The big 5 vendors wish to enter this market, due to the soon-to-be-saturation of the Fortune 500 companies who have already implemented ERP. Therefore, the big 5 have started utilizing best-of-breed tools (industry specific software) and combined them with their own products to fill the niche required to meet all customers business needs. The major vendors have started programs to certify third party producers in their respective application packages. They have also been buying out smaller software companies and have formed alliances with the top 2 or 3 players in the middle-market.
Consultants, most often from the top accounting firms, have formed separate divisions to specialize in ERP software implementation. These consultants will study the process to be reengineered and then determine the optimal ERP software to utilize. There is no "best" ERP software for any given organization. The decision will ultimately rest on upper management and especially Information Technology managers, which have the burden of maintaining the software.
The history
To know how to get the best from an ERP package it is worth looking first at what went wrong in the past and then how to avoid those pitfalls in the future.
ERP does not have a good history. When it first became economic to use computers for business, companies looked around for appropriate applications. After the payroll, a repetitive calculation that computers are best at, the next obvious repetitive chore for manufacturing companies was the calculation of the materials they needed to buy.
In the early days companies would get software written for them to explode the bill of material. The first "package" material requirements planning (MRP) software was IBM’s RPS (Requirements Planning System). There were 2 main faults with Material Requirements Planning (MRP) systems:
(1) Nobody could work out how to make the planning systems stable; every MRP run produced widely different results from the last, due to the normal fluctuations in demand and supply.
(2) The systems had the effect of driving up the inventory instead of reducing it as promised by the software salesmen. The reason for this was that every fluctuation upwards increased supply orders, which could not be easily reduced, so ratcheting up stock.
These problems with the early planning systems meant that as people could not trust the messages the systems generated, they were not used as planning tools but, instead, became glorified (and expensive) typewriters.
In the early 70’s the idea of master production scheduling and capacity requirements planning were introduced into MRP systems to overcome the stability and inventory problems. The new packages were called MRP II (Manufacturing Resource Planning) to emphasise the improvement over the old MRP systems.
MRPII had its failures with its aplications which included:
Inaccurate data
Software packages did not meet the needs of the business
The longer term financial objectives of the company were not addressed
Departure of the sponsor
Ineffective use of consultants
Enterprise resource planning
Enterprise Resource Planning (ERP) was sold as the solution to the problems with MRPII but in practice ERP is just Manufacturing Resource Planning (MRPII) with some additional features. The additional features vary from system to system; typically they will include human resource management and salaries, document control and, sometimes, maintenance. Although the term Enterprise Resource Planning does help to get the important message across that more than just manufacturing people need to be involved, the additional features did nothing to alleviate any of the MRPII implementation problems listed above.
So much for what went wrong, now for how to get it right
The Evolution of ERP
1960’s inventory control
1970’s material required planning (MRP)
1980’s manufacturing resources planning (MRP2)
1990’s enterprise resource planning (ERP)
What does ERP really cost?
Meta Group recently did a study looking at the total cost of ownership (TCO) of ERP, including hardware, software, professional services and internal staff costs. The TCO numbers include getting the software installed and the two years afterward, which is when the real costs of maintaining, upgrading and optimising the system for your business are felt. Among the 63 companies surveyed—including small, medium and large companies in a range of industries—the average TCO was $15 million (the highest was $300 million and lowest was $400,000). While it's hard to draw a solid number from that kind of range of companies and ERP efforts, Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it. The TCO for a "heads-down" user over that period was a staggering $53,320.
When will I get payback from ERP—and how much will it be?
Don't expect to revolutionize your business with ERP. It is a navel-gazing exercise that focuses on optimising the way things are done internally rather than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if you're willing to wait for it—a Meta Group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system were $1.6 million.
What are the hidden costs of ERP
Hidden costs are the costs that are not foreseen in the planning stage of an ERP project. Training, testing, customisation, consultants, post depression and replacing people are many of the costs that are over looked. Hidden costs are sometimes the determining factor if an ERP solution is effective or not. If a company over looks $50 million in hidden costs, this could greatly affect its TCO and ROI.
What an ERP project consists of
Discovery phase:
In this phase of the project, business process are analysed and business practices are evaluated. This is just the phase where the company is looked at and it is decided what is needed in an ERP solution.
Design/develop phase:
This is where an application is choose and is configured for the company. The way the solution is function and any other design aspect of the solution.
Testing:
Here the ERP solution is loaded in a test environment and errors and flaws are looked for.
