Chapter 11 – Enterprise Resource

Planning Systems ERP Systems

- are multiple module software
Chapter 11 is composed of five major packages that evolved primarily
sections from traditional manufacturing
1. Key features of a generic ERP resource planning (MRP II)
system systems.
2. ERP System configurations - support a smooth and seamless
3. data warehousing flow of information across the
4. Risks associated with ERP organization by providing a
implementation standardized environment for a
5. Implications of internal control firm’s business processes and a
and auditing common operational database
that supports communications.
ERP System configurations
1. Server Configurations Gartner Group
2. Database Configurations - coined the term ERP, which has
become widely used in recent
Server Configurations years.
1. Two- Tier Model
2. Three- Tier Model Objective of ERP
- to integrate key processes of the
Database Configurations
organization, such as order entry,
- Bolt-On Software
manufacturing, procurement and
- Supply Chain Management accounts payable, payroll, and
human resources.
Enterprise Resource Planning (ERP)
system Closed Database Architecture
- This means that an organization - similar in concept to the basic flat-
may need to change the way it file model.
conducts business to take full - Under this approach, a database
advantage of the ERP. management system is used to
provide minimal technological
Data Warehouse advantage over flat-file systems
- is a relational or
multidimensional database that Database Management System
supports online analytical - little more than a private but
processing (OLAP). powerful file system
Flat-file Approach Exception Report
- the data remain the property of - identifies potential situations that
the application. will result in rescheduling
- there is a high degree of data production, such as late delivery
redundancy in a closed database of materials.
environment.
Materials Requirements List
Two General Groups of Applications - shows the details of vendor
1. Core Applications shipments and expected receipts
2. Business Analysis Applications. of products and components
needed for the order.
Core Applications
- are those applications that Inventory Requisitions
operationally support the - used to trigger material purchase
day-to-day activities of the orders to vendors for items not in
business. stock.
- Typical core applications: sales
and distribution, business planning, Shop Floor Control
production planning, shop floor - involves the detailed production
control, and logistics. scheduling, dispatching, and job
costing activities associated with
Online Transaction Processing (OLTP) the actual production process.
Applications
- also called core applications Logistics Application
- is responsible for ensuring timely
Business Planning delivery to the customer.
- consists of forecasting demand,
planning product production, and ERP
detailing routing information that - a decision support tool that
describes the sequence and the supplies management with
stages of the actual production real-time information and permits
process. timely decisions that are needed
to improve performance and
Three Key Pieces of Information achieve competitive advantage
1. exception report
2. materials requirements list Online Analytical Processing (OLAP)
3. inventory requisitions - includes decision support,
modeling, information retrieval,
 ad hoc reporting/analysis, and
what-if analysis.
Data Warehouse Online Analytical Processing (OLAP)
- is a database constructed for can be characterized as Online
quick searching, retrieval, ad hoc Transactions that:
queries, and ease of use. - Access very large amounts of data
- Analyze the relationships among
Data many types of business elements
- normally extracted periodically - Involve aggregated data
from an operational database or - Compare aggregated data over
from a public information service. hierarchical time periods
- Present data in different
Client-Server Model perspectives
- a form of network topology in - Involve complex calculations
which a user’s computer or among data elements
terminal (the client) accesses the - Respond quickly to user requests
ERP programs and data via a host
computer called the server
Online Transaction Processing (OLTP)
Applications
Two-tier Model
- support mission-critical tasks
- the server handles both
through simple queries of
application and database duties.
operational databases.

Three-tier Model
Online Analytical Processing (OLAP)
- The database and application
Applications
functions are separated - support management-critical
- This architecture is typical of
tasks through analytical
large ERP systems that use wide investigation of complex data
area networks (WANs) for associations that are captured in
connectivity among the users data warehouses.

