Enterprise resource planning - A strategic tool to gain the competitive edge in dynamic business environment Contents 1.

0 Introduction 2.0 Business Dynamics and ERP 2.1 Importance of Integration 2.2 Keeping an Eye on Margins 2.3 Cash Flow Considerations 2.4 Compliance 2.5 Focus on Financials 3.0 Challenges of implementing ERP 3.1 Upper Management Support 3.2 Reengineering Existing Business Process and Applications 3.3 Integration of the ERP with other existing departmental applications 3.4 Implementation Time 3.5 Implementation Costs 3.6 Employee Training 4.0 Business strategy and ERP 5.0 Factors affecting the implementation process 6.0 Conclusion Bibliography

Enterprise resource planning - A strategic tool to gain the competitive edge in dynamic business environment 1.0 Introduction It is the best of times. It is the worst of times. It is the age of superlative contradictions. The ongoing mega process of globalization, characterized by inexorable integration of markets and nation 1 states and technologies to a degree never witnessed before , has been engendering unprecedented opportunities on the one hand and equally unprecedented challenges on the other, in his recent 2 work Thomas Friedman says that the world has become flat, of course not for everybody. It is flat for only for those industrial and business units and individuals who have been continuously updating their competencies and core competencies with a view to sustain their competitive edge. Unfortunately, many large medium and small scale units, which have been clinging to their traditional methods of management, have not been able either to take the advantage of the opportunities or to face the challenges effectively. Less competent and non competent units- organizations and individuals- have no place in the global village. After long time it is realized that ERP is central and critical for success and failure of the organizations. This aspect has been taken seriously by MNCs and some large scale organizations all the world over. They have started using ERP software in all the functional areas and striving to gain a sustainable competitive advantage over the competitors. This kind of thinking does not seems to have influenced in many large medium and small units not only in the less developed regions of the less developed countries but also in the less developed regions of the more developed countries. The use of ERP is augmenting the competencies which are very essential for the survival and growth and also to emerge as leader in the best. Recently, there has been an emphasis among academicians and practitioners on ERP as a strategic tool of gaining sustainable competitive advantage. Yet the data based studies on how precisely organizations use ERP to provide a source of competitive advantage are scarce. What is still missing is a clearer understanding of how these processes operate and subsequently, how organizations might use their ERP to help to provide a source of competitive advantage. To keep up with accelerating phase globlisation induced in their external and internal environment. In today's dynamic and turbulent business environment, there is a strong need for the organisations to become globally competitive. The survival guide to competitiveness is to be closer to the customer and deliver value added product and services in the shortest possible time. This, in turn, demands integration of business processes of an enterprise. Enterprise Resource Planning (ERP) is such a strategic tool, which helps the company to gain competitive edge by integrating all business processes and optimising the resources available. This paper throws light on how ERP evolved, what makes up an ERP system and what it has to offer to the industries. The paper includes the role of various enabling technologies, which led to the development of such a huge system. 2.0 Business Dynamics and ERP In this uncertain economy, reliable industrial analysts suggest that manufacturers stabilize their respective businesses, protecting them from excessive risk and ensuring that the enterprise has the liquidity necessary to weather the crisis. The entire operation must integrate and align with finance to understand the implications of risk, 21 allowing manufacturers to do what they do best deliver quality products at competitive prices .ERP Software facilitates to identify several key areas to creating value and profitability through real-time monitoring of financial conditions. 2.1 Importance of Integration A manufacturing enterprise benefits from fully integrated, real-time financial tracking, analysis and reporting of accounts receivable, customer credit management, receipts and other activities. Its a strong disadvantage if the organization uses stand -alone spreadsheet systems to track purchasing, receiving, shipping, accounts payable, collections and other areas.

