What you need to understand about enterprise resource planning is that it is a misnomer. For one, it DOES NOT not help your planning. Resource—and the ownership of that resource in any business—is a nebulous term. What is right about the ERP is the enterprise part. It attempts to integrate all departments and functions across a company onto a single computer system that can serve the particular needs of different departments.

WHO’S THIS STORY FOR? A growing SME with some business apps, facing the ERP questio WHAT DOES IT ANSWER? n Will ERP help? What’s the cost? n Is there an alternative? n How can I make the most of existing apps? n What are the ERP solutions I can choose from?

ERP’s best hope for demonstrating value is as a sort of battering ram for improving the way your company takes a customer’s order and processes it into an invoice and revenue—otherwise known as the ‘Order Fulfillment Process’. That’s why ERP is often referred to as ‘back-office software’. It doesn’t handle the up-front selling process (although most ERP vendors have recently developed CRM software to do this); rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling it. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module, for example).

Business benefits aside, the right ERP should be able to deliver well on three necessary but not sufficient objectives—consistency and reliability of data across the organization, streamlined transaction processing, and provide operations-level reporting. The five sufficient reasons to undertake an ERP project are—to integrate financial information, integrate customer order information, standardize and speed up core business process- manufacturing, financial services—but whatever be the case, reduce inventory, non-performing assets—as the case may be, and standardize HR information.

All this doesn’t come easy. Deploying an ERP across the organization is not like putting up a giant server or hooking up a large and complex network. ERP demands a fundamental change in the processes followed by the business and the people who work those processes. People don’t like to change, and ERP asks them to change how they do their jobs. That is why the value of ERP is so hard to pin down. The software is less important than the changes companies make in the ways they do business. If you use ERP to improve the ways your people take orders, manufacture goods, ship and bill them, you will see value from the software. If you simply install the software without changing the ways people do their jobs, you may not see any value at all—and the new software could slow you down by simply replacing the old software that everyone was used to.

Again, some companies claim to use an ERP when they use it only for some specific functional area—say finance. Such companies in reality acquire an expensive accounting software in the name of ERP. Real transformational ERP efforts usually take between a year to three years to actually deliver benefits. The larger part of the Indian ERP story is just three to four years old. And such organizations now stand to gain even more from the refinements on top of the basic ERP. These are typically enterprise applications in the area of customer relationship management, supply chain management, business intelligence, enterprise portals, and knowledge management, amongst others. Traditional ERP vendors like SAP, JDE, Oracle Applications, Baan, PeopleSoft, and others also claim to deliver these functionalities as part of the ERP offering. The term ‘ERP II’ is used to denote the new-age ERP with commerce and collaboration capabilities.

Opinions vary on whether going for extensions provided by the ERP vendor or a ‘best-of-breed’ approach using specialized point products is better. Successes and failures could happen in both. Each case has to be evaluated separately on the basis of the business case, the strength of the transaction processing backbone, and the desired headroom for sophistication. Many a time, it is the case of the ERP not being able to handle a function vital for the company. In such cases, a specialized third-party product can be interfaced to deliver the result. For example, Mohan Breweries and Distilleries Ltd implemented SAP R/3 but found that it needed far superior functionality in the insurance area. It went in for IVL’s iNSUR/3, a comprehensive add-on package with SAP R/3 ERP solution that addresses the needs of enterprises in the areas of insurance and claims management.

The company was able to authenticate information on numerous critical data of the insurance processes and cut down nearly 50 % of excess manpower costs. It could increase the efficiency of the supply chain by integrating the routine insurance related activities into SAP R/3 Business Framework.

The ERP has become a sine qua non for any enterprise, be it a homegrown one, a global mainstream product, or an industry-specific integrated application. In that sense, ERPs would soon get counted as part of the computing infrastructure.

Year 2002 witnessed demonstrable momentum from small and medium-size enterprises rushing to integrate their operations.

The momentum is expected to continue.

Three approaches to ERP
Big Bang: Cast off all legacy systems at once and install a single ERP across the company. Complete changeover. By far, the most difficult approach. E.g. Lupin Laboratories going in for SAP in a big-bang approach.

Franchising Strategy: Suited for a diversified company with many business units. Independent ERPs in each business unit, assuming the units do not share business processes. E.g. L&T Cement and L&T Switchgear.

Slam-dunk: The ERP dictates the process design with a focus on few key processes. Most suited for family-driven enterprises. E.g. many Indian SMEs.

Supply chain management
This is the area that made Sanjeev Sidhu, an Indian Silicon Valley entrepreneur, a great success story. His company i2 Technologies made software that could manage supply chains—programs that were intensely mathematical but that made organizations smarter and leaner.

Supply chain management (SCM) is a complex discipline in itself—a science practiced at the level of an art. At the very basic, SCM by definition covers the following areas:

n Strategy for meeting customer demands.
n A set of pricing, payment, and delivery processes with chosen suppliers.
n Scheduling activities necessary for production, testing, packaging, and delivery.
n Logistics dealing with the entire delivery channel for meeting customer demands.
n A network for receiving defective products and excess inventory returns.

