implementation of erp
TRANSCRIPT
“ENTERPRISE RESOURCE PLANNING (ERP)”
Submitted By: Submitted To:Chitra dadlani Ms. Neha Sharma
Apex Institute of management& Science, Jaipur
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ACKNOWLEGEMENT
The beatitude, bliss and euphoria that accompany successful
completion of any task would not be complete without the
expression of appreciation of simple virtues to the people who
made it possible. So, with reverence, veneration honor I
acknowledge all those whose guidance and encouragement has
made successful in winding up this.
I take this opportunity to thank Ms. Neha Sharma for her support
and encouragement which helped me in the completion of this
report.
I extend my gratitude and thankfulness to apex institute of
management & science.
Last but not the least I’m also grateful to my parents for providing
me the continuous support to motivate me to successfully complete
my report.
Date: 5.5.2008 Submitted By:
Place: Jaipur Chitra Dadlani
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PREFACE
In this report, I have tried to highlight the Indian ERP
packages, by inserting a section of “Example of an Indian
ERP packages” that includes the integrated features of the
ERP and explains the ERP III architecture in brief. Also two
case studies have been inserted which demonstrate the
successful implementation of the ERP packages in India.
I fervently hope that this report on ERP will make the text
more useful and reader friendly.
Chitra Dadlani
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TABLE OF CONTENT
S.N
O
CONTENT PG.N
O
1. INTRODUCTION TO ERP 5
2. DEFINITION AND FUNCTIONING OF ERP 6
3. FEATURES OF ERP 7
4. IMPLEMENTATION OF ERP 9
5. STEPS IN IMPLEMENTION OF ERP 10
6. ERP DEPLOYMENT- MAJOR ISSUE 11
7. PRESENT SCENERIO 11
8. ERP DOMAIN 13
9. ADVANTAGES AND DISADVANTAGES 15
10. WHY TO MODEL ENTERPRISE 17
11. FUTURE GROWTH OF ERP 18
12. NEED TO QUANTIFY ERP BENEFITS 19
13. ERP COST BENEFIT ANALYSIS 20
14. ERP EVALUATION- AN ALTERNATE APPROACH 22
15. WHERE ERP COMES IN 24
16. BUSINESS MODELING IN PRACTICE 25
17. ROLE OF CONSULTANTS, VENDORS AND USERS 26
18. EXAMPLE OF AN INDIAN ERP PACKAGE 27
19. CASE STUDY 29
20. CONCLUSION 34
21. BIBLIOGRAPHY 35
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INTRODUCTION
Companies all over the world use ERP to integrate their business
processes and thereby reduce cost and improve productivity.
Due to globalization, marketing and manufacturing needed to have close
interaction/coordination including accounting and finance and these are to be
integrated.
Globalization also meant multiple handling of various functions like
marketing, sales, finance and accounting, rules and regulations, multiple
currencies, manufacturing etc. Therefore, there is a need to integrate
manufacturing with all other functions of the firm.
Traditionally, companies developed isolated computer applications to
suit and satisfy each of their functional segments such as sales, purchase,
production, finance, marketing, planning etc. Materials Requirement
Planning (MRP-I) and Manufacturing Resource Planning (MRP-II) were
developed basically to take care of requirements of manufacturing. But the
information available on various functions was so disintegrated and scattered
that it was almost impossible to consolidate the information. The need was
to integrate all functions of an enterprise from the product development and
design to marketing in a closed loop. As such, MRP-I and MRP-II will be a
subset of the above objective. Such an enterprise wide system that would
meet the information and decision needs of the enterprise as a whole,
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covering all the functions of management is the Enterprise Resource
Planning (ERP) system.
ERP allows various functional departments to share information and to
communicate.To be successful in today’s global competitive market, it is
necessary for business enterprises to continuously strive for developing a
high level of integration and coordination along the elements of supply chain
and improve in the areas such as time to reach the market, customer
satisfaction/communication, performance and monitoring. The ERP software
meets these expectations and can handle all activities from customer enquiry
to the realization of the revenue of the entire process in an interactive
manner.
