erp impact on organizations

ENTERPRISE RESOURCE PLANNING 2008

CHAPTER 1

INTRODUCTION

Government RC College Commerce & Management Bangalore-01 1


A CONCEPTUAL FRAME WORK ON ERP

1. ENTERPRISE RESOURCE PLANNING:

“ERP is an industry term for the broad set of activities supported by multi-module

application software that help a manufacturer or other business mange the

important parts of its business, including product planning, parts purchasing ,

maintaining inventories, interacting with suppliers, providing customer service,

and tracking orders. ERP cans also include application modules for the human

resources aspects of a business. Typically, an ERP system uses or is integrated

with a relational database system.”

2. ERP – AN INTEGRATED SUITE OF APPLICATIONS:

ERP is a term coined in the early 1990s. It began as a group of applications or

software focused on combining multiple systems in to one integrated system where

data could be shared across the enterprise, presumably reducing redundant data

entry and processes. It was originally proposed for manufacturing and production

planning.

Almost any discussion of enterprise resource planning starts with material

requirement planning (MRP) and MRP II systems of the 1970s and 1980s. In the

manufacturing environment of old, the ability to produce the product was the

focus. As manufacturing evolved over time, the number of difficult questions

increased. Such questions largely focused on the areas of component procurement

for the finished product and on strong the material necessary to make the products.

Organization were trying to understand both the finished manufacturing totals and

how to get to the finished product



MRP II added a focus on the planning aspects of this processes these system

integrated capacity, design engineering and management, cost and long range

planning of the enterprise in to the equation. Many organizations that implemented

this approach instituted mechanisms to correlate the planning and forecasting

process with the actual production numbers this allowed the organization to

achieve higher level of over all efficiency in the manufacturing arena. The real

issue is that while the organization had a better handle on the manufacturing

aspect of the business, it was still missing integration to other components of

finance, sales, marketing, customer satisfaction and distribution to name a few.

ERP is massive software engine that seeks to provide one seem less interface to all

departments, systems and existing data with in organization sp that each

department understands how it fits with in the organizations macro structure and

how it impacts that macro structure. Such understanding in crucial in facilitating

enhanced communication between departments, better knowledge management,

and improved processes. Such enhancement is the foundation for fundamental

business changes.

ERP sits between all of the systems and users regardless of where they are in the

pipeline. It knows all the different data collection points, and it must interface with

all the different formats of the particular data. It also intelligently routes the order

to the appropriate department at the appropriate time; reducing the number of times

a human has to enter data can dramatically reduce errors. ERP also takes all the

data and formats it so that each department can perform its required function.



Today, ERP has gone beyond its original limits to evolve into ‘extended ERP’

Extended ERP includes (Customer Relation management) CRM and Supply chain

management Applications.

Although there is a huge focus on the technological aspects of an ERP deployment,

there must be an equal focus on changing the way an organization functions.

Deploying ERP for the sake of ERP can be dangerous. ERP is not simply

reengineering systems; it is reengineering the way organizations do business.

While the benefits of ERP an impressive, deploying an ERP system is a major

undertaking for any organization. Some of the real issues that occur during an ERP

deployment center on job function. Changing the mentality of the organization’s

employee is critical to changing the business process. The organization will spend

millions of dollars in time, software, and hardware with negligible results.

3. ERP – THE WAY TO RUN YOUR BUSINESS

ERP buying intention remains strong, even in 2002. A William & Blair LLC

survey revealed that 20% of companies were in the process of making a significant

investment in ERP. Another 25% indicated a willingness to buy in the future.

Another 50% had stable ERP systems. Only the rest 5% were unclear. Companies

are rushing to buy ERP systems to address their business needs. Why such a high

demand? The underlying drivers come from both the business and technology side.

The business drivers that compel companies to add brand new ERP systems or

replace homegrown, function specific legacy systems are:· Gaining greater

visibility and control. Too many administration headaches and information

breakdown. Managers want to know instantly and accurately:



· Can we build it?

· What will it cost?

· Do we have the necessary materials?

· Where is it?

· When will we ship it?

· Did we make any money?

· How much have we sold?

· What have we shipped?

· What is the complete inventory status?

As one manger of a large company said, “You can’t manage what you don’t

know before ERP implementation, it was four to six weeks after the close of

the month before we had information reconciled, and we still weren’t sure of

the accuracy. Previously, information was integrated manually and, therefore,

was not reliable or timely”. Improving decision integration across the enterprise.

ERP links information islands. Often, finance doesn’t talk to production, and

production doesn’t talk to purchasing and planning. This detached infrastructure

can create confusion, misunderstanding, and errors and limit company asset

utilization.

The technology forces driving ERP are:

· The need to integrate a broad range of disparate technologies, along with

processes they support, into a common denominator of overall functionality.

· The need to create a foundation on which next generation applications can

be developed. ERP acts as the central nervous system. As a fully integrated

system, ERP automates all departmental information into a single relational

database. As the entire quotation through shipping process uses the same

information from a single dataflow, data is entered only once which

improves accuracy and reduces cycle time. Information is retrieved quickly



and easily for real hands-on decision making. ERP breaks the information

bottleneck and provides up to- the minute information to the right person at

the right time.

4. ERP DECISION = ENTERPRISE ARCHITECTURE

PLANNING

Market leaders embraced ERP in order to gain operational efficiencies, but the

process is not pain-free. Remember that ERP provides a business foundation.

Selecting and installing a new ERP solution is one of the most important and most

expensive endeavors an organization will ever undertake. It’s also the single

business initiative most likely to go wrong. Technology itself isn’t the only

challenge in managing transformation. Adopting ERP significantly affects a

company’s architecture, processes, people and procedures. As one manage recently

said: “ERP is not a mere systems change. You are changing the way people have

done their jobs for the past 20 years”.

4.1 Selection Criteria

Not all ERP systems are created equal. Selecting the right technology and solution

provider is the key to success. Anyone can promise, but few can actually deliver.

Deloitte & Touché conducted a study of 1,500 companies, all of which had to

replace systems purchased within the previous 24 months. Here are the top ten

purchasing criteria for selecting software:

1st time 2nd time Criteria

8 1 Level of support provided by the vendor and local partner



10 2 Vendor’s track record of performance

7 3 Software’s ability to fit the business

4 4 Growth potential of the software

1 5 Price of the software

9 6 Quality of documentation

5 7 Functionality of the software

3 8 Ease of use

2 9 Ease of implementation of new system

6 10 Software compatibility with existing hardware

As companies gained more experience and knowledge of ERP systems, they

refocused on vendors who have a proven track record and can make systems work

rather than initially offering low prices. It is clearly an expensive lesson learned in

a hard way.

4.2 Build vs. Buy

Manufactures who are considering building an in-house system must know the

associated costs and risks.

· High total cost of ownership and complexity associated with developing

and maintaining

· Custom-designed applications.

· Software development may not be the core competency. It is estimated that

more than 70 percent of internal software projects fail.

· Internal development is time consuming. Installed applications are

becoming



Technically outdated and the ongoing redesign of the business process

makes existing software functionally obsolete.

· Off-the-shelf solutions integrate the best business practices from a variety

of companies.

· The ability to import and adopt these best practices from leading PCB

manufacturers translates into bottom-line improvement.

· With Vendor’ Software Maintenance, companies can stay with the latest

functions and technology at fractions of cost.

4. 3 Vendor Selection

Besides product capabilities, the vendor and local support should be carefully

evaluated.

The vendor history:

· Size of the organization. How many project managers, consultants, systems

and hardware engineers, trainers and support personnel, software developers

are available? How long have these employees been with the firm?

· Length of time in business. Vendors who have been in business longer than

five Years are generally more stable and more likely to continue in business.

Beware of small firms with less than five employees, or firms that have been

in business less than two years

Current Software Version. Does the Vendor provide software upgrades

during the course of the products life cycle. Early versions tend to be bug

prone, and require lots of improvement. Avoid those risks, use products that

have proven track record.

· Size of the vendor’s client base. The size of a vendor’s client base is

directly related to the success of the firm and its level of experience and



expertise. Focus on the client base with a similar profile as your business in

terms of company size, production environment. If you find three or more

profiles similar to yours, the probability of a successful implementation

increases greatly. Hours of operation. Learn about vendor’s business

operations, and support work hours. Employee profile. Company and

employee profiles show the years of experience and depth of knowledge a

firm has acquired. Request these profiles and use them as tools for

comparison. Extent of business services. The vendor should have a broad

range of knowledge and expertise to address a total manufacturing solution

and future growth needs. Measuring customer satisfaction. Vendors focused

on customer satisfaction have programs in place to measure their

effectiveness. Ask the vendor how they measure it. On-site client visit. Once

a vendor has been selected. Arrange an on-site visit to the vendor’s client

who is similar in size and operating environment, transaction volumes. Make

a list of questions and to ask, and spend some time alone with the client.

· Documentation. Ask the vendor to provide sample implementation,

training documents, such as help and user manuals. Well-documented

vendors are usually prepared for implementation.

