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ERP Ovcl'vicw

What is Information
IT (information technology) is a tcrm that encompasses all forms of technology used to
create, store, exchange, and use information in its various forms (business data, voice
conversations, still images, motion pictures, multimedia presentations, and other forms,
including those not yet conceived). It's a convenient term for including both tclephony
and computer technology in the same word. It is the technology that is driving what has
often been called "the information revolution."
Introduction to ERP
Tn to-day's world, the way we live and work is dominated by IT. IT has given us the
ability to uso-the informati on the way we want by \'vay of:
I Iigh Precision
Efticicnt Transmission
Manipulation
;\s a result, world around us has changed and [T has entered into all walks or life
including business. Computer & communication have an integrai part of our life.
8usiness today has become more competitive and you need to anticipate the future to
maintain the cutting edge. For thi s, one has to take quick business decision to remain
competi ti ve in the business. This is possible only if you manage the information.
Information is managed by automat ing the process of data collection collation and
manipulation. This would enabk the organizat ion to deliver hi gh quality information to
its decision makers at ri ght time. Thus organizations have to make IT an ally and harness
its full potential to use it in best possible way.
;\11 organizations havc certain objectives and goals to achieve. For any organi/.ation to
sllcceed, all its departments should work towards this C0111mon goal. l!oweve r, cach
departmcnt in the organizati on wi ll have its own goal. Departmental goa ls. sometimcs.
may be cOl lflicting. But thcn, success ot an orgnnization lics in resolving the inter-
conllicts and making them work as a team. Thi s is where IT has a crucial
role to play. both at the organi zat ional as wel l as at departmental level.
At organization lcvel. IT should assist in spec if'ying its objectives and strategics. !\t
departmental \c\'cl, IT mll st cnsure a smooth flo\\' of inCormation across the departmcnt
should guide the organizations to adopt the most viable business practi ce. IT J oes
this by de\'eloping and maintaining an enterprise wide database. This database \,ill
eliminate the nced of' the isolated data islands that existcd in each department b:,
enterprise wide database access ible across the departmental houndaries.
Evolution of ERr
The history of ERP can be traced back to the 1960's, when the focus of systems was
mainly towards inventory control. Most of the systems software were designed to handle
inventory based -in traditional concepts.
When it first became economical to use computers for business, companies looked
around for appropriate applications. After the payroll, a repetitive calculation that
computers are best at, the obvious repetitive chore for manufacturing companies was
the calculation of the materials they needed to buy. Companies would get software
written for them to explode the bill of material. The 1970's witnessed a shift of focus
towards Jv1RP (Material ' lamiiJllD. }his system helped in translating the
master production schedule into re uirements for individual units like sub assemblies,
components andlothe} raw material Ianniri and procurement. This system was involved
mainly in lannin the raw material requirements. The first "package" material
requirements planning (MRP) software was IBM's RPS (Requirements Planning
System). There were 2 main faults , with Material Planning (MRP)
systems:
Nobody could work out how to make the planning systems stable; every MRP run
produced widely different results from the last, due to the normal fluctuations in
demand and supply.
The systems had the effect of driving up the inventory instead of reducing it as
promised by the software salesmen. The reason for this was that every fluctuation
upwards increased supply orders, which could not be easily reduced, so ratcheting
up stock.
These problems with the early planning systems meant that as people could not trust the
messages the systems generated, they were not used as planning tools but, instead,
became glorified (and expensive) typewriters. In the early 70's the idea of master
