29 Enterprise Resource Planning

Dr. Ashish Saihjpal

epgp books

 

 

  1. Learning Outcome:
  • Understand the basic concept of Enterprise Resource Planning
  • Understand the basic components of ERP Systems.
  • List various steps involved in the ERP implementation lifecycle.
  • Understand need for integration of information systems and ERP implementation.
  • Understand the various benefits of ERP implementation.
  • Overview of successful implementations of ERP deployments.
  • List challenges in ERP implementation.
  1. Introduction

 

Would your brain be as diligent in controlling your body’s different parts, if it had no information on their strengths, weaknesses and abilities? It becomes powerful as it receives and interprets numerous signals (indicating strength and weaknesses) that are sent to it from different parts of the body. An Enterprise Resource Planning (ERP) system is analogous to the human brain which coordinates the movement of the human body. ERP integrates different departments or functions across a company in a centralized manner. If ERP is not there then it may happen that every department within the organization uses specific computer applications. It would generate multiple sets of information which could be duplicated and may get obsolete over a period of time. In contrast, the ERP uses a common database and allows every department or function to store and access information in real time. ERP automates many internal business processes and information systems within various functions such as production, purchase, logistics, distribution, accounting, finance and human resources etc. As in Exhibit 1, the ERP system is deployed on the central database and connects multiple function of the enterprise.

 

 

Different departments when connected to the common database can utilize information which is authentic and uniform. On the other hand the Business Intelligence systems support decision making by providing forecasts, trend analysis and reporting tools. For example, the product development department can function well when having the feedback from the sales teams who are in regular touch the customers; in the same way human resources work in cohesion with employee training and development department. Therefore, ERP as a process helps the enterprise to manage and integrate the important functions of its business for higher productivity (Exhibit 2).

 

Microsoft Dynamics ERP suite, Oracle e-Business Suite, Sage Line 500 and Sage 1000, SAP Business One, NetSuite, Lawson Software as shown in Exhibit 3 are among the leading ERP vendors in the market today with competitive ERP Implementations.

 

Why is Integrated Management Information important?

 

An information system is an open, purposive system that produces information using the ‘input-process output’ cycle as depicted in Exhibit 4. The minimal information system consists of – people, procedures and data. People follow procedures to manipulate data and produce information. However, today information systems bring together people, hardware, software, and network sources that collect, collate, transform and disseminate information.

 

 

However, deploying information systems for each of the department like human resources, accounts, finance, sales etc would create their own database and in return create piles of data. Where, even collecting and analyzing data from two systems together becomes cumbersome. To be able to derive necessary reports from these systems and correlating the data would be a time consuming and a hassled task.

 

Hence, with the implementation of ERP systems, there no longer exist individual databases which index details of a particular department. All data has to be from an integrated database. This reduces data redundancy and provides updated information about the entire organization to all the departments and employees.

  1. Components of an ERP Solution

 

The components of ERP solutions could be classified as (Figure 1):

 

  • Core ERP components – The application interfaces with core functional departments like sales, production, human resources, production and materials management etc.
  • Extended ERP components – These interfaces are with the external entities such as payment gateways, attendance systems, email clients, supply chain packages and customer relationship management.

Let us consider the order fulfillment process before the implementation of ERP system as exhibited in Figure 2. Initially, when the purchase order is received by the sales department, they alerted production about the same. The production department comes into action and informs the logistics division about the delivery schedule. In this process, a chain of events is followed, where completion of one activity leads to another. Finally, billing is done and payment is received against the product delivered. It is important to note here that under this business process, there may be delays, input errors, miscommunication, long lead time etc.

 

Whereas, with ERP implementation on the other hand it facilitates establishing an interface with both the core and extended functions of the chain in real time. It serves as a single touch point where all departments converge (Figure 3). The seamless interoperability ensures business process to be executed smoothly.

  1. ERP Implementation Lifecycle
Figure 4: ERP implementation Lifecycle

 

Figure 4 outlines the chain of events that comprise the ERP Implementation Life Cycle. These steps can be understood in the following manner:

 

1.  Pre-evaluation screening – This step involves market research and brain storming to choose the right ERP package. This step enables to determine which package is suitable for the organization. With the past experience gained from the implementation of ERP systems in similar or related industry, feedback by users, need to enter new markets and mounting pressure from competitors force ERP vendors to redefine the scope of functionality of their products.

 

2. Package evaluation – This is the most vital stage of the process since it determines the success or failure of the implementation. As ERP systems involve huge investments; it is not easy and a feasible option to switch from one solution to another. Therefore, a system that is compatible, scalable with a certain level of flexibility and that too which meets majority of the company’s requirements is well desired.

 

3. Project planning phase – This phase decides what is to be done and monitors the progress at each step. It takes into consideration the preventive and corrective measures that need to be taken at each step.

 

4. Gap analysis – It refers to the estimation of what is expected out of the system deployment and where the current system stands. This helps to outline the expected features to be incorporated in the system and the roadmap to enable the integrations.