The Vendor Technology:

· Is the vendor using viable technologies and platforms for the long

term?

· Does the vendor use objects and components to architecture the

system?

· Does the vendor have open or proprietary system?

· Is the system web enabled or web based? What is the vendor’s

Internet vision?



· Does the system have XML, EDI capabilities for data integration

and transactions with other systems internally or externally?

· Is the system Web Service ready?

The Total Cost of Ownership:

One time software license fee of core and optional modules

· Server license fee

· Client or database license fee

· Other required software (e.g. reports, SPC)

· Hardware, LAN costs

· Software annual maintenance fee

· Implementation fee (consulting, development, test, configuration,

documentation,

· installation, training)

4.4 Common Mistakes

Do avoid common mistakes that cause project failures.

· All software is the same

· The cheapest solution is the best

· My friend told me to buy it

· Beware the “demo trap”

5.0 ERP IMPLEMENTATION – CATCHING THE BULL BY THE

HORNS

1. 49% project over schedule, over budget with less functionality

2. 40% failed to achieve their business case



3. 75% experienced “productivity dip” within first 6 months

4. 20% terminated ERP projects

Picking the right product is just the start of an ERP project. PCB

manufacturers must also consider system configuration, software modification,

user training, and integration with other systems, data conversion, and business

process adjustments. All of these should be well planned in implementation. There

are five important lessons to be learned from other companies who have been

through a less than fully successful ERP implementation:

1. Operating strategy did not drive business process design and deployment

2. The implementation took much longer than expected

3. Pre-implementation preparation activities were poorly done

4. People were not well-prepared to accept and operate the new system

5. The cost of implementation was much more than anticipated

The road map for rapid implementation: Understand business needs, simplify

process, and introduce automation. Here is an example of how leading ERP

vendors implement ERP systems using a Stage and Gate process.

5.1 Stage 1: Analysis

Objectives:

Gather and document requirements related to functions within project scope

Minimize or eliminate the amount of development work

Project Milestones:

Conduct requirements-gathering meetings

Conduct business analysis review sessions

Conduct business process improvement sessions



Document data migration and integration strategy

Identify and train key users in different business units

Project & Change Management:

Assess impact on users and manage concerns and expectations

Create project schedule and training, support plan

Gate 1: Key Deliverables

Project team formation, senior management sponsor, and project kick off

Functional requirement document and gap/fit analysis

Project schedule and plan including the estimation of project resources,

costs, and duration of each activity.

5.2 Stage 2: Design

Objectives:

Determine how to design and implement the required functionality based on

business process

Design, data structure

Create a specification for configuration ad programming (if needed)

Project Milestones:

Conduct information-gathering regarding customization needs

Write software requirement specifications for custom-developed functions

(if needed)

Create a test plan (if programming is required)


Assess current infrastructure

Develop data collection, input and test plan

Finalize project plan and schedule, and present to senior management



Gate 2: Key Deliverables:

Present and get approval of updated project plan, schedule

5.3 Stage 3: Development and Testing

Objectives:

Complete and test software and database required

Ensure that required infrastructure (hardware, network) is in place

Project Milestones:

Configure software and database to match the structure of the company with

desired business process

Develop standard and custom functions and integration


Manage software incidents and change requests

Update project plan for next release on an ongoing basis

Gate 5: Key Deliverables:

Ensure that all business requirements are met

Measure the new system benefits to determine ROI

5.6 Implementation Leadership Skills

Implementation is where ‘rubber hits the road’. It requires skilled project

leadership p from both vendor and client sides. Qualified vendors usually assign a

seasoned project manager who has “seen” many businesses like yours, and who

thoroughly understands your business issues and knows how to deliver what the

software has to offer.



Of Utmost importance, however, is that top executive sponsorship and a strong

internal project leader is required to make the project implementation successful.

The project leader must possess a broad range of skills including:

Strategic thinking. What are we trying to accomplish? How well does the

ERP align with your business strategy? Should the priority be costs, speed

of implementation, or functionality?

Process reengineering. You cannot implement large-scale systems without

first Changing processes. An ERP system is really a collection of business

rules and procedures. Therefore, implementing an ERP system involves

replacing one set of rules and procedures with another.

Managing implementation complexity. Vendor partnership, shared goal and

Objectives, detailed planning, clear roles and responsibilities are the keys to

Overcoming complexity.

Transition management. Coordinating a smooth transition and overcoming

employee resistance can be critical factors for the successful completion of a

project.

The internal project leader should have the authority to make changes happen

quickly and who has a sense of urgency and true accountability for completing the

preparation and implementation activities on-time.

6.0 START YOUR ERP JOURNEY NOW

Every long journey starts with the first step. Any ERP selection should include the

following four critical phases of system selection. It is a lengthy process that cans

last three to twelve months. The earlier you start the better. Don’t be left behind.

6.1 Phase I: Identify Business Goals and Objectives



In order to align goals and objectives, and identify issues and priorities,

management needs to ask tough questions and make sure the answers are fact-

based.

Will ERP help us to improve customer satisfaction? How? How much?

When?

Will ERP contribute to increasing our market share? How? How much, and

when?

Will ERP decrease our operating expenses? How? How much, and when?

Will ERP help reduce inventories? How? How much, and when?

Will ERP help increase revenues? How? How much, and when?

Will ERP shorten our order-to-delivery cycle time? How? How much, and

when?

Will ERP help us keep pace with or surpass our competition? How? How

much?

6.2 Phase 2: Create a Project Team

It is essential that this includes an Executive sponsor, someone high enough in the

Organization (i.e. CEO, CFO, CIO) to cut across departmental lines and deliver the

Executive’s view of the system. Other critical members of the team are users from

various departments, as well as technical representatives. It is important that top

management is committed to the project and is willing to support it from

beginning.

Top management support checklist:

Are the sponsors and manager totally committed to making it happen?

Is there an executive ‘sponsor’ representing the project team effectively to

top management?



Does top management delegate the necessary authority and responsibility to

the project team?

Is the project getting the resources it needs?

Is the project endorsed by the sponsor?

A project team determines the result of the project.

Resource checklist:

Are there enough resources to achieve the plan?

Do project team members understand their role and how to measure

performance?

Is adequate training available for the team?

Are the team members willing to compromise elsewhere to ensure its

success?

Do people believe in the project and demonstrate a strong team spirit?

6.3 Phase 3: Requirements Definition and System Evaluation

Through interview and observation techniques, critical system information is

collected with respect to your present data flow and system requirements. The gap

between what you are currently using and what you ultimately require should be

evaluated. It’s easy to get lost in the details. Without clearly defined requirements,

there is little else to base your decision on. You will most likely focus on the cost

of the systems and look for the least expensive offering – as opposed to the system

that will provide the greatest return on your investment.

Project definition checklist:

Does everyone identify with and understand clearly the nature, purpose and

benefits of the project?

Is there an effective process for defining and documenting objectives,

assessing risks and producing an outline plan?



Some ERP Vendors provide a Functionality Checklist for you that can be a

“starting point” for your objectives and vendor comparisons.

7. ERP AND COMPETITIVE ADVANTAGE

In order to gain a sustained competitive advantage, an analysis of markets at the

Micro-level is essential. A detailed analysis of the markets served by an

organization will throw up different qualifiers and order winners and this

necessitate a change in the erroneous belief the manufacturing and support

processes in terms of processing requirements and infrastructure investments

would be the same in all markets. The strategic process hence needs to be based on

a clear understanding of the markets and the differences within a market.

Companies that approach strategy in general terms and undertake strategy using

general courses of action will find themselves at a serious disadvantage. Once an

organization identifies the manufacturing approaches to support its different

markets, it needs to adopt the same approaches in all the other plants also. And the

only way such an approach can be successfully implemented is through ERP.

8. HOW CAN ERP IMPROVE A COMPANY’S BUSINESS

PERFORMANCE?

ERP's best hope for demonstrating value is as a sort of battering ram for improving

the way your company takes a customer order and processes it into an invoice and

revenue—otherwise known as the order fulfillment process. That is why ERP is

often referred to as back-office software. It doesn't handle the up-front selling

process (although most ERP vendors have recently developed CRM software to do

this); rather, ERP takes a customer order and provides a software road map for



automating the different steps along the path to fulfilling it. When a customer

service representative enters a customer order into an ERP system, he has all the

information necessary to complete the order (the customer's credit rating and order

history from the finance module, the company's inventory levels from the

warehouse module and the shipping dock's trucking schedule from the logistics

module, for example) .People in these different departments all see the same

information and can update it. 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, you need only log in to the ERP system and track it down.

With luck, the order process moves like a bolt of lightning through the

organization, and customers get their orders faster and with fewer errors than

before. ERP can apply that same magic to the other major business processes, such

as employee benefits or financial reporting. That, at least, is the dream of ERP. The

reality is much harsher. 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 you use ERP to improve the ways your people take orders,

manufacture goods, ship them and bill for them, you will see value from the

software. If you simply install the software without changing the ways people do

their jobs, you may not see any value at all—indeed, the new software could slow

you down by simply replacing the old software that everyone knew with new

software that no one does.

