
ERP provides control panel for merchandising whether is packed or in bulk due to this necessary quantities can be processed or delivered depending on respective prices of the purchase and sales. This feature helps in having a control over all activities which are directly or indirectly related to logistics. There are also specific modules which are made for the needs of logistics sector so that the sector is satisfied with the product. Some of the modules are shared by all enterprise resource management which includes standard module, transport module and the production module. This offer the function of basic maintenance which is related to application like clients, products, warehouse, providers etc.
Thus we can say the ERP in logistics is generally divided into three modules namely standard module, production module and transport module. For Standard module, one of the most important objectives is to control and display purchasing contracts with providers and the sale with clients. This is in turn based on material entries, for each entry in storage, origin and specific weight are saved in a controlled way.
For production module, user is able to handle all the management of the production orders, packaging expenses. The system is also able to provide the user with the ability to look up the past orders and modify them to create new ones in the system, besides there is certain control display where all the details of stock and products prices are available easily to the user..
Finally transport module offers advantages of maintaining of transports, getting expenses for each and every transport depending on the origin and destiny of the product and also making the cash flow or liquidations for transport based on pre-decided and prearranged fees.
The implementations of ERP in logistics thus strengthen the co-operation between providers, clients involved and companies which are involved in logistic process. Thus communication in the process improves the overall co-ordination of the people involved in the system. The main advantage of this system and to check whether it is successful or not depends on possibility of focusing exclusively on individual business as this can result in reduction of costs, optimization of the services and increase of profits. Basically all logistics process have various indicators such as stock level, date of delivery and changes in production line. ERP will help to improve all those indicators. In general, all logistic process experiences an improvement due to increase in their flexibility.
Implementation of ERP:
In commercial and logistic industry, the need for ERP incorporation arrives from the following problems which the companies faces such as high or improper levels of inventory, improper/ mismatched stock level, there is lack of coordinated activity between the process which lead to excessive need for reconciliation, due to poor customer response levels and operations falling short if standard level set by firms or industry benchmarks in terms of cost controls and general efficiency. Thus specific ERP software was developed for commercial area which leads to efficient structuring of all the corporate processes. Thus a complete streamlining and drastic reduction of cost is important and all process as well as whole organization of different companies are represented by system in an integrated way. The following shows an integrated ERP architecture
The specific requirement of commercial and logistics are very well represented by ERP for all types of business be it retail or wholesale stores, import and export stores, distribution and service, shipping and transport. Since all the system has one thing common, it gives a significant advantage that allows the firms to find the right solution to their problems. The extension of ERP service to different process offered to reinforce the requirement of clients which were taken into account. As distribution for clients focus on the costs and consistent integration of integral and external factors where there are different distribution centers and transport companies as well as integration in the global system. Thus it has become almost a mandatory in firms to have an integrated logistic system with the help of ERP.
When firms decide to implement ERP, Logistic industry needs to consider certain area in order to implement in their system. It is important to specialize in implementation of the internal management of flow, taking into account each module that facilitates the operating of activities involved. Because the whole management of logistic systems is concerned and relevant thus integrating the whole process allows the providers and clients to use new technological platforms for unifying tools to accelerate the logistic process.
It is very important to differentiate between the concepts involved in the process. The implementation of ERP leads to modernization of corporate systems and reducing cost but also leads to possibility of improving sales and commercial planning due to changing priorities. Thus further helps in use of ERP systems in back office area to increase their possibilities which in turn can make huge profits.
Several case studies have been done in the area to explore the selection criteria for an organization to choose the ERP module. By considering critical planning issues prior to the ERP adoption decision, including needs assessment of the system and choosing a right ERP system and considering all the system matching business process with ERP system. Thus proper understanding of the organizational requirements and economic and strategic justification is required and hence it has been concluded that competitive strategy, targeted various market segments, customer requirements, environment, characteristics of the process, supply chain strategy are all taken into consideration to decide for the adoption of ERP.
Case study of ERP:
Several case studies have been done to analyze the performance of ERP in the manufacturing, production and logistics industry. Some researchers like Antonio and Reyers had suggested that to improve the overall systems efficiency, it is important and required that ERP implementation should be combined with the design and the organization of warehouse logistics and processes involved in it. The main steps that need to be undertaken for the implementation process have been shown, beginning from the definition of a warehouse's logical and physical structure, up to the definition of the main features for data transmission systems design. The project, carried out on an actual warehouse that can be considered representative of manual piling storage warehouses of the same kind, both from a theoretical point of view and for practical implications, has revealed that the mere ERP implementation is not sufficient to effectively improve warehouse performance parameters. Higher levels for traceability and data reliability granted by the adoption of such integrated information systems represent the foundation to concurrently apply optimization techniques to internal logistical processes, such as class-based unit storage, improvement of warehouse fill rates, and the adoption of particular strategies for item receipt/issue.
This investigation has highlighted the benefits that can accrue from a commitment to full consultation and transparency throughout the various stages of ERP implementation. During any large system development there is a temptation for the various stakeholder groups to be secretive about the scope of the project and their roles within it. However, this can often have serious consequences in relation to areas such as system testing. This crucial area can only be wholly addressed if rigorous testing takes place - and this will only occur if there is a united effort to provide the requisite test data for the various processes and elements of the system. The following will play a major role for implementation of ERP.
Top management: The management need to be strong, committed and they need to promote ERP and to support the implementation process for its successful implementation.
Project team: A cross-functional and qualified team that also consist of suitable consultants from all the branches so that they know what process needs to be applied at what time and how should it be implemented.
Project management: The team should be led by a good project manager who has certain plans, schedules, control procedures and milestones for proper execution of the project.
Process change: The firm should structure the company's organization to the process change so as to work with the requirements of the ERP system.
Education and training: Proper training and education need to be provided to the employees. Training should be provided in such a way that it suit the employees' needs, as well as meeting the needs of the company.
Communication: Communication is very important tool in any business. The communication should be accessible to all the employees as well as structured so that everyone involved in the process should know about it.
Future Trends:
According to Sarkar and Lee, in next few years many business processes including finance/accounting, manufacturing and human resource management will be well supported by most installed ERP systems and these systems which currently provide weak support in less data-intensive areas such as supply chain planning, customer management, and marketing and sales will change their techniques so that overall system can be integrated. Some enterprise system developers have begun to provide solutions. They have recently developed supply chain optimization (SCO) and customer relationship management (CRM) strategies and systems in an attempt to seamlessly link front office (e.g. sales, marketing, customer services) and back office (e.g. operations, logistics, financials, human resources) applications to enhance competitive advantages.
CONCLUSION:
ERP systems are integrated applications that can provide a total solution to an organization's information system by covering a large area of business functions including financial, human resources, supply chain and customer information.ERP is regarded as the tool that can ease and at the same time improve the efficiency of the supply chain so that the companies can achieve their end goal. It also acts as a forecasting and a decision making tool. They support a process oriented view of business as well as business processes standardized across the enterprise. Care has to be taken while choosing the proper ERP and factors should be taken into consideration as they form the basis for the implementation of proper functioning of the chain. ERP has indeed a big role to play in logistics area and with proper implementation; logistics area could be made efficient, lean and cost effective.