Not so simple and straightforward as it sounds because each of these areas are made up of myriad steps that are both time and cost-sensitive. No one vendor has got products that cover all the areas with equal efficacy. A simpler way of looking at the SCM situation is to break it down into supply chain planning and execution. Of the two, the latter is a simpler step involving automation of the different parts of the supply chain. The former—supply chain planning uses mathematical algorithms to improve the flow and efficiency of the supply chain. Note that the accuracy is entirely based on information fed into the system. If you’re a manufacturer of consumer packaged goods for example, don’t expect your planning applications to be very accurate if you can’t feed them accurate, up-to-date information about customer orders from your retail customers, sales data from your retailer customers’ stores, manufacturing capacity, and delivery capability. Traditionally, SCM solutions were limited to improving the ability to predict customer demand and make the supply chain run smoothly without glitches and stock-outs. The advent of the Internet changed that. While SCM is about connecting different parts of a chain, the Internet with its inherent simplicity and ubiquity came as a godsend tool. Businesses could be connected to businesses for commerce linkages at buying and selling side. Call this the B2B Exchange explosion. And the e-procurement lingo.

But the Internet-enabled B2B exchange was no planning wizard. What made it popular was the ‘visibility’ into the supply chain. Some B2B exchanges therefore got to be very popular. Says a respected industry source, " The supply chain in most industries is like a big card game—the players don’t want to show their cards because they don’t trust anyone else with the information. But if they put them in the open, they could all benefit."

What it means is suppliers wouldn’t have to ‘guess’ how much raw materials to order and manufacturers wouldn’t have to order more than they need from suppliers to make sure that they have enough on hand if demand went up. And retailers would have fewer empty shelves if they shared the information they had about sales of a manufacturer’s product in all their stores with the manufacturer. Call this supply chain collaboration. There is proof that it works eminently—P&G collaborates with Wal-Mart, Cisco’s e-procurement and e-business success is a legend, and the like.

There are two types of exchanges: public and private. Public ones are many-to-many and private ones are one-to-many in the supply chain. Public exchanges began with the promise of handsome savings brought about by auctions and time-based bids. During the dotcom boom, it worked when a few suppliers got on to the bandwagon. With the dotcom gloom, these websites transformed themselves into being online hosts for supply chain management software.

But public exchanges are not passé. They remain to provide generic supply chain connections. Private exchanges get built for very strategic supply chain relationships. Public exchanges are moving in the direction of offering integration with ERP systems. Four key points to make your SCM project a success:

n Get your suppliers to participate and employees to burn the bridges with older ways of interacting with the suppliers;
n Initially, SCM may come across as something that is dumb. Persist;
n Ensure that the supply chain is well connected to the ERP; and
n Manage internal conflicts. The CIO may seem to control the supply chain; something that the operations people may not like.

We have quite a few success stories with integrated supply chain solutions. Asian Paints experienced significant inventory reduction at all levels—raw materials, intermediate, and manufactured goods; improved forecast accuracy; and improved plant throughput. It uses a demand planner, SCM planner, factory planner, and production scheduler. Hindalco, the Aditya Birla group company had a breakthrough with an e-procurement solution for certain standard raw material items for which there were five to six suppliers. It developed an in-house reverse auction software and has reported savings to the tune of 3%-10% in terms of costs of various items. Marico Industries of the Parachute fame has improved its distribution function and can measure effectiveness of its sales partners through mySAP SCM. Marico’s supply chain consists of five factories, 15 contract manufacturers, two consolidation centers, 30 depots, 100 super distributors, 750 distributors, 2,400 stockists, 25,000 wholesalers, and 1.4 million retailers. It went in for a big-bang approach with SAP R/3, mySAP Advanced Planner and Optimizer, and mySAP BI BW (business intelligence, business warehouse). Marico has been able to shorten planning cycles and reduce inventory levels.

Customer relationship management
CRM is a strategy used to learn more about customer needs and behaviors in order to develop a stronger relationship with them. Explicitly, CRM is used to:

n Provide better customer service;
n Simplify marketing and sales functions;
n Identify new customers;
n Cross-sell products;
n Stop/ reduce customers from defecting; and
n Increase revenue/ customer.

For a CRM to be truly effective, an organization must first decide what kind of customer information it is looking for and what can be done with it. For this, it needs to look into the different ways customer info comes into the business—telephone enquiries, web registrations, ATM and the like, where and how this data is stored, and how it is currently used. The data flows through operational systems and analysis is performed using special tools. A holistic view is obtained—patterns can be discerned and opportunities identified. CRM thus has two parts—the transactional and the analytic CRM part.

How does one go about a CRM project? The right way is to define the problem first and then find out what kind of information is required to solve it. The choice of the tool, which will give that information, comes only after that. Many organizations approach the CRM project the other way round—with the tool in hand, a problem area is sought. According to Gartner, nearly two-thirds of all CRM projects undertaken fail. Many organizations approached it as the next technology frontier. CRM efforts necessarily have to be borne out of a genuine need to increase customer value. One more characteristic is that once a CRM is installed, there is a glut of information within the organization—one must learn to use this and execute strategies that enhance customer relationship value—the present value, the potential value, profitability from the relationship, insights that the relationship can provide, and the influence the customer can wield over other customers.

Enterprise application integration
Enterprise application integration (EAI) software connects applications through a central message-routing hub, similar to middleware tools like IBM’s MQSeries. However, EAI tools are also equipped to parse and translate data, and automatically route information according to business processes. The biggest benefits are speed, cost savings, and flexibility. By using EAI, big companies can save as much as 80% of the cost of a custom integration project.

Aggressive vendor marketing has created a perception that EAI is off-the-shelf and plug-and-play, but there are unavoidable and significant consulting, customization and maintenance costs. Resolving data definition incompatibilities drives up the price tag as well. As an alternative, it is possible to buy lower-cost EAI tools to achieve more targeted, less broad-based systems integration.

Easwardas Satyan