9. HOW LONG WILL AN ERP PROJECT TAKE?

Companies that install ERP do not have an easy time of it. The companies

shouldn’t get fooled when ERP vendors tell them about a three or six month

average implementation time. Those short (that's right, six months is short)



implementations all have a catch of one kind or another: The company was small,

or the implementation was limited to a small area of the company, or the company

used only the financial pieces of the ERP system (in which case the ERP system is

nothing more than a very expensive accounting system). To do ERP right, the ways

the company do business will need to change and the ways people do their jobs

will need to change too. And that kind of change doesn't come without pain.

Unless, of course, the company’s ways of doing business are working extremely

well (orders all shipped on time, productivity higher than all your competitors,

customers completely satisfied), in which case there is no reason to even consider

ERP. The important thing is not to focus on how long it will take—real

transformational ERP efforts usually run between one and three years, on average

—but rather to understand why you need it and how you will use it to improve

your business.

10. WHAT WILL ERP FIX IN A BUSINESS?

There are five major reasons why companies undertake ERP.

· Integrate financial information: As the CEO tries to understand the

company's overall performance, he may find many different versions of the

truth. Finance has its own set of revenue numbers, sales has another version,

and the different business units may each have their own version of how

much they contributed to revenues. ERP creates a single version of the truth

that cannot be questioned because everyone is using the same system.

· Integrate customer order information: ERP systems can become the

place where the customer order lives from the time a customer service

representative receives it until the loading dock ships the merchandise and

finance sends an invoice. By having this information in one software system,

rather than scattered among many different systems that can't communicate



with one another, companies can keep track of orders more easily, and

coordinate manufacturing, inventory and shipping among many different

locations at the same time.

· Standardize and speed up manufacturing processes: Manufacturing

companies—especially those with an appetite for mergers and acquisitions

—often find that multiple business units across the company make the same

widget using different methods and computer systems. ERP systems come

with standard methods for automating some of the steps of a manufacturing

process. Standardizing those processes and using a single, integrated

computer system can save time, increase productivity and reduce head

count.

· Reduce inventory: ERP helps the manufacturing process flow more

smoothly, and it improves visibility of the order fulfillment process inside

the company. That can lead to reduced inventories of the stuff used to make

products (work in- progress inventory), and it can help users better plan

deliveries to customers, reducing the finished good inventory at the

warehouses and shipping docks. To really improve the flow of your supply

chain, you need supply chain software, but ERP helps too.

· Standardize HR information: especially in companies with multiple

business units, HR may not have a unified, simple method for tracking

employees' time and communicating with them about benefits and services.

ERP can fix that. In the race to fix these problems, companies often lose

sight of the fact that ERP packages are nothing more than generic

representations of the ways a typical company does business. While most

packages are exhaustively comprehensive, each industry has its quirks that

make it unique. Most ERP systems were designed to be used by discrete

manufacturing companies (that make physical things that can be counted),



which immediately left all the process manufacturers (oil, chemical and

utility companies that measure their products by flow rather than individual

units) out in the cold. Each of these industries has struggled with the

different ERP vendors to modify core ERP programs to their needs.

11. WHAT DOES ERP REALLY COST?

Meta Group recently did a study looking at the total cost of ownership (TCO) of

ERP, including hardware, software, professional services and internal staff costs.

The TCO numbers include getting the software installed and the two years

afterward, which is when the real costs of maintaining, upgrading and optimizing

the system for your business are felt. Among the 63 companies surveyed—

including small, medium and large companies in a range of industries— the

average TCO was $15 million (the highest was$300 million and lowest was

$400,000). While it's hard to draw a solid number from that kind of range of

companies and ERP efforts, Meta came up with one statistic that proves that ERP

is expensive no matter what kind of company is using it. The TCO for a "heads

down" user over that period was a staggering $53,320.

12. WHEN WILL A COMPANY GET PAYBACK FROM ERP

AND HOW MUCH?

The company shouldn’t expect to revolutionize its business with ERP. It is a navel-

gazing exercise that focuses on optimizing the way things are done internally

rather than with customers, suppliers or partners. Yet the navel gazing has a pretty

good payback if the company is willing to wait for it— a Meta Group study of 63

companies found that it took eight months after the new system was in (31 months



total) to see any benefits. But the median annual savings from the new ERP system

were $1.6 million.

13. WHAT ARE THE HIDDEN COSTS OF ERP?

Although different companies will find different land mines in the budgeting

process, those who have implemented ERP packages agree that certain costs are

more commonly overlooked or underestimated than others. Armed with insights

from across the business, ERP pros vote the following areas as most likely to result

in budget overrun.

Training: Training is the near-unanimous choice of experienced ERP

implementers as the most underestimated budget item. Training expenses are high

because workers almost invariably have to learn a new set of processes, not just a

new software interface. Worse, outside training companies may not be able to help

you. They are focused on telling people how to use software, not on educating

people about the particular ways you do business. Prepare to develop a curriculum

yourself that identifies and explains the different business processes that will be

affected by the ERP system. One enterprising CIO hired staff from a local business

school to help him develop and teach the ERP business-training course to

employees. Remember that with ERP, finance people will be using the same

software as warehouse people and they will both be entering information that

affects the other. To do this accurately, they have to have a much broader

understanding of how others in the company do their jobs than they did before

ERP came along. Ultimately, it will be up to your IT and businesspeople to provide

that training. So take whatever you have budgeted for ERP training and double or

triple it up front. It will be the best ERP investment you ever make.



Integration and testing : Testing the links between ERP packages and other

corporate software links that have to be built on a case-by-case basis is another

often-underestimated cost. A typical manufacturing company may have add-on

applications from the major— e-commerce and supply chain— to the minor—

sales tax computation and bar coding. All require integration links to ERP. If you

can buy add-ons from the ERP vendor that is pre-integrated, you're better off. If

you need to build the links yourself, expect things to get ugly. As with training,

testing ERP integration has to be done from a process-oriented perspective.

Veterans recommend that instead of plugging in dummy data and moving it from

one application to the next, run a real purchase order through the system, from

order entry through shipping and receipt of payment— the whole order-to-cash

banana— preferably with the participation of the employees who will eventually

do those jobs.

Customization : Add-ons are only the beginning of the integration costs of ERP.

Much more costly, and something to be avoided if at all possible, is actual

customization of the core ERP software itself. This happens when the ERP

software can't handle one of your business processes and you decide to mess with

the software to make it do what you want. You're playing with fire. The

customizations can affect every module of the ERP system because they are all so

tightly linked together. Upgrading the ERP package— no walk in the park under

the best of circumstances— becomes a nightmare because you'll have to do the

customization all over again in the new version. Maybe it will work, maybe it

won't. No matter what, the vendor will not be there to support you. You will have

to hire extra staffers to do the customization work, and keep them on for good to

maintain it.

Data conversion: It costs money to move corporate information, such as customer

and supplier records, product design data and the like, from old systems to new



ERP homes. Although few CIOs will admit it, most data in most legacy systems is

of little use. Companies often deny their data is dirty until they actually have to

move it to the new client/server setups that popular ERP packages require.

Consequently, those companies are more likely to underestimate the cost of the

move. But even clean data may demand some overhaul to match process

modifications necessitated— or inspired— by the ERP implementation.

Data analysis : Often, the data from the ERP system must be combined with data

from external systems for analysis purposes. Users with heavy analysis needs

should include the cost of a data warehouse in the ERP budget— and they should

expect to do quite a bit of work to make it run smoothly. Users are in a pickle here:

Refreshing all the ERP data every day in a big corporate data warehouse is

difficult, and ERP systems do a poor job of indicating which information has

changed from day to day, making selective warehouse updates tough. One

expensive solution is custom programming. The upshot is that the wise will check

all their data analysis needs before signing off on the budget.

Consultants ad infinitum : When users fail to plan for disengagement, consulting

fees run wild. To avoid this, companies should identify objectives for which its

consulting partners must aim when training internal staff. Include metrics in the

consultants' contract; for example, a specific number of the user company's staff

should be able to pass a project-management leadership test— similar to what Big

Five consultants have to pass to lead an ERP engagement.

Replacing your best and brightest : It is accepted wisdom that ERP success

depends on staffing the project with the best and brightest from the business and IS

divisions. The software is too complex and the business changes too dramatic to

trust the project to just anyone. The bad news is a company must be prepared to

replace many of those people when the project is over. Though the ERP market is

not as hot as it once was consultancies and other companies that have lost their best



people will be hounding yours with higher salaries and bonus offers than you can

afford— or that you’re HR policies permit. Huddle with HR early on to develop a

retention bonus program and create new salary strata for ERP veterans. If you let

them go, you'll wind up hiring them— or someone like them— back as

Consultants for twice what you paid them in salaries.

