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EFFECT OF ERP ON INDIAN BUSSINESS SCENARIO

By: Prassanjeet Sheel Rahul sachan

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What is an Enterprise Resource Planning(ERP)

Enterprise resource planning (ERP) software helps integrate management, staff, and equipment, combining all aspects of the business into one system in order to facilitate every element of the manufacturing process. ERP groups traditional company and management functions (such as accounting, human resources [HR], manufacturing management, and customer relationship management [CRM]) into a coherent whole. Manufacturing management also includes inventory, purchasing, and quality and sales management.

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Introduction

Worldwide organizations are going for ERP (Enterprise Resource Planning) systems for information integration and aligning & streamlining their processes for delivering high value to the customers. ERP systems have their roots in MRP II systems which provided support to the production function. ERP systems seek to integrate of information across all functional areas (i.e., marketing, finance, HR, logistics etc.) and hopes to provide increased flexibility to organization in serving its customers. Studies on ERP have been a recent phenomenon. Most of the papers on ERP have appeared after the year 1995. However most of the previous studies focused on how to make ERP implementation successful. Our paper seeks to study the effect of ERP implementation on manager's job and on organization structure

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Enterprise Resource Planning Business Drivers and Benefits

Efficient handling of order processing and production scheduling . Management and analyses of business processes within an interactive environment . Synchronization of departmental activities (e.g., within human resources or finances) with the needs and output from production facilities . Monitoring, sharing, and tracking of information throughout the organization Examine how each solution addresses your management and manufacturing requirements.Compare systems to see if they offer the functions critical to your industry. Analyze each solution's capacity to support your company's growth and operations over time.

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Organizations without effective ERP software run the risk of company-wide in efficiencies

Uneconomical use of resources Miscommunication between departments Errors in financial maintenance and production cost tracking

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How do you cost justify ERP? It is difficult to calculate return on investment for ERP decisions, though several successful installations of ERP had dramatic returns on investment. For example, Microsoft estimates that the investments in ERP will be paid back by way of better performance in flat two years. It must be realized that the ERP is an enabler. ERP gives agility to organization, which can be exploited to improve profitability, market share or customer service. Without ERP, the organization may not be in a position to handle larger business or provide faster response to customers. The results from enlarged business or faster customer response should pay back for ERP investment. It is predicated on the fact that the organization would leverage the agility towards such corporate goals. ERP helps in pursuing such goals often successfully. But mere ERP implementation does not necessarily translate to benefits. Better health enables a human being to do things, which would have been difficult, if not impossible, without such sound health. ERP must also be viewed as a way of providing a better health to an organization.

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Does ERP leads to unemployment?This is a loaded question. Today, a large number of middle managers, supervisory staff etc, are busy chasing information, making queries, preparing reports and checking or verifying compliance to simple rules. It could be the preparation of the list of employees who are due for retirement next year or verifying whether an applicant for earned leave has enough leave to his credit. With a successful ERP in place, information will be freely available and any casual user can very easily generate any ad hoc queries or reports. The system will automatically check for the compliance for most of the standard rules. As such, a number of routine jobs will disappear. However, with the information system in place, many of the middle level managers can be empowered to perform far more interesting analysis, develop insights and suggest innovative schemes for improvement. Often these are the real benefits are ERP. If an organization is not imaginative enough to empower people to perform such analysis, obviously ERP can be discredited with creating unemployment.

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The Computerized Railway Reservation System in India may serve as a good example. With the networked computer terminals, one can manage the issuing of the tickets with fewer staff. However, today we have more railway reservation clerks than what we had ten years back. The average counter hours across the country have increased from 6 hours a day to 12 hours per day. We are able to cope with much larger number of passengers, thanks to the population growth. An average user is also able to make reservations from "any place to any place" from any one of the terminals, significantly improving service quality. In a way Railway Reservation System has taken away a few jobs but created many more jobs. In all such cases looking at the head count may be an incorrect way to approach the problem. The goal must be to provide better quality service and better quality of jobs.

Does ERP leads to unemployment ?(Cont….)

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What is the ERP life cycle ?The set of activities through which ERP is implemented in an organization constitutes the ERP life cycle. This can be compared to the well developed System Development Life Cycle (SDLC) in the traditional Structured System Analysis and Design (SSAD). Typical ERP project consists of the following steps:

Step 1: ERP readiness assessment

Step 2: Preparing the organization for ERP

Step 3: ERP Feasibility Study

Step 4: Process modeling and documenting the "AS IS" processes & "TO BE" processes (along with BPR)

Step 5: Detailed plan for ERP implementation (includes ERP software selection, selection of implementation partners, implementation methodology - "Big Bang" or Modular Implementation - and the final and precise extent of implementation)

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Step 6: Detailed implementation including development, quality assurance and production system

Step 7: Preparing to "go live" including data migration

Step 8: Going live

Step 9: Performance assessment, documentation, training (continues in early stages also) and future plans

What is the ERP life cycle ?(Cont……….)

13Enterprise Resourse Planning

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What is the contribution to ERP from India ?

The most valuable contribution to ERP has been the launch of the world class ERP Product Marshall from Ramco Systems. Developed in late 80's using the technology of the 80's (unlike many other ERP Products, which use 70's technology), Marshall is a visionary product and represents the first successful large-scale software product from India. Hopefully India will also contribute to courseware development and supply quality manpower to the world at large. BaaN has plans to do considerable product development from its Hyderabad Development Center. Over the years world-class ERP software development may happen right in the country.

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What are the special challenges of ERP introduction in India ?