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CONCEPTUAL FRAMEWORK
Definition and Functioning of ERP:
ERP is a software package developed for optimum use of resources
of an enterprise in a planned manner. ERP has a central data base and a
cross-enterprise interfacing facility shared by all functions of the
organization. It should always offer a total solution and there should be
seamless integration across all functions of an enterprise. ERP integrates
entire organization and enable the enterprise to increase its productivity.
ERP provides almost instantaneous access transactional information through
out the organization.
Functioning of ERP:
Functioning of ERP can be best
“Suppose an order for a product/good is placed by a customer, then ERP
-Checks for the stock
-Reserves the quantity for dispatch
-Opens the customer account to verify the credit
-Processes the order,
-If the credit limits exceeds, then it places hold on the order
-All these functions are carried out instantaneously, as ERP integrates
production logistics distribution, marketing, human resource development
and finance etc.
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Features of ERP:
The general ERP Model has a central data base shared by all functions
of the enterprise.
Some features of ERP are as follows:
1. Seamless Integration: ERP data base system provides total solution
and seamless integration across functions and across different
divisions of the enterprise. This feature is useful to manage
engineering change management. This includes electronics approval,
routing change order process routing revision level control, and
automatic generation of product structures. The crucial function of
integrating new product in production or change in existing products
fully into the enterprise system is possible through the feature of
seamless integration of ERP.
2. Supply chain management: The end to end supply chain
management is vital for an enterprise having multiple manufacturing
divisions and distribution network. The intelligence resource planning
of ERP system facilitates to optimize the overall flow of demand and
supply data and to rebuild relationships between various activities to
optimally identify the demand supply chain.
3. Resource management: The resources (man, machine and
materials) are to be effectively managed. ERP software package
works out and provide the numerous functions related to management
of human resources. These are employee data base, job descriptions,
and evaluations, applicant tracking, performance review, training
needs, career and succession planning creating alternate organization
structure, etc.
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ERP also provides on line records of machines/equipments location and
status, maintenance costs and operating costs to effectively manage the
equipment/resources.
4. Order management: This feature of ERP is used to handle the
incoming customer orders.
5. Manufacturing/operations planning and implementation:
ERP provides this capability for the management by planning all
manufacturing facilities.
6. Logistic management: ERP software also has capability for
logistic management of inbound/outbound, internal nature, etc.
7. Strategic business planning: ERP facilitates management for
strategic business planning useful in multi product and multi-division
and multi location enterprise.
8. Accommodating variety: ERP has a feature of multi-lingual and
multi-currency capabilities. Multimode manufacturing and multi-
facility provide the capability required to compete successfully
globally.
9. Integrating management information: ERP is capable and
used:
As a flexible reporting tool to extract information as and when
needed without depending on any one.
As electronic data interchange (EDI).
For imaging to provide the ability to display
drawings/specifications, ability to store original quotations,
customer orders, purchase orders, sale orders, etc.
As data base creation for various activities.
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IMPLEMENTATION OF ERP
The way the ERP is implemented is very important to gain benefits.
First, and foremost, the attitude of people has to change i.e. to change
the way they do their job. People in general resist to any change. In
fact, if people’s attitude is not changed, the ERP may be a hindrance
to the smooth running of the operations.
It should be realized, that the results from ERP are not instantaneous.
The organization has to keep on improving its policies, procedures
and systems, and ways of transacting business with ERP as an
enabler. The emphasis is not to expect a revolution but a gradual
transformation.
STEPS IN IMPLEMENTATION OF ERP
1. Identify need for having ERP system.
2. Within commitment management to implement ERP system.
3. Awareness training to employees to change in their attitude as
required by ERP philosophy and creates willingness in them to accept
the new way of doing the job.
4. Create a nucleus of people who will work as a team to interact with
ERP consultants. Clarify roles and jobs.
5. Document and evaluate old process and the new process planned.
6. Select the software and the vendor who would do the desired job. This
would involve parameters like:
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Global and local presence of software and its vendor.
Type of industry that the software attempts to target.