 

5. e-engineering – There are two aspects of re-engineering. The first refers to downsizing and reorganizing the redundant processes while the other refers to business process reengineering. The BPR approach emphasizes the human element of necessary change within organizations.

 

6. Configuration – This cumbersome task can be simplified if the right expertise is put to use. System analysts and ERP experts should manage the implementation which also includes training the staff who shall execute the configuration.

 

7. Implementation team training – It is as important as the ERP package selection. The system can be put to use effectively only when the deployment is well executed. The different teams across the organization should be trained to use the new system in a phased manner.

 

8. Testing – System testing and debugging requires checking of any unnecessary steps that occur in the system. It further checks for unwanted commands and fix the things that need to be corrected and acted upon.

 

9.  Going live – Once the implementation team has undergone a dry run to check the implementation, the system is ready to go live. At this stage the old system is removed and the new system is used for doing business.

  1. End user training – The actual users of the system are identified and given induction training to make them well versed with the new system. The trainer should ensure that he/she makes an assessment of the current state of understanding of the audience and the expected level.

 11.Post – implementation (maintenance mode) – The enterprise requires maintenance engineers to keep the system up and running as per the business needs. They should be able to rectify flaws and restore services in case of a technical snag.

 

  1. The Need for ERP Solution

The real need for an ERP package lies in creating an enterprise eco-system that is interdependent and where all functional units are able to communicate and stay updated with developments of the other.

 

The organizational need for ERP solutions can be summarized as:

  • Integration of financial information – Finance is the backbone of the overall organizational It needs to ensure account payables and receivables, procurements, sales, revenues, profit, budget are in agreement. As seen in Exhibit 6, an ERP package integrates different segments of the financial eco-system and ensures that a single dependable version of business information prevails.
  • Customer support – The role of sales as a function unit does not end once the sale is made. Hand holding right from pre-sales, consultation, to after sales service and support are need of the hour. A single window system to view customer queries is more manageable than using different soft-wares.
  • Manufacturing – ERP packages help task allocation among human resources and monitors productivity for each employee. This helps to remove unproductive workers and align them to more result oriented tasks. Hence, the manpower is managed better and project resources are put to optimum use. Exhibit 7 highlights the application areas of ERP stating that it helps maintain better inventory levels minimizing over production. Optimization of processes reduces waiting time and ensures better restoration levels.
  • Inventory management and control – The implementation improves visibility and updates inventory details real time which are available at the click of a button. This ensures smooth flow of materials resulting to shortening of lead time.
  • Human resource standardization – As business processes need alignment so does the manpower. Human Resource Information Systems when integrated with ERP helps monitor tasks assigned to each resource and monitor the status.
  1. . Benefits of ERP

 

Different Functional benefits of ERP include:

  • Operational benefits – Integration of processes across various functional units on a single platform substantially reduces the processing time. The different operational benefits are:
  • System \security – The new system ensures access to only authentic users. System access is validated through user identification. This is done because every functional unit does not need complete access to business critical data.
  • Reporting – The robust reporting engine makes day to day business processes easier where users can pull out reports on need basis. This supports decision making without relying much on IT experts for processing purposes.
  • Customer support – Post the sales, the customer support department engaged in query handling and its resolution is taken as a very important function. A customer ends up having a higher level of satisfaction if their concerns are well addressed in time and as promised on the service level agreements in which implementation of ERP system are really instrumental.
  • Efficiency – An ERP process reduces the cycle time for processing a task. It removes redundant processes that are duplicated and time consuming. It enhances user experience and makes the business more marketable.
  • Flexibility and mobility – Ensures access to the system from any hand held device while on the go. This does not require the user to be connected over a network at all times. The application is cloud based and can be accessed over the internet.
  • Management benefits – Change management is easy due to configurable features of the ERP. It further allows strategic decision about sales, production, resource usage through use of patterns and trends.
  • Business benefits – Higher profits and improved return on investment due to cost savings. Better utilization of resources which helps achieve economies of scale. These sums up to a better customer experience keeping in mind higher customer satisfaction.
  1. Successful Deployments of ERP Solutions.

 

7.1 ERP at Pantaloon- A SAP integration

 

With the coming of the modern retail formats in India, the need for smooth functioning of store operations gained importance as much as the logistics, billing, inventory and internal stock keeping also demanded automation. Retailers realized well in time that automation of back office functions was only a battle half won. The front end customer facing processes needed to be optimized and streamlined. Pantaloon had been opening retail outlets in metro cities at a fast pace. The need of the hour was to ensure reliable and dynamic enterprise wide solution which integrated several functionalities under one umbrella. Business operations and transaction management were areas of immediate attention where computerization was necessary. After scrutiny of the available packages in the marketplace, Pantaloon Retail narrowed down to SAP Labs.