Implementation teams can never stop : Most companies intend to treat their ERP

Implementation as they would any other software project. Once the software is

installed, they figure the team will be scuttled and everyone will go back to his or

her day job. But after ERP, you can't go home again. The implementers are too

valuable. Because they have worked intimately with ERP, they know more about

the sales process than the salespeople and more about the manufacturing process

than the manufacturing people. Companies can't afford to send their project people

back into the business because there's so much to do after the ERP software is

installed. Just writing reports to pull information out of the new ERP system will

keep the project team busy for a year at least. And it is in analysis— and, one hope,

insight— that companies make their money back on an ERP implementation.

Unfortunately, few IS departments plan for the frenzy of post- ERP installation

activity, and fewer still build it into their budgets when they start their ERP

`projects. Many are forced to beg for more money and staff immediately after the

go-live date, long before the ERP project has demonstrated any benefit.

Waiting for ROI : One of the most misleading legacies of traditional software

project management is that the company expects to gain value from the application

as soon as it is installed, while the project team expects a break and maybe a pat on

the back. Neither expectation applies to ERP. Most of the systems don't reveal their

value until after companies have had them running for some time and can

concentrate on making improvements in the business processes that are affected by



the system. And the project team is not going to be rewarded until their efforts pay

off.

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. When people can't do their jobs in the

familiar way and haven't yet mastered the new way, they panic, and the business

goes into spasms.



CHAPTER 2

REVIEW OF LITERATURE

A r t i c l e 1 : B e y o n d P l ain V a n i l l a E R P

By: Professor Sowmyanarayanan Sadagopan is the Director of the Indian

Institute of Information Technology, Bangalore (IIIT-B).

A large number of corporations have moved with the ERP wave and

implemented one or other of the leading edge ERP software be it SAP R/3 or

Baan Series or Oracle Applications or Ramco Marshal. Many of them reaped

significant benefits by way of cost reduction, improved customer care, shorter

supply chain, reduced inventories and in turn healthy bottom-line. The ERP



wave also helped major hardware, networking & software vendors; in fact in

the last years ERP was the catalyst behind large corporate IT

investments. Several consulting houses & training establishments also

benefited by the wave. However several companies also burnt their fingers;

they could not either manage the resulting organizational change or manage

the expectations of end users from ERP.

This in turn led to lots of criticism that started questioning the very

utility of ERP. That apart, ERP has come to stay. Significant numbers

of corporations have either implemented ERP or implementing ERP. The

natural question that arises is what next?

Anticipating that ERP growth would taper off and end users would clamor

for things beyond ERP several ERP software vendors & consultants have

been propagating a number of ideas that could be a natural extension to ERP.

This in turn led to three distinct directions of growth

1. Looking beyond the limits of enterprise one would like to extend the notion

of an enterprise to suppliers and the management of their enterprises. Supply

Chain management (SCM) and the resulting optimization of logistics,

production planning and control in the form of Manufacturing Execution

Systems and Advanced Planning Systems. I2 Technologies in particular are

the pioneers in this area.

2. Extending the notion of the enterprise all the way to the end

consumers led to another area generally known as Customer Relationship

Management (CRM). Tools such as data mining find extensive use in

this area and IBM did some pioneering work in this area.

3. From a technological perspective the concept of enterprise component

objects is a major breakthrough that is being mastered currently; the enabling

technology behind this activity is the use of COM & DCOM, CORBA and



Enterprise Java Beans (EJB) technologies. Use of component technology

would lead to "plug & play" of the modules either from the same ERP

software vendor or even across different ERP software vendors; in

addition "extensibility" would also be possible.

Naturally there is a lot of excitement surrounding all these three developments.

But all the three developments leave the very core of ERP untouched. We call

such extensions "horizontal extensions" - in the sense that the processes get

extended beyond the boundaries of the enterprise. Typical ERP currently

implemented address the broad "Common business processes" such as

order processing, purchase, manufacturing planning, logistics, invoicing and

accounting processes. Generally these processes are common to all industries

and are also invariant with the scale of operation, holding pattern or

geographic location. In such a generic environment ERP does a great "clean

up" operation removing the "mess" among disparate functional information

systems, integrates the sub-systems, brings in phenomenal efficiencies and in turn

build up a solid "information infrastructure" for an organization. But what such

"plain vanilla ERP" software's miss out is the leveraging of features unique to a

firm or an industry. It is true that ERP provides initial competitive

advantage; once most of the firms start implementing ERP, many of the

firms loses out on the initial competitive edge gained through the

implementation of ERP. To sustain competitive advantage a firm has to look at

features that are unique to its operation. That is when they start looking for

"beyond plain vanilla ERP", that provides "vertical" extension of the very roots of

ERP.

In the recent years ERP software vendors have partially addressed this

problem by the introduction of "ERP verticals". Typical such solutions are

specific to "vertical market segments - Oil, Automotive manufacturing,

Banking, Telecom, Food & Beverage, Media, Government etc. These are re-

packaged solutions based on extensive experience gained by a specific

software vendor through dozens of implementations in many firms that are key



players in a chosen industry. With some ERP software being more

successful in specific industry segments - for example SAP in Oil

industry, BAAN in discrete manufacturing, Oracle in Telecom and Ramco

Marshal in process industry - this is a natural evolution. Such re-packaged

solution leads to significant gains in implementation time & quality. However,

they continue to maintain the "plain vanilla" nature of the ERP software by way

of addressing mainly the "common business processes".

For sustained competitive advantage firms should start leveraging the "special

processes" that give distinct competitive advantage. Such an activity must be

driven by the "core competence" of the firms and not by ERP software vendors

alone.

For example, for firms where product designs, development, deployment &

maintenance constitute the "core competence"; current generation of ERP

software only addresses the peripheral functions. Industries in this segment

would include Shipbuilding, Machine tools, Capital goods manufacture, Aircraft

manufacturers, and Railway equipment manufacturers, Power plant

manufacturers etc. In these industries product development is the key.

Engineering designs and project management that are generally outside the

ERP software must start driving the enterprise; mere importing of product data

from AutoCAD / UG II or the import of ERP data into project management

software such as Primavera would not be sufficient. Design & development

processes must be integrated into the very core of the organizational

business processes. This would imply design data including 3D, rendering,

and surface & machining characteristics must be integrated into basic

workflow, viewing, searching, version control & access control. Current

generation of ERP software does not implement all these, though they

would support all these functions. Once again design focused companies

would need very sophisticated product data handling for lifetime support,

warranty calculations etc. The emerging area of Product Data Management

(PDM) addresses these issues; but PDM alone would not be sufficient to meet



the enterprise needs. ERP software vendors will not be able to provide full

PDM functionality, though many of them provide very limited PDM

functionality. What is called for is the next generation of ERP software that

truly integrates such "core functionality" specific to engineering industry. Such

PDM enabled ERP would be” engineer's ERP" quite different from the current

plain vanilla ERP that is practically an "accountant's ERP". One could cite

many similar examples. Many airlines have implemented ERP; but their core

functions such as "seat reservation system" continue to be outside the main

ERP. To fully leverage their operations airline industry would need a "seat

reservation enabled ERP". Similarly mining industry would need "mine

planning enabled ERP" and refineries would need "process control enabled

ERP". In all these cases the firms would depend heavily on their "core

competencies" and standard ERP solutions that address only the common

business processes would not give sustained competitive advantage. That is the

place for the next generation of "beyond plain vanilla ERP".

A r t i c l e 2 E R P a s I n for m at i on I n f r as t r u ct u re

By: Professor Sowmyanarayanan Sadagopan is the Director of the Indian

Institute of Information Technology, Bangalore (IIIT-B).

There are many views to ERP in the organizational context – as a competitive

weapon, a means to improve productivity and reduce costs, a tool to integrate

information systems etc. In this note we will take yet another view,

namely, ERP as the infrastructure for corporate information systems.



An infrastructure has some key features

1. Shared by all

2. Available readily

3. Reliable enough to be depended upon

4. Forms the backbone of all activities

5. Leveraged by many value-added services

1. To be really useful ERP should meet all the key features mentioned

above. First and foremost, it must be shared by all departments across

the organizations and owned by all users. ERP is NOT one more project

initiative from EDP/ MIS/ IT departments. We do not necessarily

mean a “big bang” approach to ERP implementation. Even if Finance

and Logistics modules alone are implemented other related functions like

Production & Quality must be interfaced or externally integrated so that

the base-data of ERP truly reflects the state of affairs across the

organization. There are enough tools available today, both from ERP

vendors or other tools vendors to accomplish this. Even Microsoft Back

office can be used for this external integration. More important the users

in the departments where ERP modules are currently not implemented

should be as much part of ERP as those departments where ERP is being

implemented. The essence of ERP is integration and this must not be lost

sight of under any circumstances.

