Need for ERP in Indian industry.
Structure of ERP.
Issues to consider in selecting ERP and the process involved in
the selection.
Guidelines for implementation.
Implementation of ERP.
Hidden cost of ERP.
By,
M. V. Vinod and N. Narasimha,
Final Year BE ( Comp Sci ), NIE, Mysore.
Introduction
India is one of the largest manufacturing economies of the world, which means that there is a great potent demand for ERP solutions. Basically, ERP aids in improving the productivity at organizational and individual level. They also increase the ability to make decisions based on current information, and change the organization. In order to respond to market and customer demands these corporations go from static to dynamic model. The need for such solutions is clearly felt by various corporations in various magnitudes. The magnitude is dependent on various factors such as the vision of the top management level, competitiveness of the industry, outlook for the company, education or awareness of such business tools at the middle management level etc.
The liberalization process has introduced a sense of urgency to the local manufacturing companies to counter the competitive advantages that the MULTINATIONAL COMPANIES brings to India.
This paper has made an attempt to address the following topics.
Need for ERP in Indian industry.
Structure of ERP.
Issues to consider in selecting ERP and the process involved in
the selection.
Guidelines for implementation.
Implementation of ERP.
Hidden cost of ERP.
India, which is the sleeping giant, has the industrial sector, as its key contributor to the GDR. India being the largest economies of the world, with probably the biggest manufacturing sectors supplies predominantly to the domestic consumption.
Unlike China, India has the unique advantage of having a high number of private sector companies. This becomes an advantage as decisions are based on the share holders wealth and satisfaction and not on political and socio-economic reasons.
The present industrial sector companies are family controlled, which is part of a family legacy. These companies have their operations based on values that were consistent with older, less competitive and the had inwardly focussed economies. The manufacturers, suppliers and vendors all operate with less desirable delivery performance resulting in lower customer service levels.
With liberalization, the private sector companies in India are to face stiff competition from the multinational giants. The Indian corporations are being forced to look at cost saving in every possible way due to the dictating market prices. A balanced approach between the vertically integration and outsourcing approach provide the best combination of quality levels, delivery performance, capital requirements, and productivity. In the past, the Indian companies have derived profitability through market domination, subsidies, protected market conditions and lack of competition. Liberalization has made the companies to rethink their business strategies which otherwise would not survive in this new world order. The present scenario puts customer service and administration as the prime criteria. The customer being very affluent demands nothing short of world class services even if it means at a slight premium price. Such changes provide the multinationals the competitive advantage through their highly efficient manufacturing operations and lower tariffs on imports. These companies pose a serious challenge to their Indian counterparts through the information that they posses.
This provides no option to the Indian corporations but to go global which means striving for excellence in products, markets and processes. International markets demand adaptability, flexibility of operations and quickness of response while meeting quality, pricing and delivery performance criteria. The only constant in today's world is change and those corporations that can manage these changes only will survive. Markets, fashions, consumers and currencies—all tend to be volatile. To work effectively in such environment requires up-gradation of managerial skills and updating knowledge on markets, on a sustained basis. In an era of information technology explosion, corporations should learn to use this "INFORMATION ON DEMAND" as a competitive weapon to make right decisions at the right time by the right people with a single focus –
"THE CUSTOMER OF THE CORPORATION".
STRUCTURE OF ERP
A logical structure of an ERP is necessary to ensure that it covers all parameters in a logical way. The fundamental structure of ERP is shown in the figure below.
FUNDAMENTAL STRUCTURE OF ERP
Plan of execution is the detailed plan and the resource profile is the database of the organization. These two form the middle part of the ERP and act as the engine. This stage decoupages macro level planning to micro level execution.
The third part of the structure is involved in the day today management of execution. It also provides feedback by measuring the performance, which helps the organization to keep a tab on their target. As feedback helps to take corrective actions at the right levels, ERP IS ESSENTIALLY A CLOSED LOOP SYSTEM.
The structure of the ERP clears two misconceptions firstly, ERP is a software and secondly, ERP is for the manufacturing industry. ERP is nothing but a concept that links all the functions of an organization to common objectives and establishes a feedback mechanism. The structure of the ERP does not stop other organizations from using it. Historically, since ERP is associated with MRP-2 it has become a part and parcel of the manufacturing industry. But as the need for integrated system would grow, every sector would feel the necessity to go for the implementation of ERP.
ISSUES TO CONSIDER IN SELECTING AN ERP
As described earlier ERP solution should not be taken as a software but as a business tool. Due to its expansive nature and the ability to effect the entire organization, proper management is necessary in order to obtain maximum benefits.
