Enterprise Resource Planning - Assignment Example

Enterprise Resource Planning Analyze the expected future growth of the ERP marketplace in terms of overall sales. What is the relative market share of the major ERP vendors According to the annual report released by the AMR Research, "The Enterprise Resource Planning (ERP) market revenues increased 14 percent in 2004, however approximately one-third of the increased growth was due to fluctuations in currency exchange rates. While the ERP market has grown in revenue, consolidation continues to change the industry." (Data from website http://www.tekrati.com/research/News.aspid=5311 15 June 2005) AMR Research expects the top five vendors in 2005 -- SAP, Oracle, Sage Group, Microsoft, and SSA Global -- to account for 72% of ERP vendors' total revenue. According to AMR Research, the top five vendors in 1999 -- J.D. Edwards, Baan, Oracle, PeopleSoft, and SAP -- accounted for 59% of the ERP industry's revenue. "The ERP market showed solid organic growth in 2004 as IT spending improved," says Jim Shepherd, vice president of research at AMR Research. "The market was also affected by consolidation within the segment, as well as ERP vendors acquiring best-of-breed players to broaden their portfolios." (Source from website http://www.tekrati.com/research/News.aspid=5311 15 June 2005) The top ten ERP vendors by revenue are in the following order: SAP, Oracle, PeopleSoft (acquired by Oracle December 28, 2004), Sage Group, Microsoft Business Solutions, SSA Global, Geac, Intentia, Lawson, Infor Global Solutions. The report, "The Market Analytix Report: Enterprise Resource Planning, 2004-2009", delivers revenue and growth rates for the top ERP players as well as growth forecasts through 2009. AMR Research expects the enterprise applications market to grow from $47.8 billion in 2004 to $64.8 billion by 2009. Market share in 2004 by major vendors for Business Applications Data from website < http://amrresearch.com/Content/View.asppmillid=18358&docid=12641> SAP SAP has had a solid reputation and has been the market leader and its revenues grew from about $8 billion in 2003 to about $9.4 billion in 2004. That amounts to a 17 percent increase in revenue, with software licenses up by 20%. SAP reached these figures without any major acquisitions. Being a viable alternative to confused customers who were witness to the Oracle and PeopleSoft takeover saga, it benefited by luring their customers towards its products. When it is all said and done, SAP owned 40 percent of the market for ERP software in 2004, says AMR, which predicts SAP will own 43 percent of the market by the end of 2005. To do this, SAP must grow revenues 11 percent this year to about $10.4 billion. Sap is growing very well and is expected to gain more than twice the revenue and market share of Oracle by the end of 2005. Oracle and PeopleSoft Before the hostile takeover of Peoplesoft by Oracle in 2003, PeopleSoft was the second largest ERP vendor with 13 percent of the market, and Oracle was a close third with about 12 percent of the market. In 2004, the combined market share of those two vendors dropped two percentage points to 22 percent, and in 2005, the combined Oracle-PeopleSoft will drop three more points to 19 percent of the market, according to AMR. (News from article ) Microsoft Microsoft Business Solutions garnered a solid 13 percent from $683 million to $775 million, to claim 3 percent of the market. AMR sees the ERP division of the world's largest software company growing revenues by 15 percent in 2005, to $891 million, which would give it a 4 percent share. Sage Sage Software, which is England based and is a strong contender in Europe, has grown its market share strongly by a combination of acquisitions and strong sales. From 2003 to 2004, the company grew revenues by 38 percent, from $900 million to about $1.2 billion, to claim 5 percent of the worldwide ERP market. AMR sees Sage growing revenues 11 percent this year to about $1.4 billion, and growing its market share to 6 percent. SAP and Oracle are at each other's throat and take over a whopping 60 percent of the market. AMR sees MBS and Sage Group, both of which write ERP on the Windows platform, consolidating a combined market share of 10 percent. This merger may create a strong rival force because of the predominance of the Windows operating system in the market place and alter the ERP equation in the future. The last five on the list had a total market share of 11 percent, this list, in descending order by 2004 revenues, contains SSA Global ($685 million), Geac ($445 million), Intentia ($388 million), Infor Global Solutions ($375 million), and Lawson Software ($357 million). While among this, the 5 percent revenue growth AMR predicts for Intentia (which is in the process of merging with Lawson), and the 5 percent revenue growth from Infor which has been through some mergers, the rest will have a very uneventful growth. Overall, the ERP market is supposed to slow down for a while with a growth rate of 3 percent before rebounding again from 2006-2009 to a 6-7 percent growth. How ERP has transformed the industry, briefly explain these modules, and then explain how they affect the firm (sales, process