Selection and Implementation of an ERP System

1. Selection and Implementation of an ERP System

2. Section I: Introduction and Selection of an ERP System

3. Introduction It is a major business decision for a manufacturing company to make the decision to select and implement an ERP system within their organization. If done properly it will be a profitable and enjoyable experience. However, if it is implemented poorly all concerned will be disappointed with the results.

4. Step 1: Project Organization

5. Project Organization • To be successful the effort of selecting and implementing • an ERP system must have high priority and visibility within an organization. • It is advisable to give the effort • the status of a major project and • require regular progress reviews at the appropriate levels of management. • ERP implementation truly is a company-wide effort and is doomed to failure if treated as anything less.

6. Selecting a Project Manager • Project Manager • Key user of the new ERP system who has a good deal of experience and high level of credibility within your company. • Should be trained in the techniques of project management.

7. Common Hiring Mistakes • Mistakes made when hiring ERP project managers: • Hiring an ERP "expert" from outside the company • It's easier to teach an internal person about ERP than it is to teach an ERP expert about your company, products, and culture. • Hiring a new person just out of college (e.g., a person with a computer science degree) • Although they may have enormous potential, they may not yet have creditability. • This mistake is usually made when management sees ERP as only another system and not as a company-wide system.

8. The Project Team • Project Team • Responsible for the day to day management of the ERP selection and implementation. • Team members represent their different functional areas. • Team members manage selection and implementation tasks and may also do work on these tasks.

9. Budget/Funding • Management should establish budget guidelines for the project prior to beginning the project • Project team needs a budget that they can use for planning and executing the project • Many companies have no idea what to pay for an ERP system • Many decision-makers turn to vendorsA better way is to ask, "Why are we doing this and how will we benefit?" By answering these questions, an organization can begin establishing an ERP budget-a valuable tool for negotiation.

10. Budget/Funding, cont. • Before issuing a Request for Proposal (RFP) to vendors, apply a standard for estimating the ERP implementation budget. • Find a reasonable method for ERP implementation budgeting. • Example: This method uses a calculation based on the company's annual sales. Experience has shown that companies will spend 1 to 3 percent of annual sales on the total acquisition costs of a new ERP system. This includes the cost of software, hardware, implementation, first year maintenance, licensing fees, tailoring reports, providing interfaces for other software applications, and other miscellaneous costs. In other words, this estimate should cover the "total cost of ownership" for the new system.

11. Project Schedule • Must have enough detail so that it can be used as a primary tool for managing the project. • Tasks should include time frames for completion and responsibility assigned by position or name. • Using a project management program like Microsoft Project or equivalent is recommended

12. Step 2: Analyze and Document Functional Requirements

13. Functional Requirements • An important prerequisite to selecting an ERP software package is to document the functionality required to support business. • This effort should also include where possible, functionality to support business objectives in the future. • These requirements will be used as one of the criteria for evaluating and selecting the most appropriate software package. • For an organization that has never documented requirements this could be a daunting task; however, this section provides some suggestions and guidance to keep the task as simple as possible.

14. Gather Requirements • The project team can analyze and document the functional requirements. • The project manager can organize and conduct interviews with people in various departments throughout the company. From these interviews a formal requirements document is produced. • Alternatively, the project manger can request written requirements from each department and then organize the responses into a requirement document. • Often a combination of the two methods works well, but at any rate someone who is knowledgeable of the company and ERP functionality should document requirements. • If no one within the organization is qualified, it is not unusual for companies to enlist outside help.

15. Two Types of Requirements • To keep the requirements documentation process as simple as possible it can be classify into two types: • General or Standard requirements • Special Interest requirements

16. General or Standard Requirements • By definition these requirements include functionality that most systems provide and most companies require. • List the primary functions or departments which should be supported by the new system. These may include, but is certainly not limited to: • Receiving • Shipping • Marketing/Sales • Forecasting • Human Resources • Engineering • Accounting Sales order entry • Sales order scheduling • Material planning and scheduling • Production planning and scheduling • Capacity planning and control Purchasing • Inventory control

17. General or Standard Requirements, cont. • After determining the major functions , it can be expand to the next level of description. • Example 1: • Accounting is an area or department that is an integral part of the ERP system, however, it is not necessary for to describe every function that the accounting department requires from the system. • List the requirements in more general terms such as "must handle accounts payable, accounts receivable, general ledger, etc." • Example 2: • Another example might be purchasing. Requirements could be listed as: “must support contract purchases and blanket purchases, has Request For Quotation capability, etc.”

18. Special Interest Requirements • More detailed requirements that are very important to company • Requirements the vendor needs to understand in more detail, like how management needs the system to support business. • Examples: • The system must be able to assign and track product serial numbers by sales order. • The system must be able to track and cross reference engine serial numbers to product serial numbers. • The system must support accumulation of labor by person to a work order. • The system must support the calculation of labor efficiency by individual or work center. • The system should provide the ability to accumulate warranty labor and material cost by serial number.

