Beyond the hype and the slump, ERP is back in the reckoning—and it’s easy to see why...
Monday, June 30, 2003
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Caught up in the dot-com boom and the e-commerce frenzy that followed, ERP
went out of favor in 2000. Many thought that ERP—the term that meant generic
integrated business management applications - had been laid to rest. Hardly... A
fresh wave of interest is seen in ERP: the Oracle-Peoplesoft-JD Edwards
buyout-cum-litigation tangles, ERP job-ads reappearing in recruitment columns
and an increasing variety of homegrown and small ERP vendors signing up a
modicum of deals in the past couple of months.
Take the case of SAP, the worldwide ERP leader on all counts. The 90s were a
roaring decade of business for SAP with its R/3 enterprise platform becoming the
de-facto backbone of large enterprises the world over. The company packed in
every evolution in enterprise functionality to its core product: supply chain
management, data warehousing, customer relationship management, enterprise
portal, e-business, business intelligence and the like. SAP co-chairman and
chief executive officer Henning Kagermann has acknowledged that, in recent
years, SAP had moved away from using the term ERP to describe its product,
preferring instead to call it an e-business suite. The truth is that in many
markets like India, China, Japan and others, customers want to buy "an ERP"
rather than an "e-business suite" - even if they mean the same or
different. So, this March, SAP decided to go back to "ERP" by calling
its new product mySAP ERP.
Why ERP Survived...
n
A “REAL” need exists: Proof
of business value and operational excellence.
n
A “REAL” market opportunity
exists: 85-88% of organizations in India.
n
A “REAL” change in the
economics of implementation: Shorter cycles, lesser total cost, faster RoI,
modular pricing and new pricing schemes.
n
A “REAL” information
backbone: Facilitates data integrity, transaction processing and
reporting.
n
A “REAL” gateway to other
enterprise applications: SCM, CRM, BI, PDM, PLM all ride on ERP.
Surely, ERP was not a passing fad. Because ERP offered robust business value
to organizations that implemented it the right way; value in terms of reducing
costs, acquiring discipline to manage business processes, and improving
bottomlines - at the least. And the impact is enduring. Says Hari Padmanabhan,
president- enterprise solutions, ICICI Infotech: "Organizations, large and
small, find ERP the best tool to move money from the cost-line to the bottomline."
Case
Study: Going
Mid-market
Max
Speciality Products (MSP) is Max India’s fully owned business
unit that specializes in the manufacture of BOPP films, metallized BOPP
films, thermal plastic films and leather transfer finishing foils. It has
deployed EbizFrame from ESS for the functions of sales, purchase,
inventory, finance, production, HR, payroll, equipment maintenance,
transportation and scrap management. Being a manufacturing company,
processes and functions are directly or indirectly related to production.
To support this, there was a heavy and continuous flow of documents from
one point to another. Most of the departments or sections were either
partly or not at all computerized.
Installed
applications were not integrated/interfaced with each other and this had
almost limited the flow of information to a particular section/department
only.
Due
to manual processing and part computerization, most of the processes
required extra effort and time. Also, there were cases of redundancy of
information as most of the departments were maintaining manual records on
the same piece of information. With ERP, there is a seamless flow of data
from one section/department to another. The system is accurate and
reliable, and there are minimum chances of data and effort being rendered
redundant.
The biggest reason why ERP has survived and is now on a rebound is that ERP
is not a technology in search of a problem.
Changing economics Having said that ERP is a "must have" for organizations, the
choices are dual: develop an integrated system in-house or go in for a packaged
product. The latter is always preferred because it guarantees some best
practices and processes followed in the specific industry and easy
maintainability. Another reason is the generic availability of functionality
that helps migrate to a new statutory regime - be it VAT or other local taxes.
Many organizations, when they understood what a packaged ERP solution is and the
expertise required to implement it, decided to develop bespoke solutions. Says
Baan (India and Far East) chief executive officer Gopal Madnani: "Such
organizations are now coming back having realized their folly."
Case
Study: Toward
Efficiency
Chennai-based
Hydro S&S is a manufacturer of reinforced
thermoplastic components that are used in the automotive, furniture and
appliances sectors. A Rs 56-crore company with 135 employees, Hydro
S&S is a key component supplier to Hyundai Motors, Tata Engineering,
Toyota Kirloskar and Maruti in the automotive segment, Neelkamal and
Supreme Industries in the plastic products segments, and Whirlpool,
Panasonic and Indo-Matsushita in the appliances area. The company has two
manufacturing units.
Hydro
S&S has gone in for the Orion ERP from ICICI Infotech and is
implementing all the modules. Says SK Subramanian, director
(finance):
"Even
while the implementation was on, we realized that there was an improvement
in operational efficiencies, a better flow and control of information, the
ability to identify and eliminate redundant processes."
However, ERP has had its share of glorious failures too in its initial years
of hype. The total cost of an ERP project included costs for product evaluation,
business case analysis, pilots, licenses, rollouts, and consulting charges, not
to mention infrastructure costs like servers, storage, desktops and networking.
The economics have vastly changed now. ERP projects are faster to implement
and simpler too. Newer ways of pricing based on specific modules, number of
seats, subscription-based pricing and annual pricing - have all helped customers
get closer to ERP. Product licenses are cheaper and consultants too extract
lesser fees. Moreover, now there are a number of Indian vendors in the fray,
which helps in terms of product choices.