production scheduling and capacity requirements planning were introduced into MRP
systems to overcome the stability and inventor), problems. Then, in 1980's came the
concept of MRP-II ie the Manufacturing Janning which involved optimizing
the entire plant production process The new packages were called MRP II to emphasize
the improvement over the old MRP systems. '
The main reasons for MRP II failures
In theory, MRP II should have overcome the old MRP problems. Unfortunately it seems
that the majority of software implementers did not understand master scheduling very
well so encouraged companies to implement MRP II packages in the old, flawed MRP
way i.e. without proper master scheduling and capacity planning.
-
There were other problems with MRP II implementations:
Ipaccurate data - experience has shown that at least 98% of inventory records and
bills of material must be correct to make the system usable to control the business.
Other information must be similarly accurate.
Software packages did not meet the needs of the business - packages were becoming
so "feature rich" (i.e. complex) that people running the company did not understand
them. Professional implementers who did not truly understand the business were
therefore left to decide how the packages will be "mapped" to the business. This
often meant automating the current methods giving rise to the phrase "digitising the
dinosaur", resulting in a lot of cost but no business benefits. At the other end of the
spectrum, there are some cheap packages that miss some essential business
requirements, e.g. lot tracking in the aerospace industry or multi currency. Trying to
modify the package leads to higher costs and extended implementation times, which
repeat at each upgrade. You cannot successfully purchase and implement a planning
system unless the business managers understand the planning principles.
Some people felt excluded - MRPII offered the promise of helping everyone but
frequently degenerated into a software implementation exercise dominated by IT.
Anyone who felt left out would, intentionally or otherwise, undermine the success of
the project.
The longer-term financial objectives of the company were not addressed - companies
are judged by their financial success. If a planning system cannot be seen to connect
to the financial needs of the business, there will be two, frequently competing
agendas. Manufacturing, for instance, could be asked to hit monthly financial targets
whilst also being expected to meet the customer requirements passed down through
the planning process. In this environment it is often the financial objectives that
dominate so undermining the validity of the plan.
Departure of the sponsor - the average tenure of a Managing Director appears to be
about 4 years. With implementations lasting 18 months on average, there is a high
risk of a change of management during the implementation, seriously disrupting the
implementation.
Insufficient education - time and again people who have implemented MRPII
systems, even thosc that were sLiccessful, say they did not have a sufficient level of
understanding of either the software or the new business operating processes and
procedures needcd to work in an integrated environment. "Sufficient" means at least 3
whole days of software training on each module for all users of the system and
cducation in the business planning principles for at least 20% of employees on
courses
IncCfective use of consultants - most people will only implement planning systems
once or twice in their careers. Many companies try to implement systems without the
help of pcople who have proven experience in implementing sllch systems. It is
possible to get such help without losing "ownership" of the project.
Though tvlRP-II,' in 'the beginning was an extension of MRP to include shop floor and
di stribution managemcnt activities, during later years, MRP-II was further extended to
include areas like rinance, Iluman Resource, Engineering, and Project Management etc.
This gave birth to ERP (Enterprise Resource Planning), which covered the cross-functional coordination
and integration in support of the production process. The ERP as compared to its ancestors included the
entire range of a companys activities.

