mis project report_2009

8/7/2019 MIS Project Report_2009

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INSTITUTE OF MANAGEMENT TECHNOLOGYGHAZIABAD

Management InformationSystems

ISSUES RELATING TO IMPLEMETION OF ERP INMANUFACTURING SMEs

By:09 HR-005 Ankita Bhargava

09HR-007 Avishek Dasgupta09HR-011 Megha Latawa

09IT-017 Mhmd. Omer Saber09IT-030 Yogesh Thakur09IT-032 Komal Agarwal


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Table of Contents

Table of Contents ....................................................................................................... 2

Summary .................................................................................................................... 4

Objectives ............................................................................................................... 4

Results .................................................................................................................... 4

Conclusion ............................................................................................................... 4

Introduction ................................................................................................................ 5

Problem Identification ................................................................................................ 7

Question .................................................................................................................. 7

Objectives ............................................................................................................... 7

Theoretical Framework .............................................................................................. 7

Hypothesis Formulation .............................................................................................. 8

Data Collection ........................................................................................................... 9

Methodology ............................................................................................................... 9

Identified Factors and Issues ...................................................................................... 9

Data Interpretation and Analysis .............................................................................. 10

Chaudhary Hammers Works Ltd. .......................................................................... 10

Issues faced ...................................................................................................... 10

Hindustan Pencils Ltd. .......................................................................................... 10

Issues faced ...................................................................................................... 10

Paras Vanaspati (P) Ltd. ....................................................................................... 11

Issues faced ...................................................................................................... 11


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Comparison across organizations .......................................................................... 12

Managers Perspective ........................................................................................... 17

Technical Personnel Perspective ........................................................................... 17

Comparison between Managers and Techies perspective .....................................18

Grouping of Factors ............................................................................................... 18

Overall Analysis ..................................................................................................... 20

Key findings from interview .................................................................................. 21

Limitations ............................................................................................................ 21

Conclusion and Recommendation ........................................................................ 21

................................................................................................................................. 21

Questionnaire .......................................................................................................... 22


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Summary

Objectives

To find CRITICAL FACTORS taken into consideration by top management whileimplementing ERP in manufacturing SMEs.

To find the CRITICAL ISSUES FACED by managers and technical staff afterimplementing ERP in manufacturing SMEs.

Results

Cost factors hinder the decision of an organization to implement ERP. (Cost factorincludes cost of ERP package, Redesign and re-engineering, and time of implementation)

Employee factors significantly affect the decision of an organization to implement ERP. Technological factors play an important role in decision to adopt ERP.

Conclusion

Vendors of ERP should come up with more customized version of ERP to suit thespecific needs of SMEs.

Affordability is not a major concern with organizations having turnover more than 100Crore. But Paras Vanaspati(P) Ltd. is having some affordability issues.

Training of Employees and Resistance to change showing different trends as no. of

employees in an organization rises.


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Introduction

Business houses always find great difficulty in quickly making out the requiredinformation because of the voluminous data, improper segregation, departmental arrangementsand unprecedented delays. The inconvenience was not only eating out the monetary profits butalso antagonized customers who were made to wait for a long time for a small piece of data.Enterprise Resource Planning or ERP as it is shortly referred has come to overcome this menace.ERP helps to integrate the data in an organization under one common platform. The purposebehind this is not only to ensure transparency but also to facilitate tracking down informationregarding the status of a particular order or its dispatch and so on. An organization has to dometiculous planning, devise strategies before going ahead with ERP. ERP can cut down costs;improve the quality of working time by and large. In short it helps in making the maximum useof technological advancements. These are crucial factors deserving attention when it comes to

ERP. Meticulous planning will definitely help to achieve ERP benefit. Companies have to bevigilant enough more so when it comes to the question of choosing the appropriate platforms andERP soft wares. This issue becomes crucial when it comes to the point of corporateamalgamation.

