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ENTERPRISE RESOURCE PLANNING Assignment -1 On (ERP IMPLEMENTATION- CASE STUDY ) Submitted by , Aditya kumar (03) Shankey sawaraj (20)

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Page 1: Sucess and Failure

ENTERPRISE RESOURCE PLANNING

Assignment -1On

(ERP IMPLEMENTATION- CASE STUDY)

Submitted by,Aditya kumar (03)

Shankey sawaraj (20)

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ERP

Enterprise resource planning (ERP) is a business management tool which cover the techniques and concepts employed for the integrated management of businesses as a whole, from the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise

Being Specific ERP systems are large computer systems that integrate application programs in accounting (i.e., accounts receivable), sales (i.e., order booking), manufacturing (i.e., product shipping) and the other functions in the firm

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WHY DO WE NEED ERP

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WHY DO WE NEED ERP

Single point of control Real-time information for decisions Duplicate entry elimination Data integrity Process control Reduced operational costs Improved visibility Standardized business processes Improved compliance Reduced inventory costs

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ERP IMPLEMENTATION PROCESS

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ERP IMPLEMENTATION PROCESS

ERP design process can be classified by these different phases:

Discovery & Planning ERP Design & Configuration ERP System Development ERP Testing ERP Deployment ERP Maintenance

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1. ERP DISCOVERY & PLANNING

Establish the Project Team

Hold Discovery Meetings

Document Key Processes and Requirements

Identify Potential Gaps, Risks, and Solutions

Build the Project Plan

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2. ERP DESIGN & CONFIGURATION

Gather and Review Master Records

ERP System Orientation & Walkthrough

Establish Initial System Configuration Settings

Create a Prototype

Define User Roles

Document ERP Procedures

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3. ERP SYSTEM DEVELOPMENT

The objective for the development process is to prepare the new system environment for data migration & validate against requirements. As part of this, the development process includes establishing a testing environment and developing user skills. Here are some steps to make that happen:

Customization Configure the Go-live System Simulate a Live Environment Develop End User Training

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4. ERP TESTING

This is where the organization will really start hammering on the new system. There’s no defined boundary between development and testing. In fact, there will be significant overlap between the two throughout the process.

Crucial Points for Testing a New ERP System: User Acceptance Testing Import Sample Data Adjust Configurations Establish “Cut-off” Strategy Simulate Running the Business Deliver End User Training

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5. ERP DEPLOYMENT

By the end of this phase of the project, the entire organization will have switched to the new enterprise resource planning system with clean, reconciled financial and operational data.

Important steps in deployment steps are: Assess end-user proficiency “Go/no go” decision Load static and dynamic data Validate & balance against legacy system Start using it

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6. ERP MAINTENANCE

After the new ERP system is live, there will continue to be a need for ongoing optimization of system use and productivity.

The main points covered in this step are: Converting the Project Team Identify Problem Areas & Develop

Solutions

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BENEFITS OF ERP IN APPAREL INDUSTRY

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BENEFITS OF ERP IN APPAREL INDUSTRY

Integration: ERP integrates all aspects of the business processes including: manufacturing, design, customer services, financial, sales and distribution.

Quality management: In present times, consumers and retailers push for better quality, quicker delivery and lower rates. ERP allows the equality department to define its own quality test cases required at different juncture of production.

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EXCLUSIVE BENEFITS OF ERP IN APPAREL INDUSTRY

Tackling variations: different order having different sizes, different colors etc. this results in multiplication in different number of products of same style.

Order repetition: In garment industry, orders are repeated by some customers seasonally. Thus ERP helps in maintaining the order data.

Supply chain management: garment industry has some of the most complicated supply chains. Due to middle men, different specialized industry dealing in special products, trims, labour cost variation in different location, companies have highly web like supply chain. ERP helps in maintaining such supply chains

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BENEFITS OF ERP IN APPAREL INDUSTRY

Data management: responsibility of the persons designated to complete their task in a regular manner and their data could be used by others when needed. It helps to create, store and re-use information in efficient way.

Product life cycle management: PLM system allows to go back to design library at any time to reprocess and reuse the data. Design can be converted easily into specification sheet and these designs are stored in organized way in a central server where authorized persons can use the data.

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BENEFITS OF ERP IN APPAREL INDUSTRY

Production planning and control: ERP PPC module provides capabilities for planning, execution, quality and plant maintenance. Production plan in ERP is determined based on recourses planning, sales and operation planning and demand of the product. Having determined the information, ERP generates master production schedule.

Inventory management and orders: inventory management module offers effective features to minimize warehousing costs and to optimize storage needs in line with the requirement in hand. Inventory management in ERP also provided a high degree of flexibility.