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Installing an ERP system has many advantages- both direct or tangible and indirect or
intangible.
Tangible Benefits
Provides greater and effective control on Accounts Payable by having increased
control on invoicing and payment processing
Reduction in paper work by providing on-line formats quickly entering and retrieving
. information
Improvements in getting timely infonnation as it pennits posting of entries daily
instead of monthly
Improved cost control, Faster response and follow-up on customers
More efficient cash collection as it introduces the concept of material reduction in
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case there is any delay in payments by customers
Better monitoring and quicker resolution of queries.
Enables quick response to change in business operations and marketing conditions
Helps to gain competitive advantage by improving its business process
..Improves supply-demand linkage with remote locations and branches in different
countries.
Provides a unified customer database usable by all applications
Improves global operations by supporting variety of tax structures, invOIcmg
schemes, multiple currencies, multiple period accounting and languages.
Improves information access and mailagement throughout the enterprise
Provides solution for problems like Y2K and Single Monetary Unit or Euro Cunency.
Intangible Benefits
Better customer satisfaction
Improved vendor performance
Increased Flexibility
Reduced quality cost
Improved resource utilization
Improved infonnation accuracy
Reduced expediting.
Before we understand what BPR IS, let us have a look at Business Improvement
paradigms
Thinking behind BPR goes back as far as late 70s and concept came of research
undertaken by Massachusetts Institute of Technology in United States. Looking at
investments made by US and European countries into technology, this research revealed
that for the billion of dollars spend on technology during 70s; there had been a marginal
increase in productivity (less than 1 %). Tllis finding was all the more controversial given
the hype around the enabling technology and its promise to revolutionize work. Research,
further, brought out that instead of removing the barriers between business function and
specialists, IT department were reinforcing them thereby making the barriers higher.
Coupled with this lack of IT delivery was the knee jerk reaction of many organizations to
ask their business to clearly define the requirement of system before involving
technology p e o p ! ~ . Thus any opportunity to exploit newer technology ideas was
effectively lost. Clearly, the necessity was felt to look for a new model for business
development.
MIT undertook a five-year study and came out with the suggestion that new model for
business needs to be developed with a holistic approach combining tec!m0}ogy, people
and processes.
The term 'Business, Re-engineering' became established as the basis of new approach.
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Most accepted definition, as given by Michael Hammer, ofBPR is
"To fundamentally change the way work is performed in order to achieve radical
pelformance improvements in Quality, Speed and Cost."
In essence, BPR is an approach-a way of thinking, which embraces critical components
of business. To be successful BPR requires a holistic approach combining people, process
and technology
Business Process
Business process is a set of interrelated activities which, when executed, result in a
business outcome. AS IS and TO BE processes must be analyzed and compared to
establish how big a gap is in order to successfully achieve BPR. BPR is about getting rid
of redundant processes and simplifying existing processes. Most businesses have usually
five to six core processes. Processes have two important characteristics:
,.
Having External Customers and Quantifiable Measures
Cutting across functional organization boundaries
BAAN Approach
This approach advocates conducting a concurrent BPR during ERP implementation so as
to shorten the implementation time frame Two Scenarios are:
Comprehensive Implementation Scenario
In this focus is on business improvement than technical improvement during
implementation. This approach is suited when
Improvements in Business process ar:e required
Customizations are necessary
High level of integration with other systems is required.
Multiple sites require to be implemented.
Compact Implementation Scenario
Here focus is on technical integration during implementation. Business improvements
take a back seat. This approach is suited when: ..
Improvements in Business process are not required immediately
Organization is change oriented with finn decision making
Company having standard business processes
Single site requires-to be implemented.
In this approach, each and every process is revisited and best one is identified. Pure BPR
is complete transfom1ation in the business process before going for ERP implementation.
The business model is reengineered after analyzing its AS IS status along with the
enterprise need. A TO BE positioning of the business model is evolved. Reengineering is
used to reconfigure the enterprise so as to make it a best fit for the ERP package.
Channeled BPR
This begins with selection and evaluation of ERP package. Business processes are
designed around the known functionalities of the package. ERP is implemented and
redesigned keeping in mind distinctiveness of the package.
Pure ERP
Here focus is mapping the current business processes on to ERP package. There is not
much effort on ~ T O BE processes since maximum effort spent on developing the ERP
package. It is presumed that business processes of the enterprise are standard and well
established.
Obstacles to BPR:
Fear among employees about their jobs being taken away post BPR.
Lack of commitment and leadership from management
Impractical scope and expectations
Disagreement to change
Ultimate success of BPR depends upon the people who do it and how well they are
motivated to apply themselves to redesigning of business processes. To prevail over the
fear among employee, managers must constantly communicate their tactics, mission and
expectations. Employees would prefer to be told what the company's goals are, what it
means to them and their jobs and how to attain them.
BPR Steps:
BPR fetches deficiencies out of the eXlstmg system and attempts to restructure and
reorganize the human resources best possible way. Steps involved are:
1. Study the existing system and build up.new system
2. Describe process and organization structure
3. Develop/modify the software
4. Instruct Commw1ity
5. Execute new system
In short, principle involved in BPR may be termed as USA principle. [U] nderstand the
existing practice, [S] implify the processes and [A] utomate the processes.
BPR does what ERP lays down about doing. BPR is elementary rethinking and radical
. redesign of processes to achieve dran1atic improvement in critical performance such as
C b ~ t . . quality, service and speed leading to almost 80 to 90% reduction in delivery time,
work in progress or refusal rate. But BPR takes a long time to achieve spanning 2 to 3
years bringing in enormous change in work culture.
ERP is an integrated software tool easy to implement without requiring major change.
Much ofERP processes fit in with normal working of an organization.
Whether BPR precedes ERP or vice versa would continue to confuse the corporate.
However, BPR and ERP more or less should be considered as management tools, which
are complementary to each other. Recursive relationship between ERP and BPR is:
BPR------------How can business processes be transformed using ERr? ---------7 ERP
..
ERP-------------How can ERP support BPR? ------------------------------------------7 BPR
,
...
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bKJ' project llke any other sottware project has certam phases through w/Ucl1
implementation has to progress. However, unlike software lifecycle, certain phases of
ERP implementation may not follow a sequence and may commence before completion
of previous phase. It may not be necessary for all implementation to have all the phases
mentioned here:
Different phases of the ERP implementation cycle are:

Pre-selection Screening

Package Evaluation

Project Planning Phase

Gap Analysis

Re-engineering

Configuration

Implementation Team Training

Testiri!?;

Going Live

End user Training

Post Implementation
Pre-Selection Screening Phase
This is the first phase of the implementation cycle and success of implementation largely
depends on right Selection of ERP package. It is advisable to do a detailed evaluation of a
smaller number of packages preferably number limited to less than 5 .
This phase should eliminate the packages that are not suitable for company's business
processes. Following inputs are helpful for elimination.
Vendor's Literature
Feedback from external consultants
Feedback about the package from similar companies
Feedback on performance of different packages in similar environment
Origin of the different packages and area of strength around which packages
evolved
Though most packages cater to almost all business and service sectors, many ERP
packages are still very strong in certain areas.
Package Evaluation Phase

This is most critical phase as selection of package will decide success or failure of the
project. Since, ERP project involves large investment, it would be extremely difficult to
switch to another package once it is purchased.
A package may not meet each and every requirement
Package to be flexible and customizable enough to obtain a good fit
Selection criteria evolved by company must evaluate all the packages on same scale
Ideal package to meet business needs, match business profile, identify business
practices of company
Aim should be to get ti,e system that has the least number of deviations from
company's business
Following factors must be considered during selection of an ERP package:
Functional fit with business processes
Integration between various components of ERP system
Flexibility
Complexity
Use friendliness
Quick implementation
Ability to support multi-site planning and control
Technology
Regular -upgrades
Amount of customization required
Local support infrastructure
A vailability of reference sites
Total cost
Company should form an evaluation committee comprising of people from all functional
departments, top management, preferably CIO or COO and Consultants. Since all the
business functions are represented and management is involved package that is selected
will have company-wide acceptance
Project Planning Phase
Project detail and implementation design are planned in this phase. Following are some
of the activities during this phase:
Planning time schedules and deadlines
Identifying roles of various team members
Assigning responsibilities
Identifying organizational resources
Deciding on tean1 leaders for implementation

Allocation of tasks to team members
Deciding on Start and completion of projecJ
Strategy on handling contingencies, corrective actions.
Project planning is usually done by a committee constituted by team leaders of each
implementation group and headed by ERP in-charge, usually C/O or COO.
model anticipates and covers any 1unctIOnal gaps. Estimates have shown that even best
ERP packages tailored to company's needs meets only 80% of the company's functional
requirements. Remaining 20% of requirements are met through BPR. Possible solutions
are:
Altering the business processes to fit the package functionality
Hoping to get an upgrade from vendor
Identifying a third party product that might fill the gap
Designing a custom program
Altering the ERP source code
Reenginccring
In ERP parlance, reengineering has two aspects. First aspect focuses on downsizing by
use of ERP and management has used it as reengineering slogan to downsize the
company. While it is a fact that any implementation would bring changes in job
responsibilities, ERP must t be used as cost cutting measure rather than as downsizing
tool. ERP should engender business change but not endanger the jobs of employees.
Second aspect focuses on business processes reengineering. BPR approach to ERP
implementation has two scenarios. In the first scenario, also called Comprehensive
Implementation Scenario, focus is on business improvement during implementation. In
other scenario, called Compact Implementation Scenario, focus is on technical migration
during implementation.

