ERP Overview

Sales & Distribution Materials Mgmt.

SD

Financial Accounting

FI

MM

Product Planning

PP

R/3 R/3
HR

CO
Controlling

Atanu Ghosh
TR
Treasury

atanu.ghosh@nevaehtech.com

Quality Mgmt.

QM

Plant MainteMaintenance

Client/Server PS Client/Server PM ABAP/4 WF ABAP/4

Workflow Human Resources Industry Solutions

Project System

IS

12-Jul-08

Course Overview: Section 1A

1. Genesis of ERP 2. Todays ERP market 3. Business reasons for rise and popularity

of ERP 4. Advantages of ERP 5. Why do ERP project fail? 6. Critical success factors of an ERP project

12-Jul-08

Genesis of ERP
Sales A/R Manufacturing.

In the beginning (of

New Product Development

computerisation of business) there was chaos.

Computerisation started in 3 areas in a business enterprise

General Ledger

Maintenance

Inventory Purchasing

A/P Controlling Production Planning

1,000 island solution.

Each department computerised their own areas leading to

Accounting Payroll Shopfloor (MRP I and MRP II) Islands of computerised

systems Non standard business processes

Every part of an organisation was computerising their internal processes and was happy with that.
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Senior management was not seeing benefits of computerisation

3

Genesis of ERP
ERP

But soon some realisations

dawned.
It does not help business much if the individual departmental processes are computerised without taking care of integration. Some business processes are standard irrespective of nature of business and industry. These processes hence can be pre-coded and made into a package. Thus was born todays ERP (Enterprise Resource Planning) packages
4

Accounting, Purchasing, HR

MRP I, MRP II, Inventory

Convergence of systems supporting front end processes and back end processes
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Genesis of ERP
ERP

ERP brought some

fundamental changes to business and IT

It made IT a strategic tool for an organisation. It catalysed BPR in organisations. It created the position of CIO. It created a new genre of business consultants.
5

Accounting, Purchasing, HR

MRP I, MRP II, Inventory

Convergence of systems supporting front end processes and back end processes
12-Jul-08

Market position of various ERPs and nERPs

SAP is the leading ERP vendor in most categories. Oracle has gained in market share with acquisitions of
Peoplesoft, JD Edwards and Siebel.
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Market position of various ERPs and nERPs

Source: Forrester

ERP market today is a US$ 26 billion market. It is growing at a CAGR of 6.3%. The biggest revenue share and growth is coming from maintenance services.
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12-Jul-08

Business reasons for rise and popularity of ERP

Benefits of integration Standardisation of processes
Adaption of best practices IT reaches the desk of CxOs

IT enabled BPR Supporting compliance and regulatory requirements Less dependence on programmers Easy maintenance and upgrades User friendly
Business users do not need to understand a programming language and still learn and implement ERP

Less expensive that developing an equivalent custom

software
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Advantages of ERP
Let us take the example of booking an order and confirming delivery date to customer in a stand-alone computerised environment. This assumes the best case scenario where all information are accurately and timely available in the stand-alone systems and all concerned people make best efforts to provide the information.

Sales-woman enters order in a computerised system. Customer asks for a delivery date.

Sales-woman calls up warehouse to check availability and confirm delivery date.

Warehouse clerk checks his inventory system in computer and says the stock is not available. But he says there may be some in production line.

Sales-woman calls up the production manager.

Production manager provides production completion date.

Sales-woman conveys delivery date to customer.

But its too late!

You have spent huge amount of money to computerise your sales, inventory and production operations. Your people make best efforts to provide information to the customer. Still you have an unhappy customer and might have lost the order to your competition. Why? Because your computerised systems are stand-alone and they dont talk to each other!

12-Jul-08

Advantages of ERP
Now consider how things can be better in an ERP system
Sales-woman enters order in an ERP and checks availability date

Sales-woman gets delivery date instantaneously and confirms to customer

ERP system checks instantaneously the availability date on-line in the inventory as well as in production system

Integration between your various systems has resulted in an ecstatic customer It will probably bring you repeat orders from the delighted customer Additionally, it has saved you money in terms of numerous hours of the saleswoman, warehouse clerk and production manager as well as the cost of a number of phone calls.

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10

Advantages of ERP
Sales

All business processes throughout the supply chain are executed in one system sharing all information
A/R Manufacturing.