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BENEFITS OF ERP IN APPAREL INDUSTRY

Cost saving: about 2% of sales value are lost in discount, which are the result of surplus production, implementing ERP can help to bring down excess production.

Reduction in machine downtime: 5% machinery downtime is attributed to non-availability of raw material in stores. This is due to communication delays at every place because of information recompiling.

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BENEFITS OF ERP IN APPAREL INDUSTRY

Standardizing process: Manufacturing companies often find that multiple business units across the company make the same widget using different methods and computer systems. ERP standardizes the manufacturing processes and improve quality.

Communication effectiveness: Some multi-lingual ERP software can perform automatic translation enables almost every style detail to be viewed in several languages including English, Chinese, and etc.

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FAILURE CASE(FOXMEYER DRUGS)

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FOXMEYER DRUGS- SYNOPSIS

Company name- FoxMeyer Drugs Consultancy firm- Anderson Consulting

(now Accenture) ERP selected- SAP R/3 Enterprise Edition

2.0 (1993) Initial budget- US$65million Finally ended consuming- US$40 billion result- failed(The company that had been

worth $40B prior to the project was then sold off for just $80M to rival McKesson Corp)

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FOXMEYER DRUGS CASE

Due to the intense competition, FoxMeyer was in a great need of a solution that would have helped it to make a complex supply chain decisions and meet the increased cost pressure head on.

Based on a supply chain analysis, it was decided that an ERP would offer a perfect solution for FoxMeyer to provide real time information and automate and integrate inventory systems

In September 1993, FoxMeyer contracted with SAP, and Anderson Consulting, to implement the R/3 software.

The project covered the entire supply chain—warehouses, inventory control, customer service, marketing, strategic planning, information system, shipping and handling.

The implementation cost for SAP was budgeted in 1994 at US$65m and the ERP system was projected to save FoxMeyer US$40m per year.

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FOXMEYER DRUGS CASE

In 1994, FoxMeyer signed a contract that required it to add 6 warehouses. SAP and Anderson scheduled the implementation at these warehouses for January and February 1995.

Then they planned to implement R/3 at the remaining 17 old warehouses.

In November 1994, SAP informed FoxMeyer that R/3 could only be implemented at the new warehouses (The other warehouses had a volume of invoices larger than the system was able to process).

The other warehouses had a volume of invoices larger than the system was able to process. The R/3 system at the new warehouses was able to handle 10,000 transactions per day, while the legacy system was able to handle 420,000 transactions per day.

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FOXMEYER DRUGS CASE

FoxMeyer started the R/3 on time in the new facilities and customers orders were filled. However, due to data errors, the customers sales histories were inaccurate. On top of that the physical move of inventory was done carelessly.

The final implementation bill was more than US$100m, but the R/3’s performance was still unacceptable.

It was completed late, went over budget, and failed to deliver the expected benefits.

Several of the problems were not correctable, forcing, as will be seen later, a bankruptcy.

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REASON FOR FAILURE

Poor selection of the Software - R/3 was unable to handle the large number of orders. FoxMeyer filled orders from thousands of pharmacies, each of which have had hundreds of items. The legacy system handled 420,000 orders per day, but SAP only processed 10,000 orders daily ( 2.4% of that of the legacy system).

No consideration of other consultants’ - A Chicago based consultant firm warned FoxMeyer that SAP would not be able to deliver what FoxMeyer needed. FoxMeyer selected SAP mainly because of its reputation.

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REASON FOR FAILURE

Lack of contingency planning- there was no contingency planning to deal with changes in the business operations. For example, a major customer, PharMor Inc. that accounted for more than 15% of FoxMeyer’s business, declared bankruptcy shortly after FoxMeyer’s launched SAP. Much of the Phar-Mor business was gone to competitors.

No end user involvement- The project was done using a top-down approach. The planning were performed by FoxMeyer’s upper management, Andersen Planning Consulting and few technical people. Only few end users participated in the analysis, and design process. So there was a communication gap between the users and the system planners.

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REASON FOR FAILURE

No restructuring of the business process was done- SAP was not fully integrated because FoxMeyer was incapable of reengineering their business processes in order to make the software more efficient. They placed a higher priority on meeting customer’s need than on making the SAP implementation success.

Insufficient testing- Due to the rushed schedule, some modules testing was skipped. Besides, the system was not properly tested to identify its shortcoming in handling large amounts of orders. There was inadequate testing and insufficient time to debug the system to ensure its functionality.

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REASON FOR FAILURE

Dominance of IT specialists’ personal interest- the IT specialists wanted to learn the system and secure their employment in the SAP technology business. They placed their personal interest of getting experience in SAP implementation over the company’s interest in getting suitable software technology. So some system problems were hidden and not reported to management until it was too late.