Training phase:
Here is where employees are trained on the system, so they know how to use it once the implementation is complete.
Implementation phase:
The ERP software is finally rolled out to the company and become functional for users
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Evaluation:
The ERP solution is evaluated, looking at what needs to be improved, what worked and what didn't. This is just an overall evaluation of the ERP project, for future references. Importance of ERP Importance of
Importance of ERP
ERP is very important to Business Process Re-Engineering (BPR). BPR is the process businesses under take to re-organize and re-structure the company. ERP is a critical point in the BPR. Many companies in the BPR process may decide to go a step further and look at implementing an ERP application. ERP plays an important roll at this step when companies are trying to bring out the deficiencies in the current system and increase productivity within the company.
-An ERP application integration at this point in the BRP process can either create some advantages and disadvantages.
Disadvantages of BPR with ERP:
With ERP, you come into many areas of uncertainty and issues of stability in the long run. ERP requires a great deal of change and it is hard to predict the long term affects of the implementation.
Advantages of BPR without ERP:
Without ERP many of the BPR process may not under go change, because there is not a critical importance for their change. ERP forces the change to happen, and in many cases some process do not need to change, yet it forces the change to happen. ERP is such a massive project that BPR without ERP can be completed in a time frame and within budget.
Benefits of ERP
The benefits of ERP are endless. There are key areas where ERP benefits a company the most.
Access to Information:
A key benefit of ERP is how and when information can be accessed and who can access it. ERP allows of all company information to be accessed, given you have authority of view it. Before ERP information was inefficient to access. Many times a manager had to jump through hoops or use several applications to get the information and analysis it. With ERP, this can be done using one application and increase efficiency.
Best Practice:
In many companies today, that use multiple applications and systems, there are not best practices established because in many cases, there is several ways to access information, depending on what type of results are desired. With ERP, best practices are established because there is one access point and only one way to access the information and the same reporting tool for all. It is critical for companies to establish best practices because it allows for effective and efficient business practices.
The risks of ERP:
Risks come with any company wide change, however ERP's degree of risk is slightly higher than most company changes.
A major risk is the financial risk that many companies take in order integrate an ERP solution into their enterprise. The average initial investment for company implementing an ERP system is $100 million. This figure only looks at full ERP implementations. This figure is skewed somewhat because until just recently, it was only large fortune 500 companies wanting and able to financially implement ERP solution into their environment.
Another risk involved with ERP is the uncertainties with the software itself. Most ERP solutions come in packages, that have already been designed for certain environments. However because most companies have to customize the software, it makes for uncertainties how the software will respond to all the customisations you configure in it. As well many companies do not investigate an ERP solution fully before purchasing it. It is key to make sure that the solution will do everything you need it to do. If a company forgets to research a key component of their functions and does not include it in its ERP package then the software becomes very uncertain in the future when that function needs to be performed.
Advantages and Disadvantages of ERP
There are several advantages and some disadvantages reported from companies who are currently or who have already successfully implemented ERP software successfully. The top benefits realized from companies are:
1. Better or more integrated systems architectures.
2. Better information flow and better quality of data.
3. Better manufacturing production and improved inventory management.
4. Lower costs.
5. Corporate reengineering and restructuring.
6. Ability to respond to changing business needs.
Another advantage of ERP software implementation, and often a common selling point is based on the Year 2000 Problem. The Year 2000 problem, which companies have been troubled by, is solved once ERP is implemented. This advantage is a viable, value-added solution, to a company having a Y2K problem. ERP software will solve the problem as well as integrate targeted business processes.
There are not many disadvantages noted by those utilizing ERP. The main disadvantage is the high cost involved in implementation as well as getting end-users to buy into the new system. Another common disadvantage voiced is the inflexibility of some of the ERP software. The large amount of time implementation requires is another downside of most ERP software. This has been partially solved through alliances with other software companies as well as add-ons offered by the main vendors. In addition, vendors have gained experience, thus speeding up the implementation process.
Current practice of ERP
SAP Practice
Cognizant's SAP-centric services help customers with functional & technical enhancements, post-implementation support, performance optimization, and scalability of SAP R/3.
SAP services offered by Cognizant include:
- SAP Implementation Services
- Implementation of core SAP R/3
- Components under mySAP suite like BW, CRM, SCM and PLM
- Implementation Support Service by way of offshore custom developments
- Post-Implementation SAP Services
- Global Rollouts
- Version/Functionality Upgrades
- Administration - System, Application, Database
- Helpdesk - Levels 2 & 3
- Remote Development & Maintenance of all ABAP/4 objects
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SAP Integration services help customers with the integration with legacy systems, mySAP systems and other ERP/XRP systems. We also have competencies that help integrate Business Warehouse, CRM, SCM, PLM as well as web, mobile enabling.