19. Step 3: Conduct Search for Appropriate System

20. ERP – Options OPTION 1 – MAKE [Using Internal resources] Developing a custom-built ERP package, specific to the requirements of the organization, with the help of the in-house IT department OPTION 2 - BUY Going for Tailor-made ERP packages available in the market like SAP, Oracle applications, Baan, PeopleSoft etc. OPTION 3 – MAKE [using External resources] Developing a custom-built ERP package, specific to the requirements of the organization, with the help of a software solution provider

21. Building ERP solutions using Internal Sources

22. ERP – Building using Internal resources – The Facts • Lack of adequate & qualified manpower • Not driven with clear focus on expectations, time & cost • Poor software project management • Lack of seriousness with the Management & the IT Team • High employee turnover • Lot of schedule gaps during Project execution • Normally project life is more • Frequent change in the scope with the approval of the Management

23. Tailor-made ERP Solutions

24. Tailor-made ERP solutions • About this option • Execution Phases • ERP product selection phase • Product selection - Parameters • Preparation Phase • ERP product acceptance - Options • Gap Analysis • Production Phase • Implementation Phase • Post-Implementation Phase • Pitfalls & Points of Concern • Critical Success factors

25. About • Generalized off the shelf application s/w packages • Modules based on rich functionalities for all • business functions • User tested with lot of installations • No lead time requirement for software development • Tuned for more users/networks with adequate & in- • built security • Parameterized for flexibility • Can sit on latest hardware & software platforms • Upgradation of functionalities with version control

26. Execution phases • ERP product selection • Preparations • Production • Implementation • Post-Implementation

27. ERP Product selection Phase • ERP Team formation for selection • Appointment of Consultants [if needed] • Scoping study • Product selection • Implementation partners selection • Hardware/Communication cost estimation

28. Product Selection - Parameters • Reputation of the ERP product • No.of installations in the geographical vicinity • % of the overall functional availability • Customization possibilities • After sales support • Your investment plan & budget • Implementation partner’s track record

29. ERP Product selection Criteria Goal: To select the Most Suitable Software Package Solution Functionality 5 Strategic Requirement Levels Technology Vendor Support Costs

30. ERP product acceptance - options • Adapting directly, all the functions available in • the ERP Product [Applicable for startup companies] • 2. Change the way the firm does the business to fit • the product [Compromising] • 3. Customize the ERP product to suit the business • Processes. [Customization]

31. GAP Analysis This is the process to identity the gaps by mapping the expectations of the company with the capabilities of the ERP product • Results of Gap Analysis • Directly Supported • Workaround suggested • Extension required • Change in business process – suggested • Not full supported • Manual – not under the scope of ERP

32. Production Phase • Installing the software & hardware • Tuning the software to meet the customization needs • Master & Control data arrival as per the Product data structures • Location & people specific roles & rights allocation for module access & security

33. Implementation Phase • Pilot run • Resolving the Pilot run issues • Training the end users • Live run

34. Post-Implementation Phase • Regular monitoring • Tuning [hardware/software] for patching the performance issues • Maintenance

35. Pitfalls & Points of concern • Costly comparing to custom-built options • Lot of hidden costs • Chances of cost & time overrun are high • The Level of customization/Indianization • Compulsion to pay for redundant modules/features • Vigorous involvement of all during implementation • Non-availability of special practices like Customer Complaint, Logistics • Linking historical data – offline & painful • The requirement of Change Management is a must • Dependency on outsiders is high • IT department – Poor grip on the Implemented systems

36. Critical Success Factors • The firm & optimistic approach of the Management • on adapting the ERP product driven methodologies • on customization • on monetary commitments • The dedicated Team • Good Training • Strict adherence to the Project schedules • Right technical infra-structure • Change Management

37. Custom-built ERP Solutions using external resources

38. Building ERP using Ext.sources • About this option • The Principle! • The Steps • Why? • Points of Concern • Software Vendor selection • Critical Success factors

39. About • Here the whole package is designed & built • by keeping a specific enterprise & its business Practices in mind • by incorporating the improvements/additions with due integration • without compromising or changing the current way of doing the business and • providing flexibility to accommodate your business fluctuations

40. The Principle! The best as seen elsewhere, need not be the the best for you. What is your best is what can be successfully implemented

41. The Steps • Software vendor selection • Detailed study by the vendor • Scope & platform finalization • Freezing the commercials • Development • Hardware addition/upgradation • Old master/transaction data migration • Parallel run with Integration & connectivity check • Implementation • Maintenance

42. Why? • Very economical while comparing the cost of implementing tailor-made ERP solutions • Less prone for hidden-cost hits • The company can opt for its choice of Hardware, Software & communication platforms based on the skill availability • The company and the software vendor have the direct relationship during the project execution. The proximity would be high & convenient. • IT department has good control over the Project • What is required only would be considered under the scope – No redundancy

43. Why? - Cont. • The requisite flavor of E-Biz & work-flow components can be embraced towards value edition • The existing practices & applications can be tuned and linked with the proposed package • Maintenance & improvements are easy & less costlier. Even IT team can maintain the setup after getting the source code

44. Points of Concern • Software development vendor selection • Requirement/scope finalization [high chances of retaining the islands as it is] • Less chances of Value addition • Not time tested • Chances of Prolonged project duration

45. Software Vendor Selection The following traits should be considered while selecting the software vendor for building the ERP application • Technical expertise • Domain knowledge • Adequate manpower • Project management skills • Long existence in the field • Extra skills [e-biz & workflow]

46. The Critical Success Factors • Clear Vision & support of the Management • Capabilities of the software development vendor • Scope & Expectations finalization towards • meeting the ERP concepts • Strict implementation schedules & periodical • monitoring • The involvement of the IT & functional teams

47. Section II: Implementation of an ERP System

48. Implementation Phase • It is assumed for the implementation phase of this course that the selection and acquisition of the system is complete. • The sections that follow deal primarily with the actual implementation of the system.

49. 1: Typical Tasks • Break the high level tasks into detailed steps complete with responsibilities and timeframes that fit company's specific project. • Microsoft Project, or similar project management software, can be used for this purpose.

50. 2: Duration • Experience has shown that selection and implementation of these types of systems takes 6 months or less depending on what is being installed and the condition of the company's data. • This depends on the system and the user's motivation. • When the focus is lost the chances of a successful implementation greatly diminish.