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Chapter: Business Science - Enterprise Resource Planning

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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.

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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