With stand-alone and manually intensive systems, the challenges include tedious tracking and maintenance of physical documents like invoices, lack of visibility into financial recordkeeping such as tracking payables and receivables, and a high likelihood of introducing error via duplicate data-entry. 2.2 Keeping an Eye on Margins While price cutting helps a manufacturer compete and maintain volumes, as a company lowers prices, profit margins suffer, endangering overall sustainability and financial health. In the end, manufacturers using multiple systems (or manually intensive systems) have no confidence in their 15 data even in the most basic of information, the cost to produce a product . Keeping an eye on profit margins has everything to do with maintaining accurate costing and bidding data. Its a significant reason that automation and integration, such as enterprise resource planning (ERP), is so valuable. 2.3 Cash Flow Considerations Automated financial systems also contribute to an improved cash flow situation.As an example, many companies improve cash flow by paying only for raw materials or parts as they are consumed, instead of paying for them in advance of production, then assuming costs of storage. This is accomplished by automated supplier consignment tracking when invoices are generated only when the parts are consumed by the manufacturer. 2.4 Compliance For public companies, no discussion about manufacturing financials is complete without mentioning the importance of complying with regulatory regulations. Manufacturers must implement financial processes and controls for maintaining auditable business transactions and transparency. Manufacturing management must have complete confidence in financial systems and in the accuracy of related reports. 2.5 Focus on Financials ERP software for manufacturing offers integrated financial reporting, analysis and management capabilities. It manages business operations across a plant, a division, or a global manufacturing enterprise with multi-lingual and multi-currency support. ERP comes down to 20 improving business decisions and increased profitability . With greater knowledge, comes a greater chance to succeed, something every company needs in this turbulent economy. Enterprise Resource Planning is the latest high end solution, information technology has lent to business application. The ERP solutions seek to streamline and integrate operation processes and information flows in the company to synergize the resources of an organisation namely men, material, money and machine through information. Initially implementation of an ERP package was possible only for very large Multi National Companies and Infrastructure Companies due to high cost 16 involved . Today many companies in India have gone in for implementation of ERP and it is expected in the near future that 60% of the companies will be implementing one or the other ERP packages since this will become a must for gaining competitive advantage. As the business needs are very complex in nature, the implementation of an ERP package 18 needs Chartered Accountants with functional skills for evaluation , Business Process Reengineering (BPR), Mapping of Business requirements, Report designing, ensuring Business controls, customization of the package for the specific requirements, Documentation etc., Business at large covers every aspect of life for the commoner and for the business 1 enterprises it is the quality, margin and customer base matters the most . World across the

organisations are iterating the mix of fortunes by various combinations such as technology, materials, machines and men. A typical ERP system integrates the following.

The success of organisation depends on strategies to empower with exchange of data with related productivity impact. In a competitive environment it is evident to mix chance and opportunity to succeed, it does not mean that all organisations which have adopted would exhibit a common success, but models keep changing in ERP from time to time, there are several tools available in the market, but their success varied.

Some of the ERP tools widely used are listed as below Tool Name SAP R/3 Oracle e-Business Suite PeopleSoft MicroSoft Dynamics Lawson Financials Sage MAS 500 NetERP Visual Enterprise Agresso Business World Epicor Enterprise IFS Applications MFG/PRO

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Company Name SAP Oracle Corporation Oracle Corporation MicroSoft Corporation Lawson Software Sage Group NetSuite Infor Global Solutions Unit 4 Agresso Epicor Industrial and Financial Systems QAD

JD Edwards EnterpriseOne & JD Edwards World Oracle Corporation

Depending on operations size different systems are adopted. In the ever growing business environment the following demands are placed on the industry o Aggressive Cost control initiatives o Need to analyze costs / revenues on a product or customer basis

o o o

Flexibility to respond to changing business requirements More informed management decision making Changes in ways of doing business