Online Transaction Processing (OLTP) OLAP servers support common analytical

Events operations
- Consist of large numbers of - consolidation
relatively simple transactions, - drill-down
such as updating accounting
- slicing and dicing.
records that are stored in several
related tables.
Consolidation
 - is the aggregation or roll-up of transportation, warehousing,
data customer service, and forecasting
the demand for goods.
-
Drill-down
- permits disaggregating data to SCM Systems
reveal the underlying details that - a class of application software
explain certain phenomena. that supports this task.

Slicing and Dicing Data Warehousing

- enables the user to examine data - one of the fastest growing IT
from different viewpoints issues for businesses today. Not
Online Analytical Processing (OLAP) surprisingly, data warehousing
Servers functionality is being incorporated
- allow users to analyze complex into all leading ERP systems.
data relationships.
Data Warehouse
ERP Systems - relational or multidimensional
- composed of thousands of database that may consume
database tables. hundreds of gigabytes or even
terabytes of disk storage.
ERP Implementation Team
- includes key users and Data Mart
information technology (IT) - When the data warehouse is
professionals, selects specific organized for a single department
database tables and processes by or function
setting switches in the system.
Process of Data Warehousing
Supply Chain Management (SCM) - involves extracting, converting,
software and standardizing an organization’
- is a case in point s operational data from ERP and
legacy systems and loading them
Supply Chain into a central archive— the data
- set of activities associated with warehouse.
moving goods from the raw
materials stage to the consumer. Data Mining
- includes procurement, production - is the process of selecting,
scheduling, order processing, exploring, and modeling large
inventory management, amounts of data to uncover
relationships and global patterns
 that exist in large databases but - often combined from multiple
are hidden among the vast number systems that use slightly different
of facts. spellings to represent common
terms, such as cust, cust id, or
Data Warehousing Process has the cust_no.
following essential stages: Data Warehouse
- Modeling data for the data - composed of both detail and
warehouse summary data.
- Extracting data from operational - often provide multiple summary
databases views based on the same detailed
- Cleansing extracted data data such as customers or
- Transforming data into the products
warehouse model
- Loading data into the data Loading the data into the data warehouse
warehouse database database
1. Internal Efficiency
Data Extraction 2. Integration of Legal Systems
- is the process of collecting data 3. Consolidation of Global Data
from operational databases, flat
files, archives, and external data Drill-down Capability
sources - is a useful data analysis technique
Changed Data capture associated with data mining
- can dramatically reduce the - an OLAP feature of data mining
extraction time by capturing only tools available to the user.
newly modified data.
Drill-down Analysis
Key Feature of a Data Warehouse - begins with the summary views of
- the data contained in it are in a data described previously.
nonvolatile, stable state.

Data Cleansing
- involves filtering out or repairing
invalid data prior to being stored
in the warehouse.
- involves transforming data into
standard business terms with
standard data values

Data
 board and in sync can be a
daunting task.

Phased-in approach
- has emerged as a popular
alternative.
- It is particularly suited to
diversified organizations whose
units do not share common
processes and data.

Scalability
- is the system’s ability to grow
smoothly and economically as
user requirements increase.

Risks associated with ERP System

Implementation - refers to the technology platform,
1. Big bang vs. Phased-in application software, network
Implementation configuration, or database.
2. Opposition to changes in the
business culture Smooth and economic growth
3. Choosing the wrong rep - is the ability to increase system
4. Choosing the wrong consultant
capacity at an acceptable
5. High cost and cost overruns
incremental cost per unit of
6. Disruptions to operations
capacity without encountering
limits that would demand a system
ERP implementation failures
upgrade or replacement.
- are the result of cultural
problems within the firm that User requirements
stand in opposition to the - pertain to volume-related
objective of process reengineering.
activities, such as transaction
processing volume, data entry
Big bang method
volume, data output volume,
- is the more ambitious and risky of
data-storage volume, or increases
the two. in the user population.