Obsolescence of the software package.
Price of package and cost of implementation.
Ease of implementation (nature of package, its design, its
modularity, and the people who install it).
After sales support/service.
7. Draw up a plan of implementation which may include:
Team formation for implementation.
Training of team personnel of the enterprise.
.Schedule for the test run.
Training of user.
ERP DEPLOYMENT: MAJOR ISSUES
The present process of implementation involves the vendor, a consultant and
the firm itself. The consultants will help you to map the processes to the
actual application. If the process does not exist in the system then the
process is Re-engineered. The consultants claim to be having the knowledge
of the best practices. Nevertheless, the success of a process cannot just be
industry-specific but will depend on the kind of environment and culture that
the company operates in. For a successful ERP implementation, it is
important that the implementation should not be either vendor-driven or
consultant-driven; there should be an in-house understanding of all the
processes and issues. In addition, many firms believe that the investment is
done to fix problems. There is a belief that IT can fix some of the issues, but
one should understand that this is a strategic investment.
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PRESENT SCENERIO
The concept of ERP has been popular since the last decade; as a
result, 70-80% of the large firms are already on the ERP system. Now, many
of the multinational firms are restricting their business to partners who have
the same ERP. For example, a firm in Small and Medium Enterprises
(SMEs) sectors, with an annual turnover of Rs. 120 million and was
Planning to implement an ERP system, where they have to spend
Rs.12.5 million, i.e. more than 10% of the turnover. The reason being one of
the partners had the ERP package and was asking the other to implement the
same.
Leading ERP software vendors:
1. SAP: Sap is a German Company having a large share of ERP
software. (SAP R/3)
2. BaaN: The Baan Company operates from the motherland as well as
from USA. (Baan IV) (Mento Park - California).
3. Some of the other companies in ERP software package are:
(i) People soft
(ii) Oracle
(iii) ID Edwards
(iv) Gartner
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(v) Scala
(vi) Ramco Marshal
(vii) SSA (Systems Software Associates)
(viii) QAD (MFG/PRO) etc.
THE ERP DOMAIN
Companies like, SAP AG, Baan, Qad, IFS, Ramco systems, to
name a few of the leading vendors, leave no stone unturned to capture this
holy grail.
SAP
Introducing SAP
SAP was founded in 1972 and has grown to become the world’s
fifth largest software company.
SAP is both the name of the company and the computer system.
The SAP system comprises a number of fully integrated modules, which
cover every aspect of business management. The system has been developed
to meet the increasing needs of commercial and other organizations that are
striving for greater efficiency and effectiveness. They offer a unique system
that supports nearly all areas of business. SAP provides the opportunity to
replace large number of independent systems that have been developed and
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implemented in established organization with one single modular system.
Each module performs a different function, but is designed to work with
other modules. It is fully integrated, offering true compatibility across
business functions.
SAP is a German company but operates all over the world, with 28
subsidiaries and affiliates and six partner companies maintaining offices in
40 countries.
SAP’S MARKET
SAP markets its products all over the world to almost every industry
imaginable, as well as to government and educational institutions and
hospitals. The following is a list of industries served by SAP:
Raw materials, mining and agriculture
Oil and gas
Chemical
Pharmaceuticals
Building materials, clay and glass
Building and heavy construction
Primary metals, metal products, steel
Industrial and commercial machinery
Automotives industry
Ship-building, aerospace, and train construction
Transportation services and tourism
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Electronic/optic and communication equipment
Wood and paper
Furniture
Consumer packaged goods-foods
Clothing and textiles
Retail and wholesale trading
Communication services and media
Storage, distribution and shipping
Utilities
Financial services, banks and insurance
Government, public administration, and services.
Museums and associations
Health care and hospitals
Educational institutions and research
Consulting and software
Services.
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ADVANTAGES / DISADVANTAGES
ADVANTAGES OF ERP
ERP enables enterprises to look at it self inwards as well as outwards
towards markets. The organization has better insight into its own policies,
systems and procedures. The organization is also able to look at the
inefficiencies, bottlenecks, and deficiency in communication across various
functions.