Difficulty in getting accurate data, timely information and improper interface of the complex 13 natured business functions have been identified as the hurdles in the growth of any business . Time and again depending upon the velocity of the growing business needs, one or the other applications and planning systems have been introduced into the business world for crossing these hurdles and for achieving the required growth. They are o Management Information Systems (MIS) o Integrated Information Systems (IIS) o Executive Information Systems (EIS) o Corporate Information Systems (CIS) o Enterprise Wide Systems (EWS) o Material Resource Planning (MRP) o Manufacturing Resource Planning (MRP II) The latest planning tool added to the above list is Enterprise Resource Planning. 3.0 Challenges of implementing ERP When a company decides to rollout an ERP system as part of its core business processes they must consider and provide solutions for the following general challenges. It is important to note that this list is generic and that every ERP system that rolls out is as distinct as the companies that are trying to implement the system. 3.1 Upper Management Support It is often said that ERP implementation is about people, not processes or technology. An organization goes through a major transformation, and the management of this change must be 14 carefully planned (from a strategic viewpoint) and meticulously implemented . Many parts of the business that used to work in silos now have to be tightly integrated for ERP to work effectively. Cutting corners in planning and implementation is detrimental to a company. The top management must not only fund the project but also take an active role in leading the change. A review of successful ERP implementations has shown that the key to a smooth rollout is the effective 2 change management from top . Intervention from management is often necessary to resolve conflicts and bring everybody to the same thinking, and to build cooperation among the diverse groups in the organization, often times across the national borders. Top management needs to constantly monitor 5 the progress of the project and provide direction to the implementation teams . The success of a major project like an ERP implementation completely hinges on the strong, sustained commitment of top management. This commitment when percolated down through the organizational levels results in an overall organizational commitment. An overall organizational commitment that is very visible, well defined, and felt is a sure way to ensure a successful implementation. 3.2 Reengineering Existing Business Process and Applications Implementing an ERP system involves reengineering the existing business processes to the best business process standard. ERP systems are built on best practices that are followed in the industry. One major benefit of ERP comes from reengineering the company's existing way of doing business. All the processes in a company must conform to the ERP model. The cost and benefits of aligning with an ERP model could be very high. This is especially true if the company plans to roll out the system worldwide. It is not very easy to get everyone to agree to the same process. Sometimes business processes are so unique that they need to be preserved, and appropriate steps need to be taken to customize those business processes. Trying to fit the SAP mold resulted in a lot of pain and fewer benefits. Now companies will either build a different front-end application or use a different package whenever their processes clash with that of the SAP. The companies also face a question as to whether to implement the ERP software "as is" and adopt the ERP system's built-in procedure or

customize the product to the specific needs of the company. Research shows that even a best application package can meet only 70 percent of the organizational needs. What happens to the rest? An organization has to change its processes to conform to the ERP package, customize the software to suit its needs, or not be concerned about meeting the balance 30 percent. If the package cannot adapt to the organization, then organization has to adapt to the package and change its procedures. When an organization customizes the software to suit its needs, the total cost of implementation rises. The more the customization, the greater the implementation costs. Companies should keep their systems "as is" as much as possible to reduce the costs of customization and future maintenance and upgrade expenses.

3.3 Integration of the ERP with other existing departmental applications There is a strong trend toward a single ERP solution for an entire company. Most companies feel that having a single vendor means a "common view" necessary to serve their customers efficiently and the ease of maintaining the system in future. Unfortunately, no single application can do everything a company needs. Companies may have to use other specialized software products that best meet their unique needs. These products have to be integrated along with all the homegrown systems with the ERP suite. In this case, ERP serves as a backbone, and all the different software are bolted on to the ERP software. There are third party software, called middleware, which can be used to integrate software applications from several vendors to the ERP backbone. Unfortunately, middleware is not available for all the different software products that are available in the market. Middleware vendors concentrate only on the most popular packaged applications and tend to focus on the technical aspects of application interoperability rather than linking business processes. Many times, organizations have to develop their own interfaces for commercial software applications and the homegrown applications. Integration software also poses other kinds of problems when it comes to maintenance. It is a nightmare for IS personnel to manage this software whenever there are changes and upgrades to either ERP software or other software that is integrated with the ERP system. For every change, the IT department will be concerned about which link is going to fail this time. Integration problems would be severe if the middleware links the ERP package of a company to its vendor companies in the supply chain. Maintaining the integration patchwork requires an inordinate and ongoing expenditure of resources. Organizations spend up to 50 percent of their IT budgets on application integration? It is also estimated that the integration market (products and services) equals the size of the entire ERP market. When companies choose bolt-on systems, it is advisable to contact the ERP vendor for a list of certified third-party vendors. Each year, all the major ERP vendors publish a list of certified third-party vendors. There are several advantages to choosing this option, including continuous maintenance and upgrade support. One of the major benefits of ERP solutions is the integration they bring into an organization. Organizations need to understand the nature of integration and how it affects the entire business. Before integration, the functional departments used work in silos and were slow to experience the consequences of the mistakes other departments committed. The information flow was rather slow, and the departments that made the mistakes had ample time to correct them before the errors started affecting the other departments. However, with tight integration the ripple effect of mistakes made in one part of the business unit pass onto the other departments in real time. Also, the original mistakes get magnified as they flow through the value chain of the company. For example, the errors that the production department of a company made in its bill of materials could affect not only the operations in the production department but also the inventory department, accounting department, and others. The impact of these errors could be detrimental to a company. For example, price errors on purchase orders could mislead financial analysts by giving a distorted view of how much the company is spending on materials. Companies must be aware of the potential risks of the errors and take proper steps, such as monitoring the transactions and taking immediate steps to rectify the problems should they occur.