2. The second feature of ready availability is important, particularly in

Indian scenario. The per user licensing cost of ERP being high, the

tendency in many Indian companies going for ERP is to restrict ERP

access to key managers and senior personnel. While the logic is correct

from cost point of view it beats the very purpose of ERP, which is “data

ownership”. If the order -entry clerk has to own the data that person will

own the data only if he / she were responsible for the data creation /



updating. The access control and infrastructure management tools are

sufficiently evolved today that data sensitivity can be mapped to the user

hierarchy without hardware-based control. As such there is no need even

to have separate ERP access terminals; ERP access can be through

the same PC / Workstation/ Terminal that every user routinely

accesses for e-mail / word- processing / Internet / Intranet. What is

important though is the widespread access to every point of data

generation and modification so that data ownership can be maintained.

3. Infrastructure must offer highest levels of reliability. Naturally the choice

of servers, disk systems, network devices & access devices must be

such that one can take ERP availability as granted. While data

processing or word processing can wait for a few hours or a few days of

downtime, ERP cannot and one should not resort to “offline”

operations with later adjustments except in rare circumstances. Thanks

to distributed processing some of these “buffered” transactions take

place behind the screen but end-users should not be forced to resort

to off-line processing. This calls for better planning part icular ly

on uninterrupted electric power supply using appropriate UPS devices

both for back- end servers, network equipment & front-end terminals /

workstations.

4. The fourth aspect is the nature of ERP as the information backbone

Of the organization. There is no point in every user department

maintaining individually “private systems” even after ERP has been

implemented.

The organization would be “back to square one” with multiple data for

key elements beating the very purpose for which ERP was put in place

Unless users depend on ERP data for their very job function,



irrespective of their departmental affiliations, the full benefits of ERP

for organizational excellence would remain a distant dream.

5. The most important part of ERP, viewed as infrastructure is the

support it provides for a host of value-added services through

applications. A well- implemented ERP would pave the way for

organizational level data discipline. Users will not have to chase others

for information; no need to set up reminders, follow-up groups and

meetings. “Information would be available on tap”; however it is

important that the users start planning for innovative use of this information

for planning & analysis. Ultimately the real use of information is to

provide insight; information per se will be of little use, except where

required from statutory point of view. It is important to plan

for Supply Chain Management, Customer Relations Management,

Data warehousing & Data mining (OLAP) and other initiatives right

away so that with the high quality information infrastructure provided

by ERP the organization can leverage the high quality information

systematically generated & maintained by ERP towards corporate

excellence. Finally infrastructure should not be viewed from a narrow

“cost benefit” and ROI perspective. The true benefits of ERP are not

necessarily apparent on day 1. Accordingly benefit cost ratio might unduly

overemphasize costs that are apparent and underemphasize benefits that may

not be apparent. Like every other infrastructure- roads, sea-ports, airports,

telecom and railways – information infrastructure in the form of ERP

needs a different mindset too. This is particularly true in India where we

have a distorted view of infrastructure – planning to build it incrementally

through a meter gauge, broad gauge, single track, double track and finally

electrical three track system taking decades to build the track, putting

millions of users to enormous inconvenience, choking the business

growth and running into cost & time over runs and the attendant CAG

Audit queries on the poor engineers! What was necessary on day 1 was to



plan a world-class 3 track electrified rail line or a four-lane free way that

would have changed the very face of Indian industries. Hopefully we will

not repeat the same mistakes in building the information infrastructure in

organizations. It must be noted that investments in infrastructure pays by

the innovative ways in which the infrastructure is put to use –

investments in roads pays off through returns from trucking industry,

business generated through phone calls pays for investments in

telecom network – similarly innovative use of data generated through ERP

would pay for ERP investments. One should not just stop at ERP

implementation alone. The improved organizational agility provided by

ERP must be put to good use.



CHAPTER 3

Design of the study

S T A T E M E N T O F T H E P R O B LE M

Has ERP implementation brought about strategic changes in your

organization? This research aims at studying the impact of ERP

implementation on the organization functions and performance areas.



O B J E C T I V E O F T H E R ESE A RC H

Specifically the following objectives have been set for the research

investigation:

To identify the strategic advantages that ERP has brought to the

organization.

To identify the organizational processes that has improved due to

ERP implementation.

To study the effectiveness of ERP on the organization.

S C O PE O F T H E R ESE A RC H

This study is restricted to only ERP implemented companies

Research is conducted at Bangalore Metropolitan Area only.

R ESE A RC H M E T H ODO L OG Y

1. Type of Research

For the present study, the researcher has based his theme on

Exploratory Research. The major emphasis of Exploratory Research is

on the discovery of ideas. Through Exploration, the researcher develops

concepts more clearly, establish priorities, develop operational

definitions, and improve the final research design. This research is both

quantitative and qualitative. This study is based on the data collected through “In

-depth Interview” with key personnel from ERP Implemented Companies.



2. Sources of data

Data has been collected from various sources; there isa

combination of both primary and secondary data that has been used in

this research.

(a) Primary Data

The primary data has been collected by conducting “In -depth Interview”

with key personnel from 17 ERP implemented companies. Primary data has also been

collected through questionnaire from 23 companies. The data collected through

this method was adequate enough to make projections in the study.

(b) Secondary Data

Articles have been sourced from magazines and journals dealing with

current issues in ERP.

Internet & Text books related to ERP & Research Methodology

have been a major secondary source for the extraction of the

expert’s opinion.

3. Sampling Technique

Since this project deals with key personnel from ERP Implemented

Companies, Judgment Sampling is considered appropriate for making

projections in the study. Judgment Sampling occurs when a researcher selects

sample members to conform to some criterion. When used in the early stages of

exploratory study, a judgment sample is appropriate. When one wishes to

select a biased group for screening purposes, this sampling method is also a

good choice. We have therefore chosen this sampling method.



4. Sample Size

This research is restricted to a sample size of 30. Since the study deals

with ERP implemented companies in Bangalore city only, the sample size of

this magnitude serves the purpose.

5. Sample Description

The sample under this study consists of key personnel from those

companies that have implemented ERP. In some companies, these key

personnel were the ones who were involved in actual ERP

Implementation. In other companies, the key personnel were from EDP

(Electronic Department), ISY (Information System) Department and

Computer Department. Most of the key personnel whom the researcher

interviewed were “Middle-level Managers” and some of them were

“High- level Managers”.

6. Research Instrument

In-depth Interview:

The primary data has been collected by conducting “In -depth Interview”

with key personnel from 17 ERP implemented companies. The data collected

through this method was adequate enough to make projections in the study.

Questionnaire:

The primary data has also been collected through questionnaires from 23

companies.



7. Tools used for Hypothesis Testing

Two related samples test: these tests concern those situations in which

persons, objects etc are measured twice.

Null hypothesis H0: There is no increase in efficiency after

implementation of ERP.

Alternate hypothesis Ha: There is an increase in efficiency after

implementation of ERP.

8. Plan of Analysis

All data collected was carefully classified, tabulated and interpreted on

the basis of which, tables, charts and graphs were drawn up. Percentages were drawn

from the tabulated frequencies and the data have been analyzed. The analysis

helped in drawing inferences and for better understanding graphs were plotted.

LIMITATIONS OF STUDY

1. Research investigation is restricted to selected key personnel of the

organization.

2. The information given by few personnel deemed to be correct in the

beginning, but later on it was found to be partial incorrect, which

caused in convenience.

3. Many of the respondents gave a negative answer in order to

finish the interview quickly, which may affect in the study.

4. As the perception level of the respondents has not been tested; it is



assumed that all of them have perceived the questions in the correct way.

5. The study is restricted to Bangalore city only.

6. Despite of the limitations, maximum care was exercised to make the

study scientific & meaningful.



CHAPTER 4

Industry & Respondents profile

Industry over view



I N D I A N M A NU F A C T U R I N G S E C T O R

Indian manufacturing sector contributes one-fourth of total GDP of India. It employs

30% of non-agricultural workforce. Industrial output valued at US$ 65 billion.

There was a Rise in growth from 2.7% in 1998-99 to 6.1% in 2002-03.

Significant rise in index of growth for the manufacturing sector from 6.5 % in

February 2003 as compared to 2.9% in February 2002

Telecommunication sector

Over 1.8 billon subscribers depending on mobile as wireless technology

Worldwide carrier revenues are predicted to grow from under $1.2 trillion in

2005 to just over $1.5 trillion in 2010.

Total revenues will grown to 46.3% to 55.6% In the year 2006

Information technology

The Information Technology Industry is the fastest growing segment of

The Indian economy. The Information Technology Sector has grown in size

From Rest. 5,450 crores in 1994-95 to about Rest. 64,200 crores in 2001-02

Contributing 0.59% and 2.87% to G.D.P.

The country wise Indian Software Exports in 2000-01 was as follows:

Country Rest. in crores Percentage

USA 17336 61.15, UK 3355 11.84, Japan 1021 3.60, Germany 900 3.20,

Singapore 540 1.90 Canada 425 1.50, Netherlands 360 1.27 & Switzerland

340 1.20.



