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  1. 1. ENTERPRISE RESOURCE PLANNING 2008 CHAPTER 1 INTRODUCTION Government RC College Commerce & Management Bangalore-01 1
  2. 2. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 2
  3. 3. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 3
  4. 4. ENTERPRISE RESOURCE PLANNING 2008 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: Government RC College Commerce & Management Bangalore-01 4
  5. 5. ENTERPRISE RESOURCE PLANNING 2008 ⇒ · 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 Government RC College Commerce & Management Bangalore-01 5
  6. 6. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 6
  7. 7. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 7
  8. 8. ENTERPRISE RESOURCE PLANNING 2008 ⇒ · 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 Government RC College Commerce & Management Bangalore-01 8
  9. 9. ENTERPRISE RESOURCE PLANNING 2008 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? Government RC College Commerce & Management Bangalore-01 9
  10. 10. ENTERPRISE RESOURCE PLANNING 2008 ⇒ · 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 Government RC College Commerce & Management Bangalore-01 10
  11. 11. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 11
  12. 12. ENTERPRISE RESOURCE PLANNING 2008 ⇒ 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) Government RC College Commerce & Management Bangalore-01 12
  13. 13. ENTERPRISE RESOURCE PLANNING 2008 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 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 Government RC College Commerce & Management Bangalore-01 13
  14. 14. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 14
  15. 15. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 15
  16. 16. ENTERPRISE RESOURCE PLANNING 2008 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, Government RC College Commerce & Management Bangalore-01 16
  17. 17. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 17
  18. 18. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 18
  19. 19. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 19
  20. 20. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 20
  21. 21. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 21
  22. 22. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 22
  23. 23. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 23
  24. 24. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 24
  25. 25. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 25
  26. 26. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 26
  27. 27. ENTERPRISE RESOURCE PLANNING 2008 CHAPTER 2 REVIEW OF LITERATURE Article 1: Beyond Plain Vanilla ERP Government RC College Commerce & Management Bangalore-01 27
  28. 28. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 28
  29. 29. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 29
  30. 30. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 30
  31. 31. ENTERPRISE RESOURCE PLANNING 2008 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". Government RC College Commerce & Management Bangalore-01 31
  32. 32. ENTERPRISE RESOURCE PLANNING 2008 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 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. Government RC College Commerce & Management Bangalore-01 32
  33. 33. ENTERPRISE RESOURCE PLANNING 2008 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 i c ul ar l y on uninterrupted electric power supply using appropriate UPS devices both for back- end servers, network equipment & front-end terminals / workstations. Government RC College Commerce & Management Bangalore-01 33
  34. 34. ENTERPRISE RESOURCE PLANNING 2008 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, Government RC College Commerce & Management Bangalore-01 34
  35. 35. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 35
  36. 36. ENTERPRISE RESOURCE PLANNING 2008 CHAPTER 3 Design of the study Government RC College Commerce & Management Bangalore-01 36
  37. 37. ENTERPRISE RESOURCE PLANNING 2008 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 his theme on Government RC College Commerce & Management Bangalore-01 37
  38. 38. ENTERPRISE RESOURCE PLANNING 2008 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. (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 Government RC College Commerce & Management Bangalore-01 38
  39. 39. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 39
  40. 40. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 40
  41. 41. ENTERPRISE RESOURCE PLANNING 2008 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. Government RC College Commerce & Management Bangalore-01 41
  42. 42. ENTERPRISE RESOURCE PLANNING 2008 CHAPTER 4 Industry & Respondents profile Government RC College Commerce & Management Bangalore-01 42
  43. 43. ENTERPRISE RESOURCE PLANNING 2008 Industry over view INDIAN MANUFACTURING SECTOR 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. Government RC College Commerce & Management Bangalore-01 43
  44. 44. ENTERPRISE RESOURCE PLANNING 2008  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 Government RC College Commerce & Management Bangalore-01 44
  45. 45. ENTERPRISE RESOURCE PLANNING 2008 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 Government RC College Commerce & Management Bangalore-01 45
  46. 46. ENTERPRISE RESOURCE PLANNING 2008 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 Chemicals  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 Pharmaceuticals  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 of Government RC College Commerce & Management Bangalore-01 46
