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Impact of erp in retail sector Impact of erp in retail sector Document Transcript

  • Impact of ERP on Organization IMPACT OF ERP ON ORGANIZATIONAL FUNCTIONS IN RETAIL SECTOR A dissertation submitted in partial fulfillment of the requirements for the award of MBA Degree of Bangalore University. BY MOHAMMED SHAKEEL UR RAHMAN REG.NO-05XQCM6049 Under the guidance of JAI RAJ NAIR Professor M.P.BIRLA INSTITUTE OF MANAGEMENT ASSOCIATE BHARATIYA VIDYA BHAVAN. BANGALORE-560001 JUNE-JULY 2007 M.P.Birla Institute of Management -1-
  • Impact of ERP on Organization DECLARATION I hereby declare that the research work embodied in the dissertation entitled “Impact of ERP on organizational functions in Retail sector” is the result of research work carried out by me, in partial fulfillment of my course under the guidance and supervision of Prof Jai Raj Nair, Professor, M.P.Birla Institute of Management, Bangalore. I also declare that this dissertation has not been submitted to any University/Institution for the award of any Degree/Diploma. Place: Bangalore Date: (Mohammed Shakeel ur Rahman) M.P.Birla Institute of Management -2-
  • Impact of ERP on Organization ACKNOWLEDGEMENT I take this opportunity to sincerely thank Prof Jai Raj Nair who introduced me to the intriguing subject of impact of enterprise resource planning and sharing his encyclopedic knowledge on the subject, which is going to be instrumental in shaping my career in the area of enterprise resource planning. I also thank Dr N.S. Malavalli (Principal) for giving me the opportunity to explore my areas of interest by consistently lending support in terms of his expertise and also supplying valuable inputs in terms of resources every step of the way. Lastly, I would like to express my heart-felt gratitude to my friends and family who stood by me, right throughout this project and have been a constant source of support and strength. (Mohammed Shakeel ur Rahman) M.P.Birla Institute of Management -3-
  • Impact of ERP on Organization CONTENTS SL No. Page No. 1. Executive summary 01 2. Introduction 02 3. Literature view 20 4. Industry profile 26 5. Design of the Study 30 6. Data Analysis and Interpretation 33 7. Findings 51 8. Conclusions 52 9. Bibliography 53 10. Annexure 54 M.P.Birla Institute of Management -4-
  • Impact of ERP on Organization LIST OF GRAPHS Graph Title Page No no. Graph -1 Graph showing the type of ERP vendor 33 Graph -2 Graph showing year of 34 implementation Graph -3 Graph showing sufficiency of 35 information Graph -4 Graph showing satisfaction level w. r. 36 to ERP package Graph -5 Graph showing strategic advantages 37 Graph -6 Graph showing inbound logistics 38 Graph -7 Graph showing outbound logistics 39 Graph -8 Graph showing operations 40 Graph -9 Graph showing marketing and sales 41 Graph -10 Graph showing customer service 42 Graph -11 Graph showing human resource 43 management Graph -12 Graph showing technology 44 development Graph -13 Graph showing procurement of 45 resources Graph -14 Graph showing supply chain 46 Graph -15 Graph showing merchandise planning 47 Graph -16 Graph showing ERP up gradation 48 M.P.Birla Institute of Management -5-
  • Impact of ERP on Organization CERTIFICATE I hereby certify that this dissertation entitled “Impact of ERP on organizational functions in Retail sector” is the result of the research work carried out by Mr. Mohammed Shakeel ur Rahman under my guidance and supervision. I also certify that he has fulfilled all the requirements under the covenant governing the submission of dissertation to the Bangalore University for the award of MBA degree Place: Bangalore Prof. Jai Raj Nair Date: Professor M.P.Birla Institute of Management -6-
  • Impact of ERP on Organization CERTIFICATE This is to certify that this dissertation entitled “Impact of ERP on organizational functions in Retail sector” is the result of the research work carried out by Mr. Mohammed Shakeel ur Rahman under the guidance and supervision of Prof. Jai Raj Nair, Professor, M.P.Birla Institute of Management, Bangalore. I also certify that he has fulfilled all the requirements under the covenant governing the submission of dissertation to the Bangalore University for the award of MBA degree Place: Bangalore Dr.Nagesh.S.Malavalli Date: Principal M.P.Birla Institute of Management -7-