Time
taken for ERP rollout
Variable
All
> 36 months
3
24-36 months
15
18-24 months
23
6–18 months
46
< 6 months
10
Not specified
3
Sample size
69
Source:
IDC 2002
Percentage
of site installations by organization revenue, 2001
Organization revenue
2001(%share)
< Rs 50 crore
25
Rs 50 crore–Rs 250 crore
32
Rs 250 crore–Rs 500 crore
22
Rs 500 crore–Rs 1,000 crore
11
> Rs 1,000 crore
10
Total
100
Source:
IDC India, 2002
Five compelling reasons
to implement an ERP system
n
Integrate financials with all
other functions.
n
Integrate customer order
fulfillment information.
n
Standardize and speed up core
business processes—manufacturing, financial services—whatever be the
case.
n
Reduce inventory, non-performing
assets—as the case may be.
n
Standardize HR information.
Good market opportunity "Post the Internet meltdown and the economic slowdown in last year,
many organizations have realized the need to put their houses in order and
operational efficiency has become critical for survival," reasons IDC
(India) senior analyst Dinesh Jindal on why there is indeed a market
opportunity.
Case
Study: Up the Value Chain
Godavari
Sugars, a Rs 311-crore company of the Somaiya Group,
has gone in for SAP. The company, which commenced operations in the late
30s, has always been very tech-savvy and has developed a host of in-house
software based on legacy platforms. In 1999, the company realized the need
for a radical shift to an enterprise-wide information backbone.
One
of the critical industry-specific solutions that Godavari Sugar has
developed in-house is the Cane Management System, which manages
relationships with farmers who supply cane, the vital input for the sugar
industry. This system has now been interfaced with SAP. The company has
about 800 real-time transactions every day on the system. According to
Ranjana Singh, head (IT), Godavari Sugars: "We have felt the greatest
impact in the area of visibility across the value chain and in the
transparency of transactions. This helps as there is improved control,
more delegation and a reduction in the duplication of work." The
company is looking at reducing the external cycle time by implementing
improved versions of the system.
Some of the key trends gauged from a study of 200 organizations conducted
by IDC (India) are: n Large organizations are trying
to extend the reach of their ERP systems to cover the supply chain as well as
automate some of the interfaces with their customers.
n Small and medium organizations are
also actively trying to automate business processes.
n Organizations are trying to
explore the use of the Internet to manage some business processes.
n Mid-tier vendors are aggressively
expanding the market through extended offerings and adding functionalities to
existing products.
Case
Study: End-to-end
Solution
Chamundeswari
Sugars, a company belonging to Sakthi Group in
south India, has gone in for an industry-specific solution, called
Orion@Sugars, from ICICI Infotech. Orion@Sugars, an end-to-end ERP
solution, is a part of the Orion suite of enterprise solutions and enables
a factory to handle the entire spectrum of sugar cane manufacturing, right
from purchase and process control to sales, including cogeneration and
distillery management.
The
deployment of Orion@Sugars is a part of Chamundeswari Sugars’ initiative
to automate the entire gamut of processes of its factory. Says managing
director M. Srinivaasan: "At Chamundeswari, we felt the need to
invest in an enterprise solution that would provide us operational
efficiencies, accountability, automated reporting, effective management of
systems enabling top management decision making. After rigorous functional
evaluation, we found that Orion@Sugars met our criteria. It is a solution
that is flexible and looks after a number of functions of a sugar
factory."
Orion@Sugars
integrates the best business practices within the sugar industry and has a
short implementation period of about four months. Additionally,
Orion@Sugars uses completely localised terminology, making the adoption of
the technology easier.
The existence of a vast number of medium and small enterprises that do not
run efficient business processes is a huge opportunity that even a vendor like
SAP is not ignoring. ERP adoption by Indian mid-market companies is now a
phenomenon. Explaining the adoption of ERP by mid-market companies, Padmanabhan
says: "These organizations have the required global mindset, the linkages
are well understood, the appreciation is there at the top level, the suffering
under a silo-based approach – all are understood. Therefore, a suitable
product that is easy to acquire and deploy helps."
ICICI Infotech and Eastern Software Systems (ESS) are part of
a new breed of vendors that offer mid-market ERP products for the domestic
market. And they’re experiencing galloping growth.
LUCKY
SEVEN: Responses were rated on a
seven-point scale, in which seven was "extremely important" and
one was "not at all important". The five highest-rated projects
are shown based on a sample of 35 respondents.
Source:
Gartner Dataquest (February, 2003)
ERP and beyond Business benefits aside, ERP gives an information system three important
capabilities: consistency and reliability of data across the organization,
streamlined transaction processing, and provides operations-level reporting.
These capabilities, basic and important as they are, ensure that companies are
ready for specific solutions that enhance performance. These might be in areas
like supply chain management, customer relationship management, business
intelligence, product data management, complete product lifecycle management and
the like. For these applications, ERP becomes the substratum - a kind of gateway
to specialist functions. That is, ERP is a sine qua non for other applications.
In fact, the trend is that with basic enterprise resource
planning being a given, ERP vendors are rushing to integrate most of these
additional capabilities. Says Jindal: "Convergence of ERP, CRM and SCM
modules is the order of the day. Also, SCM and CRM vendors are also expanding
functionalities, encroaching on the area traditionally inhabited by ERP
vendors."
Even with these blurring distinctions, ERP packages are
surely back in the reckoning.
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