Gartner group report identifies these factors:
The business benefits expected from the implementation of an ERP system within a predictable time frame is what should be driving the project. The ERP selection committee should focus on the following factors in the solution selection.
PROCESS OF SELECTING AN ERP
The process starts with the vision to implement a change in the business to operate in the new world to operate in the new world that is competitive, trans-national and radically different.
It is important for the corporations to realize that ERP is essentially a business tool and not a software. Hence, it requires a high level of commitment and involvement from the top management, starting from selection through the implementation of the ERP solution.
With the identification for the need of the ERP system as the foundation for the new "information enabled business", performance indicators should be identified and must be prioritized. These can be done on various factors such as profitability, unique competitive advantage, market domination, strategic importance, changing customer preferences etc. Once these key "areas of pain" are prioritized it is then possible to zero in on the areas of business that are in critical need of the ERP system – manufacturing or distribution or finance or logistics and then implementation.
Next step involves the identification of factors that hinder the change like complacency, fear of the unknown, group identity - all leading to a cultural change in the organization which needs to be addressed. This must be addressed to assure necessary participation in the selection and the implementation of the ERP solution.
Moving on to the internal systems, efforts must be made to identify those processes that provide unique competitive advantage for the corporation. If any particular requirement is not justified then probably it is not a critical requirement. These functional requirements then form the critical list to review with the vendor's solution. Focus should be on effective functionality and not on total functionality.
Based on the segment of the market the company operates in, the selection committee should invite the top 6-10 vendor's to participate in the software selection process. These companies are short listed to 2-3 after the preliminary screening of issues based on current information, broad level of functional fit, support commitment to the market etc.
Interaction between the vendor and the team should be allowed to enable the vendor to present the proper business fit, demonstrate key process flows in the solution, show configurability and re-configurablity to allow for business dynamism, understand the organization requirements and recommend implementation strategies, plans and timeliness.
Evaluate the product, vendor, fitment to the organization need from a practical point of view and make a realistic selection that offers the lowest risk for the organization and does not bring the organization to its knees due to long implementation cycles.
GUIDELINES FOR IMPLEMENTATION
The key factors that are of great concern are right selection of the ERP and the implementation of it. There are a number of issues to be taken care of during the implementation of the ERP. These issues can be technical, users, training and customization.
TECHNICAL ISSUES
The server is the key equipment as it hosts the database and the application logic of the ERP package. The server must be inherently capable of handling the load and must be configured correctly to ensure that the application runs in a stable mode.
The next important equipment that comes after the server is the network. Network is so important as they connect various users at different geographical domains. Hence, they need to be fast, efficient and reliable. It is very important that they are flexible so as to accommodate new users and users who are shifting locations, temporarily or permanently.
The server, the operating system, the network, the RDBMS and the ERP application form the backbone infrastructure. All the above mentioned must be tuned to one another so that they work in tandem.
In many companies the factory and the head office are at the same location while the depots and the regional marketing offices are at different locations. These areas need to be covered by the ERP system. The network that could be used to connect the different locations can be a high speed WAN (Wide Area Network) or a low speed WAN (a VSAT network). Depending on the type of the usage the choice is made. For example: a distributed depot in a remote area may find it adequate to have once a day update, while a marketing office of a company providing made-to-order products might want online connectivity. In any case, companies need to have a WAN to get complete benefits of ERP.
Not all companies may implement all the modules for reasons like excessive customization, cost factors, already customized software for various departments etc. For an ERP system to provide benefits across various departments, they must all be linked together. For example: in an order fulfillment process, the dispatch department is not linked into the ERP system then the downstream departments like billing and accounts receivable will be affected. This precisely the reason for connecting all departments that are linked.
Successful implementation is not the end of the road. Further it involves the most arduous task of maintenance and tuning from time to time. Organizations need to identify roles and responsibilities in areas like database administration, security, backup and system tuning.
USERS ISSUE
ERP is a corporate solution that involves Information Technology and people. For this reason, it is very important that key decisions like ERP selection and implementation is made by the right people.
The users who are in constant touch with the system have to make decisions about making changes, if any. It is not sufficient if the senior managers make all the decisions as they may not be aware of all the nuances of the operating procedure.
Since an ERP project involves users from all functional areas, it cannot be driven by the IT team alone. It must enjoy the support and guidance from the senior and experienced managers. As the implementation requires examining all areas of operations, there may be considerable overlap of roles. For example: when entries made by the receiving goods clerk affect the authority and the accuracy of the accounts payable department, it is natural that there can be difference of opinions among the two. Hence it is important that the team members involved in the implementation have clear cut roles and responsibilities.