The challenges of introduction of ERP in India are in general the same as in other countries. This includes change management, organizational intervention, shifting from function view to process view and faith in package software in the place of custom-built software. The special challenges in India arise from the existence of large IS shops inside many Indian corporations who may view ERP as a threat to their very existence. The Indian software companies also see a threat to their project-based software business in ERP. Traditionally organizations in India depended more on IS professionals rather than business professionals for commercial software developments. ERP places more value on domain knowledge of the functions rather than IT skills. This calls for a mind-set change, which is a challenge. Last, but not the least, is the lack of communication infrastructure, which is often necessary to implement ERP. The IT infrastructure needed for ERP implementation is orders of magnitude more than the infrastructure needed for the legacy application. This again calls for a mindset change.

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What is meant by India version of specific ERP software?

ERP software must address all the enterprise needs of an organization within the social context in which the enterprise operates. This would imply that the local accounting practices, locally applicable taxation laws (excise, customs, sales tax and income tax) are fully adhered to in implementing the various business processes. The software vendor must incorporate India specific features before selling the software. The specific ERP software that has been adopted to suit to Indian statutory laws is called India specific ERP.

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Is ERP too expensive for Indian Companies ?

It is a loaded question. The cost of ERP software should not be viewed as an expense. It is an investment towards an ability that provides better profitability, market share or customer service. Of course, the up-front cost of ERP software is very high. Most software pieces used by the corporations for commercial applications never had price tags of crores of rupees which ERP software carry. ERP decisions are a "high-risk high reward" decision. The view that ERP is expensive only looks at the risk but not the rewards.

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What are the barriers to entry into the ERP software market ?

ERP software is now a fairly matured market. Leading vendors such as SAP & BaaN have years of experience, thousands of clients and spent billions of dollars in research and development. Enterprise computing is a mission critical application that most senior management would not like to risk the running of their corporations on any one with an unknown track record. ERP software also needs significant partnership with hardware, software and networking vendors as well as the large management-consulting firms. In essence large R&D budget and key partnerships developed over years are the major barriers to entry for any new entrant into the ERP software market

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Is there a rating agency that constantly rates ERP software?

A number of independent consulting firms have been providing white papers that document strengths and weakness of the leading software products both from technology and market perspectives. These include Gartner group, Yankee group, Meta group and AMS, to name a few leading consulting firms. Gartner group annual ERP market white paper is the most authoritative document describing the relative strengths of the leading edge ERP software products. This document gets updated once every quarter

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Where do you get ERP software market information?

Once again Gartner group and IDC, Data Quest are the prime sources of ERP market related information. India specific information is made available by IDC India.

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Is there a benchmarking tool to fine tune ERP performance ?

Every ERP vendor provides performance guidelines that can be used by system administrators to fine tune performance. Some of them are very comprehensive and address fine-tuning at the application, database, operating system, processor and even the network level. Other ERP vendors provide tools that can leverage the leading edge database tuning, operating system tuning and network performance tuning tools.

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How to prepare an organization for ERP implementation?

There is no easy magic through which one can prepare an organization for ERP implementation. Exposing the top management to the benefits of ERP through the real world case studies, sharing of experience by other corporations that have successfully implemented ERP and creation of awareness is the first step. Convincing the top management to use a high risk, high reward scheme such as ERP is a major challenge. Almost all the members of the organization should get the excitement about ERP project implementation. Communicating and sharing of the ERP vision is the most important organizational preparation for a successful ERP implementation

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What are the critical successes factors for ERP?

Critical success factors for ERP include top management commitment, clear focus about the goals of ERP project, readiness to invest in high risk, high reward project, and management of change and faith in package software.

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When will personal ERP products appear in the market?

Personal ERP software that will be affordable for purchase by small corporations including single person corporations are still far from reality today. ERP today is like the main frame of the seventies, when no one thought that there will be need for individual computers for everyone. Several developments including microprocessors and visionary corporations like Microsoft made personal computers possible. Personal ERP similarly would become reality when "business objects" with sufficient power of abstraction with sophisticated "plug and play" features can be mass produced and assembled at the user end with minimal cost and time. It is difficult to put time frames but the trend both in software development and business growth reinforce our feeling that ERP will one day become personal. For details see Sadagopan, ERP Software goes personal.

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What is the size of the Indian ERP market?

The Indian ERP market is around 100 crores and growing at the healthy thirty percent annual growth. All the leading industrial houses are getting their act of ERP implementation together. There will be a major ERP implementation exercise by the public sector corporations in the next two years.

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What is the expected ERP market scenario in the next five years?

The Global ERP Market is expected to grow to about 20 billion USD by the turn of the century from its present level of about 7 billion dollars. The leading players such as SAP, Oracle, BaaN, People Soft, Ramco Systems are likely to continue to dominate the ERP market. In future, more and more of the installations in future are likely to use industry specific solutions rather than the generic "plain vanilla" ERP solutions. The low end of the market is likely to experience a shake out in the market.

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Review on ERP ERP leads to information integration for the various functions of the business like Accounts, Finance, Marketing, Sales, Production, Vendors, and Distribution etc. It provides the benefit of single data entry, immediate access, and common data. Data are updated in real time, meaning that when data is entered into the system, the changes are immediately available to everyone. Prevailing Business processes are replaced by best practices. Organizations with multi-plants located all around the globe are benefited the most. If information is available quickly and accurately, then resources are put to better and more efficient use. ERP implementation is not an easy task. There are horror stories of implementation failures. It assumes all people problems are solved and people cooperate. 'Roles' of some people change significantly due to ERP. This brings in resistance to change which needs to be handled properly.

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Do not implement everything on ERP, most critical areas where information integration is essential, could be put on ERP first. Do not implement everything on ERP, most critical areas where information integration is essential, could be put on ERP first.

Review on ERP(Cont……)