They must also have a formal plan of action describing the steps to be taken if an error is detected. A proper means to communicate to all the parties who are victims of the errors as soon as the errors are detected is extremely important. Consider the recent example of a manufacturing company that implemented an ERP package. It suddenly started experiencing a shortage of manufacturing materials. Production workers noticed that it was due to incorrect bills of materials, and they made necessary adjustments because they knew the correct number of parts needed to manufacturer. However, the company did not have any procedures to notify others in case any errors were found in the data. The domino effect of the errors started affecting other areas of business. Inventory managers thought the company had more material than what was on the shelves, and material shortages occurred. Now the company has mandatory training classes to educate employees about how transactions flow through the system and how errors affect the activities in a value chain. It took almost eight weeks to clean up the incorrect bills of materials in the database. Companies implementing electronic supply chains face different kinds of problems with integration of information across the supply chain companies. The major challenge is the impact automation has on the business process. Automation changes the way companies deal with one another, from planning to purchasing to paying. Sharing and control of information seem to be major concerns. Companies are concerned about how much information they need to share with their customers and suppliers and how to control the information. Suppliers do not want their competitors to see their prices or order volumes. The general fear is that sharing too much information hurts their business. Regarding controlling information, companies are aware that it is difficult to control what they own let alone control what they do not own. Companies need to trust their partners and must coordinate with each other in the chain. The whole chain suffers if one link is slow to provide information or access. The management also must be concerned about the stress an automated supply chain brings within each organization. For instance, a sales department may be unhappy that electronic ordering has cut it out of the loop, while manufacturing may have to adjust to getting one week's notice to order changes and accommodate those changes into its production orders. 3.4 Implementation Time ERP systems come in modular fashion and do not have to be implemented entirely at once. Several companies follow a phase-in approach in which one module is implemented at a time. For example, SAP R/3(ERP software) is composed of several "complete" modules that could be chosen and implemented, depending on an organization's needs. Some of the most commonly installed modules are sales and distribution, materials management, production and planning, and finance and controlling modules. The average length of time for a "typical" implementation is about 14 months and can take as much as 150 consultants. The length of implementation is affected to a great extent by the number of modules being implemented, the scope of the implementation (different functional units or across multiple units spread out globally), the extent of customization, and the number of interfaces with other applications. The more the number of units, the longer implementation. Also, as the scope of implementation grows from a single business unit to multiple units spread out globally, the duration of implementation increases. A global implementation team has to be formed to prepare common requirements that do not violate the individual unit's specific requirements. This involves extensive travel and increases the length of implementation. The problem with ERP packages is that they are very general and need to be configured to a specific type of business. This customization takes a long time, depending on the specific requirements of the business. For example, SAP is so complex and general that there are nearly 8000 switches that need to be set properly to make it handle the business processes in a way a company needs. The extent of customization determines the length of the implementation. The more customization needed, the longer it will take to roll the software out and the more it will cost to keep