ERP’s strength lies in its ability to provide information that it up-to-
date, instantaneous, and comprehensive to all segments.
Some of the benefits of ERP system are as follows:
1. Availability of information’s that are:
(i) Up-to-date
(ii) Uniform
(iii) Comprehensive
(iv) Integrated
2. ERP software emboids the best practices followed by corporations
across the world.
3. Facilitates to take appropriate decisions with speed and accuracy.
4. Integration of workflow to enable to respond quickly and
appropriately to market demand and situation and to attend customer.
5. Increase of inventory turnover
6. Reduction in Cycle time
7. Reduction of work in progress inventory
8. Reduction in lead time
9. On time delivery
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10.Enhanced customer satisfaction
11.Reduce quality cost
12.Improved resource utilization
13.Enterprise forms a “High performance
team structure”
14.Enterprise starts moving on the path of
integrated system
15.Enterprise starts building new relationship with external organization
and becomes an extended enterprise.
DISADVANTAGES OF ERP
1. Lack of integration with non-ERP systems
2. System inputs lack logic and are complex at times
3. After the project is over the vendor is no more associated with the
project and there is very less or limited help available in case the
client needs any.
4. The reporting systems are not adequate. It is very difficult to extract
data from the sources and there is a requirement of additional tools in
the form of business intelligence software.
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WHY TO MODEL THE ENTERPRISE
More agile enterprise
Helps in eliminating redundant or non-value added activities.
More efficient system after being enabled by IT.
Stream lines 5 important flows in the enterprise.
1. Information
2. Material
3. Money
4. Control
5. Intangibles, such as customer satisfaction & quality
improvement
Empowerment of employees to take action
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FUTURE GROWTH DRIVERS OF ERP
The future growth of ERP vendors will depend on the SMEs. In any
country, SMEs are the largest contributors to the economy. This year, if
we see in India, the SMEs have made a huge contribution to the IT
industry. The Business Process Outsourcing (BPO) industry is a classic
example of the success of SMEs. It is now that the bigger firms are
thinking of moving into this industry since the capabilities of SMEs are
limited. When we say capabilities, we mean capabilities in terms of
financial resources, skilled labor with knowledge of processes. The
vendors understand these and are trying to come out with new strategies
such as the ownership of the system to be shared by a group, providing
web-based applications, providing scalable models, etc. These will help
to bring down the total cost of ownership. In addition, the
implementation will take place in steps. So, it would mean deployment of
resources in phases and this will give a chance to correct any problem
detected during the initial stages.
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THE NEED TO QUANTIFY ERP BENEFITS
The cost of ERP is 3-7 times more than that of purchasing the
software license, which is already very high. License cost of a SYSTEM
ANALYSIS AND PROGRAMME DEVELOPMENT (SAP) R/3 is
between $ 1-5 mn. The total cost required to implement ERP can be as
high as $14.5 mn. Due to this, there is a lot of customer dissatisfaction.
There is a need to clearly quantify and work out a ROI in the beginning
of the installation itself. Many of the companies have reported
dissatisfaction about the performance of ERP system after its
implementation. To avoid this, it is necessary to identify and quantify the
benefits of ERP implementation right in the beginning. This can be
carried out by setting the required objectives and goals. It is equally
essential to ask questions related to those objectives and goals.
TABLE: ERP’s Goals and objectives
Objective Questions to be asked
Improved customer satisfaction. How, how much and when?
Decrease inventory. How, how much and when?
Shorten order-to-delivery cycle time. How, how much and when?
Reduce material cost through improved. How, how much and when?
Vendor management. How, how much and when?
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ERP COST BENEFIT ANALYSIS
To Zero in on a particular strategy, it is very important to conduct pre-
implementation ROI analysis. Many people are of the view that ROI on ERP
is very difficult to calculate. ROI calculation may not be science, but in the
end, we need to know the benefits accrued that outweighs the cost involved.
The benefits might be tangible and intangible. A rough estimation shows
that the percentage of tangible and non-tangible benefits could be 50-50%.