  • Impact of ERP on Organization EXECUTIVE SUMMARY The business environment has changed more in the last five years than it did in the previous five decades. Winning in today’s business climate requires more than just providing high-quality, low-cost products to customers, when and how the customers want them. The ability to respond to new customer needs and seize market opportunities as they arise, without compromising on the profitability of the firm is critical for the success of any organization. Competitive pressures frequently force manufacturers to decrease prices in spite of the fact that their internal costs continue to rise. Enterprises are continuously striving to improve themselves in the areas of quality, time to market, customer satisfaction, performance and profitability. Making informed business decisions in this manner would enable organizations to accomplish their business growth and at the same time enable them to utilize the information to competitive advantage. To make it possible for the companies to execute this vision, there is a need for an infrastructure that will provide information across all functions and locations within the organization and this is the Enterprise Resource Planning (ERP) solution available in the market today. This Research is an attempt to study the impact of ERP on the organizational processes in the retail sector. The study aims to find the strategic advantages that the company has gained due the implementation of ERP package. The study also shows the performance level in various functional areas of the organization due to implementation of ERP package. The study also helps organizations identify the potential users for their ERP implementation and how they could further leverage the implementation to achieve higher returns on investments. M.P.Birla Institute of Management -8-
  • Impact of ERP on Organization CHAPTER ‐1 INTRODUCTION  A CONCEPTUAL FRAME WORK ON ERP 1. ENTERPRISE RESOURCE PLANNING An amalgamation of a company's information systems designed to bind more closely a variety of company functions including human resources, inventories and financials while simultaneously linking the company to customers and vendors. 2. ERP – AN INTEGRATED SUITE OF APPLICATIONS Beginning in the 1980s, ERP became one of the most significant events of the 1990s. Over 80% of global Fortune 1000 companies have installed ERP systems. More and more companies ‘turbo-charged’ their business to run at breakneck speed on a transactional backbone called Enterprise Resource Planning (ERP) system. So, what is ERP? ERP is not a single system, but a framework that includes administrative applications (finance, accounting), manufacturing resources planning applications (sales, procurement, production, planning), and human resources applications (payroll, benefits).ERP unites major business processes – order processing, general ledger, and production within a single family of software modules. ERP is the backbone of e-business. ERP supports day-to-day business activities, which provide data to everyone in the company, from shop floor engineers to the executive suite, for making decisions and taking actions faster, and more intelligent. 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. 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: M.P.Birla Institute of Management -9-
  • Impact of ERP on Organization 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 is the complete inventory status? What is the quality this week? 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. M.P.Birla Institute of Management - 10 -
  • Impact of ERP on Organization 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 & Touche 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: 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. 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 of existing hardware M.P.Birla Institute of Management - 11 -
  • Impact of ERP on Organization 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. M.P.Birla Institute of Management - 12 -
  • Impact of ERP on Organization 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? M.P.Birla Institute of Management - 13 -
  • Impact of ERP on Organization 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 ERP IMPLEMENTATION – CATCHING THE BULL BY THE HORNS 49% project over schedule, over budget with less functionality 40% failed to achieve their business case 75% experienced “productivity dip” within first 6 months 20% terminated ERP projects Picking the right product is just the start of an ERP project. 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. M.P.Birla Institute of Management - 14 -
  • Impact of ERP on Organization 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. M.P.Birla Institute of Management - 15 -
  • Impact of ERP on Organization 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). Project & Change Management: 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. M.P.Birla Institute of Management - 16 -
