ERP implementation project

Q1 How the companies organize their ERP implementation project.

 

The Big Bang:

In this, the most ambitious and difficult of approaches to ERP implementation, companies cast off all their legacy systems at once and they install a single ERP system across the entire company. Though this method dominated early ERP implementations because of the need to revamp old systems for Y2K, few companies dare to attempt it anymore because it calls for the entire company to mobilize and change at once. Most of the ERP implementation horror stories from the late ‘90s warn us about companies that used this strategy. Getting everyone to cooperate and accept a new software system at the same time is a tremendous effort, largely because the new system will not have any advocates. No one within the company has any experience using it, so no one is sure whether it will work. Also, ERP inevitably involves compromises. Many departments have computer systems that have been honed to match the ways they work. In most cases, ERP offers neither the range of functionality nor the comfort of familiarity that a custom legacy system can offer. In many cases, the speed of the new system may suffer because it is serving the entire company rather than a single department. ERP implementation requires a direct mandate from the CEO.

Franchising strategy:

This approach suits large or diverse companies that do not share many common processes across business units. Independent ERP systems are installed in each unit, while linking common processes, such as financial bookkeeping, across the enterprise. This has emerged as the most common way of implementing ERP. In most cases, the business units each have their own "instances" of ERP—that is, a separate system and database. The systems link together only to share the information necessary for the corporation to get a performance big picture across all the business units (business unit revenue, for example), or for processes that don’t vary much from business unit to business unit (perhaps HR benefits). Usually, these implementations begin with a demonstration or pilot installation in a particularly open-minded and patient business unit where the core business of the corporation will not be disrupted if something goes wrong. Once the project team gets the system up and running and works out all the bugs, the team begins selling other units on ERP, using the first implementation as a kind of in-house customer reference. Plan for this strategy to take a long time. Interestingly, many companies that initially installed ERP using a franchising strategy are now trying to consolidate as many of those different instances of ERP as possible down into a handful or even one for the entire company.

Slam dunk:

ERP dictates the process design in this method, where the focus is on just a few key processes, such as those contained in an ERP system’s financial module. The slam dunk is generally for smaller companies expecting to grow into ERP. The goal here is to get ERP up and running quickly and to ditch the fancy reengineering in favor of the ERP system’s "canned" processes. Few companies that have approached ERP this way can claim much payback from the new system. Most use it as an infrastructure to support more diligent installation efforts down the road. Yet many discover that a slammed-in ERP system is little better than a legacy system because it doesn’t force employees to change any of their old habits. In fact, doing the hard work of process reengineering after the system is in can be more challenging than if there had been no system at all because at that point few people in the company will have felt much benefit from the new software.

Q2) How can ERP improve a company’s business performance? Give three examples.

Example-1

ERP automates the tasks involved in performing a business process—such as order fulfillment, which involves taking an order from a customer, shipping it and billing for it. With ERP, when a customer service representative takes an order from a customer, he or she has all the information necessary to complete the order (the customer's credit rating and order history, the company's inventory levels and the shipping dock's trucking schedule). Everyone else in the company sees the same computer screen and has access to the single database that holds the customer's new order. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, one need only log into the ERP system and track it down. With luck, the order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer orders than before. ERP can apply that same magic to the other major business processes, such as employee benefits or financial reporting.

Example-2

Suppose, a piece of work is going on machine, the production manager has to have the clear idea on when the work is going to be completed so that he can schedule other work for that machine along with sufficient man power. Without ERP application in place, the production manager cannot get the information on the production capabilities of machine and others.

If ERP is implemented in the same environment, the production manager will get the clear statistics on the machine capabilities and man power capabilities. With this information, he can easily schedule work for the machine and avoid idle time. This way the lead time of manufacturing process will reduce.

Example-3

ERP provides business intelligence tools like decision support system, executive information system, reporting, data-mining, early-warning system, enabling people to make better decisions and improve business processes.

Q3) What are the hidden costs of ERP?

1. Training

Training is the near-unanimous choice of experienced ERP implementers as the most elusive budget item. It's not so much that this cost is completely overlooked as it is consistently underestimated. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface.

2. Integration and Testing

Testing the links between ERP packages and other corporate software links that have to be built on a case-by-case basis is another often underestimated cost. A typical manufacturing company may have add-on applications for logistics, tax, production planning and bar coding. If this laundry list also includes customization of the core ERP package, expect the cost of integrating, testing and maintaining the system to skyrocket.

As with training, testing ERP integration has to be done from a process-oriented perspective. Instead of plugging in dummy data and moving it from one application to the next, veterans recommend running a real purchase order through the system, from order entry through shipping and receipt of payment-the whole order-to-cash banana-preferably with the participation of the employees who will eventually do those jobs.