To measure the intangible part there are measures available, but there should
not be speculative measures to measure the same.
Companies that actually measures ROI report a significant
performance improvement. Majority of the customers believe that ROI is
difficult to measure. Now what is very hard to measure? The intangible part
of returns and cost seems to be too hard to measure. On the investment side,
the cost of the software, maintenance, up gradations, customization can be
measure. The intangibles on the cost side could be the actual cost of the
workforce that can be taken as weighted Cost of labour needed to install and
customized the system.
To make cost benefit analysis of an ERP system there is a need to
study the areas. The following are the measure cost of ERP systems.
Implementation cost
This would include items such as software licenses and hard wares
such as servers, network upgrades, support and maintenance contracts,
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training personnel, ongoing support and administration cost, customization
and development cost.
Personnel Cost
The cost attached to personnel is almost as high as the license cost.
There is a lot of internal human resource attached to ERP. As there is a
shortage of trained labour for such specialized application, firm employees,
who gain experience in such an implementation, are in great demand.
Consequently, there is a increased chance of employee turnover.
Considering the fact, the company has to assign employees to represent
different functional group and, these are the people who understand the
processes deeply. On the other hand, people handling some or the other
functions are now dedicated completely for ERP implementation; it puts
pressure on remaining employees also. The implementation team can be
anywhere ranging from 50 to 150 people, depending on the size of the firm,
no. of locations and the no. of functions.
The other aspect is that a large amount of resources spent on
employee training and this, in turn, may call for change management and
business process reengineering (BPR).
To avoid such costs, it is very important to have a clear understanding
of the functionalities, a quick move to exploit the complete functionalities
and to add as many users as possible. This will bring down per user cost and
the benefits can be achieved fast. Costs, such as user training, change
management, etc., can be measured by using surrogate measures. The other
costs could be budget overruns, functionality shortcomings etc.
Savings can be categorized under 4 different headings. They are IT
staffing, Productivity, Operational efficiencies and Revenue Improvements.
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The overall benefit side includes operating efficiencies that help the
company improve productivity, redeployment of manpower, better capital
utilization, reduction in inventory levels, improved order to delivery cycle
time, better control and increased certainty in decision making. Intangible
benefits would mean greater reliability of the firm. Talk with different users
and find out what amount of time is saved now, because not all time saved
will be used productively. There will be a reduction in people required to
monitor systems, operations related savings such as time saved on e-mails
and phones, saving in travel costs for meetings.
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ERP Evaluation An Alternate Approach
ERP offers many opportunities for ROI calculation. The problem is that only
a few companies actually do an ROI study for purchases, up gradation or
customization. In addition, there is a limitation to the traditional tools being
used for the ROI calculations. Therefore, there is a need to find out different
tools and techniques.
There were some methods that were proposed by different people. One of
the methods that were proposed by different people. One of the methods
being "Assessing the value provided by ERP applications through
organizational activities" by Arik Ragowsky, Toni M "Somers and
Denis A Adams through their paper in "Communication of the Association
for information Systems". They selected companies that have all the five
Porter's value chain elements. They have devised a research design where in
they have asked for the impact of information systems such as inventory
management, project management and customers’ orders budgeting on
different aspects such as:
Inventory holding cost
Retention of customers
Reduction in cost of after sales services
The methodology used has been conducting personal interviews with
senior manager of each organization. The study is more focused on the value
provided in terms of subject perception and the benefits that the organization
derived out of the use of specific individual IT applications to ERP.
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The longitudinal dimension is used to study the relative performance of
firms before, during and after implementation to examine how the effects of
ERP implementation appear over time. These studies will always indicate a
positive outcome, but initial question s like how much, when, are not
answered. If we are to conduct a pre-deployment ROI analysis (to be more
realistic probability of achieving those returns and payback period can also
be taken into account) to evaluate expected returns and costs then
comparison studies will not suffice.
A suitable strategy would be to pick up few companies from
different industry verticals and conduct interviews with actual users across
different functions. The drawback with the questioner method is that such
studies will have very low feedback and a single form would be filled by one
person, so it is very unlikely that he has in depth knowledge of the impact of
ERP on all functions. We feel that the balance scorecard approach would be
the best approach.