  • Impact of ERP on Organization Project & Change Management: 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. 5.4 Implementation Leadership Skills Implementation is where ‘rubber hits the road’. It requires skilled project leadership 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. M.P.Birla Institute of Management - 17 -
  • Impact of ERP on Organization 6 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 can 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 increase in our market share? How? How much? When? Will ERP decrease our operating expenses? How? How much? When? Will ERP help reduce inventories? How? How much? 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? M.P.Birla Institute of Management - 18 -
  • Impact of ERP on Organization 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. M.P.Birla Institute of Management - 19 -
  • Impact of ERP on Organization 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.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. M.P.Birla Institute of Management - 20 -
  • Impact of ERP on Organization 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). 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. M.P.Birla Institute of Management - 21 -
  • Impact of ERP on Organization 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. M.P.Birla Institute of Management - 22 -
  • Impact of ERP on Organization 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 WILL IT BE? 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. M.P.Birla Institute of Management - 23 -
  • Impact of ERP on Organization 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 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. 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 retail 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 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. M.P.Birla Institute of Management - 24 -
  • Impact of ERP on Organization 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 your HR policies permit. Huddle with HR early on to develop a retention bonus program and create new salary strata for ERP veterans. M.P.Birla Institute of Management - 25 -
  • Impact of ERP on Organization 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 retail process than the retail 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. M.P.Birla Institute of Management - 26 -
  • Impact of ERP on Organization CHAPTER ‐3 LITERATURE VIEW  Article 1: Beyond Plain Vanilla ERP 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 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. 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. M.P.Birla Institute of Management - 27 -
  • Impact of ERP on Organization 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, retail 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. 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. 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". M.P.Birla Institute of Management - 28 -
  • Impact of ERP on Organization 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, 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". M.P.Birla Institute of Management - 29 -
  • Impact of ERP on Organization Article 2 ERP as Information Infrastructure 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 Shared by all Available readily Reliable enough to be depended upon Forms the backbone of all activities Leveraged by many value-added services 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. 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 M.P.Birla Institute of Management - 30 -
  • Impact of ERP on Organization 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. 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 particularly on uninterrupted electric power supply using appropriate UPS devices both for back-end servers, network equipment & front-end terminals / workstations. 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 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 M.P.Birla Institute of Management - 31 -
  • Impact of ERP on Organization 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 day1. 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. M.P.Birla Institute of Management - 32 -