Small and medium enterprises (also SMEs, small and medium businesses, SMBs, andvariations thereof) are companies whose headcount or turnover falls below certain limits. Thesmall scale sector in India contributes directly to 35% of the total exports from the country. It isestimated that another 15% of the exports are indirectly contributed by this sector. Some of themajor items of exports, e.g., 'Hosiery and Garments', 'Leather and leather products', Textiles,Diamonds, Gems and Jewelry'. it is conservatively estimated that the SMEs contribute toapproximately 60 % of the Indian manufacturing exports The high potential items would mean

better international market prospects and where the Indian firms are likely to enjoy comparativeadvantages due to skills, raw material resources or low labor costs etc. The impression gainedduring discussions with experts is that productivity in Indian SMEs leaves a high scope forimprovement especially when compared to international standards. Some of the reasons thathave been attributed to low productivity are the use of traditional tools, old techniques andoutdated technology, poor labor productivity and bottlenecks of infrastructure in some of theproduct lines. Enterprise Resource Planning is the answer to all these difficulties faced by theSMEs.

The main problem faced by S.M.E.'S when it comes to ERP is that their requirement islimited while the product offered exceeds their specifications in all ways. The gap between thesetwo needs to be analyzed by the companies and S.M.E.'s. The company and the vendor should sit

together and analyze the pros and cons of every possibility to match their requirements. Both ofthem should make compromises as and where possible. These adjustments even though mayseem to be smaller will have greater impact when it comes to the structuring of softwareprograms. This paper is an attempt to find out the various issues faced by small and mediumorganizations in present day or in future when they implement ERP systems.


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Literature Review

The manufacturing sector is in the surge around the globe. SMEs are growing at a veryfast pace. Core competency, innovation, adaptation are the core essence of success for them.With the advent of IT & IS, information and data processing and analyzing has attained a newdimension. With the growing popularity & necessity of IT & IS in industries, ERP systems are

now being implemented in manufacturing SMEs at an increasing rate.Forecasts indicated that this trend will continue for a long time (Everdingen et al, 2000).

The information system costs are falling (Gable and Stewart, 1999) due to which more SMEs areattracted towards the ERP system adoption. The potential benefits of ERP system have beenfound to be significant (Shang and Seddon, 2000).The adoption of ERP has received lessattention from researchers (Premkumar, 2003). Mostly the researches on ERP have been basedon big businesses but these research findings cannot be employed for SMEs due to their differentnature and characteristics ( Blili and Raymond, 1993).

In this paper we present practical and analytical framework of implementation issues ofERP system in manufacturing SMEs in India. Our findings are based on generalizations and reallife scenarios from the industry.


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Problem Identification

Question What are the important factors considered by top management while taking the decision

to implement ERP and what are the issues faced by managers and technical staff afterimplementation of ERP in manufacturing SMEs.

Objectives

To find CRITICAL FACTORS taken into consideration by top management whileimplementing ERP in manufacturing SMEs.

To find the CRITICAL ISSUES FACED by managers and technical staff afterimplementing ERP in manufacturing SMEs.

Theoretical FrameworkThe decision to adopt an ERP system is taken by the top management of any

organization. The most important area is the implementation of ERP systems in anyorganization. It is important for an organization to ascertain whether the ERP system fits thecompanys processes. In some cases the business processes are changed to fit the software withminimal changes. This is generally the case with the SMEs. In case of larger organizations, theyrather prefer to modify the software to fit their complex business processes. The number ofmanufacturing units adds to the number of problems faced during the implementation of theproject. A major roadblock in implementing ERP system is the people of an organization. It isgenerally observed that people are reluctant to change and ERP leads to complete makeover of a

company in many cases. So the more the people are willing to learn new technologies, adapt tonew automated processes, the easier is the implementation of the ERP system. The productionmodule depends on the different types of products being made by a company. The more thenumber, more are the raw materials required and accordingly the scheduler, the supply chainmodule gets complex. Based on these factors a diagrammatical representation of our problem athand can be depicted as follows:


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PRESENT INFRASTRUCTURE

CHANGE IN PROCESSES

EXPECTED

TOP MANAGEMENT

PRESENCE IN DIFFERERNT

GEOGRAPHIES

PRESENCE IN DIFFERENT CITIES

EMPLOYEES

TURNOVER OF THE COMPANY

CLARITY IN ORGANISATIONAL

REQUIREMENT

IMPLEMENTATION

OF ERP

WILLINGNESS TO

CHANGE

INDEPENDENT

VARIABLES

INTERVENING

VARIABLE

DEPENDENT

VARIABLE

TRAINING

Hypothesis FormulationThe above discussed variables lead to the formulation of the following hypothesis:

Cost factors hinder the decision of an organization to implement ERP. (Cost factorincludes cost of ERP package, redesign and re-engineering and time of implementation)

Employee factors significantly affect the decision of an organization to implement ERP. Technological factors play an important role in decision to adopt ERP.


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Data CollectionWe chose to do Convenience & Snowball Sampling with two visits to Chaudhary

hammers works Ltd. The survey was conducted through questionnaire. We mailed thequestionnaires to HPL and Paras Vanaspati (P) Ltd. We had some questionnaires filled bytelephonic interview. Respondents were asked to fill their position in the organization and ratethe issues while ERP implementation on a scale of 1-7.

MethodologyWe conducted the survey in three organizations namely Chaudhary hammers works Ltd,

HPL and Paras Vanaspati (P) Ltd. First we studied the three organizations individually. Weapplied factor analysis and found out the important factors. Then we segregated the data into twoparts:

Questionnaires from managers Questionnaires from technical staff

Then we applied factor analysis and found out the different opinions hold by managers andtechnical staff. We also applied factor analysis on overall questionnaires to find out theimportant factors considered by the industry as a whole.

Identified Factors and Issues

Time of implementation

Affordability

Competitive Advantage

Resistance to Change

Customized Package

Re-engineering

IT Infrastructure

Training

Data Conversion

Maintenance

Updating the ERP

Timely Expert Advice

Attrition Rate

Complexity Company Policies


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Data Interpretation and Analysis

Chaudhary Hammers Works Ltd.

Its a manufacturing industry located in Ghaziabad producing flanges having employee strengthis more than 500. Their turnover for the financial year 2007 -2008 was Rs 104 Crore. ERP was

implemented in the year 1999 but they could fully integrate all departments in the year 2005only.

Issues faced

Software related issue that includes Customized Package, IT Infrastructure, Maintenanceof the software and updating the ERP modules. Most organizations discover howcompatible the new ERP is with their existing systems and processes when the turn onthe new system. When it is discovered that the ERP differs from the system it is replacingthe organization is faced with possibility of customization or tailoring the ERP. There arethree basic choices to

o Modify the ERP to match the organizational processes and/or data structures;

o Modify the organizational processes and/or data structures to match the ERPo Perform some of choice 1 and choice 2; or

o Most organizations approach the customization/tailoring decision without proper

Information required reaching a good decision.

Employee related issues that include resistance to change and training of Employees.Training is the most underestimated budget item because knowledge workers almostinvariably have to learn a new set of processes, not just a new software interface. Staffingthe project with the best and brightest is required because the software is complex and thebusiness changes dramatic. Huddle with HR early on to develop a retention bonusprogram and create new salary strata for ERP veterans.

Hindustan Pencils Ltd.

Its a manufacturing industry located in Mumbai producing stationary products having employeestrength greater than 500. Their turnover for the financial year 2007 -2008 was Rs 300 Croreapproximately. ERP is fully implemented in the organization.