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WHERE ERP COMES IN
ERP is a result of modern organizations attitude towards how their
information systems are to be configure to the new business focuses. Merely
automating systems is no longer the cure. The major bottleneck is getting to
build software and system solutions for emerging BPR needs is integration.
Disparate elements of the organization have to be linked together so that
whenever a change in an external ‘pull’ takes place, the enterprise is able to
adjust to it immediately and effectively. The trend today is that many
organizations are changing from function oriented businesses to process
driven entities. ERP systems enable this to happen.
The areas of ERP deals with manufacturing as well as with finance.
For an ERP solution, human resource is as relevant to the whole scheme of
things as distribution. In fact, the various vendors who provide ERP
solutions do so in a modular manner. ERP packages are mostly built on the
Objective Oriented Programming (OOP) approach.
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BUSINESS MODELING IN PRACTICES
Most of the ERP packages available today facilitate flowcharting
these processes using standards symbols. For example, SAP uses the Event
Driven Process Chain (EPC) methodology. By connecting all the users,
event, task/function, organization information, they can analyze even very
complex business processes. In addition, these ERP packages also provide
standard template for each of the processes, the idea being that the difference
between the template and the actual process can be easily identified. The
business model also plays a very important role in selecting an ERP package
as it becomes possible to identify how the package actually fits the business
model under consideration.
At the time of actual implementation, a suitable data model and a MIS
report substantiate the process model. By suitable analysis of the data model,
process and MIS requirements, a standard data model is provided by the
ERP package. It is thus, obvious that business modeling is the base for
successful ERP package selection and implementation.
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ROLE OF CONSULTANTS, VENDORS AND USERS
Initially, organizations were skeptical about ERP since they felt that
their businesses were unique and their cultures differ. As time passed and
their business problems became more pressing, they started looking at ERP
as the solution to their problem. In their urgency, they were expecting
miracles. Unfortunately, this doesn’t happen most of the time. Leads to poor
participation and costly delays. It is important to understand that an ERP
package cannot fit in completely with the existing business practices of an
organization.
In order to avoid setbacks in an ERP project, a consultant plays a
useful role. The consultants by virtue of their industry, experience and
package expertise should pitch in and set the expectation of the user at
various levels keeping in mind the overall business objective of the client.
They can do so by working closely with key users, understanding their
needs, analyzing the business realities and designing solutions that meet the
basic objective of the company.
An ERP package is expected to improve the flow of information and
formulize all the business processes and workflow that exist in an
organization. Many users expect their workload to decrease after an ERP
implementation, but this may not always happen.
If one has to have more information in assistance, it entails more work
from some users, but the benefit is that this information is properly stored,
flow of information throughout the organization improves, the company
starts performing better, and this in turn benefits the users who have
collectively improved their way of working.
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EXAMPLE OF AN INDIAN ERP PACKAGE
During the 1990s, many Indian software companies developed ERP
packages which were sold and implemented at hundreds of companies
across India. Some of these packages have even been successfully
implemented overseas. Sara ERP is one such package from Mumbai based
Sara InfoTech. The company was established to create software products
that would compete globally in terms of quality, functionality and cost.
Today, this company has developed over a dozen packages, including
flagship package Sara Intelligent Enterprise Management System (Sara
IEMS).
Sara IEMS is a comprehensive ERP III package, comprising ERP,
CRM, SCM, Business intelligence and Interface with various equipment and
instruments, all in one single application and one database. Sara IEMS
modules can also be integrated with other Enterprise applications such as
SAP, BAAN, J D Edwards, Siebel and PeopleSoft.
Sara started developing its ERP package in 1995 and it was ready by
1999. Later it developed CRM, Business Intelligence, Interface with DCS,
SCADA and other equipment, instruments, meters, etc. Sara has also
enhanced its ERP package for certain verticals like hospitals, hotels,
insurance, etc. to take into account their front-office functions. Sara ERP has
`been successfully implemented in diverse companies in India, Thailand,
Indonesia, Malaysia, and other countries.