  • Impact of ERP on Organization CHAPTER ‐4 INDUSTRY PROFILE  Etymology: Retail comes from the French word retaillier which refers to "cutting off, clip and divide" in terms of tailoring (1365). It first was recorded as a noun with the meaning of a "sale in small quantities" in 1433 (French). Its literal meaning for retail was to "cut off, shred, paring. There are three major types of retailing. The first is the market, a physical location where buyers and sellers converge. Usually this is done on town squares, sidewalks or designated streets and may involve the construction of temporary structures (market stalls). The second form is shop or store trading. Some shops use counter-service, where goods are out of reach of buyers, and must be obtained from the seller. This type of retail is common for small expensive items (e.g. jewelry) and controlled items like medicine and liquor. Self- service, where goods may be handled and examined prior to purchase, has become more common since the Twentieth Century. A third form of retail is virtual retail, where products are ordered via mail, telephone or online without having been examined physically but instead in a catalog, on television or on a website. Sometimes this kind of retailing replicates existing retail types such as online shops or virtual marketplaces such as eBay or Amazon. Retailing consists of the sale of goods or merchandise, from a fixed location such as a department store or kiosk, in small or individual lots for direct consumption by the purchaser. Retail in India: India's vast middle class and its almost untapped retail industry are key attractions for global retail giants wanting to enter newer markets. Driven by changing lifestyles, strong income growth and favorable demographic patterns, Indian retail is expected to grow 25 per cent annually. Modern retail in India could be worth US$ 175-200 billion by 2016. With the economy booming, competition in the marketplace is fierce India is currently the ninth largest retail market in the world. While organised retail in India is only two per cent of the total US$ 215 billion retail industry, it is expected to grow 25 per cent annually, driven by changing lifestyles, strong income growth and favourable demographic patterns.Organised retailing in small-town India is growing at a staggering 50- 60 per cent a year compared to 35-40 per cent in the large cities. M.P.Birla Institute of Management - 33 -
  • Impact of ERP on Organization Segment wise Retail and organized retail sale: Retail Organized % Share Segment Sale Rs cr Retail Sale in Org. Rs cr Retail Clothing, Textile & 80,000 10,900 39 Fashion Accessories Jewellery 43,500 850 3 Watches 2,800 1,110 4 Footwear 10,000 2,500 9 Health & Beauty Care 2,500 150 1 Services Health & Beauty 30,000 550 2 Products (Incl.Pharma) Consumer Durables 32,000 2,500 9 Mobile Handsets & 13,000 840 3 Accessories Furniture & 33,000 2,200 8 furnishings Food & Grocery 6,15,000 2,950 11 Catering Services ( F 35,000 2,000 7 &B) Books, Music & Gifts 8,200 800 3 Entertainment 25,000 650 2 Rs 9,30,000 Rs 28,000 100 Retailing formats in India: Supermarkets (Foodworld, Spencer’s) Hypermarkets (Big Bazaar, Trent) Department Stores (Shoppers Stop, Lifestyle) Specialty Chains (Spar) Discount Chains (Subhiksha) Cash ‘N’ Carry (Metro) Petro Convenience (In & Out, Shell) Traditional Format Retailers Kiranas: Traditional Mom and Pop Stores Kiosks Street Markets Exclusive /Multiple Brand Outlets M.P.Birla Institute of Management - 34 -
  • Impact of ERP on Organization Recent Trends: Retailing in India is witnessing a huge revamping exercise as can be seen in the graph India is rated the fifth most attractive emerging retail market: a potential goldmine. Estimated to be US$ 200 billion, of which organized retailing (i.e. modern trade) makes up 3 percent or US$ 6.4 billion As per a report by KPMG the annual growth of department stores is estimated at 24% Ranked second in a Global Retail Development Index of 30 developing countries drawn up by AT Kearney. Multiple drivers leading to a consumption boom: Favorable demographics Raising aspirations: Value added goods sales Growth in income Increasing population of women Food and apparel retailing key drivers of growth Organized retailing in India has been largely an urban phenomenon with affluent classes and growing number of double-income households. More successful in cities in the south and west of India. Reasons range from differences in consumer buying behavior to cost of real estate and taxation laws. Rural markets emerging as a huge opportunity for retailers reflected in the share of the rural market across most categories of consumption ITC is experimenting with retailing through its e-Choupal and Choupal Sagar – rural hypermarkets. HLL is using its Project Shakti initiative – leveraging women self-help groups – to explore the rural market. Mahamaza is leveraging technology and network marketing concepts to act as an aggregator and serve the rural markets. IT is a tool that has been used by retailers ranging from Amazon.com to eBay to radically change buying behavior across the globe. ‘e-tailing’ slowly making its presence felt. Companies using their own web portal or tie-sups with horizontal players like Rediff.com and Indiatimes.com to offer products on the web. The retail road ahead: The Indian retail market is estimated at US$ 350 billion. But organized retail is estimated at only US$ 8 billion. However, the opportunity is huge--by 2010, organised retail is expected to grow to US$ 22 billion. With the growth of organised retailing estimated at 40 per cent (CAGR) over the next few years, Indian retailing is clearly at a tipping point. India is currently the ninth largest retail market in the world. M.P.Birla Institute of Management - 35 -