it up-to-date. The length of time could be cut down by keeping the system "plain vanilla" and reducing the number of bolt-on application packages that require custom interfaces with the ERP system. The downside to this "plain vanilla" approach is conforming to the system's mold, which may or may not completely match the requirements of the business. For small companies, SAP recently launched Ready-to-Run, a scaled-down suite of R/3 programs preloaded on a computer server. SAP has also introduced Accelerated SAP (ASAP) to reduce implementation time. ERP vendors are now offering industry-specific applications to cut the implementation time down. SAP has recently outlined a comprehensive plan to offer 17 industryspecific solutions, including chemical, aerospace and defense, insurance, retail, media, and utilities industries. Even though these specific solutions would able to substantially reduce the time to implement an application, organizations still have to customize the product for their specific requirements. 3.5 Implementation Costs Even though the price of prewritten software is cheap compared with in-house development, the total cost of implementation could be three to five times the purchase price of the software. The implementation costs would increase as the degree of customization increases. The cost of hiring consultants and all that goes with it can consume up to 30 percent of the overall budget for the implementation. According to medium organisations, total cost of an outside ERP consultant is around Rs 30,000/- per day. Going for in-house-trained technologists creates its own worries. Once the selected employees are trained after investing a huge sum of money, it is a challenge to retain them, especially in a market that is hungry for skilled ERP consultants. Employees could double or triple their salaries by accepting other positions. Retention strategies such as bonus programs, company perks, salary increases, continual training and education, and appeals to company loyalty could work. Other intangible strategies such as flexible work hours, telecommuting options, and opportunities to work with leading-edge technologies are also being used. Many companies simply strive to complete the projects quickly for fear of poaching by head-hunting agencies and other companies. 3.6 Employee Training Companies intending to implement an ERP system must be willing to dedicate some of their best employees to the project for a successful implementation. Often companies do not realize the impact of choosing the internal employees with the right skill set. The importance of this aspect cannot be overemphasized. Internal resources of a company should not only be experts in the company's processes but also be aware of the best business practices in the industry. Internal resources on the project should exhibit the ability to understand the overall needs of the company and should play an important role in guiding the project efforts in the right direction. Most of the consulting organizations do provide comprehensive guidelines for selecting internal resources for the project. Companies should take this exercise seriously and make the right choices. Lack of proper understanding of the project needs and the inability to provide leadership and guidance to the project by the company's internal resources is a major reason for the failure of ERP projects. Because of the complexities involved in the day-to-day running of an organization, it is not uncommon to find functional departments unwilling to sacrifice their best resources toward ERP project needs. However, considering that ERP system implementation can be a critical step in forging an organization's future, companies are better off dedicating their best internal resources to the project. Training and updating employees on ERP is a major challenge. People are one of the hidden costs of ERP implementation. Without proper training, about 30 percent to 40 percent of front-line workers will not be able to handle the demands of the new system.(n6) The people at the keyboard are now making important decisions about buying and selling -- important commitments of the company. They need to understand how their data affects the rest of company. Some of the decisions front-line people make with an ERP system were the responsibility of a manager earlier. It is important for managers to understand this change in their job and encourage the front-line people to be able to make those decisions themselves. Training employees on ERP is not as simple as Excel

training in which you give them a few weeks of training, put them on the job, and they blunder their way through. ERP systems are extremely complex and demand rigorous training. It is difficult for trainers or consultants to pass on the knowledge to the employees in a short period of time. This "knowledge transfer" gets hard if the employees lack computer literacy or have computer phobia. In addition to being taught ERP technology, the employees now have to be taught their new responsibilities. With ERP systems you are continuously being trained. Companies should provide opportunities to enhance the skills of the employees by providing training opportunities on a continuous basis to meet the changing needs of the business and employees. Employees working on an ERP implementation project put in long hours (as much as 20 hours per day) including seven-day weeks and even holidays. Even though the experience is valuable for their career growth, the stress of implementation coupled with regular job duties (many times employees still spend 25 to 50 percent of their time on regular job duties) could decrease their morale rapidly. Leadership from upper management and support and caring acts of project leaders would certainly boost the morale of the team members. Other strategies, such as taking the employees on field trips, could help reduce the stress and improve the morale. 4.0 Business strategy and ERP Many companies start a selection project by asking the users what they need in a new system. This approach will miss key requirements needed for the business to succeed with its business plan. The business needs to be sure the business strategy is input and linked to the information technology strategy. A new ERP system is one of the components of the company information technology strategy, and the information technology strategy should support the companys business strategy. The company business strategy should be one of the inputs to the ERP requirements. Most companies have a multiyear business plan. The plan usually includes the following Vision of next few years for the company Mission statement Annual goals and objectives Strategies Plans and action SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) Competitive and market analysis Critical success factors that are needed to achieve vision and goals Key measurements Often the company management has the enterprise departmental managers develop business plans to support the company plan. When planning the needs of the future system, the company and the department plans need to be input to the definition of the new system. The business plan can drive critical requirements for the new system. At Ultra, we assist the ERP selection team with the development of a Business Goal Driver Framework. This Framework will link critical ERP software requirements to the business goals. The framework has the following linkage Business goals are linked to strategies Strategies are linked to processes Processes are linked critical software function the development of this framework depicts how the company business plan is linked to the future ERP system. Consider the following example. Business goal the company has decided it needs to reduce inventory. It has compared its inventory levels to peers and best in class companies. The comparison has showed management that their inventory levels are higher than other companies. Management has set a goal to reduce