etc). Enterprise resource planning (ERP) is a system that integrates a number of the back office functions of planning, manufacture, distribution, accounting and human resources etc. into a single system. When ERP is deployed, it serves each department uniquely with minimal redundancies and therefore has several customized software applications integrated by a single interface. An ERP system may be small, mid-size or large scale depending on the organization and the budget the organization can afford. It may just be multi departmental within a company or may involve all the suppliers and retailers in a bigger entity. Because it is so vast and comprehensive, an ERP implementation often runs into millions of dollars to create, and takes several months to years to complete depending on its scale. The upfront costs are often a deterrent to firms wishing to join the fray. In addition, prevalent systems may not match specific needs and due to the company's uniqueness of their business models, a great deal of customization is required in most cases. Depending on the resources available, the implementation is done all at once or as in most cases, due to the high expenditure, in increments. ERP is a forerunner of change and hence it requires a revamping of not only the processes involved but also in the mindset of the people who will be involved. Some radical changes in the processes occur, job profiles are changed or eliminated, and the prospect of change often causes a lot of resistance in the workforce. Often, communication to remove any uncertainties goes a long way in offsetting these problems. The advantages of the ERP system when properly implemented are tremendous. The single most advantage of the ERP is data sharing. The integration of information of the departments allows easy sharing of information. This translates into reductions in inventory, material costs, and labour and overhead costs, which in turn enhance improvements in customer service and sales, and better accounting controls. It imparts efficiencies in the manufacturing process by automating processes and workflow, and as a result, it reduces the need to carry large inventories. If implemented properly it will provide the company a major advantage in the competitive market. Sales & Marketing Module Forecasting sales and having the product on hand to sell is vital. The marketing and sales module monitors orders; tracks returns, provide sufficient data for tools, allows planning of marketing events and stores customers and retailers information. Depending on the scale of the ERP system, it may support sales on a system wide basis encompassing the suppliers or do it on an only company driven smaller scale. In general, this module facilitates workflow process that begins with a sale and continues onto delivery. It keeps all the parties involved within the loop, handles payments, verifications, invoices and sales receipts and maintains inventory levels. The return merchandises are appropriately added to the inventory and the billing accounts of the retailer or the consumer are suitably manipulated. For example, someone in sales would easily be able to log into a single system to determine the status of a customer order that is still in manufacturing. Sales people can focus on selling instead of verifying or apologizing for late deliveries. Having accurate cost data allows the different combinations to be quickly configured to a specific cost and allow the sales personnel to quote, rather than depend on technical staff. Taken together, these improvements in customer service can lead to fewer lost sales and actual increases in sales, typically 10 percent or more. Accounting & Finance Module This module of the software will take care of all accounts related entries and affect the overall financial system. Since this module reflects the entire cash flow, both income and expenditures. These models usually contain complete functionality required for any Accounting Department right from vouchers to the Balance Sheet and Profit and Loss Account Final accounts in the required formats are generated from this module. Also, it offers the ease of structuring the forms according to the way the company wishes. Final accounts are generated from this module. Some of the documents that are generated are Receivable and Payable statements, Voucher Entry, Credit/Debit entry, Cash/Bank receipts, Cash/Bank Payment, Bank Reconciliation statements, Bill verification etc. This module bridges between Sales & Procurement processes. Having accounting data readily available, leads to increased efficiencies in viewing outstanding and improved collection procedures. It can thus reduce interest costs on borrowings as well as providing better cash flow. These may be attributed to improvements in fast accurate input received accurately from shipments, customer statements, and invoices filled and follow-up on problematic accounts. Viewing past transaction entries of the customer rapidly relays the account status and the information available allows improved handling of customer inquiries without misunderstandings. All these reduce the number of problem accounts. Improved credit management and receivables practices typically reduce the days of outstanding