  • Impact of ERP on Organization After 50 years of unorganized retailing and fragmented kirana stores, the Indian retail industry has finally begun to move towards modernization, systematization and consolidation. Today, modernization is the catch phrase and the key to understanding retail in the next decade. It is India's largest industry, accounting for over 10 per cent of the country's GDP and around eight per cent of the employment. Retail industry in India is at the crossroads. The total retail trade in India is estimated at about $240 billion or Rs 11,00,000 crore, out of which organised business accounts for only $3 billion or Rs 14,000 crore. The organised retail industry is poised to grow at 35 per cent per annum in the next five years. It has emerged as one of the most dynamic and fast paced industries with several players entering the market Retailing in India is gradually inching its way toward becoming the next boom industry. The whole concept of shopping has altered in terms of format and consumer buying behavior, ushering in a revolution in shopping in India. A large young working population with median age of 24 years, nuclear families in urban areas, along with increasing working- women population and emerging opportunities in the services sector are going to be the key growth drivers of the organized retail sector in India. Recently, the government decided to allow 51 per cent FDI in single-brand retailing which, has been welcomed by the industry. However, most are of the view that its impact will be largely limited to attracting more luxury brands. The limited foreign direct investment allowed by the government in the retail industry will not have much impact on the Big Bazaars and Shopper's Stops but it will allow luxury brands like Marks & Spencer, Louis Vuitton or Versace - which are currently taking the franchisee route - to open more stores in the country.     M.P.Birla Institute of Management - 36 -
  • Impact of ERP on Organization CHAPTER ‐5 DESIGN OF THE STUDY  STATEMENT OF THE PROBLEM: 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. OBJECTIVE OF THE RESEARCH: 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 SCOPE OF THE RESEARCH: This study is restricted to only ERP implemented companies. • Research is conducted at Bangalore Metropolitan Area only. RESEARCH METHODOLOGY: 1. Type of Research: For the present study, the researcher has based her 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 is a combination of both primary and secondary data that has been used in this research. 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 M.P.Birla Institute of Management - 37 -
  • Impact of ERP on Organization through questionnaire from 23 companies. The data collected through this method was adequate enough to make projections in the study. 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. M.P.Birla Institute of Management - 38 -
  • Impact of ERP on Organization 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: Research investigation is restricted to selected key personnel of the organization. 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 inconvenience. Many of the respondents gave a negative answer in order to finish the interview quickly, which may affect the study. 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. The study is restricted to Bangalore city only. Despite of the limitations, maximum care was exercised to make the study scientific & meaningful. M.P.Birla Institute of Management - 39 -
  • Impact of ERP on Organization CHAPTER ‐6  DATA ANALYSIS & INTERPRETATION  1. Please indicate which software vendor supplied your ERP software? SAP ORACLE OTHERS TOTAL 16 6 8 30 53% 20% 27% 100% Graph -1 ERP Vendor 1 • Interpretation The figure shows that 53% of the companies that the researcher visited are “SAP” implemented companies, 20% companies have implemented “Oracle” and the remaining 27% have implemented ERP packages from Local Vendors. Hence we could infer that most of the companies go in for SAP ERP package. Some of the companies have implement packages developed by their in house team or their consultants. M.P.Birla Institute of Management - 40 -
