When are we ready for ERP?
Posted by egovindia on June 23, 2006
When are we ready for ERP?
Implementing an Enterprise Resource Planning solution is not as expensive as some companies think—and not as difficult
Computer systems have been around for more then four decades though they have become commonplace only in recent times. This age of information technology has positively affected most organisations in some way or the other. A fine blend of hardware and software options is available in the market to conduct business more efficiently. This is further emphasised by the amount of IT-related expenditure made by even small businesses in the form of computer systems, networking equipment and Internet connections. Most organisations have software applications (from simple Excel sheets or Word documents to ERP/CRM applications at the higher end) to conduct their day-to-day functions. Many purchase decisions are made not on the basis of needs or wants but because another organisation has it. However, like it or not, an ERP application is eventually essential for all businesses.
Procrastination of the inevitable is nothing but wastage of precious time. The questions are: when are we as an organisation ready for an ERP application? How do you decide when and if it is the right time? This article tries to touch on some aspects of your business which might benefit from ERP.
The most crucial factors in any business are time and money. If you create a good product (or service) and sell it in the market at the right time then you are bound to benefit from it. It is also necessary to manage your costs and the pricing of the product. Product life-cycles are growing shorter by the day, and variants flood the market in no time. Competitors also react faster than in earlier days. There was a time when Henry Ford sold only black-coloured cars in the US—and people bought them. Now every year companies are coming out with a newer brand or model. In the pre-Maruti era India had only Ambassador and Fiat cars. Today, a Maruti 800 itself has more than four variants. To stay in the race and sustain oneself, innovation and immediate action are essential. An organisation’s decision-makers need a wealth of information at their finger-tips to react. They rely a lot on decision-support systems to do what-if analysis and simulation prior to forming and adopting a particular strategy. If an organisation continues to have discrete applications which cannot talk to each other, imagine the amount of redundancy that will follow and the amount of time it will take. Data processed into information is relevant only for a specific period of time; beyond that it is useless junk which has no meaning.
Let us bring in more complexity to the above scenario with an example from the airline business. Imagine the number of possible combinations of destinations, fliers and flights. Is it possible to optimally manage all that with a non-integrated software and a couple of Excel sheets? Imagine the amount of manual consolidation that will have to be done to get some meaning out of the data. The top management of these companies needs regular MIS—and in some cases daily input—to take immediate action. A one-sided view of the data is insufficient for decision-making. Organisations are formed with the objectives of growth, increased profitability, and sustenance. Each day the quantum of data increases. Competition is growing at an alarming pace, and is compounded by globalisation, due to which there are cheaper alternatives available in the market.
Earlier, businesses in India grew in a protected environment, which is fast disappearing. Regulations are becoming stringent, and newer taxation systems are being introduced by the state. The government also releases a regular notification containing minor or major changes that affect business in multiple ways. This is the environment in which today’s organisations have to function.
Enterprise Resource Planning is the revolutionary system which integrates all functions. It is the common source of accumulation of organisation data, and is configured to generate many types of MIS and drill-down reports which help in analysing the data in various forms by tossing and turning it around. For example, you can have department-wise expenditure and cost-centre-wise expenditure reports to understand where your money is being spent. These applications come with in-built audit systems to conduct internal audits and generate daily balance sheets. Inventory costs can be reduced by material resource planning which generates information such as product-wise consumption or item-wise shortfall figures. It also drastically reduces redundancy since data flows from one module to another based on the way in which business processes have been configured. Organisations can also go in for backward and forward integration with their external value chain members like suppliers and buyers.
All said and done, ERP applications are still an expensive affair—even if we opt for one made in India. There is also lots of doubt about their success considering the failure-rate statistics floating on the Internet. It requires immense calculation and cost justification prior to making an investment decision. The cost of ERP is not just the price of the product but also the other costs such as human resources, time and material deployments required to make it functional. Yet all companies might not need an ERP application; an organisation may simply be too young or may not be generating enough revenue to go in for this kind of investment, or the business may not be too complicated or may be located in a single location. Some businesses can also say that they have a great product and good sales figures, hence there is no need for ERP. So what is the right time to get into an ERP project?
My recommendation is that organisations should start young when the systems are not too rigid and can be molded, when the culture is not so deep-seated that it takes ages to modify, when people are still unsettled and can be rocked, when the business is in its growth phase and the road forward is definitely uphill. These will help make business processes systematic and streamlined.
Some organisations delay their ERP initiative simply because of lack of information and foresight. They do not know that ERP is not just SAP, Oracle Financials or J D Edwards. There are lots of other smaller packages (inexpensive compared to the ERP application giants) available in the market which can be used. The networking and hardware requirements for these applications are minimal, as a result of which they can be easily set up. The idea is to formalise systems, simplify routine activities, create standardised reports, reduce repetitive compilation of data, and centralise the database and back-up for data security and disaster management. The skill level required to implement these products is much lesser, and many a time the implementation can be managed by the in-house IT team in conjunction with the product vendor.
ERP readiness is also dependent on the skills of the employees. A basic level of understanding and knowledge of the application is essential. Employees should have computer operating skills and understand their job functions properly. It is one thing that people generally resist change, and another thing that they do not have the ability to work with a new system and hence resist change. Some organisations fail in their ERP implementation since they don’t have the appropriate manpower to wield the application. The general mindset of the workforce should therefore be open and receptive.
As the saying goes, prevention is better than cure, so companies should adopt automation early. In this way, when they start growing in numbers in terms of sales, products, employees and other stakeholders, their systems are already in place to manage the growth and do not crack under pressure. Another thing about ERP is that you do not need too many people to manage it. Even if your organisation has just five people managing purchase, stores, production, accounts and administration, you can still work with ERP; the only thing that changes is the number of licences when there are more users. Most vendors design their products in such a manner that part of the package can be used while the rest of the modules can be implemented in a phased manner as and when required. Obviously, companies should evaluate their readiness level for ERP prior to introducing it. This ensures that resources are not wasted but are put to proper use. Gradual initiation of computerisation will ensure that people become more capable in managing the complexities of these systems. Legacy data has to be ported to the new application. Management of data is easier when the quantity is less. In a bigger and spread-out scenario, users will have to do a lot of backlog entries and testing before the system can be certified as functional. Readiness is a state of mind; the earlier you start the better since you have a head-start over the others.
While building a house if you try to get everything right at the beginning then it will remain only in its blueprint stage. There is lot of difference between conceptualisation and reality. It is always easier to build a simple basic house and then go about doing the enhancements and extensions. Then at least you will have a house of your own to live in. As Ralph Waldo Emerson once said, “We are always getting ready to live, but never living.”
The author works with a pharma company as Business Systems Analyst. The views expressed here are her own and not necessarily those of her employer. She may be reached at email@example.com