Poor Management support- Management failed to understand the complexity and risks in the process and agreed to have 90 days early implementation although the system was not fully tested. Management failed to recognize the timelines and resources required in the implementation process.

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REASON FOR FAILURE

Lack of end-user cooperation- the user requirements were not fully addressed and there was no training for end users. Employees had no chance to express their priorities and business needs.

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FAILURE CASE(ARVIND MILLS)

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ARVIND MILLS - SYNOPSIS

Company name- arvind mills

Consultancy firm- pricewaterhousecoopers (pwc) for phase 1 ,anderson consulting (now accenture) for phase 2, 3, 4

Erp selected- sap r/3 enterprise (1997)

Result- failed

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CASE

Arvind mills choose sap r/3 in four phase over a period from 1997 to 2001.

Departments which was covered in four phases are:

Finance and control Production planning Plant maintenance Materials management Sales and distribution Quality management Warehouse management Customer relationship management Supply chain management Advanced planner and optimizer

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PHASE I-1997 OCT TO 1998 APRIL

The first phase included configuring of SAP R/3 for finance and control, production planning, material management, plant maintenance, sales and distribution, quality management.

Four months later, AML found that little progress had been made in the implementation process despite substantial investments on hardware, software, and consultants. 

Later on the implementation was clearly spinning out of control.” Consultants employed by PWHC were technical specialists, and had little knowledge of the business domain.

Apart production planning and quality management of SAP R/3 did not have solution specific to textile industry and hence created confusion as what to do.

To get the project back into track and give it leadership and direction, in September 1998, AML hired Anuj Prasad as its new CIO. 

Anuj Prasad implementation experience knew that SAP implementation requires structured project management methodology and hence propagated the use of ASAP methodology. After that project made some progress but the major issues remains unresolved.

The project plan of this phase got extended for another 5 months. AML pointed out that due to problems with the implementation partner

understanding and product weakness, the project did not progress well. 

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PHASE II-1998 OCTOBER TO 1999 FEBRUARY

The second phase included configuring of SAP for marketing and customer service and relationship management functions.

PWHC was replaced with a new consulting firm, Accenture Business Consulting, to assist Arvind Mills with the second, third and forth phases of SAP implementation.

Accenture was very knowledgeable in the technical and configurational aspect of SAP implementation.

SAP CRM implementation requires data and process design from customer side.

Later on there was contractual problem with Accenture as they wanted to replace the configuration done in Phase I.

Accenture made five training rooms were equipped with computers running the client version of the R/3 software to train users on the redesigned processes and the new R/3 environment

 Training should not focus on how they should use the system, but on how they should do their own job using the system

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PHASE III-MAY 1999 TO AUGUST 1999

The third phase included commissioning of SAP for supply chain management functions of Arvind Mills. 

SAP provided a sales and operational planning (SOP) module with their R/3 package but Arvind Mills believed that this module lacked the “intelligence” required to “optimal” production plan from continuously changing supply and demand data .

1999, SAP added a new Advanced Planner and Optimizer (APO) module to help with data analysis. Which was answer to AML unique SOP needs. 

Later on it was realized that implementation of SOP and APO requires extensive planning data to be migrated in SAP information ware house systems which was originally for plan phase IV.

Due to which phase III can be implemented only after implementing phase IV.

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PHASE VI-SEPTEMBER 1999-2001

The fourth phase focused mainly on translating the information collection (data generated) into decision making.

The data ware house and data mining tools are used for the same

these tools are effective only when the entire historical error free data are available in the digital form. Apart it also requires external market research data to be available.

The text as well as non text data such as document, files, drawing, engineering were also to be digitized and this call for another project with all together different software systems. 

This was never visualized in the project and hence this phase was a complete blank.

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WHERE THE COMPANY WENT WRONG?

In the selection of the consultants -Should instead of directly consulting a software consultant Arvind Mills should have consulted an independent management consultant.

In the beginning feasibility analysis covering various aspects such as detailed project management, change management, cost benefit analysis, business process analysis, organization readiness, etc. should have been carried out with the help of an independent management consultant.

The project should have been steered by the top management with strong internal core team from various business units

The ERP systems such as SAP caters the need of standard business functions such as finance, MM, Sales, HR, Maintenance, production planning, QM, etc. and often does not fit into core production scheduling, product design, PLM, operations etc.

The training strategy for employee should have been on new work practices through SAP rather than on SAP.

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WHERE THE COMPANY WENT WRONG?

Though the top management had made a successful transition to the new organisational structure, problems still persist when it comes to the change in lower management and operator level

The operators in the production line were not enthused nor or willing to key in the data required to be entered in the system so that it can help out in getting better information about the process as well as the costing. 

.Management was seriously considering of getting the entire implementation audited by a proven independent management consultant and seeks professional guidance on either re -implementing the systems or repairing the faults

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THANK YOU