  • Impact of ERP on Organization 2. Which year did you purchase your software? SL No. Years No. of Users 1 Pre 2004 8 2 2005 6 3 2006 10 4 2007 6 Graph- 2 Year of Implementation • Interpretation The figure shows that out of 30 companies in the search, 6 companies implemented ERP in the year 2005, 2007. 10 companies implemented ERP in the year 2006. 8 Companies implemented ERP in pre 2003 period. This shows that most of the companies implemented ERP in the year 2006. This shows companies prefer to adapt ERP packages in the recent past. M.P.Birla Institute of Management - 41 -
  • Impact of ERP on Organization 3. Does the ERP system provide the precise information you need Strongly Disagree Disagree Agree Strongly agree Don’t know 2 5 14 7 2 7% 17% 46% 24% 7% Graph -3 Sufficiency of Information • Interpretation The figure shows that out of 30 companies in the research, most of the companies agree to the fact that ERP packages provide them with sufficient information, only few companies disagree to this fact. About70% of the companies agrees that their ERP package provide them with sufficient information. Only 20% of the companies are not satisfied to the information provided by their ERP package. This shows that most of the companies feel that their ERP package provide them with sufficient information. M.P.Birla Institute of Management - 42 -
  • Impact of ERP on Organization 4. How satisfied is your company with purchase of ERP package? Unsatisfied Neutral Satisfied Very Satisfied Total 2 5 14 9 30 7% 17% 46% 30% 100% Graph- 4 Satisfaction level w.r.t ERP • Interpretation The figure shows that 46% of the companies that the researcher visited are satisfied with their ERP package, 30% are very satisfied, 17% are Neutral and 7% are unsatisfied. Hence we could infer that majority of these companies are satisfied. Other companies are unsatisfied or Neutral in their opinion because they have not reaped the benefits from ERP implementation as they have recently implemented the ERP package. M.P.Birla Institute of Management - 43 -
  • Impact of ERP on Organization 5. Do you agree that ERP software has given your organization the following Agree Agree Agree Agree slightly very completely moderately much Better collaboration 5 15 9 1 30 Improved 30 4 8 18 0 Communication Greater Flexibility 4 16 9 1 30 Increased efficiency 4 9 15 2 30 Reduced cycle time 3 13 12 2 30 Lower operating costs 11 9 8 2 30 Increased revenue 3 18 7 2 30 Higher profit margin 7 18 3 2 30 Graph - 5 Strategic advantages The 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. M.P.Birla Institute of Management - 44 -
  • Impact of ERP on Organization 6. For each of the organizational processes rate the improvement in the performance areas (Productivity, Customer Satisfaction...) due to ERP. Using the scale provided below. 1) Improvement in Performance Areas with reference to Inbound Logistics Not Negligible Inferior Average Good Excellent Applicable Productivity 0.0 3.3 30.0 46.7 20.0 0.0 Customer 0.0 6.7 33.3 46.7 10.0 3.3 Satisfaction Quality 0.0 0.0 50.0 36.7 13.3 0.0 Costs Reduction 0.0 13.3 36.7 46.7 3.3 0.0 Defects Reduction 0.0 10.0 40.0 46.7 3.3 0.0 Graph -6 Inbound Logistics • Interpretation The figure shows that the companies have performed better in increasing productivity and reducing costs and defects. And performance in maintaining organizational quality with respect to inbound logistics was average. M.P.Birla Institute of Management - 45 -
  • Impact of ERP on Organization 2) Improvement in Performance Areas with reference to Outbound Logistics Negligible Inferior Average Good Excellent Not Applicable Productivity 0% 3% 20% 57% 7% 13% Market 0% 0% 47% 33% 3% 17% Coverage Costs 0% 10% 47% 20% 7% 17% Reduction Defects Reduction 0% 1% 40% 40% 0% 17% Graph-7 Outbound Logistics • Interpretation The figure shows that the companies have performed better in increasing productivity and reducing defects. And performance in maintaining organizational quality with respect to out bound logistics was average. M.P.Birla Institute of Management - 46 -
  • Impact of ERP on Organization 3) Improvement in Performance Areas with reference to Operations Negligible Inferior Average Good Excellent Not Applicable Productivity 0% 0% 47% 43% 10% 0% Employee 0% 0% 53% 37% 10% 0% Satisfaction Costs 0% 7% 57% 37% 0% 0% Reduction Defects Reduction 7% 7% 33% 47% 0% 7% Graph - 8 Operations • Interpretation The figure shows that the companies have performed better in increasing productivity and reducing defects. Performance was average in both cost reduction and employee satisfaction. M.P.Birla Institute of Management - 47 -
