RISK IMPLEMENTATION:
Even in a
single site, implementing ERP means "Early Retirement Probably." An
ERP package is so complex and vast that it takes several years and millions of
dollars to roll it out. It also requires many far-flung outposts of a company
to follow exactly the same business processes. In fact, implementing any
integrated ERP solution is not as much a technological exercise but an
"organizational revolution." Extensive preparation before
implementation is the key to success. Implementations carried out without
patience and careful planning will turn out to be corporate root canals, not
competitive advantage. Several issues must be addressed when dealing with a
vast ERP system, and the following sections discuss each of them in detail.
Top Management
Commitment
Implementing
an ERP system is not a matter of changing softwaresystems, rather it is a
matter of repositioning the company and transforming the business practices.
Due to enormous impact on the competitive advantage of the company, top management
must consider the strategic implications of implementing an ERP solution.
Management
must ask
several questions before embarking on the project. Does the ERP system strengthen
the company's competitive position? How might it erode the company's
competitive position? How does ERP affect the organizational structure and the
culture? What is the scope of the ERP implementation -- only a few functional
units or the entire organization? Are there any alternatives that meet the
company's needs better than an ERP system? If it is a multinational
corporation, the management should be concerned about whether it would be better
to roll the system out globally or restrict it to certain regional units?
Management
must be
involved in every step of the ERP implementation. Some companies make the
grave mistake of handing over the responsibility of ERP implementation to the
technology department. This would risk the entire company's survival because of
the ERP system's profound business implications.
It is
often said that ERP implementation is about people, not processes or
technology. An organization goes through a major transformation, and the management
of this change must be carefully planned (from a strategic viewpoint) and
meticulously implemented. Many parts of the business that used to work in silos
now have to be tightly integrated for ERP to work effectively. Cutting corners
in planning and implementation is detrimental to a company.
The top management
must not only fund the project but also take an active role in leading the
change. A review of successful ERP implementations has shown that the key to a
smooth rollout is the effective changemanagement from top. Intervention
from management
is often necessary to resolve conflicts and bring everybody to the same
thinking, and to build cooperation among the diverse groups in the
organization, often times across the national borders.
Top management
needs to constantly monitor the progress of the project and provide direction
to the implementation teams.
The
success of a major project like an ERP implementation completely hinges on the
strong, sustained commitment of top management. This commitment when
percolated down through the organizational levels results in an overall
organizational commitment. An overall organizational commitment that is very
visible, well defined, and felt is a sure way to ensure a successful
implementation.
Reengineering
Implementing
an ERP system involves reengineering the existing business processes to the
best business process standard. ERP systems are built on best practices
that are followed in the industry. One major benefit of ERP comes from
reengineering the company's existing way of doing business. All the processes
in a company must conform to the ERP model. The cost and benefits of aligning
with an ERP model could be very high. This is especially true if the company
plans to roll out the system worldwide. It is not very easy to get everyone to
agree to the same process. Sometimes business processes are so unique that they
need to be preserved, and appropriate steps need to be taken to customize those
business processes.
An
organization has to change its processes to conform to the ERP package,
customize the software to suit its needs, or not be concerned about meeting the
balance 30 percent. If the package cannot adapt to the organization, then
organization has to adapt to the package and change its procedures. When an
organization customizes the software to suit its needs, the total cost of
implementation rises. The more the customization, the greater the
implementation costs. Companies should keep their systems "as is"
as much as possible to reduce the costs of customization and future maintenance
and upgrade expenses.
Integration
There is
a strong trend toward a single ERP solution for an entire company. Most
companies feel that having a single vendor means a "common view"
necessary to serve their customers efficiently and the ease of maintaining the
system in future. Unfortunately, no single application can do everything a
company needs.
Companies
may have to use other specialized software products that best meet their unique
needs. These products have to be integrated along with all the homegrown systems
with the ERP suite. In this case, ERP serves as a backbone, and all the
different software are bolted on to the ERP software. There are thirdparty
software, called middleware, which can be used to integrate software
applications from several vendors to the ERP backbone.
Unfortunately,
middleware is not available for all the different software products that are
available in the market. Middleware vendors concentrate only on the most
popular packaged applications and tend to focus on the technical aspects of
application interoperability rather than linking business processes.
Many
times, organizations have to develop their own interfaces for commercial
software applications and the homegrown applications. Integration software also
poses other kinds of problems when it comes to maintenance. It is a nightmare
for IS personnel to manage this software whenever there are changes and
upgrades to either ERP software or other software that is integrated with the
ERP system. For every change, the IT department will be concerned about which
link is going to fail this time.
Integration
problems would be severe if the middleware links the ERP package of a company
to its vendor companies in the supply chain. Maintaining the integration
patchwork requires an inordinate and ongoing expenditure of resources.