Oracle Practice
Cognizant is ready to deliver full support for your organization's core transaction systems. As a member of the Oracle Partner Program, we gain access to Oracle's premier products, education, technical services, marketing and sales support. This alliance allows Cognizant to strengthen its expertise in designing, implementing, integrating and managing consolidated web enabled applications based on Oracle technology.
We are able to offer our customers leading-edge solutions backed by Oracle's position as the world's leading supplier of e-business solutions.
We offer a full range of services for Oracle applications, covering:
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Implementation: We provide gap analysis for implementation, enhancements and upgrades, package configuration, customisation, interfacing, data migration, and user training.
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Application Value Management: We offer full maintenance of setup, customisation and interfaces; 24 x 7 support, testing and bug fixing, performance tuning, development of new interfaces, and hardware sizing services.
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Upgrades: We offer full version upgrade services, functional enhancements, and data migration support.
PeopleSoft Practice
PeopleSoft solutions demand a mix of business analysis and technology skills. Cognizant is your ideal partner for PeopleSoft implementations, because of our ability to support the entire range of solutions across the entire lifecycle, from planning and implementation to value management.
Our services cover:
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Implementation: We provide full support for PeopleSoft Human Resources Management Systems, Project Management, PeopleSoft Financials, Professional Services Automation modules.
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Application Value Management: Our services cover feature/ functional enhancement, testing and bug fixing, rule or workflow based changes, performance tuning, and hardware sizing.
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Migration: We are prepared to help your organization conduct technical or functional upgrades, database migrations, and hardware sizing. These services cover preparing upgrade checklists and full post-upgrade support.
Effect on a company
Example 1: Aerocell Incorporated ( )"We just didn't have the information and control we needed to manage the business," said Steve Durden, Controller for Aerocell. As the company Aerocell began a rapid growth spurt, they realized some serious problems beginning to arise. These problems included -No clear view of product costs-Extreme lack of accuracy in accounting -Worker productivity was impacted because of stock outs on the production floor-Very poor inventory turn over rate
After a successful ERP implementation, an improved work order functionality and shop floor scheduling system allowed production controllers to better manage labor and equipment capacity, and also react to changing customer needs without disrupting the entire factory. Prior to implementation of the system, Aerocell’s inventory only turned over only about twice per year. After the installation of the ERP system, inventory turns increased to six times per year, which allowed the company to improve cash management, reduce scrap material, and rework write-offs as well. Durden estimated that scrap has “declined by 25 percent due in part to the discipline and structure that an ERP added.” From an accounting standpoint, what used to be a three week ordeal to close out a month turned into a painless two or three day event. Since the ERP system was added, sales revenue has jolted from $7million a year to $14million a year.
Where is ERP Now?
ERP has now expanded from a human resource, accounting and manufacturing software into areas such as supply-chain management, customer service and sales force automation systems. The trend in the manufacturing industry is the "expansion of their ERP systems, done by integrating supply chain and front office software." Supply-chain management involves using the Internet so that the supplier and the company being supplied both have access to each others manufacturing information. This will allow the supplier and the one utilizing the supplied goods to better understand each other’s needs in terms of amount produced, issues regarding JIT manufacturing and forecasting. "Companies are extending ERP systems to provide better values to businesses with a tighter collaboration with customers, suppliers and ultimately end-users both domestically and globally."
The Future of ERP
I believe the future of ERP is in question. It seems as if the vendors have already targeted and met the needs of those desiring ERP solutions. Vendors have expressed that the future of ERP looks promising. If ERP can survive in the future, they will probably concentrate on and include the following:
Single backbones with add-on components from vendors and their partners.
Attention to processes that don’t fit the common, generic model.
A focus on outward looking processes such as customer support and analytical processes such as decisions support.
Vendor focus on smaller companies.
In addition, ERP vendors must stay in touch with their customers needs, and offer superior customer service and end-user support at reasonable prices, in order to stay competitive and survive in the rapidly changing world of business and especially Information Technology.
Move from client/server applications to internet-based applications
“Enterprise applications for the internet economy”
Electronic commerce, sales force customisation, and customer relationship management software
Self-service applications: web-based order entry.