  • Impact of ERP on Organization 4) Improvement in Performance Areas with reference to Marketing and sales Not Negligible Inferior Average Good Excellent Applicable Productivity 0% 0% 37% 33% 3% 27% Employee 0% 7% 33% 27% 7% 27% Satisfaction Market 0% 0% 47% 17% 10% 27% coverage Costs 0% 7% 47% 17% 3% 27% Reduction Defects Reduction 0% 0% 43% 17% 13% 27% Graph -9 Marketing and Sales • Interpretation The 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. M.P.Birla Institute of Management - 48 -
  • Impact of ERP on Organization 5) Improvement in Performance Areas with reference to Customer services Not Negligible Inferior Average Good Excellent Applicable Market 0% 0% 40% 30% 0% 30% coverage Customer 0% 0% 52% 40% 0% 8% Satisfaction Costs 0% 3% 53% 10% 3% 30% Reduction Defects 0% 3% 50% 17% 0% 30% Reduction Graph -10 Customer Service • Interpretation The figure shows that ERP package has not helped the companies much in customer services. The benefits are average in all performance areas. As the retail sector is service oriented its benefits are good. M.P.Birla Institute of Management - 49 -
  • Impact of ERP on Organization 6) Improvement in Performance Areas with reference to Human resource management Not Negligible Inferior Average Good Excellent Applicable Productivity 0% 7% 20% 40% 3% 30% Employee Satisfaction 0% 17% 37% 13% 3% 30% Costs 0% 13% 43% 13% 0% 30% Reduction Defects 0% 20% 33% 17% 0% 30% Reduction Graph -11 Human Resource Management • Interpretation The 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. M.P.Birla Institute of Management - 50 -
  • Impact of ERP on Organization 7) Improvement in Performance Areas with reference to Technology development Not Negligible Inferior Average Good Excellent Applicable Productivity 0 3% 30% 27% 0% 40% Costs 0 7% 43% 10% 0% 40% Reduction Defects 0 7% 47% 7% 0% 40% Reduction Graph -12 Technology Developments • Interpretation The figure shows that ERP package has not helped the companies much in technology development. The benefits are average in all performance areas. Most of the companies use different software for T&D. M.P.Birla Institute of Management - 51 -
  • Impact of ERP on Organization 8) Improvement in Performance Areas with reference to Procurement of Resources Not Negligible Inferior Average Good Excellent Applicable Productivity 0% 23% 7% 7% 33% 30% Employee 0% 30% 7% 7% 27% 30% Satisfaction Costs 0% 17% 13% 3% 37% 30% Reduction Defects 0% 33% 7% 3% 27% 30% Reduction Graph- 13 Procurement of Resources • Interpretation The figure shows that the companies have performed better in increasing productivity and reducing costs and defects. Performance was average in market coverage. M.P.Birla Institute of Management - 52 -
  • Impact of ERP on Organization 9) Improvement in Performance Areas with reference to supply chain Not Negligible Inferior Average Good Excellent Applicable Productivity 0% 23% 7% 7% 33% 30% Costs 0% 17% 13% 3% 37% 30% Reduction Defects 0% 33% 7% 3% 27% 30% Reduction Graph -14 Supply Chain • Interpretation The figure shows that the companies have performed better in increasing productivity and Costs reduction. Performance was average in defect reduction. M.P.Birla Institute of Management - 53 -
  • Impact of ERP on Organization 10) Improvement in Performance Areas with reference to Merchandise planning Not Negligible Inferior Average Good Excellent Applicable Productivity 0% 3% 30% 27% 0% 40% Costs 0% 7% 43% 10% 0% 40% Reduction Defects 0% 7% 47% 7% 0% 40% Reduction Graph - 15 Merchandise Planning • Interpretation The figure shows that the companies have performed better in increasing Defect reduction. Performance was average both in productivity and in reducing costs. M.P.Birla Institute of Management - 54 -
  • Impact of ERP on Organization 7. Does your company plan to upgrade to new ERP package in the recent future. SL. No Responses No. Of Responses 1 Yes 4 2 No 26 Graph - 16 ERP up gradation • Interpretation The figure shows that out of 30 companies in the research, just four companies are planning to upgrade the ERP package where as others are willing to continue with the same package. And around 26 companies do not have plans to upgrade their ERP package. Only 14% of the companies are planning to upgrade their ERP package. Remaining 86% of the companies are happy with the ERP package which already exists in their organization. M.P.Birla Institute of Management - 55 -
  • Impact of ERP on Organization HYPOTHESIS: SL.NO D D² 1 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 M.P.Birla Institute of Management - 56 -