The NASSCOM estimates the global market and the opportunity for Indian

Exports to a level of US $700 billion and India's exports form about 5%of

the global market by 2005.

Power sector

India is fifth largest power market in the world with an installed generation

capacity of 126GW, a transmission and distribution network of more than 6.3

million circuit kms generating 600 billion Kwh. However, India still remains

power deficit with peak electricity demand shortfall of about 12% and the average

energy shortfall of about 7%. This demand-supply gap backed by favorable

government policy and initiatives presents considerable opportunity within the

sector.

Real estate Industry

The importance of the Real Estate sector, as an engine of the nation’s

growth, can be gauged from the fact that it is the second largest employer next only

to agriculture and its size is close to US $ 12 billion and grows at about 30% per

annum. Five per cent of the country’s GDP is contributed by the housing sector. In

the next three or four or five years this contribution to the GDP is expected to rise

to 6%. The Indian middle class, which numbered around 57 million in 2001-02 is

expected to swell to around 92 million by 2005-06 and cross the 153 million mark

by 2009-10 (Source: NCAER) Thus, the demand for quality housing is expected to

keep rising in the years ahead

Banking Sector



"Indian Banking Sector Analysis”, report provides extensive research and objective

analysis on the growing banking industry, their product quality, and their services

in India. This report helps clients to analyze the leading-edge opportunities critical

to the success of the banking Industry in India. Detailed data and analysis helps an

investor, financial service providers, and global banking players navigate the

evolving market of banks in India.

Key Findings

The nationalized banks have more branches than any other types of banks in

India. Now there are about 33,627 Branches in India, as on March 2005.

Investments of scheduled commercial banks (SCBs) also saw an increase

from Rest 8,04,199 crore in March 2005 to Rest 8,43,081 crore in the same

month of 2006.

India's retail-banking assets are expected to grow at the rate of 18% a year

over the next four years (2006-2010).

Retail loan to drive the growth of retail banking in future.

Housing loan account for major chunk of retail loan.

Engineering

Employs over 5 million skilled and semi-skilled workers, directly or

indirectly estimated size of sector: US$ 32 billion

Exports in 2004-05: US$ 12.89 billion

Imports in 2004-05: US$ 10.04 billion

Strong technological capabilities, particularly in sectors such as

electrical machinery, process plant machinery and general purpose

machinery

Diversified industrial base with supporting ancillary industries

Many leading Macs have established base in India- LG, Hyundai,



GM, GE, Ford, Electrolux, Toyota, Sony, Honda, Siemens among others

Ch e mi ca ls

Indian Chemical industry ranked 12th in the world production of chemicals

Rate of Chemical industry growth over last 5 years has been double that of

Asia’s growth & 5 times the world growth rate for the sector

Indian chemical industry valued at Rest. 1200 billion (US$ 28 billion)

Accounts for 1.5% of global chemicals market

Growth rates have been as high as 8.6% over the last five years

Indian trade is 1.3% of total chemicals trade worldwide

Net value added of chemicals industry is the highest within manufacturing

sector with a share of over 22% of total value added

P ha r ma ce uti ca ls

The output of Indian pharmaceutical industry ranks 4th in terms of volume and 13th in terms of value and around 8% of the world’s drugs are manufactured in India.

Indian pharmaceuticals market valued at US$ 7.3 billion in 2004

About a third of India’s production – close to US $ 3.5 billion – is exported and exports are growing at 25% per annum. Half a billion dollars worth ofExports is to the US alone,

Production of drugs at 1/20th the cost incurred by developed countries

India is the largest producer of Sulfamethoxole and Ethambutol (anti TB)

GlaxoSmithKline India is to become the hub of clinical research in South

Asia

Discovery research has begun in a major way by Indian companies

with Dr. Reddy’s Laboratories and Ranbaxy pioneering this effort



St eel Industry

World’s 8th largest producer of steel

World’s largest producer of sponge iron

Production of - Finished steel (2004): 24.37 million tones - - Pig iron: 6.7

million tones - Sponge iron: 5.6 million tones

Export of steel (2004-05): 4.47 million tones, increase of 32.67% over

previous year

Increasing role of private sector in production – increase in share from

51.4% In 1991-92 to 67% in 1998-99

Indian steel sector has the capability to produce a variety of grades of steel

conforming to international quality standards

Auto S ec to r

Extensive backward and forward linkages – strongly interwoven with

machine tools and metals sectors

Turnover of auto sector over US$ 10 billion; auto-component segment:

US$ 2.7 billion

Provides employment to 0.67 million directly and 12 million indirectly High

quality of auto components used as original components for vehicles by

leading international companies

Distinct cost advantage: labor cost 8-9 per cent of sales as against 30-35

per cent of sales in developed economies

O il & Na tur a l Ga s sector

Current annual crude oil production: 32 million tones, Current demand: 110

Million tones



Refining capacity: 119 million metric tones p.a.

Reliance Petroleum Refinery at Jamnagar is the world’s largest single

stream refinery

Strong retail infrastructure comprising over 17,000 petrol stations; 6,500

Kerosene depots and over 5,500 domestic LPG dealers

World’s largest gas find in 2002 at Krishna -Godavari basin

Tremendous opportunities for synergies in:

Te xtil e s sector

Sector accounts for 14 % of India’s industrial production and 27% of

expo rat earnings

CAGR of 3.66 % over last five years

India accounts for 15% of world’s total cotton crop production,

largest producer of silk

Large pool of skilled low-cost technologically experienced workers

Major segment: Manmade fibers accounting for 40% share in Indian textile industry

FMCG:

Annual growth of the industry is 6.9% (2004-05)

Growth in the capital goods sector was healthy & production is

increased in the sector around 12.7%

The growth in the consumer non-durable is 12% (2004-04)

FUTURE OF INDIAN MANUFACTURING SECTOR

Base for export to third countries - Hyundai Motors using India as export base for

foreign markets, currently exporting to 8 countries and looking at expanding Government RC College Commerce & Management Bangalore-01 48


exports to markets in the European Union and Latin America. The company has

also set up an R & D center at its Chennai plant

World class R & D facilities

Emergence as global manufacturing hub with presence of Macs such as

LG, Samsung, Hyundai, Pepsi, GE, General Motors, Ford, Suzuki etc

Increased implementation of state-of-the-art IT technologies – current IT

usage of15%

Segments showing high potential: automobiles, steel, aluminium, cement, auto

ancillaries, forging and pharmaceuticals



CHAPTER 5

Data analysis & interpretation

1. How important is replacing aging legacy system?

1. Very important

2. Important

3. Not important 4. Can't Say TOTAL

Reponses 27 3 0 0 30% 90 10 0 0 100



Graph: 5.1

Interpretation

The figure shows that 90% of the respondents felt that replacing legacy

systems is very important, whereas the rest 10% of the respondents felt that

replacing legacy systems is important.

2. Please indicate which software vendor supplied your ERP software.

SAP AG ORCALE JD EDWARDS OTHERS TOTALReponses 17 5 2 6 30

% 56.66666667 16.66666667 6.666666667 20 100


Importance of replacing legacy systems

1. Very important2. Important3. Not important4. Can't Say


ERP Software vendors

0

10

20

30

40

50

60

SAP AG ORCALE JDEDWARDS

OTHERS

Software vendors

resp

on

ses

and

pec

enta

ge

of

resp

on

ses

Reponses

%

Graph: 5.2

Interpretation

The figure shows that 57% of the companies that the researcher visited are

“SAP” implemented companies, 16% companies have implemented

“Oracle”, 7% companies have implemented JD Edwards and the remaining

20% have implemented ERP packages from Local Vendors. Hence we could

infer that most of the manufacturing companies go in for SAP AG ERP

package.

3. Is your company satisfied with purchase of ERP package

RespondNo of

responds %

1. Strongly Disagree 0 0.000

3. Strong Agree 19 63.333

5. Neutral 7 23.333

2. Disagree 0 0.000

4. Agree 4 13.333

6. Not applicable 0 0.000Total 30 100



Graph: 5.3

Interpretation:

The figure shows that 63% of the companies that the researcher

visited are very much satisfied with their ERP package, 13.33% are

satisfied, 23.33% are Neutral. Hence we could infer that majority of

these companies are satisfied. Other companies are Neutral in their

opinion because they have not reaped the benefits from ERP

implementation as they have recently implemented the ERP package.

4. When you buy ERP Solutions, to what extent does your organization customize the software?

A great deal A littleDo not

customize TOTALReponses 9 18 3 30

% 30 60 10 100


0

10

20

30

40

50

60

70

% of respond

1.Strongly

Disagree

5. Neutral 4. Agree

Satisfaction Level

Satisfaction Level from Purchase of ERP


Graph: 5.4

Interpretation

The survey indicates that some organizations may find it

difficult to the goal of successful ERP implementation. Only 10% of the

sample uses the software just as it comes. The majority 60% make some

attempts to customize the ERP solutions; and third 30% say they end up

customizing the software ‘a great deal’ in order to end up with a system

which matches their needs.

