An Organization Can't Survive without ERP


By

Banta Singh Jangra
Sr. Faculty - Information Technology & CS
Icfai National College
Rohtak
 


ABSTRACT

Enterprise Relationship Management Systems are the backbones of the modern day industries .These are a set of applications combining key functions like finance, production. Sales, logistics, statutory compliance, human resources etc., in an integrated fashion. In a manner these combine Enterprise Resource Planning system with extended enterprise needs like employees, customers and vendors. The transition to ERP environment from old MIS environment has been slow, expensive and painful to say the least for even the best managed organizations. Yet, it has been proven that the benefits of the ERP have outweighed these migratory issues. This paper introduces ERP, its benefits, what one can expect from ERP, the costs, the chances and causes of failure, and how to organize oneself to ensure smooth implementation of ERP. The paper also talks of nuances and skills needed for having ERP with eCommerce portals, and how these are two different systems with different objectives, but at the same time need to be co-exist in today's business environments.

What is ERP?

Enterprise resource planning software, or ERP, doesn't live up to its acronym. Forget about planning- it doesn't do much of that-and forget about resource, a throwaway term. But remember the enterprise part. This is ERP's true ambition. It attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs.

That is a tall order, building a single software program that serves the needs of people in finance as well as it does the people in human resources and in the warehouse .Each of those departments typically has its own computer system optimized for the particular ways that the departments does its work. But ERP combines them all together into a single, integrated software program than runs off a single database so that the various departments can more easily share information and communicate with each other. That integrated approach can have a tremendous payback if companies install the software correctly.

How can ERP improve a company's business performance?

ERP's best hope for demonstrating value is an a sort of battering ram for improving the way your company takes a customer order and processes it into an invoice and  revenue- otherwise known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesn't handle the up-front selling process (although most ERP vendors have recently developed CRM software to do this); rather, ERP takes a customer order and provides a software road map for automating the customer order into the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customer's credit rating and order history from the finance, the company's inventory from the warehouse module and the shipping dock's tucking schedule from the logistics module, for example).

That, at least, is the dream of ERP. The reality is much harsher.

Let's go back to those inboxes for a minute. That process may not have been efficient, but it was simple. Finance did its job, the warehouse did its job, and if anything went wrong outside of the department's walls, it was somebody else's problem. Not anymore. With ERP, the customer service representatives are no longer just typists entering someone's name into a computer and hitting the return key. The ERP screen makes them businesspeople. It flickers from the customer's credit from the finance department and the product inventory levels from the warehouse. Will the customer pay on time? Will we be able to ship the order on time? These are decisions that customer service representatives have never had to make before, and the answers affect the customer and every other department in the company. But it's not just the customer service representatives who have to wake up. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. If they don't, customer service reps will see inventory levels on their screens and tell customers that their requested item is not in stock

People don't like to change, and ERP asks them to change how they do their jobs. That is why the value of ERP is so hard to pin down. The software is less important hand the changes companies make in the ways they do business. If you use ERP to improve the ways your people take orders, manufacture goods, ship them and bill for them, you will see value from the software. If you simply install the software without changing the ways people do their jobs, you may not see any value at all-indeed, the new software could slow you down by simply replacing the old software that everyone knew with new software that no one does.

How long will an ERP project take?

Companies that install ERP do not have an easy time of it .Don't be fooled when ERP vendors tell about a three or six month average implementation time. Those short (that's right, six months is short) implementations all have a catch of one kind or another: The company was small, or the implementation was limited to a small area of the company, or the company used only the financial pieces of the ERP system (in which case the ERP system is nothing more than a very expensive accounting system).To do ERP right, the ways you do business will need to change and the ways people do their jobs will need to change too. And that kind of change doesn't come without pain. Unless, of course, your ways of doing business are working extremely well (orders all shipped on time, productivity higher than all your competitors, customers completely satisfied), in which case there is no reason to even consider ERP.

The important thing is not to focus on how long it will take-real transformational ERP efforts usually run between one and three years, on average-but rather to understand why you need it how you will use it to improve your  business.

What will ERP fix in business?

There are five major reasons why companies undertake ERP.

Integrate financial information As the CEO tries to understand the company's overall performance, he may find different versions of the truth. Finance has its own set of revenue numbers, sales have another version, and the different business units may each have their own version of how much they contributed to revenues. ERP creates a single version of the true that cannot be questioned because everyone is using the same system.

Integrate customer order information-

ERP system can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance service an invoice. By having this information in one software system, rather than scattered among many different system that can't communicates with one another, companies can keep track of orders more easily and coordinate manufacturing, inventory and shipping among many different location at the same time.

Standardize and speed up manufacturing processes-

Manufacturing companies-especially those with an appetite for mergers and acquisitions-often find that multiple business units across the company make the widget using different methods and computer systems. ERP systems come with standard methods for automation some of the steps of a manufacturing process.  Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce head count.