receivables by 18 percent or better. Production Module The production module provides all product-related information. This module is the often is an integrated source of all product-related information needed for collaborating with the suppliers, business partners and ensures sufficient support in processes including product innovation, design and engineering, quality and maintenance management, and control of environmental issues. It aids in management decisions and improves safety in production standards and product quality. It integrates information regarding timelines, costs, and resources available. It makes available up-to-date data required for planning, manufacturing, purchasing, and sales. An ERP Production module helps consolidate data and provide dynamic information that facilitates decision making in production planning and control. It offers an interface with supplier management software and provides purposeful access for internal and external users to relevant information, tools, and services. It aids in the analysis of projects executed to improve decision-making for future assignments. It gives figures of production requirements, inventories, human resources needed etc. Improved planning and scheduling practices typically lead to inventory reductions of 20 percent or better. Typical labour savings from successful ERP are a 10 percent reduction in direct and indirect labour costs. In view of the fact that production requirements are more precisely known, unnecessary stocking in the inventories are avoided. Improved manufacturing practices lead to fewer shortages and interruptions, and less rework and overtime. The cost of carrying inventory includes is reduced because the cost is usually a sum of interest accrued, warehousing costs and handling and damages etc. Usually a savings of 25 percent to 30 percent are achieved. Production personnel have more time to develop better methods and improve quality. Improved procurement methods help in better vendor negotiations for prices, typically resulting in cost reductions of 5 percent or better. Management and HR The HR management module is often encompasses HR functions from application to retirement. Exhaustive personal employee data records relating to address, telephone numbers, family information, resume and other confidential contractual information are stored. Working hours logged in integration with company time clocks are consolidated allowing compilation of salary and wages easier. Absence records such as vacations, sick days, maternity holidays etc. are stored. Salary drawn and claims submitted are stored in the accounting system. All details regarding the user authorizations, access to privileged information, are all stored. Phone numbers both internal and external are collected and stored. The time and labour management modules gather time and work schedules of the employees while the payroll module calculates the employee pay based on working hours, deductions, tax, benefits etc. The benefit administration model permits HR professionals to easily administer and track employee participation in benefits programs ranging from healthcare provider, insurance policy, and pension plan to profit sharing or stock option plans. HR administrative tasks, such as travel claims, benefits, enrolment etc. are easily accessible and HR professionals can spend fewer resources in managing time consuming repetitive administrative activities. Since payroll is automatic, and it automatically generates the required cheques lessening the need for manual cheque writing necessities, hence freeing the HR personnel to address more strategic needs. Conclusion The greatest strength of ERP lies in the fact that it gives the organisation a great opportunity to integrate all the functionalities and all the departments under a single unified interface that is able to unify the data across the length and breadth of the organisation. It has allowed greater efficiencies and synergies to be realized and is a phenomenal management tool to be able to view every departmental task across the organisation. Sources Top 5 ERP Vendors Accounted for 72 percent of 2004 ERP Revenues, Says AMR Research 15th June 2005 http://www.tekrati.com/T2/Analyst_Research/ResearchAnnouncementsDetails.aspNewsid=5311 29th November 2005 Koch, Christopher, The ABC's of ERP from website http://www.cio.com/research/erp/edit/erpbasics.html 29th November 2005 Woodie, Alex The ERP market grew solidly in 2004, AMR Research says from Website http://www.itjungle.com/tfh/tfh062005-story03.html 29th November 2005 Reilly, Kevin AMR Research Releases ERP Market Report Showing Overall Market Growth of 14% in 2004 Tuesday, June 14, 2005 from website http://amrresearch.com/Content/View.asppmillid=18358&docid=12641 29th November 2005 Blacharski, Dan What is ERP (Enterprise Resource Planning) from website http://www.wisegeek.com/what-is-enterprise-resource-planning.htmreferrer=adwords_campaign=erp_ad=009541&_search_kw=erp%20modules 29th November 2005 Human Resource Management System from website http://en.wikipedia.org/wiki/Human_Resource_Management_Systems 29th November 2005 ERP modules from website http://www.essfinesse.com/modules_index.html 29th November 2005 Read More