TRAINING ISSUE
Technical maintenance does not stop with implementation. It involves training of the newly recruited staff as people get promoted or the existing system changes. This also implies that the responsibilities too change. With these changes comes the need for training and education, which must be arranged right in the beginning.
Any mistake made by the users could prove fatal to the organization and hence it is imperative that every user of the ERP receives adequate training. Theoretical training should be complemented with exclusive practical exposure in order to gain familiarity with the subject. In the period immediately after implementation, users will face many a problem, which will require expert resources to solve. Hence any ERP implementation must provide for help facilities until the number of problems drops to the level that there is enough expertise among the users themselves to solve one anthers problem.
CUSTOMIZATION ISSUE
People are creative and keep coming up with new ideas. This is especially true in midst of an ERP implementation. It would not be advisable to keep on stretching the time of the project. Hence it is imperative that customization requirements be frozen well in advance, and any new requests could be reserved for future changes. It is important that all procedures be examined so that no surprise results pop up.
Things to avoid
The pharma industry is the major implementor of the ERP all over the world. The critical business issues that they face are:
Every drug company in the past have been able to spend money on IT to prove that it was the only way to comply with Good Manufacturing Practice(GMP). However, the combined effects of pressure on selling prices, shorter life cycles, higher R&D costs have made these companies rethink their strategy. The bottom line of these companies now is to deliver business results and not improvement in office productivity. Such a business structure involves reduced costs and feasibility in ERP implementation.
REGULATORY INFLUENCE
The pharma industry is the most regulated industry because of it’s potential to cause damage to human body. The health department have enforced certain standards like the Good Manufacturing Practice (GMP), Good laboratory practice (GLP) and Good Clinical Practice (GCP) which are collectively known as GxP. Non compliance to these standards could lead to withdrawal of license to manufacture a product. GMP mandates standards for activities such as record keeping, standard operating procedures (SOP), lot tractability and cleanliness. Companies using ERP must ensure that the software supports lot tractability, formulation integrity, inventory recording, etc.
MANUFACTURING PROCESS VALIDATION
Validation is the critical issue for the pharmaceutical manufacturer using software as apart of its production system. The FDA is the implementation authority for the United States code of Federal regulations of which parts 210, 211 and 810 are relevant to drug distribution and production. Validation is divided into Installation Qualification(IQ), Operational Qualification(OQ) and Performance Qualification(PQ). IQ involves the correct installation of hardware, systems software and application software. Hardware and systems software are installed in accordance with the manufacturer’s instructions, while applications software would require details such as software key, version number and release number.
OQ involves the main body of the work since the FDA has deemed theta the primary method of software validation would be testing. Testing would be of two types: structural testing(white box testing), functional testing(black box testing).
This is exceptionally difficult, as it would involve theoretically require examination of:
Functional testing is considered highly relevant to OQ. It involves structured and documented protocol to attain the FDA mandated high degree of conformity with specification. A good test of protocol involves four main phases:
Features of ERP package in pharma industry
BPCS is the leading ERP package in the global industry which was first developed for Abbot Laboratories. Some specification functionality’s include:
ERP software packages like BAAN, SAP’s R/3, PeopleSoft sound very interesting and their ilk-promise great benefits but the implementation cost that is required is well disguised. A few oversights in the budgeting and planning stage can send ERP costs spiraling out of control faster then oversights in planning almost any other information system undertaking. ERP professionals vote the following areas as the most likely to result in budget overrun: training, integration and testing, data conversion, data analysis and getting rid of consultants. It is here that the professional outlook of the company and the calibre of the senior managers count.It is a matter of concern in India as to how many organizations would like to adopt ERP solutions due to it’s hidden costs. Undoubtedly they are a boon to industry provided the right approach is taken for its implementation. Successful management of the organization depends upon successful management of information. Just as organizations vary in their requirements, information needs are also different not only between organizations but also within it. This entails the organization to operate in mixed or hybrid mode when managing information systems – a critical factor in the right choice of ERP solutions. Unquestionably, the enterprises that succeed best in facing extreme environmental instability that appears to be characterizing the end of the millennium, will be those that have flexibility built into their manufacturing systems and information management.
ACKNOWLEDGEMENTS
The authors of this paper thank Dr. M. S. SHIVA KUMAR, Head, Department of Computer Science & Engineering for his valuable guidance in writing this paper.
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