Reduce inventory-

ERP helps the manufacturing process flow more smoothly, and it improves visibility of the order fulfillment process inside the company. That can lead to reduced inventories of the stuff used to make products (work-in-progress inventory), and it can help users better plan deliveries to customers, reducing the finished good inventory at the warehouse and shipping docks. To really improve the flow of your supply chain, you need supply chain, you need supply chain software, but ERP help too.

Standardize HR information-

Especially in companies with multiply business units, HR may not have a unified, simple method for tracking employees' time and communicating with them about benefits and services. ERP can fix that. In the race to fix these problems, companies often lose sight of the fact that ERP packages are nothing more than generic representations of the way a typical company does business. While most packages are exhaustively comprehensive, each industry has its quirks that make it unique. Most ERP systems were designed to be used by discrete manufacturing companies (that make physical thing can be counted), which immediately left all the process manufacturers (oil, chemical and utility companies that measure their products by flow rather than individual units) out in the cold. Each of these industries has struggled with the different vendors to modify ERP programs to their needs.

Will ERP fit the way I do business?

It's critical for companies to figure out if their ways of doing business will fit within a standard ERP package before the checks are signed and the implementation begins. The most common reasons that companies walk away from multimillion-dollar ERP projects it that they discover the software does not support one of their important business processes. At that point there are two things they can do: They can change the business process to accommodate the software , which will mean  deep changes in long-established ways of doing business(that often provide competitive advantage) and shake up important people's roles and responsibilities (something that few companies have the stomach for). Or they can modify the software to fit the process, which will slow down the project, introduce dangerous bugs into the system and make upgrading the software to the ERP vendor's next excruciatingly difficulty because the customizations will to be torn apart and rewritten it fit with the new version.

What does ERP really cost?

Meta Group recently did a study looking at the total cost of ownership (TCO) of ERP, including hardware, software, professional services and internal staff costs. The TCO numbers include getting the software installed and the two years afterward, which is when the real costs of maintaining, upgrading and optimizing the system for your business are felt. Among the 63 company's surveyed-including small, medium and large companies in a range of industries – the average TCO was $15 million (the highest was $300 million and lowest was$400,000). While it's hard to draw a solid number from that kind of range of companies and ERP efforts, Meta came up with one statistics that proves that ERP is expensive no matter what kind of company is using it .The TCO for a "heads-down" user over that period was a staggering$53,320.

When will I get payback from ERP-and how much will it be?

Don' expects to revolutionize your business with ERP. IT is a navel-gazing exercise that focuses on optimizing the way things are done internally other than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if you're willing to wait for it –a  Meta Group study of 63 companies found that it took months after the new system was in (31 months total) to see any benefits. But the median annual saving from the new ERP system were$1.6 million.

What are the hidden costs of ERP?

Although different companies will find different land mines in the budgeting process, those who have implemented ERP packages agree that certain costs are more commonly overlooked or underestimated than others. Armed with insights from across the business, ERP pros vote the following areas as most likely to result in budget overrun.

1. Training :

Training is the near-unanimous choice of experienced ERP implementers as the most underestimated budget item. Training expenses are high because working almost invariably have to learn a new set of processes, not just a new software interface. Worse, outside training companies may not be able to help you. They are focused on telling people how to use software, not on educating people about the particular ways you do business. Prepare to develop a cubiculum yourself that identifies and explains the different business processes that will be affected by the ERP system.

2. Integration and testing

Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often-underestimated cost. A typical manufacturing company may have add-on application from the major-e-commerce and supply chain-to the minor-sales tax computation and bar coding. All require integration links to ERP. If you can buy add-ons from the ERP vendors that are pre-integrated, you're better off. If you need to build the links yourself, expect things to get ugly. As with training, testing ERP integration has to be done from a process-oriented perspective. Veterans recommend that instead of plugging in dummy data and moving it from one application to the next, run a real purchase order through the system, from order through shipping and receipt of payment- the whole order-to-case banana—preferably with the participation of the employees who will eventually do those jobs.

3. Customization

Add-one are only the beginning of the integration costs of ERP. Much more costly, and something to be avoided if at all possible, is actual customization of the core ERP software itself. This happens when the ERP software can't handle one of your business processes and you decide to mess with the software to make it do what you want. You're playing with fire. The customizations can affect every module of the ERP system because they are all so tightly linked together. Upgrading the ERP package—no walk in the park under the best of circumstances – becomes a nightmare because you'll have to do the customization all over again in the new version. Maybe it will work, maybe it won't. No matter what, the vendor will not be there to support you. You will have to hire extra staffers to do the customization work, and keep them on for good to maintain.

4. Data  conversion

It costs money to move corporate information, such as customer and supplier records, product design data 

And the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacies is of little use. Companies often deny their data is dirty until they acutely have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated-or inspired –by the ERP implementation.

5. Data analysis

Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget- and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data every day in a big corporate data warehouse is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wish will check all their data analysis need signing off on the budget.

6. Consultants adinfinitum

When users fail to plan for disengagement, consulting fees run wild. To avoid these companies should identify objectives for which its consulting partners must aim when raining internal staff. Include metrics in the consultants' contact; for example, a specific number of the user, company's staff should be able to pass a project-management leadership test –similar to what Big five consultants have to pass to lead an ERP engagement.