  47. 47. ENTERPRISE RESOURCE PLANNING 2008 Exports 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 Steel 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 Sector  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 Government RC College Commerce & Management Bangalore-01 47
  48. 48. ENTERPRISE RESOURCE PLANNING 2008 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 Oil & Natural Gas 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: Textiles 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 Government RC College Commerce & Management Bangalore-01 48
  49. 49. ENTERPRISE RESOURCE PLANNING 2008 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 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 Government RC College Commerce & Management Bangalore-01 49
  50. 50. ENTERPRISE RESOURCE PLANNING 2008 CHAPTER 5 Data analysis & interpretation Government RC College Commerce & Management Bangalore-01 50
  51. 51. ENTERPRISE RESOURCE PLANNING 2008 1. How important is replacing aging legacy system? 1. Very 2. 3. Not important Important important 4. Can't Say TOTAL Reponses 27 3 0 0 30 % 90 10 0 0 100 Importance of replacing legacy systems 1. Very important 2. Important 3. Not important 4. Can't Say 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. Government RC College Commerce & Management Bangalore-01 51
  52. 52. ENTERPRISE RESOURCE PLANNING 2008 SAP AG ORCALE JD EDWARDS OTHERS TOTAL Reponses 17 5 2 6 30 16.6666666 % 56.66666667 7 6.666666667 20 100 ERP Software vendors responses and pecentage of 60 50 responses 40 Reponses 30 % 20 10 0 SAP AG ORCALE JD OTHERS EDWARDS Software vendors Graph: 5.2 G 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 No of Respond responds % 1. Strongly Disagree 0 0.000 3. Strong Agree 19 63.333 5. Neutral 7 23.333 Government RC College Commerce & Management Bangalore-01 52
  53. 53. ENTERPRISE RESOURCE PLANNING 2008 2. Disagree 0 0.000 4. Agree 4 13.333 6. Not applicable 0 0.000 Total 30 100 Satisfaction Level from Purchase of ERP 70 60 50 % of respond 40 30 20 10 0 1. 5. Neutral 4. Agree Strongly Disagree Satisfaction Level Graph: 5.3 G 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? Do not A great deal A little customize TOTAL Reponses 9 18 3 30 % 30 60 10 100 Government RC College Commerce & Management Bangalore-01 53
  54. 54. ENTERPRISE RESOURCE PLANNING 2008 60 50 40 30 Reponses % 20 10 0 A great deal A little Do not customize 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 large portion used full used not used not used extent extensively Total Reponses 14 8 2 6 30 % 46.66666667 26.66666667 6.666666667 20 100 Government RC College Commerce & Management Bangalore-01 54
  55. 55. ENTERPRISE RESOURCE PLANNING 2008 100 Usage of ERP Full extent 80 60 Reponses 40 used % extensively 20 20% used full small portion 0 extent not used 7% 46% large portion not used 27% 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? No of Response responds % 1. Strongly Disagree 0 0.000 3. Strong Agree 22 73.333 5. Neutral 4 13.333 Government RC College Commerce & Management Bangalore-01 55
  56. 56. ENTERPRISE RESOURCE PLANNING 2008 2. Disagree 0 0.000 4. Agree 4 13.333 6. Not applicable 0 0.000 Total 100 30 100 80 60 Post pucrhase Assistance East West 40 North 20 80 0 70 % of Respons 60 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 50 No of respondts 40 30 % 20 10 0 l e e le ee e tra re re re ab r u ag Ag ag Ag ic Ne s pl s ng 4. Di Di ap 5. ro ly Interpretation: 2. t St ng No ro 3. 6. St 1. Assistance Level Graph: 5.6 Interpretation The figure shows that 73% of the companies that the researcher 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. Government RC College Commerce & Management Bangalore-01 56
  57. 57. ENTERPRISE RESOURCE PLANNING 2008 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? No Of Types Of Responses Responses 1. Our legacy system works 8 2. The ERP solution available in the market did not seem to be good for our needs 2 3. The experience of others raised red flags 1 4. The company had other priorities 6 5. Unable to secure approval from senior management 3 6. Wanted to wait for the production to mature 5 7. Waiting for reduction in price 2 8. Other 3 Implemenation of ERP - Departmentalization 1. Our legacy system w orks 2. The ERP solution available in the market did not seem to be good for our needs 3 2 8 3. The experience of others raised red flags 4. The company had other priorities 5. Unable to secure approval from 5 senior management 2 6. Wanted to w ait for the production to mature 3 6 7. Waiting for reduction in price 1 8. Other Government RC College Commerce & Management Bangalore-01 57
  58. 58. ENTERPRISE RESOURCE PLANNING 2008 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? No of Response responds % 1. Strongly Disagree 1 3.333 3. Strong Agree 17 56.667 5. Neutral 4 13.333 2. Disagree 0 0.000 4. Agree 8 26.667 6. Not applicable 0 0.000 Total 30 100 Government RC College Commerce & Management Bangalore-01 58
  59. 59. ENTERPRISE RESOURCE PLANNING 2008 Outside Consultant - Implementation No of Responds 60 50 40 No of respondts 30 % 20 10 0 ee le ee e al ee ab gr re gr tr gr ag a eu ic A is pl A is N ng D ap 4. D 5. ly tro 2. ot ng S N tro 3. 6. S Usage of Consultant 1. Graph: 5.8 Interpretation The figure shows that 57% of the companies that the researcher 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? No of Response responds % 1. Strongly Disagree 0 0.000 3. Strong Agree 23 76.667 5. Neutral 4 13.333 2. Disagree 0 0.000 4. Agree 3 10.000 6. Not applicable 0 0.000 Total 30 100 Government RC College Commerce & Management Bangalore-01 59