Organizations spend up to 50 percent of their IT budgets on application
integration? It is also estimated that the integration market (products and
services) equals the size of the entire ERP market.When companies choose
bolt-on systems, it is advisable to contact the ERP vendor for a list
of certified third-party vendors. Each year, all the major ERP vendors publish
a list of certified third-party vendors. There are several advantages to
choosing this option, including continuous maintenance and upgrade support.
One of
the major benefits of ERP solutions is the integration they bring into an
organization. Organizations need to understand the nature of integration and
how it affects the entire business. Before integration, the functional
departments used work in silos and were slow to experience the consequences of
the mistakes other departments committed. The information flow was
rather slow, and the departments that made the mistakes had ample time to
correct them before the errors started affecting the other departments.
However, with tight integration the ripple effect of mistakes made in one part
of the business unit pass onto the other departments in real time. Also, the
original mistakes get magnified as they flow through the value chain of the
company.
For
example, the errors that the production department of a company made in its
bill of materials could affect not only the operations in the production
department but also the inventory department, accounting department, and
others. The impact of these errors could be detrimental to a company. For
example, price errors on purchase orders could mislead financial analysts by
giving a distorted view of how much the company is spending on materials.
Companies
must be aware of the potential risks of the errors and take proper steps, such
as monitoring the transactions and taking immediate steps to rectify the
problems should they occur. They must also have a formal plan of action
describing the steps to be taken if an error is detected. A proper means to
communicate to all the parties who are victims of the errors as soon as the
errors are detected is extremely important. Consider the recent example of a
manufacturing company that implemented an ERP package. It suddenly started
experiencing a shortage of manufacturing materials. Production workers noticed
that it was due to incorrect bills of materials, and they made necessary
adjustments because they knew the correct number of parts needed to
manufacturer.
However,
the company did not have any procedures to notify others in case any errors
were found in the data. The domino effect of the errors started affecting other
areas of business. Inventory managers thought the company had more material
than what was on the shelves, and material shortages occurred. Now the company
has mandatory training classes to educate employees about how transactions flow
through the system and how errors affect the activities in a value chain. It
took almost eight weeks to clean up the incorrect bills of materials in the
database.
Companies
implementing electronic supply chains face different kinds of problems with
integration of information across the supply chain companies. The major
challenge is the impact automation has on the business process. Automation
changes the way companies deal with one another, from planning to purchase to
paying. Sharing and control of information seem to be major
concerns. Companies are concerned about how much information they need to
share with their customers and suppliers and how to control the information.
Suppliers do not want their competitors to see their prices or order volumes.
The
general fear is that sharing too much information hurts their business.
Regarding controlling information, companies are aware
that it is difficult to control what they own let alone control what they do
not own. Companies need to trust their partners and must coordinate with each
other in the chain. The whole chain suffers if one link is slow to provide information
or access. The management also must be concerned about the stress an automated
supply chain brings within each organization. For instance, a sales department
may be unhappy that electronic ordering has cut it out of the loop, while
manufacturing may have to adjust to getting one week's notice to order changes
and accommodate those changes into its production orders.
ERP Consultants
Because
the ERP market has grown so big so fast, there has been a shortage of competent
consultants. The skill shortage is so deep that it cannot be filled
immediately. Finding the right people and keeping them through the
implementation is a major challenge. ERP implementation demands multiple skills
-- functional, technical, and interpersonal skills. Again, consultants with
specific industry knowledge are fewer in number. There are not many consultants
with all the required skills.
One might
find a consultant with a stellar reputation in some areas, but he may lack
expertise in the specific area a company is looking for. Hiring a consultant is
just the tip of the iceberg. Managing a consulting firm and its employees is
even more challenging. The success or failure of the project depends on how
well you meet this challenge.
Implementation Time
ERP systems
come in modular fashion and do not have to be implemented entirely at once.
Several companies follow a phase-in approach in which one module is implemented
at a time.
For
example, SAP R/3 is composed of several "complete" modules that could
be chosen and implemented, depending on an organization's needs. Some of the
most commonly installed modules are sales and distribution (SD), materials management
(MM), production and planning, (PP), and finance and controlling (FI) modules.
The
average length of time for a "typical" implementation is about 14
months and can take as much as 150 consultants. Corning, Inc. plans to roll out
ERP in ten of its diversified manufacturing divisions, and it expects the
rollout to last five to eight years. The length of implementation is affected
to a great extent by the number of modules being implemented, the scope of the
implementation (different functional units or across multiple units spread out
globally), the extent of customization, and the number of interfaces with other
applications.
The more
the number of units, the longer implementation. Also, as the scope of
implementation grows from a single business unit to multiple units spread out
globally, the duration of implementation increases. A global implementation
team has to be formed to prepare common requirements that do not violate the
individual unit's specific requirements. This involves extensive travel and
increases the length of implementation.
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