3. Data conversion

It costs money to move corporate information, such as customer and supplier records, product design data and the like, from old systems to new ERP homes. Although few CIOs will admit it, most data in most legacy systems is of little use. Companies often deny their data is dirty until they actually have to move it to the new client/server setups that popular ERP packages require. Consequently, those companies are more likely to underestimate the cost of the move. But even clean data may demand some overhaul to match process modifications necessitated—or inspired—by the ERP implementation.

4. Data analysis

 Often, the data from the ERP system must be combined with data from external systems for analysis purposes. Users with heavy analysis needs should include the cost of a data warehouse in the ERP budget—and they should expect to do quite a bit of work to make it run smoothly. Users are in a pickle here: Refreshing all the ERP data in a big corporate data warehouse daily is difficult, and ERP systems do a poor job of indicating which information has changed from day to day, making selective warehouse updates tough. One expensive solution is custom programming. The upshot is that the wise will check all their data analysis needs before signing off on the budget.

5. Consultants Ad Infinitum

When users fail to plan for disengagement, consulting fees run wild. To avoid this, companies should identify objectives for which its consulting partners must aim when training internal staff. Include metrics in the consultants' contract; for example, a specific number of the user company's staff should be able to pass a project-management leadership test—similar to what Big Five consultants have to pass to lead an ERP engagement.

6. Replacing Your Best and Brightest

 It is accepted wisdom that ERP success depends on staffing the project with the best and brightest from the business and IS. The software is too complex and the business changes too dramatic to trust the project to just anyone. The bad news is, a company must be prepared to replace many of those people when the project is over. Though the ERP market is not as hot as it once was, consulting firms and other companies that have lost their best people will be hounding yours with higher salaries and bonus offers than you can afford—or that your HR policies permit. Huddle with HR early on to develop a retention bonus program and to create new salary strata for ERP veterans. If you let them go, you'll wind up hiring them—or someone like them—back as consultants for twice what you paid them in salaries.

7. Implementation Teams Can Never Stop

Most companies intend to treat their ERP implementations as they would any other software project. Once the software is installed, they figure, the team will be scuttled and everyone will go back to his or her day job. But after ERP, you can't go home again. You're too valuable. Because they have worked intimately with ERP, they know more about the sales process than the salespeople do and more about the manufacturing process than the manufacturing people do. Companies can't afford to send their project people back into the business because there's so much to do after the ERP software is installed. Just writing reports to pull information out of the new ERP system will keep the project team busy for a year at least. And it is in analysis—and, one hopes, insight—that companies make their money back on an ERP implementation. Unfortunately, few IS departments plan for the frenzy of post-ERP installation activity, and fewer still build it into their budgets when they start their ERP projects. Many are forced to beg for more money and staff immediately after the go-live date, long before the ERP project has demonstrated any benefit.

8. Waiting for ROI

One of the most misleading legacies of traditional software project management is that the company expects to gain value from the application as soon as it is installed; the project team expects a break and maybe a pat on the back. Neither expectation applies to ERP. Most don't reveal their value until after companies have had them running for some time and can concentrate on making improvements in the business processes that are affected by the system. And the project team is not going to be rewarded until their efforts pay off.

9. Post-ERP Depression

ERP systems often wreak cause havoc in the companies that install them. In a recent Deloitte Consulting survey of 64 Fortune 500 companies, one in four admitted that they suffered a drop in performance when their ERP systems went live. The true percentage is undoubtedly much higher. The most common reason for the performance problems is that everything looks and works differently from the way it did before. When people can't do their jobs in the familiar way and haven't yet mastered the new way, they panic, and the business goes into spasms.

Q4) List the contents of ERP project Implementation management plan?

1)    STRATEGIC PLANNING

• Assign a project team.

• Examine current business processes and information flow.

• Set objectives.

• Develop a project plan.

Project team:

Assign a project team with employees from sales, customer service,

accounting, purchasing, operations and senior management. Each team member should be

committed to the success of the project and accountable for specific tasks, i.e. developing a

timeline, finalizing objectives, formulating a training plan. Make sure you include first line

workers as well as management on your team. Base the selection on the knowledge of the

team not status of the employee.

Examine current business processes:

Have the team perform an analysis on which business

processes should be improved. Gather copies of key documents such as invoices, batch

tickets and bill of lading for the analysis. To start the team discussion, consider questions

such as: Are your procedures up to date? Are there processes that could be automated? Are

personnel spending overtime processing orders? Does your sales force and customer service

personnel have real-time access to customer information? The team members should also

conduct interviews with key personnel to uncover additional areas of improvement needed.