BPR approach emphasizes on change of human element is necessary within organization
because ERP implementation involves significant changes responsibilities of hwnan
element. This approach is generally more time consuming leading to higher budgets and
extended projects
Configuration
Configuration means synchronizing the existing business process with functionalities of
ERP package selected for implementation. To achieve this, a prototype is used so as to
allow thorough testing of "to be" model. During configuration of prototype, logistical
problems inherent in BPR are solved.
Configuration aims to:
Reveal the strengths and weaknesses of company's business process
Explain the gaps in the functionality
Identify the processes that need to change
t o
..
Implementation Team Training
Along with configuration, ' implementation team is also trained on implementation
aspects. In this phase company employees are trained to implement and run the system.
In order to build a strong in-house team that can handle various situations after vendors
and consultants leave, it is vital that company recognizes the need for such training and
include employees in the implementation team who have right attitude, willing to change
and learn, have good functional knowledge and not afraid of new technology.
Testing
In this phase, real case scenarios are tested. After the system is configured, it should be
tested against extreme case scenarios like system overloads, multiple users logging on at
the same time with same query, users entering invalid data and so on. Test cases should
be specifically designed to detect weak links in the system and bugs, if detected, must be
fixed before going live.
Going Live
Everything is working, databases are up and running, data migration complete, prototype
is fully configured and tested and ready to go operational. System is now declared live
and operational with real data and cases. Old system is now shut down and business is
run on new system.
End-User Training
This phase starts much before system go live and_very crucial to project as the success of
ERP system is ultimately decided by the end-users. Activities in this phase include:
Identification of employees who are going to use the new system
Finding out current skills of these employees
Grouping ofthese employees based on skill level
Training each group on new system
On Job Training to each employee
This training would provide the participants an overall view of the system and individual
actions that affect the entire system. Companies are begilming to take this phase seriously
as statistics show that most implementations fail due to lack of end user training.
Post Implementation
In this phase, organization will need a new set of rules ~ d skills. All end users need to be
trained on how they v,.:ork, how they relate to the business process and how a transaction
ripples through the entire system. This phase will also handle all the problems related to
operations. System is also upgraded as and when new version is received from vendoLAlI
operational and maintenance activities are handled in this phase.
Critical Success and Failure Factors Involving ERP Implementations
ERP implementation is quite complex and involves huge investment. Consequences of a
failed ERP implementation can be disastrous, sometimes even putting the organization
out of business. Success as well as failure stories have suggested few of the factors,
which prove to be critical for any ERP implementation as presence and lack of these
factors mostly decide success and failure of ERP implementation.
Critical Success Factors
In order of their criticality, these factors are:
Strong Executive Level Commitment
Large investment needed to implement ERP must ensure that decisions are
invariably taken at executive level, which amounts to involvement but not
commitment. But it is also imperative that top management remains committed
during the implementation process like involving best people in the project,
resisting over customization
Change Management
ERP implementation brings in large-scale change in role, responsibility, working
culture and more. Unless top management is involved directly, it is impossible for
any line manager to face the opposition to change
Project Management
Adequate Training
Communication






It is vital. Communicating a project's purpose and goals as well the impact that it
will have on the organization and its employees is the most effective way to
reduce the resistance. Flow of communication reduces the stress associated with
the change
Clear Project Vision
Business Process Change
Hiring Consultants
Business case
Adequate testing
Adequate software selection
When selecting an ERP following points need to be taken into
Functional fit with business processes
Integration between various components of ERP system
Flexibility
Complexity
Use fi'iendliness
Quick implementation
Ability to support multi-site planning and control
Technology
Regular upgrades
Amount of customization required
Local-6upport infrastructure
Availability of reference sites
Total cost

Benchmal'king
Legacy system evaluation
Implementation Strategy
Thus it can be seen that Strong Executive Level Commitment is most critical factor
towards ensuring success of ERP implementation. Large investment involved in the
implementation makes it all the more important that decisions are taken at top
management or executive level.
Change Management is second most critical factor. ERP is likely to bring massive change
in the organization. Unless top management is involved directly, it would be impossible
for any line manager to face the opposition to such change
It is quite surprising to note that Implementation Strategy is considered least critical for
success though much of stress is given on working out a Strategy to 'ensure success
Critical Failure Factors
In order of criticality, failure factors are:
Lack of Executive Level Commitment
..
Lack of focus on Change Management
. , Poor Communication
Lack of focus on Business Process Change
Inadequate training
Problems related to Project Management
Change in Project Vision or Scope
Inadequate Benchmarking
Inadequate Legacy system evaluation
Did not assess strategy
Implementation Approach
Inadequate testing
Unemployed/Lack of support from consultant
Inadequate software selection
Did not develop business case
Failure to integrate other software
As can be seen, factors are same. Only lack and inadequacy of these factors can tum
success into failure.
As ERP brings in massive transformation, many employees find it difficult to accept. If
employees are not provided adequate training and education on ERP in advance, then the
system will fail. Another factor is fear of unemployment/redundancy of job. When
procedure becomes automated, people who were doing those jobs earlier become
redundant. So it is quite natural to have resistance from employees. But same employees
can be trained in the new system so that they accept the ~ h a n g e as challenge and put in
their best in new environment
Without support from employees even the best system will fail. So it is very important
that management take necessary steps to alleviate the fears and provide necessary training
to its employees

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