New Product Development

S U P P L I E R

S A P R /3

Workflow

C U
Distribution SD

General Ledger

Maintenance

Procurement MM

Production PP

S T O M E R

Inventory Purchasing

A/P Controlling Production Planning

Finance and Accounting FI CO

1,000 island solution.

Islands of Automation
time delay inaccurate information additional cost ERP provides an integrated system which ensures single point of entry for one data instantaneous access to all relevant information savings in cost, increase of sales and customer satisfaction

One Integrated System

Islands of computerisation does not give you any significant benefits since lack of communication between systems lead to

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11

Advantages of ERP
Value Addition Timely closure of books of accounts reconciliation effort minimised through single point of data entry Improved bottom-line through profitable product portfolio through visibility of accurate product cost Improved top-line through higher customer satisfaction through on-line order booking and confirmation Better statutory and regulatory compliance increase in customer and shareholder confidence

ERPs, at the very basic, enable

Value Addition Cost Reduction Cash Liberation

But best of breed ERPs like SAP do much more than increasing operational efficiency They
Are scalable - to ensure
expansion diversification investment protection

Are globally accepted and respected

Cost Reduction Removal of non value adding and repetitive work through automation and single point data entry Productivity improvement Reduction in headcount Shorter lead time and wait time in shop floor

Cash Liberation Inventory reduction through better planning and on-line and accurate inventory visibility Better credit control through availability of credit information on-line

Address concerns of regulatory, government and social agencies

Compliance Quality Environmental health and safety

To get confidence of global customers and suppliers To integrate with global customers, suppliers and partners

Are affordable Assist in improving organisations valuation, credit organisation ratings, etc Improve employee morale by improving their quality of work and life

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12

Advantages of ERP
Can I measure the benefits I am supposed to get from an ERP system?
"Post the introduction of the SAP solution, the results have been terrific. The company has spent close to Rs. 40 crore on SAP implementation, and has already saved Rs 33 crore," said Mr. Ramesh C. Nadrajog, Vice President (Finance). The manpower cost has reduced from over $ 200 per ton two years ago, to about $140 per ton in 2000. The overdue outstanding has been brought down from Rs 5170 millions in 1999 to Rs 4033 millions by June 2000. The inventory carrying cost has drastically deflated from Rs 190 per ton to Rs 155 per ton. To add to this, there have been significant costs savings through management of resources with the implementation of SAP.

Though challenging, it is possible to measure benefits of ERP implementation in financial terms. The key steps a company must take to measure the returns are

Quoted from published data from Tata Steel on benefits from SAP implementation

Challenges in measuring the returns accurately

Segregating benefits due to ERP system and those accruing from other initiatives and improvements. Attributing the reasons for non realisation of the returns those for ERP system and those for other factors like organisational change.

Define business drivers upfront before start of ERP deployment. Link the business drivers to the specific process and functionalities of ERP which will achieve the business drivers. Estimate the financial gains expected from deployment of ERP. Measure the business drivers again after 6 months from go live.

Quoted from published data from Voehstalpine Stahl on benefits from SAP implementation

12-Jul-08

13

Why do ERP projects fail?

Research by BPR guru Michael

Hammer shows success of ERP projects in an organisation is a double humped distribution. Research shows reasons of failure of ERP implementations are primarily three Inability to adapt organisational change Inefficient project management Wrong selection of ERP product and/or consulting partner

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14

Critical Success Factors of an ERP Project

Ensure enough C-office involvement

1.

You would need to adapt 3 simple mantras at the very beginning: Ensure enough C-office involvement

2.
Select right ERP product and consulting partner Make business manage the project, not IT

1. 2.

Make business own the project

Do not calibrate C-office involvement with the investment you are putting in. It might be small compared to some of your other projects, but if it goes wrong the cost to your business may be enormous much higher than the money you have put in! SAP implementation will bring in large scale organisational change. Only the CxO (most likely the CEO himself) can influence such large change, middle level managers cannot. SAP implementation is a business transformation project, not a computerisation project. Make business own the project to ensure success.

3.

Select the right ERP product and consulting partner

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15

Next Session: Overview of key business processes in ERP

Sales & Distribution Materials Mgmt.

SD

Financial Accounting

FI

MM

Product Planning

PP

R/3 R/3
HR

CO
Controlling

Atanu Ghosh
TR
Treasury

atanu.ghosh@nevaehtech.com

Quality Mgmt.

QM

Plant MainteMaintenance

Client/Server PS Client/Server PM ABAP/4 WF ABAP/4

Workflow Human Resources Industry Solutions

Project System

IS

12-Jul-08

16