5. Do you feel you are using ERP Software to its full extent?

small portion

not usedlarge portion

not usedused full

extentused

extensively TotalReponses 14 8 2 6 30

% 46.66666667 26.66666667 6.666666667 20 100



Graph: 5.5

Interpretation:

Many companies are failing to exploit full potential of their ERP solutions

and admit to leaving many features and facilities untouched. Three quarters

concede that their either some of the software (46%) or a large element of it

(30%) is not used at all. Of the remaining quarter, 20% reckon the software is

used extensively, but only 4% say their solution is used to its full extent. The

possible ramification of this is that many companies are paying a high price

for software which is never put to good use.

6. Overall, the ERP vendor(s) provided your company with strong support after you purchased the products?

ResponseNo of

responds %



5. Neutral 4 13.333



2. Disagree 0 0.000

4. Agree 4 13.333


Interpretation:

Graph: 5.6

Interpretation


visited are very much satisfied with their ERP package, 13.33% are satisfied,

33.33% are Neutral.

Hence we could infer that majority of these companies are satisfied.

Other companies are Neutral in their opinion because they have not reaped the

benefits from ERP implementation as they have recently implemented the

ERP package.



7. If you have decided not to implement ERP Package software for one or more of your enterprise system, why not? (Select all that apply)

Not Implement ERP Package for 1 or more Enterprise system why not?

Types Of ResponsesNo Of Responses

1. Our legacy system works 82. The ERP solution available in the market

2did not seem to be good for our needs3. The experience of others raised red flags 14. The company had other priorities 6

5. Unable to secure approval from senior management 36. Wanted to wait for the production to mature 57. Waiting for reduction in price 28. Other 3



Interpretation:

Among the 30 respondents, 8 of them feel that their legacy system works, 2 feel

that the ERP solution available in the market did not seem to be good for their

needs, only 1 felt the experience of others raised red flags, 6 had other

priorities, 3 failed to get approval from top level, 5 wanted to wait for the

production to mature, 2 waited for price reduction.

8. Did you use any other outside consultant to assist you in your implementation?

ResponseNo of

responds %1. Strongly Disagree 1 3.3333. Strong Agree 17 56.6675. Neutral 4 13.3332. Disagree 0 0.0004. Agree 8 26.6676. Not applicable 0 0.000

Total 30 100



Outside Consultant - Implementation

0

10

20

30

40

50

60

Usage of Consultant

No

of

Re

sp

on

ds

No of respondts

%

Graph: 5.8

Interpretation


visited are very much satisfied with their ERP implementation by using outside

consultant, 26% are satisfied, 13.33% are Neutral & 1% of the companies they do

not use any consultant to implement the ERP package.

9. Does the ERP system provide the accurate information you need & providing Exact Reports at the right time?

ResponseNo of

responds %



5. Neutral 4 13.333

2. Disagree 0 0.000

4. Agree 3 10.000




Accurate Information & Exact Reports at the right time

0102030405060708090

Usage of Consultant

No

of

Re

sp

on

ds

No of respondts

%

Graph: 5.9

Interpretation

The figure shows that 77% of the companies that the researcher visited

are very much satisfied with their ERP performance in the firm, 10% are satisfied,

13.% are Neutral.

10. Do you agree that ERP software has given your organization the followingStrategic advantages?

Agree Agree moderately

Agree very

Agree Total

Slightly much completely

Better Collaboration 5 15 9 1 30

Improved Communication

4 8 18 0 30

Greater Flexibility 4 16 9 1 30Increased efficiency 4 9 15 2 30Reduced cycle time 3 13 12 2 30Lower operating costs 11 9 8 2 30Increased revenue 3 18 7 2 30Higher profit Margin 7 18 3 2 30



Graph: 5.10

Interpretation:

The Above figure shows that the companies have agreed very much that

the ERP has helped them to gain better collaboration, improved communication,

and increased efficiency. Most companies agree that the ERP has helped

moderately in lowering operating costs, increasing revenues and gaining higher

profits. Hence we can see that companies have gained intangible benefits more

tangible benefits.

11.For each of the organizational processes rate the improvement in the

performance areas (productivity, customer satisfaction, cost & defects

Reduction etc) due to ERP using the scale provided below.



A). Improvement in Performance Areas with reference to Operations

Negligible Inferior Average Good Excellent NAProductivity 0% 0% 47% 43% 10% 0%Employee Satisfaction 0% 0% 53% 37% 10% 0%Cost Reduction 0% 7% 57% 36% 0% 0%Defects Reduction 7% 7% 33% 46% 0% 7%

Graph: 5.11 A

• Interpretation

The above figure shows that the companies have performed better in

increasing productivity and reducing defects. Performance was average in both

cost reduction and employee satisfaction.

2) Improvement in Performance Areas with reference to Marketing & sales

Negligible Inferior Average Good Excellent NAProductivity 0% 0% 37% 33% 3% 27%Employee Satisfaction 0% 7% 33% 27% 7% 26%Market Coverage 0% 0% 47% 17% 10% 26%Cost Reduction 0% 7% 47% 17% 3% 26%Defects Reduction 0% 0% 43% 17% 13% 27%



Graph: 5.11 B

Interpretation

The above figure shows that the companies have performed better in

increasing productivity and customer satisfaction. Performance was average

both in market coverage and in reducing costs and defects.

3 Improvement in Performance Areas with reference to Human

resource management

Negligible Inferior Average Good Excellent NAProductivity 0 7 20 40 3 30Customer Satisfaction 0 17 37 13 3 30Cost Reduction 0 14 43 13 0 30Defects Reduction 0 20 33 17 0 30



Graph 5.11 C

• Interpretation

The Above figure shows that ERP package has not helped the companies

much in Human resource management. The benefits are average in all

performance areas. In some of the companies ERP is not in HR department.

Most of work in HR department is done on legacy system.

4) Improvement in Performance Areas with reference to LOGISTICS

Negligible Inferior Average Good Excellent NAProductivity 0 3 20 40 34 3Customer Satisfaction 0 5 5 41 45 4Quality 0 3 16 42 35 4Cost Reduction 0 6 64 4 24 2Defects Reduction 0 2 24 45 29 0



Logistics Performance

0%

10%

20%

30%

40%

50%

60%

70%

1 2 3 4 5 6

Level of Satisfaction

% o

f R

espons

Productivity

Customer Satisfaction

Quality

Cost Reduction

Defects Reduction

Graph 5.11 D

Interpretation

The Above figure shows that ERP package has helped the companies

much in both in the in bound & out bound logistics. The majority of the

companies are having a better satisfaction in the various functions of the

logistics department.

5) Improvement in Performance Areas with reference to Finance & accounts

Negligible Inferior Average Good Excellent NAEfficiency 0% 0% 43% 23% 34% 0%Employee Satisfaction 0% 7% 33% 27% 33% 0%Accuracy 0% 0% 47% 17% 33% 3%Cost Reduction 0% 0% 19% 40% 39% 2%Defects Reduction 0% 0% 23% 34% 43% 0%



Graph 5.11 E

Interpretation

The Above figure shows that ERP package has helped the companies

much in Finance & Accounts. The majority of the companies are having an

excellent satisfaction level in the finance department.


0%5%

10%15%20%25%30%35%40%45%50%

Negligible Inferior Average Good Excellent

Performance of Finance & Accounts

EfficiencyEmployee SatisfactionAccuracyCost ReductionDefects Reduction


12.Do you think successful implementation of ERP in a firm add better corporate image?

ResponseNo of

respondents %



5. Neutral 5 16.667

2. Disagree 0 0.000

4. Agree 5 16.667


Interpretation:

Among the 30 respondents, 20 strongly felt that successful implementation of

ERP adds a better corporate image.


Better corporate image by ERP implemlentation

010203040506070

Usage of Consultant

No

of R

espo

nds

No of respondts

%


13.Are you planning to upgrade the ERP package?

ResponseNo of

respondents %



5. Neutral 2 6.667

2. Disagree 5 16.667

4. Agree 3 10.000


Interpretation:

Among the 30 respondents, 20 strongly disagreed with the idea of upgrading ERP

package, 5 disagreeing, 2 being neutral. The other 3 agreed with the idea of

upgrading ERP package.



HYPOTHESIS:

SL.NO D D²1 20 400

2 20 400

3 10 100

4 30 900

5 30 900

6 0 0

7 45 2025

8 0 0

9 40 1600

10 35 1225

11 30 900

12 30 900

13 30 900

14 20 400

15 20 400

16 10 100

17 0 0

18 20 400

19 40 1600

20 10 100

21 30 900

22 35 1225

23 20 400

24 10 100

25 30 900

26 0 0

27 20 400

28 10 100

29 10 100

30 40 1600

∑D =645 ∑D²=18975



n=30

X=∑D/n = 645/30 = 21.5

Y= ∑D²/n=18975/30 =632

SD =

SD = 13.137

Tcal = 8.964

Two related samples test: these tests concern those situations in which

persons, objects etc are measured twice.