Issues faced

Software related issue that includes Customized Package, IT Infrastructure, Maintenanceof the software and updating the ERP modules. Most organizations discover how

compatible the new ERP is with their existing systems and processes when the turn onthe new system. When it is discovered that the ERP differs from the system it is replacingthe organization is faced with possibility of customization or tailoring the ERP. There arethree basic choices to


o Modify the organizational processes and/or data structures to match the ERP

o Perform some of choice 1 and choice 2; or

o Most organizations approach the customization/tailoring decision without proper


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Information required reaching a good decision.

Competitive edge is one of the most important factors why the managers of HPL went forERP. As the size of the organization grows, it becomes more difficult to manage theprocess and to get an advantage organization has to integrate each of its department so

that flow of information is smooth all across the organization.

Paras Vanaspati (P) Ltd.

Its an oil manufacturing industry located in Raipur producing having employee strengthbetween 50 than 100. Their turnover for the financial year 2007 -2008 was between Rs 50 Croreto Rs 100 Crore. ERP is not implemented in the organization.

Issues faced

Cost of the software package and the cost of maintaining the software is the mainconcern for Paras Vanaspati (P) Ltd. This can be justified by the scale of the industry.





o

Most organizations approach the customization/tailoring decision without properInformation required reaching a good decision.

Resistance to change is a lone factor which consist almost 10% importance. There areonly 50 to 100 employees in the organization who are overlooking the benefits of thesoftware and are reluctant to use the new technology.


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Comparison across organizations

Organization with lowest Headcount is showing more resistance to change.


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Need for training rises as the Headcount of an organization rises.


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Affordability issues are fiercer in case of Paras Vanaspati (P) Ltd.


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People with more experience consider competitive advantage an important factor to

implement ERP


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Managers Perspective

The factors considered important by Managers:

Managers give more importance to the cost factor that is related with ERP. Cost that

includes Initial package cost, Re-engineering & Re-designing cost. Managers are more

concern about return on investment while taking the decision to implement ERP.

Managers are concerned about the competitive advantage; software will bring to their

organization. They are also worried about the attrition rate after ERP as the implementers

are too valuable. Because they have worked intimately with ERP, organizations 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.

One more concern of the managers is the time software takes to get implemented acrossthe organization integrating all the departments. The return-on-investment for mostorganizations runs to almost three years. A recent Meta Group study indicated themedian annual savings from the new ERP average $1.6 million/annually on (roughly)$30 million dollar investment one year after implementation is completed. And a Deloittesurvey of Fortune 500 companies found one in four suffering a drop in performancewhen their ERP system went live and ERP data must be combined with external data foranalysis purposes and organizations are likely to underestimate the size and cost of theconversion process.

Technical Personnel Perspective





o Most organizations approach the customization/tailoring decision without properInformation required reaching a good decision.


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Comparison between Managers and Techies perspective

Techies are more concerned about the software being customized according to theirneeds where as Managers gives more weightage to the affordability of the software

package.

Grouping of Factors

From the result of Factor analysis, we find that there are five components into which we candivide the various factors under consideration. The components are listed below:

1. Company Dynamics: It consists of factors which are company-specific, and differ from

company to company, both within and across industry. They include:

a. Competitive advantage: How much the company perceives itself as having an

edge over its competitors by implementing ERP.


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b. Customized package: The amount by which the ERP package needs to be

customized depends upon the processes followed by each company.

c. IT infrastructure: The extent to which IT is employed within a company depends

upon the company requirements, and also on the amount by which its various

processes are automated.

d. Training: The extent to which the employees need to be trained depends upon the

intellect and understanding level of the employees that are recruited by a

company, which in turn depends on companys requirements.

e. Maintenance: The amount of maintenance required by an ERP installed in a

company depends on the company usage of the ERP.

f. Updating of ERP: This depends on the better versions of modules developed by

the vendor on the basis of problems reported by the company on its previous

versions.

g. Timely expert advice: This depends on the availability of good consultants, both

internal as well as external.

h. Attrition rate: This happens when the employees start leaving the company in

search of other lucrative offers after they have gained good knowledge in the ERP

domain, after training and subsequent working on the ERP modules within the

company.

i. Company policies: These are indeed company specific, as the name suggests.