  • Impact of ERP on Organization 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. M.P.Birla Institute of Management - 57 -
  • Impact of ERP on Organization CHAPTER ‐7    FINDINGS    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 retail 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.   M.P.Birla Institute of Management - 58 -
  • Impact of ERP on Organization   CHAPTER ‐8    CONCLUSION  This project work is done to know the impact of ERP in organization functions in retail sector. 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. Retail sector 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. M.P.Birla Institute of Management - 59 -
  • Impact of ERP on Organization CHAPTER ‐8    BIBLIOGRAPHY      1. Business Research Methods --Donald R. Cooper 2. Enterprise Resource planning --Alexis Leon     Websites: www.google.com www.wikipedia.org www.imtma.org www.microsoftbusinesssolutions.com M.P.Birla Institute of Management - 60 -
  • Impact of ERP on Organization Questionnaire: Impact of ERP in organizational functions in retail sector I am a student of M P Birla Institute of Management, Bangalore pursuing MBA Program. I am carrying out a research investigation on impact of ERP in retail sector in Bangalore. In this research, people will be asked to complete a questionnaire that asks questions about impact of ERP implementation. There are no foreseeable risks associated with this project. Your responses will be strictly confidential. Mohammed Shakeel ur Rahman 1. Please indicate which software vendor supplied your ERP software? SAP Oracle Others 2. Which year did you purchase your software? Pre2004 2005 2006 2007 3. Does the ERP system provide the precise information you need Yes No 4. How satisfied is your company with purchase of ERP package? Unsatisfied Neutral Satisfied Very Satisfied 5. Do you agree that ERP software has given your organization the following strategic advantages? Agree Agree Agree very Agree slightly moderately much completely Better Collaboration Improved Communication Greater Flexibility Increased efficiency Reduced cycle time Lower operating costs Increased revenue M.P.Birla Institute of Management - 61 -
  • Impact of ERP on Organization 6. For each of the organizational processes rate the improvement in the performance areas (Productivity, Customer Satisfaction...) due to ERP. Using the scale provided below. 1) Improvement in Performance Areas with reference to Inbound Logistics Not Negligible Inferior Average Good Excellent Applicable Productivity Customer Satisfaction Quality Costs Reduction Defects Reduction 2) Improvement in Performance Areas with reference to Outbound Logistics Negligible Inferior Average Good Excellent Not Applicable Productivity Market Coverage Costs Reduction Defects Reduction 3) Improvement in Performance Areas with reference to Operations Negligible Inferior Average Good Excellent Not Applicable Productivity Employee Satisfaction Costs Reduction Defects Reduction M.P.Birla Institute of Management - 62 -
  • Impact of ERP on Organization 4) Improvement in Performance Areas with reference to Marketing and sales Not Negligible Inferior Average Good Excellent Applicable Productivity Employee Satisfaction Market coverage Costs Reduction Defects Reduction 5) Improvement in Performance Areas with reference to Customer services Not Negligible Inferior Average Good Excellent Applicable Market coverage Customer Satisfaction Costs Reduction Defects Reduction 6) Improvement in Performance Areas with reference to Human resource management Not Negligible Inferior Average Good Excellent Applicable Productivity Employee Satisfaction Costs Reduction Defects Reduction 7) Improvement in Performance Areas with reference to Technology development Not Negligible Inferior Average Good Excellent Applicable Productivity Costs Reduction Defects Reduction M.P.Birla Institute of Management - 63 -
  • Impact of ERP on Organization 8) Improvement in Performance Areas with reference to Procurement of Resources Not Negligible Inferior Average Good Excellent Applicable Productivity Market coverage Costs Reduction Defects Reduction 9) Improvement in Performance Areas with reference to supply chain Not Negligible Inferior Average Good Excellent Applicable Productivity Costs Reduction Defects Reduction 10) Improvement in Performance Areas with reference to Merchandise planning Not Negligible Inferior Average Good Excellent Applicable Productivity Costs Reduction Defects Reduction 8. Does your company plan to upgrade to new ERP package in the recent future. Yes No Name: Age: Occupation: THANK YOU SPARING YOUR VALUABLE TIME IN GIVING THE RESPONSE M.P.Birla Institute of Management - 64 -