inventory levels. Strategy the company has decided to use a pull strategy to reduce inventory levels. During their analysis of peer and best in class companies, management has found the use of a pull strategy can facilitate the reduction of inventory. Process the pull strategy will be implemented for the replenishment process of certain components and finished goods. The strategy is linked to the replenishment process. During their review of component and finished goods replenishment they have identified the parts that can fit into a pull strategy. They have designed a pull process chart, and determined the Kanban quantities for the parts. ERP Software Requirements In order to implement a pull replenishment process, the team has determined the new ERP system must have Kanban capability. This capability needs to include electronic Kanban notification, electronic Kanban visibility, and Kanban quantity calculations. The ERP team builds a framework that shows the connection of the Goal to Strategy Strategy to Process Process to ERP Requirement By analyzing the business goal, and linking it to a business strategy, that links to a business process, and ERP requirement, the Team has identified and defined a critical requirement that will be used to evaluate ERP software. This framework communicates to everyone involved in the project the importance of the software requirement. It also establishes a clear objective and ROI for management in the implementation of a new ERP system. 5.0 Factors affecting the implementation process The difficulties of ERP implementations have been widely cited in the literature. Although companies spend millions on ERP packages and the implementation process, there is extensive evidence that they experience considerable problems, particularly during the actual implementation project. In response to these problems, there has been a developing body of academic literature, which addresses the difficulties of ERP implementation by proposing critical success factors (CSFs) and process models of the implementation. Both are aimed at better planning and hence, more successful ERP implementation. The factors specific to ERP implementation include re-engineering business processes, understanding corporate cultural change and using business analysts on the project team. Research on the critical factors for initial and ongoing ERP implementation success has been mentioned in few works as, 11 factors were identified to be critical to ERP implementation success: ERP teamwork and composition; change management program and culture; top management support; business plan and vision; BPR with minimum customization; project management; monitoring and evaluation of performance; effective communication; software development, testing and troubleshooting; project champion; appropriate business and IT legacy systems. In their study of the complexity of multi site ERP implementation, But when organisations are structurally complex and geographically dispersed, implementing ERP systems involves difcult, possibly unique, technical and managerial choices and challenges. The technical and organizational complexities of projects represent conceptually general rivers of implementation effort. Specifically, project size was measured in terms of the number of SAP modules and sub-modules that were implemented, while complexity is defined as the organizational scope of the project in terms of users involved and the overall company size. The results indicated that implementation effort not only grows with the number of modules and sub-modules that were selected for implementation, but that SAP was found to require increasing resources to be implemented in larger companies and for a higher number of users, thus

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indicating that, while there was a technical component of effort that was independent of the organizational breadth of the project, each user added an organizational component of costs. In summary, one of the most widely-cited variables critical to the successful implementation of a large customized system, is top management support. Given the cross-functional nature and large budget of a typical ERP implementation, the extent of top management support appears to be an important characteristic. Two types of top management support roles have been associated with systems implementation projects: the project sponsor and the project champion roles.

6.0 Conclusion ERP strategies and systems are sets of integrated applications that can provide a total solution to an organizations information system needs by addressing a large proportion of business functions including financial, accounting, human resources, supply chain and customer information. They support a process-oriented view of the business as well as business processes standardised across the enterprise. Currently, there are two approaches for the implementation of ERP systems for the competitive advantage namely moulding the business process to match the ERP software or vice versa.

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