7. Replacing your best and brightest

It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and is division. The software is too complex and then business changes too dramatic to trust the project to just anyone. The bad news is a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was, consultancies and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford-or that your HR policies permit. Huddle with HR on to develop a retention bonus program and create new salary for strata for ERP veterans. If you let them go you'll wind up hiring them-or someone like them – back as consultants for twice what you paid them in salaries.

8 Implementation teams can never stop

Most companies intend to treat their ERP implementation as they would any other software project. Once the software is installed, they figure the team will be scuttled and everyone will go back to his or her day job. But after ERP, you can't go home again. The implementers are too valuable. Because they have worked intimately with ERP, they know more about the sales process than the salespeople and more about the manufacturing process than the manufacturing people. Companies can't afford to send their project people back into the business because there's so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis-and, one hopes, insight-that companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post-ERP installation activity, and fewer still build it into their budget when they start their ERP project. Many are forced to beg for money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.

9. Waiting for ROI

One of the most misleading legacies of traditional software project management is that the company expects to gain value from the application as soon as it is installed, while the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most of the system doesn't reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.

10. Post-ERP depression

ERP systems often wreak cause havoc in the companies that install them. In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The rue percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When can't do their jobs in the familiar way and haven't yet mastered the new way, they panic, and the business goes into spasms.

Why do ERP projects fail so often?

AT its simplest level, ERP is a set of best practices for performing different duties in your company, including finance, manufacturing and the warehouse. To get the most from the software, you have to get people inside your company to adopt the work methods outlined I the software. If the people in the different departments that will use ERP don't agree that he work methods embedded in the software that better than the ones they currently use, they will resist using the software or will want IT to change he software to match the ways they currently do thing .This is where ERP projects break down. Political fights break out over how-or even whether-the software will be installed. IT gets bogged down in long, expensive customization efforts to modify the ERP software to fit with powerful business boron's wishes. Customization makes the software more unstable and harder to maintain when it finally does come to life. The horror stories you hear in the press about ERP can usually be traced to the changes the company made in the core ERP software to fit its own work methods. Because ERP covers so much of what a business does, a failure in the software can bring a company to a hit literally.

How do I configure ERP software?

Even if company installs ERP software for the co-called right reasons and everyone can agree on the optimal definition of a customer, the inherent difficulties of implementing something as complex as ERP is like, well, teaching an elephant to do the hootchy-kootchy. The packages are built from database tables, thousand of them, them is programmers and end users must set to match their business processes; each table has a dicision"switch" that leads the software down one decision path or another. By presenting only one way for the company to do each task-say, run payroll of close the books-a company's individual operation units and far-flung divisions are integrated under one system. But figuring out precisely how to set all the switches in the tables requires a deep understanding of the existing processes being used to operate the business. AS the table setting are decided, these business processes are reengineered, ERP's way Most ERP systems are not shipped as a shell system are not shipped as a shell system in which customers must determine at the minutia level how all the functional procedures should be set making thousands of decisions that affect how their system behaves in line with their own business activities. Most ERP systems are precortifigured, allowing just hundreds – rather than thousands-of procedural settings to be made by the customer.

How does ERP fit with e-commerce?

ERP vendors were not prepared for the onslaught of e-commerce. ERP is complex and not intended for public consumption. It assumes that the only people handling order information will be employees, who are highly trained snd comfortable with the tech jargon embedded in the software. But now customers and suppliers are demanding access to the same information your employees get through the ERP system- thing like order status , inventory level and invoice reconciliation- except they want to get all this information simply, without all the ERP software jargon, through your website.

E-commerce means IT department need to built two new channels of access in to ERP systems-one for customer (otherwise known as business-to-consumer) and one for supplies and partners (business-to-business).These two audiences want two different types of information from your ERP system. Consumers want order status and billing information, and suppliers and partners want just about everything else.

Tradition ERP vendors are having a hard time building the links between the Web and their software, though they certainly all realize that they must do it and have been hard at work at it for years. The bottom line , however, is that companies with e-commerce ambitions face a lot hard integration work to make their ERP system available over the web. For those companies that were smart-or lucky-enough to have bought their ERP system from a vendor experienced in developing e-commerce wares, adding easily integrated applications from same vendor can be money –saving option. For those companies whose ERP systems came from vendors that are less experienced with e-commerce development, the best-and possibly only-option might be to have a combination of internal staff and consultants hack through a custom integration.

But no matter what the details are, solving the difficult problem of integrating ERP and e-commerce require careful planning, which is key to getting integration off on the right track.

References

1. Enterprise Resource Planning Concepts and Practices Second Edition by Vinod Kumar Garg and N.K. Venkitakrishnan.
2. Information Technology in Management Published by ICFAI University Press.
3. http://www.sap.com
4. http://en.wikipedia.org/wiki/Enterprise_resource_planning
 


Banta Singh Jangra
Sr. Faculty - Information Technology & CS
Icfai National College
Rohtak
 

Source: E-mail April 14, 2009

          

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