2. Affordability: As stated earlier, it depends on a companys revenue as well as the

disruption in normal activities while ERP gets implemented and the time employees take

to adapt to the ERP implementation.

3. Complexity: Different organizations have different business processes, which have

various sub-processes. Generally, the organizations dont follow standardized

procedures, as it may be costly in most of the cases. Hence, their processes become quite

complex, and it becomes difficult for them to adapt to the ERP modules, which followvery standard business processes.

4. Re-engineering: It represents the process of modifying the business processes to adapt to

the ERP modules implemented in the organization.

5. Resistance to change: It is a phenomenon displayed by the employees of a company

who are either very experienced or quite old. They get habituated to working in a


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particular way, and it becomes difficult for them to adapt with the changes that ERP

brings along. This is because ERP doesnt allow for short-cuts, and everyone has to

follow a specific procedure without being able to take any short cuts.

Overall Analysis

Considering all three organizations we got the following important factors:

Affordability is a major concern which consist almost 10% importance while taking the

decision to implement ERP.

Time of implementation is another concern consisting 9% importance. The time period

in which ERP starts giving returns is very high.

Software related issues like customization of the software, updating the ERP modules,Maintenance is a major issue faced after implementation of ERP. Customization of theERP happens when it can't support one or more of your business processes and youdecide to make it do what you want. You'll have to do it all over again in the newversion.

Resistance to change is contributing 7% as an issue faced after implementation of ERP.People are reluctant to shift to a new technology and are afraid of being down sized.


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Questionnaire

1. Name..

2. Sector in which the company is working..............................

3. Years spent in this organization................................

4. Years spent in this industry respectively................................

5. Position held in the current organization:

o Technical

o Managerial

6. Approximate head count in the organization:

o 100

o Less than 100

o 100-500

7. Turn-over of the organization

o Less than Rs. 10 crores

o Rs. 10-50 crores

o Rs. 50-100 crores

o More than Rs. 100 crores

8. Status of ERP in your current organization

o No ERP implemented

o Partially implemented

o Completely implemented

9. If, NO ERP IMPLEMENTED, have you ever considered implementing ERP


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o Yes

o No.

10. If NOT CONSIDERED, the reasons are

o unaware

o unnecessary

11. If considered, the major challenges for implementation were

o Cost issue

o Administrative issue

o Employee issue

o Time period issue

o Infrastructural issue

o If others, please

specify ...................................................................................................................................

.......................................................................................................

12. If, partially implemented, what other modules do you intend to implement

o Manufacturing

o HR ( Human Resources)

o Finance

o SCM (Supply chain management)

o CRM ( Customer relationship management)

13. How much budget are you ready to set aside for ERP implementation?

o Less than Rs. 2.5 crores

o Rs. 2.5-7.5 crores


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o Rs. 7.5-12.5 crores

o Rs. 12.5- 17.5 crores

o Rs. 17.5 25 crores

o More than Rs. 25 crores

14. How much time can you devote for training of employees?

o 1 hour per week

o 2 hour per week

o more than 2 hour per week

15. If ERP IMPLEMENTED, do you know any competitor who has implemented ERP?

o Yes

o No


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16. Please rate the following issues on a scale of 1-7, you think are more significant while

implementing ERP:

1: least important 7: most important

Time for implementation_______________

Cost (affordability) ___________________

Competitive advantage________________

Resistance to change of employee _______

Customized package __________________

Re-engineering & Re-designing costs _____

IT infrastructure ______________________

Training of employee __________________

Data Conversion ______________________

Maintenance and after-sale service ________

Updation of modules of ERP ____________

Timely expert advice ___________________

Attrition rate after training ______________

Complexity of system __________________

Company policies _____________________-

mis project report_2009

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