Friday, November 9, 2007

ERP - Success and failures for ERP implementations


Enterprise Resource Planning attempts to integrate all departments and functions across a company onto a single computer system that can serve all those different departments' particular needs.

Enterprise Resource Planning (ERP) predicts and balances, demand and supply. It is an
enterprise-wide set of forecasting, planning, and scheduling tools, which:
· links customers and suppliers into a complete supply chain,
· employs proven processes for decision-making, and
· co-ordinates sales, marketing, operations, logistics, purchasing, finance, product
development, and human resources

Benefits of ERP

ERP automates the tasks necessary to perform a business process—such as order fulfillment, which involves taking an order from a customer, shipping it and billing for it.

With ERP, when a customer service representative takes an order, he or she has all the necessary information—the customer's credit rating and order history, the company's inventory levels and the shipping dock's trucking schedule. Everyone else in the company can view the same information and has access to the single database that holds the order.
When one department finishes with the order, it is automatically routed via the ERP
system to the next department. To find out where the order is at any point, one need only log in to the system. The goals of ERP include high levels of customer service, productivity and cost reduction, and it provides the foundation for effective supply chain management and ecommerce.
It does it by developing plans and schedules so that the right resources -
manpower, materials, machinery, and money – are available in the right amount when
needed. ERP helps in co-ordinating the individual elements of the overall set of business processes. Many companies have experienced, as a direct result of ERP dramatic increases in responsiveness, productivity, on-time shipments and sales, along with substantial decreases in purchase costs, quality problems, and inventories.
ERP is the vehicle for getting valid plans and schedules, but not just of materials and production. It also means valid schedules of shipments to customers, of personnel and equipment requirements, of required product development resources, and of cash flow and profit.

Critical Success Factors:
The old saying 'the devil is in the details' is certainly a truism in ERP implementation. Building a solid implementation plan is critical for success. We need to plan our deployment in logical, manageable chunks to minimize risks and maximize acceptance of the new solution.
We might do so in a 'big bang' or use a ‘phased approach’. We need to decide which
business units will be implemented first and how will the application modules be
deployed. The IT infrastructure has to grow with our needs and we may need to integrate with legacy applications. We will need to keep the project focused on business results, and assess the results after the implementation.

An ERP system is not only the integration of various organisation processes. Any system has to possess few key characteristics to qualify for a true ERP solution. These features are:
1) Flexibility: An ERP system should be flexible to respond to the changing needs of an enterprise. The client server technology enables ERP to run across various data base back ends through Open Data Base Connectivity (ODBC).
2) Modular & Open: ERP system has to have an open system architecture. This means
that any module can be interfaced or detached whenever required without affecting
the other modules. It should support multiple hardware platforms for the companies
having heterogeneous collection of systems. It must support some third party add-ons
3) Comprehensive: It should be able to support variety of organisational functions and must be suitable for a wide range of business organisations.
4) Beyond The Company: It should not be confined to the organisational boundaries,
rather support the on-line connectivity to the other business entities of the
5) Best Business Practices: It must have a collection of the best business processes
applicable worldwide.
6) Simulation of Reality: Last but not the least, it must simulate the reality of business processes on the computers. In no way it should have the control beyond the business processes and it must be able to assign accountabilities to the users controlling the system.

Since, ERP gets the best out of the available resources, it is very important to reengineer the business processes before going for an ERP implementation.

Reasons for failures of ERP implementation
People don't like to change, and ERP asks them to change how they do their jobs. That is why the value of ERP is so hard to pin down. The software is less important than the changes companies make in the ways they do business.
If we use ERP to improve the ways people take orders, manufacture goods, ship them and bill for them, we will see value from the software; else the new software could slow us down by simply replacing the old software that everyone knew with new software that no one does. Common reasons for failure of ERP projects include:

1) Long period: ERP implementations usually run for a year or more. This long period
can be a pain for the company that is investing huge sums of money. But this should not be seen as a drawback as all the effort that is invested is for improving the business of the company itself.
2) Budget: A few oversights in the budgeting and planning stage can send ERP costs
spiraling out of control faster than oversights in planning almost any other information system undertaking.
3) Business Processes: The most common reason that companies walk away from
multimillion-dollar ERP projects is that they discover the software does not support one of their important business processes. At that point there are two things they can do:
i) They can change the business process to accommodate the software, which will mean
deep changes in long-established ways of doing business (that often provide competitive advantage) and shake up important people's roles and responsibilities.
ii) They can modify the software to fit the process. This may slow down the project,
introduce dangerous bugs into the system and make upgrading the software to the ERP
vendor's next release excruciatingly difficult, because the customizations will need to be torn apart and rewritten to fit with the new version.

What are the hidden costs of ERP?
1. Training
Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface.
2. Integration and testing
Testing is done by running a real purchase order through the system, from order entry
through shipping and receipt of payment with the participation of the employees who will eventually do those jobs. Add-ons add to the integration costs of ERP
3. Customization:Tailor-Made Business Fit
The customizations can affect every module of the ERP system because they are all so
tightly linked together. It is like playing with fire.
4. Post-ERP depression
ERP systems often wreak cause havoc in the companies that install them. In a recent
Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP system went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before.
5. Waiting for ROI (Return On Investments)
The company expects to gain value from the application as soon as it is installed but it does take some time for the fruits to ripen.

How to make a successful ERP implementation?
· Choosing the right software vendor: If two vendors offer a function required in a
specific industry segment, and one specializes in deploying it in that segment while
the other does not, the difference can be dramatic. Here the benefits that are offered need to be considered along with cost and risk.
· Analyzing the Risks: Even the most simple effort probably has only a 90 percent
chance of success - i.e., the project is on-time, within budget, and attains all the
planned benefits. As projects increase in scope, the odds of achieving success
diminish rapidly. Implementation projects require companies to strike a balance
between the desire to satisfy everyone's functionality needs, and the need to keep
things simple enough to ensure success. A methodology will help ward off risk, but a
contingency plan still is absolutely necessary.
· Determine Company Intentions and Commitment: Examine why you wish to
undertake such a major project.
1. Is it to improve your already efficient and streamlined procedures?
2. Is it to speed workflow bottlenecks?
3. Is everything in disarray or do you just need to remove one or two bad apples?
4. Are you trying to get everything fixed at once?
· Be True to the Budget: The project should have a contingency budget. Most projects
should have a contingency of 10 percent on time - if all tasks go well, it will finish 10 percent early. Maintain pressure to control costs on all project tasks.
· Selecting proper technology: The tradeoff between stable, proven technology and
newer, state-of-the-art systems is one of the most critical decision points for the
project. While stable technology - one that has been around for several years - runs
the risk of being obsolete in the near future, newer technology may involve near-term
instability, which can lead to its own problems.

The key to successful implementation of an enterprise software solution is to apply
people, process, and product initiatives within a structured methodology framework.
When these elements are brought together and skillfully managed, companies can fully
expect to realize shorter time to production, measurable business benefits, and a rapid return on their technology investment.

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