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Based on the needs of the organization and understanding of the criteria that
the customer will look at before buying ERP system.
Here are some criteria based on which the company takes the decision
regarding selection of ERP systems.
Criteria for ERP system
14%
11%
22%
21%
18%
14%
Services
Cost
Function
Technicalarchitecture
Ability to execute
Vision
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CASE STUDY
MERCEDES-BENZ
Known worldwide for producing automobiles of the highest quality,
Mercedes-Benz uses Baan software at its engine remanufacturing factory in
Berlin. With more than 650 engine variation, the requirements for
manufacturing applications software were quite complex. They primarily
opted for Baan’s software as they realized that Baan fulfilled the specific
customization as it provides flexible customization capabilities.
Mercedes-Benz is one of the leading suppliers of automobiles in the
world. The product range includes a large variety of vehicles from exclusive
cars to universal commercial vehicles. Within Mercedes-Benz Inc., some
production sites hold the position of suppliers in order to achieve an efficient
division of labor. One of these sites is the engine factory in Berlin (2600
employees), which produces complete engines as well as engine parts. One
department of this factory is in charge of the reconditioning of old engines
(approx. 450 employees).
Since the engine is not only the heart of the automobile but also a very
cost intensive component, the reconditioning of usable parts is especially
important from the ecological and economical points of view. The
reconditioning in terms of dismantling, identification, chemistry and
reconditioning of individual parts is quite similar to the operations in a
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workshop, but when it comes to the assembling of engines, it is more like
small-lot production.
In 1993, the engine parts reconditioning department of the production
site in Berlin had to decide whether an individual or a standard software
solution should be used to achieve more economical manufacture of rebuilt
engines. Long machining time, low transparency of the manufacturing
process, absence of uniform information about bills of materials and, to a
large extent, manual calculation of requirement were the most significant
weaknesses of the former manufacturing procedure. These weaknesses were
identified through a profound analysis of the actual procedure. In the
development of the target procedure, optimum PPS procedures were taken as
the guideline. Workshops were organized with the PPS suppliers, during
which the PPS system was chosen in accordance with the target business.
Step by step, TRITON appeared to be the best suited PPS system. TRITON
was chosen because it is very flexible and can, therefore, handle the multiple
requirements of the manufacturing of rebuilt engines (variants and
alternative parts issues).
The modified TRITON 2.2 on a HP 9000 system.
The operational system is installed on HP 9000/h50 with a 448 MB
main memory and 2 X 9 GB mirrored disks. The standby system on a HP
9000/i50 with a 448 MB main memory is linked to the operational computer
by a switchover concept and is used as a development computer. Sixty PCs,
36 terminals, 15 Alpha terminals and 15 laser printers are available for the
users.
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After only six months of using TRITON, all item masters and the
6500 construction kits of 850 engine variants were registered. Then the
routing were defined and drastically reduced (by 85%) due to the definition
of parts families. In May 1994, required quantities started to be calculated by
means of an extended MRP, and in Autumn 1994 the production order
control started. Since January 1995, the system is in operation and
completed by the addition of the inventory control and machine-aided
disposition. The costing control is to be added in the future.
It was observed that after only a few weeks of operation, the former
standard situation of incorrectly issued parts became less tense. The
milestone reports have led to transparency of the manufacturing process,
which again facilitates early recognition of problematic parts and an early
adoption of accelerating measures. The transfer from a pure manual
disposition to a machine-controlled disposition was the most difficult task.
The extended MRP calculates the required quantities on its won by using the
complex structures of the bills of materials with their multiple possibilities
of alternative parts. The required quantities are then used by the planners
tests of these customized functions were more complex than anticipated.
During operation there were some problems resulting from the always new
constellations in the complex algorithms, but in the meantime, they gained
control of most of the problems.