New ERP system Four dimensions of scalability

- new ways of conducting business, 1. size
getting the entire organization on 2. speed
 3. workload Before engaging an outside consultant,
4. transaction cost management should do the following:
- Interview the staff proposed for
Size the project and draft a detailed
- With no other changes to the contract specifying which members
system, if database size increases of the consulting team will be
by a factor of X, then query assigned to which tasks.
response time will increase by no - Establish in writing how staff
more than a factor of X in a changes will be handled.
scalable system. - Conduct reference checks of the
proposed staff members.
Speed - Align the consultants’ interests
- An increase in hardware capacity with those of the organization by
by a factor of X will decrease negotiating a pay for-
query response time by no less performance scheme based on
than a factor of X in a scalable achieving certain milestones in the
system. project.
- Set a firm termination date for the
Workload consultant to avoid consulting
- If workload in a scalable system is arrangements becoming
increased by a factor of X, then interminable, resulting in
response time, or throughput, can dependency and an endless
be maintained by increasing stream of fees.
hardware capacity by a factor of
no more than X. Total cost of ownership (TCO) for ERP
systems
Transaction Cost - varies greatly from company to
- In a scalable system, increases in company.
workload do not increase
transaction cost. Therefore, an Medium- to large-sized systems
organization should not need to implementations
increase system capacity faster - costs range from hundreds of
than demand. thousands to hundreds of millions
of dollars.
Fee for a typical implementation
- is normally between three and five Total cost of ownership (TCO)
times the cost of the ERP software - includes hardware, software,
license. consulting services, internal
personnel costs, installation, and
 upgrades and maintenance to the Access controls
system for the first two years after 1. Traditional Access Control
- implementation. Models
2. Role-Based Access Contol
Some of the more commonly experienced
problems occur in the following areas: Role
1. Training costs - is a formal technique for grouping
- are invariably higher than together users according to the
estimated because management system resources they need to
focuses primarily on the cost of perform their assigned tasks.
teaching employees the new
software. This is only part of the
needed training.
2. System Testing and Integration.
- In theory, ERP is a holistic model Creating a role involves defining the
following role attributes:
in which one system drives the
1. A stated set of business
entire organization.
responsibilities to be performed within
3. Database Conversion.
the role
- A new ERP system usually means a
2. The technical competencies needed to
new database. perform the role
- the process of transferring data
3. The specific transactions (permissions)
from the legacy system’s flat files required to carry out the stated
to the ERP’s relational database. responsibilities

Hershey Foods Corporation Role-Based Access Control (RBAC)

- most notorious case in the press - is an excellent mechanism for
which had trouble processing efficiently managing access
orders through its new ERP system control, the process of creating,
and was unable to ship products. modifying, and deleting roles is an
internal control issue of concern
Implications for internal control and for management and auditors
auditing alike.
1. Transaction Authorization
2. Segregation of duties The following points highlight the key
3. Supervision concerns:
4. Accounting records 1. The creation of unnecessary roles
5. Independent verification 2. The rule of least access should
6. Access controls apply to permission assignments
 3. Monitor role creation and - Verify that changes to roles and
permission-granting activities entitlements have been
successfully implemented.
Fundamental objective of RBAC
- is to provide access in accordance Implementation of an ERP
with an organization’s needs, which - creates an environment with a
derive from defined tasks rather single point of failure, which
than an individual’s wants places the organization at risk
from equipment failure, sabotage,
The Rule of Least Access: two problems or natural disaster.
1. Managers fail to exercise
adequate care in assigning
permissions as part of their
role-granting authority. Because
managers are not always experts
in internal controls, they may not
recognize when excessive
permissions are awarded to an
individual.
2. Managers tend to be better at
issuing privileges than removing
them. As a result, an individual
may retain unneeded access
privileges from a previous job
assignment that creates a
segregation-of-duties violation
when combined with a newly
assigned role.

Role-based governance systems allow

managers to:
- View the current and historical
inventory of roles, permissions
granted, and the individuals
assigned to roles.
- Identify unnecessary or
inappropriate access entitlements
and segregation-of-duties
violations.