Set objectives:

The objectives should be clearly defined prior to implementing the ERP

solution. ERP systems are massive and you won’t be able to implement every function. You

need to define the scope of implementation. Ideally, the scope should be all inclusive. But

practically, it is very difficult to implement. Examples of objectives would include: Does the

solution reduce backlogs? Can the solution improve on-time deliveries? Will you be able to

increase production yields?

Develop a project plan:

The team should develop a project plan which includes previously

defined goals and objectives, timelines, training procedures, as well as individual team

responsibilities. The end result of the project plan should be a “to do” list for each project

team member.

2)    PROCEDURE REVIEW

• Review software capabilities.

• Identify manual processes.

• Develop standard operating procedures.

Review software capabilities:

Dedicate 3-5 days of intensive review of the software

capabilities for the project team. Train on every aspect of the ERP software to fully educate

the team on capabilities and identify gaps. Determine whether modifications are needed prior

to employee training.

Identify manual processes:

Evaluate which processes that are manual and should be

automated with the ERP system.

Develop standard operating procedures (SOPs):

for every aspect of your business. These

procedures should be documented. Make sure that you modify the document as your SOPs

change. This is a huge task, but it is critical to the success of your implementation.

Examples of SOPs:

• How do you handle global price changes?

• What are the processes for inputting new customer records?

• How do you currently handle the paperwork on drop shipments?

• How do we add a new product or formula?

3)    DATA COLLECTION & CLEAN-UP

• Convert data.

• Collect new data.

• Review all data input.

• Clean-up data.

Convert data:

You can’t assume 100% of the data can be converted as there may be outdated

information in the system. Determine which information should be converted through an

analysis of current data.

Collect new data:

Define the new data that needs to be collected. Identify the source

documents of the data. Create spreadsheets to collect and segment the data into logical tables

(Most ERP systems will have a utility to upload data from a spreadsheet to their database).

Review all data input:

After the converted and manually collected data is entered into the

ERP database, then it must be reviewed for accuracy and completeness. Data drives the

business, so it is very important that the data is accurate.

Data clean-up:

Review and weed out unneeded information such as customers who haven’t

purchased in a while or are no longer in business. Now is the time for improving data

accuracy and re-establishing contact with inactive customers.

4)    TRAINING AND TESTING

• Pre-test the database.

• Verify testing.

• Train the Trainer.

• Perform final testing.

Pre-test the database:

The project team should practice in the test database to confirm that all

information is accurate and working correctly. Use a full week of real transaction data to

push through the system to validate output. Run real life scenarios to test for data accuracy.

Occurring simultaneously with testing, make sure all necessary interfaces are designed and

integration issues are resolved to ensure the software works in concert with other systems.

Verify testing:

Make sure the actual test mirrors the Standard Operating Procedures outlined

in step 2, and determine whether modifications need to made.

Train the Trainer:

It is less costly and very effective if you train the trainer. Assign project

team members to run the in-house training. Set up user workstations for at least 2 days of

training by functional area. Provide additional tools, such as cheat sheets and training

documentation. Refresher training should also be provided as needed on an ongoing basis.

Final Testing:

The project team needs to perform a final test on the data and processes once

training is complete and make any needed adjustments. You won’t need to run parallel

systems, if you have completed a thorough testing.

1. Strategic Planning

2. Procedure Review

3. Data Collection and Clean-Up

5) GO LIVE AND EVALUATION

• Develop a final Go-Live Checklist.

• Evaluate the solution.

Sample Final Go Live Countdown Checklist Sample

• Physical inventory process is complete.

• Beginning balance entry procedures are developed for all modules.

• Any transition issues are addressed.

• Documents & modifications are tested thoroughly.

• Executives and departments heads are fully trained.

• Vendor is available for go-live day.

• Users will have assistance during their first live transactions.

Evaluation:

Develop a structured evaluation plan which ties back to the goals and objectives

that were set in the planning stage. In addition, a post-implementation audit should be

performed after the system has been up and running for the first week for reconciliation

purposes and three to six months following to test whether or not the anticipated ROI and

business benefits are being realized. Comparing actual numbers with previously established

benchmarks will reveal if the software tool does what it is intended to do - add value to the

business. It is important to periodically review the system's performance to maximize ROI.

In Summary

• Set reasonable goals and objectives.

• Make project team members accountable for implementation.

• Test software across departments.

• Constantly evaluate to maximize the return on your investment.

You will hit bumps in the road and you need to be patient. Upper management and project team

members should be committed for the company to realize the benefits of successful ERP.

1. Strategic Planning

2. Procedure Review

3. Data Collection and

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