1. Null hypothesis H0:

There is no increase in efficiency after implementation of ERP.

2. Alternate hypothesis Ha:

There is an increase in efficiency after implementation of ERP.

Statistical test:

The paired samples t-test is chosen because there are repeated measures on

Each Company, the data are not independent.

3. Significance level: level = .05, with n=30, D.o.f = 29

4. Calculated value:

Tcal = 8.964

Ttab = 1.699

5. Interpretation: Since Tcal > Ttab, reject null hypothesis

6. Conclusion: There is an increase in efficiency after implementation of ERP.



CHAPTER 6 Findings & Suggestions



Findings of the research was basically on the responses which were

received from the organizations which have participated in the research

Success depends on the point of view from which we measure it. By

analyzing the different responses which were received during the course of the

research one thing came out was that people often meant different things when

they meant about ERP success. For example, people who were involved in the

implantation of ERP often define success plan in terms of completing the project

on time and within budget. But people whose job is to adopt ERP systems and

use them to adopt business results tended to emphasize having a smooth

transition to stable operation with the new system, achieving intended business

improvements like costs, defect reduction, productivity, Market coverage,

employee and customer satisfaction and gaining improvement in decision

support capabilities.

Overall analyzing the responses it was found that the ERP package has

helped the organizational functions of different sector in improving their

performance and yielding much better results. The findings show that the

companies are on costs reduction and defect reduction with improved

productivity.

The employee and customer satisfaction has increased in the past after the

ERP package was implemented with increase in performance in productivity and

market coverage. Most of the organizations which have participated in the

research agree to the fact that the implementation of ERP in their organization

has opened the gateway for a more systematic work processes.



The fallacies in a discovery are the gateway to a better version and

scope for wider improvement

Even though ERP implementations have acted as a boon for many

organizations, but like two sides of a coin, there are some problems which are

faced by the companies after ERP implementation.

Many companies are not satisfied with the response that they receive

from their ERP packages. Some companies were not satisfied with the

response, accuracy, precision of the information reports generated by their

ERP package.

SUGGESTIONS

Successfully implementing ERP the first time requires a structured methodology

that is strategy-, people and process-focused. This is the only way to manage the

risk effectively. A good methodology covers all the bases, but when the

unexpected pops up, as it usually does, we should be prepared to handle these

exceptions without severe negative consequences. One very common mistake is

not having your employees prepared to use the new processes and support

system. The consequence here can range all the way to total failure, but they are

avoidable. Evaluate our business strategy and ERP plan before we commit to

software acquisition and installation. Doing it right the first time is the only cost-

effective way to go. Many people out there wish they had paused to evaluate

their direction. The following questions do not cover every possible contingency,

but should be helpful to stimulate thought and discussion.

How do we want to run our business?

What business problems need to be solved?



Do we know and understand our priorities?

Do we fully understand our as-is condition versus our could-be/should be processes?

Have we carefully defined an action plan for pre-implementation preparation activities?

What tasks will be accomplished and when?

What are the missing links in our current system and our software of choice?

What are the real costs, benefits and timetable going to be?

Do we have an executive-level ERP champion to provide the necessary link to top management?

Who will implement ERP and make it work?

ERP and supply chain management systems implementations are, in fact,

projects without an end. After all, the supply chain is, to a large extent, the very

life blood of a manufacturing company. For the well-prepared, new supply chain

management systems based on ERP have become significant competitive

differentiators. Implementing ERP can become a mind-altering experience for

those involved. Following a sound methodology will greatly increase your

likelihood of success the first time. Yet, it will not guarantee your success. Only

you can do that.

Some things which must done before ERP implementation.

1. Study the structure and needs of the users and the causes of potential resistance among them.

2. Deal with the situation by using the appropriate strategies and techniques in order to introduce ERP successfully.

3. Evaluate the status of change management efforts.

4. The companies should look towards implementing the ERP Packages in their organization in step wise manner, evaluating the success rate of each stage



CHAPTER 7 CONCLUSION



This project work is done to know the impact of ERP in organization

the implementation of ERP system in organizations is an enormous complex

undertaking. ERP systems can affect nearly every aspect of organizational

performance and functioning, and measures of ERP system success must

reflect this fact.

Most of the companies were looking toward IT as a necessary expenditure;

almost all of them felt that IT was necessary to leverage their existing

capabilities in a competitive world. The employee and customer satisfaction

has increased in the past after the ERP package was implemented with increase

in performance in productivity and market coverage.

Thus it enhances the effectiveness and efficiency of organizational

functions in every aspect of retail sector.



CHAPTER 8 ANNEXURE



BIBLIOGRAPHY

1. Business Research Methods --Donald R. Cooper

2. Enterprise Resource planning --Alexis Leon

Websi t e s :

www . google . com

www.wi k ipedia.o r g

ww w . i m t ma.org

www.microso f tbusiness s olutions . com

w ww . p r o jec t m anage m en t .i tt oolbox. c o

w ww . i t bus i n e ss e dg e . c om

ANNEXTURE QUESTIONNAIRE


http://www.itbusinessedge.com/

http://www.projectmanagement.ittoolbox.co/

http://www.microsoftbusinesssolutions.com/

http://www.imtma.org/

http://www.wikipedia.org/

http://www.google.com/


From,Manjunatha.BGovernment RC College of Commerce & ManagementRace course roadBangalore

Dear Sir/Madam,

I am doing my dissertation project up on

"A Research Study on ERP’s Impact on organization”

This project study has to be submitted to the Government RC College of commerce & Management, in partial fulfillment of the requirements for the award of the degree Of "Master of Business Administration".

I request you to fill up the following questionnaire and help me in the process of data collection. I assure you that the data shall be kept confidential and shall not be used for any other reports.

A) Name -----------------------------------------------------

B) Age --------------------------------------------------------

C) Organization---------------------------------------------

D) Designation ----------------------------------------------

E) E-Mail address -------------------------------------------

14. Is Replace aging legacy system?1. Very important 2. Important3. Not important 4. Not applicableANS { }



15. Please indicate which software vendor supplied your ERP software.1. SAP AG 2. Oracle3. JD Edwards 4. OthersANS { }

16. Is your company satisfied with purchase of ERP package1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

17. Overall, the ERP vendor(s) were responsive to your company's requirements during the sales process?1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

18. When you buy ERP Solutions, to what extent does your organization customize the software1. a great deal 2. A little3. Do not customize 4. Not applicableANS { }

19. Overall, the ERP vendor(s) provided your company with strong support after you purchased the products?1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

20. If you have decided not to implement ERP Package software for one or more of your enterprise system, why not? (Select all that apply)

1. Our legacy system works2. The ERP solution available in the market did not seem to be good for our

needs3. The experience of others raised red flags4. The company had other priorities5. Unable to secure approval from senior management6. Wanted to wait for the production to mature7. Waiting for reduction in price8. Other ANS { }

21. Did you use any other outside consultant to assist you in your implementation?1. Strongly Disagree 2. Disagree



3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

22. Do you feel you are using ERP Software to its full extent?1. No, a small portion of the software is not used2. No, a large portion of the software is not used3. Yes, software is used to full its extent4. Yes, Software is used extensivelyANS { }

23. Does the ERP system provide the accurate information you need?1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

24. Does the ERP system provide reports that seem to be just about exactly what you need?1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

25. Do you agree that ERP software has given your organization the followingStrategic advantages?

26. For each of the

organizational processes rate the improvement in the performance areas (productivity, customer satisfaction, cost & defects Reduction etc) due to ERP using the scale provided below


AgreeSlightly

Agree moderately

Agree verymuch

Agreecompletely

Better CollaborationImproved CommunicationGreater FlexibilityIncreased efficiencyReduced cycle timeLower operating costsIncreased revenue


1) Improvement in Performance Areas with reference to Operations

Negligible Inferior Average Good Excellent NotApplicable

Productivity

EmployeeSatisfactionCosts ReductionDefects Reduction

2) Improvement in Performance Areas with reference to Marketing & sales


Productivity

EmployeeSatisfactionMarket coverageCosts ReductionDefects Reduction

3) Improvement in Performance Areas with reference to HRM


Productivity

EmployeeSatisfactionCosts ReductionDefects Reduction

4) Improvement in Performance Areas with reference to LOGISTICS

Negligible Inferior Average Good Excellent Not



ApplicableProductivity

CustomerSatisfactionQualityCosts ReductionDefects Reduction

5) Improvement in Performance Areas with reference to Finance & accounts


Efficiency

EmployeeSatisfactionAccuracyCosts ReductionDefects Reduction

27. Do you think successful implementation of ERP in a firm add better corporate image1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }

28. Are you planning to upgrade the ERP package?1. Strongly Disagree 2. Disagree3. Strong Agree 4. Agree5. Neutral 6. Not applicableANS { }


erp impact on organizations

Documents

product planning

planning aspects

production planning

erp system

long range planning

integrated system

erp cans

manufacturing aspect