 

 

The SAP Solution provided end to end integration of various store operations. It also connected all stakeholders in the eco-system to one platform to communicate and access business related and operational information. From merchandizing plans, buying calendars, inventory and stock details to supporting product development were few among the many features of the SAP implementation. It provided support to the supply chain, procurement, markdowns, product and brand management and facilitated communication among other stores of the same enterprise. Capturing customer data to maintain customer profiles, capturing feedback and customer response and analyzing them for future business plans were key features of the software deployment.

 

The roll out of the SAP implementation was done in three phases. The first phase involved analysis of the current system and a road map to the expected one. This required the involvement of various functional teams as the ERP project integrated all functionalities into one robust system. Eventually, after a ‘buy- in’ from all teams, a blue print of the draft was created.

 

Considering the resources available at Pantaloon, an assessment was made of the expertise and areas where training was required. The resources were aligned accordingly to ensure a clear understanding of how the implementation would proceed. This phase used Novasoft’s template which was predetermined by SAP.

 

The final stage was to deploy the system and connect all the Pantaloon stores to the central server. This process needed a switch over from the old system to the current one. The last step was data migration to the new application.

7.2 Case of FedEx – Excelling through ERP

 

FedEx Express, the world’s largest courier and shipping company, shares to its credit an incomparable route and infrastructure. This makes it the world’s largest express company to span operations across 200 countries to provide fast, reliable and timely express transportation service.

 

FedEx has been the pioneer in incorporating leading technologies and ensuring they serve their customers with the best. The business portfolio comprises of services ranging from logistics, business as well as e-commerce.

 

FedEx share to their credit the use of bar code technology for the very first time. They well understood that apart from prompt delivery, the information about delivery was equally important to the end customer. Customers were engaged with keeping themselves informed about the consignment status. They not only implemented management information systems for their own use but also enabled the customers to access them. This proved to yield higher return on investment.

 

The FedEx web site can be viewed by customers across 58 nations in 4 different languages – Japanese, Spanish, English and French. This enabled them to span geographies beyond the United States. Linking their shipping software to the ERP proved to be the game changer in the era of e-commerce. FedEx has now imposed technology with its logistics and services which has given them upper hand in the competitive market.

 

FedEx deployed the solution from SAP Labs and e-commerce vendor Inter World to build links to its online tracking site into their software. As a part of this alliance, FedEx can deliver the consignment lifecycle information to the concerned parties at the click of a mouse button. SAP and FedEx joined hands to develop an interface as per industry standards which provided a fully integrated supply chain solution. The company hopes that through, both its website and proprietary PC software for customers, it will be able to move all order-taking with online tracking at a reduced cost.

 

The FedEx tracker enables the customer to login to the online portal via any internet enabled hand held device. On entering the unique consignment number the system can easily locate the status of delivery and current position of the consignment. It also suggests the expected time of delivery so that the end customer is well informed. The users can not only customize their tracking result pages but receive email notifications and save time with the digital signatures option. The information does not need to be entered every time but gets saved once entered.

  1. Challenges in implementation of ERP

 

Incorporating the ERP package into the organizational infrastructure comes with its own set of challenges and obstacles. A broad level understanding of these includes:

  • Change management – An ERP implementation affects people, processes and technology at multiple levels in an organization. Adhering to these changes when the transition process is cumbersome, it is resisted especially by functional heads. They have to adapt to the change and ensure that their teams are well integrated to synchronize with the new systems. Prior communication, discussion and training enable a smooth transition. Incentivizing the team members keeps them motivated. It is crucial for the top management to support the initiative and stay committed. This shall enable progressive transition to the new technology and information system.
  • Migrating to ERP – ERP implementation requires the complete reorganization of business roles and responsibilities and restructuring of organizational resources. The existing structure may require alteration and re-work. Generally movements to new systems take place from old legacy systems. In rare cases green field implementations occur. The most challenging task is to get an agreement or buy in from people to move to the new structure. A snapshot of the challenges encountered is summarized in Exhibit 11.

 

9.  Summary

 

The aim of enterprise resource planning systems is that a single one stop application can track and monitor all the business’s functions. When a manager opens the ERP application, he is able to get information about any aspect of the business, from financials to HR to project management and delivery schedules. ERP systems have become strategic tools of competitive business. To maintain an edge over competitors, changing market dynamics need to be studied and business processes aligned in order to design the best strategies. The support of a good decision support system integrated with an ERP package is the need of the hour. The qualitative implementation of ERP is associated with management of people’s side of change. It is imperative for the top management to assume responsibility and drive change management throughout the implementation cycle. It is necessary to change the mindset of the people for which training and awareness of internal people is equally important. Pooling in the right resources for training and maintenance of the ERP package is as important as choosing the right solution. Mitigating the internal processes with the new system should be carried in a phased manner. The end to end system shall yield best results only when it is put to use diligently. To sum up, ERP includes substantial initial investment but helps realize the organizational objective of profit maximization and cost mi

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