Management and IT people at Benz were convinced that choosing
TRITON standard software plus adaptations was the right decision. The
costs involved in individual programming would have been much higher and
they would have integrated some of the old concepts into the software which
they have now avoided by means of very good organization. All in all, it can
be stated that as a result of using TRITON and the simplified and made more
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secure and transparent. The employees now have a better view of the whole
process chain and the targeted rationalization goal was surpassed.
Management and IT people at Benz were convinced that choosing
TRITON standard software plus adaptations was the right decision. The
costs involved in individual programming would have been much higher
which they have integrated some of the old concepts into the software in all,
it can be stated that as a result of using TRITON and the accompanying
organizational procedures, their business operations were simplified and
made more secure and transparent. The employees now have a better view of
the whole process chain and the targeted rationalization goal was surpassed.
ESSAR STEEL
With an investment of Rs. 20crore, CIO claims payback will be within one
year. In what is probably one of the largest ERP projects in India, Essar
Steel is spending a whopping Rs. 20crore on its SAP R/3 implementation
and other IT and consultancy requirement.
To produce high quality steel with the best ingredients, the company
felt the need for an integrated and live information system. Consequently,
this project was envisaged and driven by the top management.
Essar has signed up with SAP for a 1000-user license to begin with,
and this number is expected to go up to 2000 to 2500 users within a few
years. These users would be spread over twenty sites. Already there are 600
users working on SAP at Essar Steel. With this upcoming SAP
implementation, the modules that will be automated at Essar Steel will be
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finance, asset management, product planning, plant maintenance, sales and
distribution, quality management control and commitment accounting.
The company also has an in-house developed integrated marketing
and product system (IMPS) which handles order entry production planning,
quality, dispatches and invoicing. Since this (IMPS) is custom built, it has
been integrated into SAP.
Earlier, Essar Steel had also implemented a payroll/administration
and management system (PAMS), which too will tie in with this SAP
implementation. Essar Steel also has other custom built solutions for specific
areas. All of these will be dovetailed into the SAP implementation. In fact,
even after the full implementation of these three applications only 80 per
cent of the company’s business requirements would have been met.
Why then did Essar decide to go in for an ERP solution at all? Essar
for IT services was huge. Specifically, with SAP, they would save on
implementation time and would be deploying proven software which fortune
500 companies use. The benefit arising from the SAP implementation is
expected to be tremendous and Essar expects that by the end of 1998, the
company’s Return-On-Investment (ROI) would be 100 per cent.
Already, at Essar Steel, the lead time for delivery and procurement of
materials and products has been shortened which will, in turn, reduce the
inventory carrying cost. The other benefits that Essar Steel envisages are
transparency and accuracy of data, which will be near 100 per cent. Also, the
company can close its books within seven days of the given period closing
date and the cost reduction will result in improved bottom lines, and
optimization of plant operations in terms of manpower and finance.
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CONCLUSION
The ERP is not a total solution to operational and strategic concerns. It
is meant for optimal utilization of organizational resources from man to
machine, finance and materials. It is not the ultimate solution to all the
problems. It is meant to accurately track the processes for disciplined usage
of the resources. It cannot be a solution to the customer services problems,
quality problems. For such issues, ERP provides a base for implementation
of specific solutions such as supply chain management, product life cycle
management and customer relationship management. That is why it is very
important for SMEs to understand the role of ERP, because that will them
the power to take decisions on ERP, either single vendor or best of the breed
kind of applications and to what extent. The reasons for implementation for
ERP, is that a firm would like to consider the four perspectives:-
Financial Perspective.
Customer Perspective.
Internal Perspective.
Innovation ad learning Perspective.
This can be translated to ERP effectiveness parameters that can be measured through KPI's.
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BIBLIOGRAPHY
Production and Operation Management, Khandelwal, Gupta, Jain, Ajmera Book Co. Jaipur, First Edition: Jan’07 Part 2, Chapter 13.
E-Business, The icfai University Press Dec 2007. Pg. 37-44.
Enterprise Resource Planning Concepts and Practice, Vinod Kumar Garg, N.K. Venkitakrishnan, Prentice Hall of India Pvt. Ltd. New Delhi, Second Edition: Jan’03.
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