Enterprise Resource

Planning
Session 8
Dr Ritu Yadav
The Ford Case Study
Ford needed to review its procurement process to:
• Do it cheaper (cut costs)
• Do it faster (reduce turnaround times)
• Do it better (reduce error rates)

Accounts payable in North America alone employed > 500 people and
turnaround times for processing POs and invoices was in the order of
weeks

(Hammer, 1990)
The Ford Case Study
Automation would bring some improvement (20% improvement)

But Ford decided not to do it… Why?

a) Because at the time, the technology needed to automate the process was not yet available.
b) Because nobody at Ford knew how to develop the technology needed to automate the
process.
c) Because there were not enough computers and computer-literate employees at Ford.
d) None of the above
The correct answer is …
Mazda’s Accounts Payable Department
How the process worked?
(“as is”)
How the process worked?
(“as is”)
How the process worked?
(“as is”)
How the process worked?
(“as is”)
How the process worked?
(“as is”)
 How the process worked?
(“as is”)

Mazda – only five people worked! 500 people checking 14 items on 3 documents
Reengineered Process (“to be”)
Reengineered Process (“to be”)
Reengineered Process (“to be”)
Reengineered Process (“to be”)
Reengineered Process (“to be”)
Reengineered Process (“to be”)

Ford could bring it down to 120 from 500 –

Evaluated Receipts Settlement with 76% cost reduction
Outcome…
• 75% reduction in head count
• Simpler material control
• More accurate financial information
• Faster purchase requisition
• Less overdue payments

Lessons:
• Why automate something we don’t need to do at all?
• Automate things that need to be done.

“Don’t Automate, Obliterate!” (Hammer, 1990)

Enterprise Resource Planning – A Consumer
Electronics Company Example
Some typical Systems in a company
Purchase Financial
Accounting

Inventory Maintenance Accounts

Management Receivable

Accounts
Sales &
HR Payable
Distribution
Management

Invoicing
Production
Planning &
Control
What are the problems if these systems are bought from
/ developed by different vendors ?
The problems
• Incompatible interfaces
• Repeated data entry
Effort
Increased errors : Inconsistent data
• Tough to get overview of the entire organization : Management
• Need to deal with multiple vendors
Enterprise Resource Planning

Purchase Financial
Accounting

Inventory Accounts
Management Maintenance Receivable

Accounts
HR Payable
Management Sales &
Distribution

Production
Planning &
Invoicing One vendor
Control
Integrated System
Commonly Used Packaged Software ?
• Where would you develop software from scratch (bespoke
development)?

Popular packaged software :

Enterprise Resource Planning (ERP)
ERP Systems – An Introduction
• Information Systems – Computerized systems designed to cater to a
functional area for information support
• Marketing Information Systems – CRM
• Accounting and Finance IS
• Production IS
• Human Resource IS etc.
• ERP - A term used for highly integrated information systems in
business organizations
Enterprise Applications
• An enterprise application is the phrase used to describe applications
(or software) that a business would use to assist the organization in
solving enterprise problems.
• Major Enterprise Applications:
Customer Relationship Management
Knowledge Management Systems
Supply Chain Management Systems
Enterprise Resource Planning
Popular ERP systems…

Best in Breed vs Best in Class/Suite

Key Benefits of ERP ?
• Quick Implementation
• Single data entry
Lower effort
Lower errors : Data consistency
• Integrated view possible for management
• Networked Business
• Best practices
• Business Process Engineering one of the pre-requisites
• Standardization of Systems and Procedures
• Smooth upgrades
Challenges of ERP
• Highly expensive to purchase and implement enterprise applications
• Average “large” system—$12 million +
• Average “small/midsize” system—$3.5 million
• Expensive customization
• Difficult decision
• High costs and Risk involved
• Radical changes involved often
• Technology changes
• Business process changes
• Organizational learning, changes
• Switching costs, dependence on software vendors
• Lack of understanding of the complexity of planning, development, and implementation
• Failure to involve all affected parties
ERP Adoption in India
• First Movers
• HLL, ESSAR, ONGC, Godrej Soaps, Cadburys, BASF, Telco, Maruti Udyog,
Century Rayon, Citibank, ACC, ANZ, Grindlays, German Remedies, Blue Star,
M&M, Rallis India, Sony, Ceat, Indal, Ford Motors, Kirloskar, Knoll Pharma,
Glaxo etc.
• Chain Effect/Network Effect
What is ERP?
• Enterprise resource planning (ERP)
• Suite of integrated software modules and a common central
database
• Collects data from many divisions of firm for use in nearly all of
firm’s internal business activities
• Information entered in one process is immediately available for
other processes
Not an IT Solution, but a business solution

Famous Vendors -

SAP-R/3 had support for 7000 business

processes
ERP Implementation Life Cycle
ERP System Implementation is a business transformation project – a
complex and expensive process that needs a systematic approach
• Need Establishment
• Feasibility Analysis
• Package Selection Pre-Implementation Phase
• Hiring of Consultants
Change Management

• Preparation of Implementation Plan

• Formation of steering committee
• Acquisition of facilities
• Business Process Reengineering (BPR)
Implementation Phase
• Users’ training
• Testing
• Documentation
• Go Live
• Change Management

• Evaluation of ERP
• Maintenance of ERP
Post-Implementation Phase
 Pre-Implementation Phase
A preparation/planning phase, in which-
• Organization prepares a business case and decides
whether to go in for ERP System or not
• Need Establishment
•
•
Feasibility Analysis
Package Selection
• Plans how to move further in the implementation
• Hiring of Consultants process
 Pre-Implementation Phase
Need Establishment
• Perform strategic analysis by analysing:
• Need Establishment
o Environment
•
•
Feasibility Analysis
Package Selection
 Porter’s five forces (competitive analysis)
• Hiring of Consultants  Stages of Growth Model (life cycle analysis)
 SWOT analysis
o Organizational Resources
 Porter’s value chain
 BCG matrix model
 Pre-Implementation Phase
Need Establishment
• Information Requirement Analysis
o Step 1: Define the underlying organizational sub-systems
• Need Establishment
• Feasibility Analysis o Step 2: Define the information requirements for organizational
• Package Selection
• Hiring of Consultants sub-systems
o Step 3: Evaluate existing information systems
o Step 4: Evaluate Business Processes
o Step 5: Gap Analysis
• Propose IS solution
 Pre-Implementation Phase
Feasibility Analysis
• Technical Feasibility
• whether hardware and software required for the proposed
• Need Establishment
• Feasibility Analysis system can be acquired or developed by the organization
• Package Selection
• Hiring of Consultants • Operational Feasibility
• Willingness and ability of all the operational stakeholders to
operate, use and support the proposed system
• Legal Feasibility
• Whether it is legally permissible to implement such a system
• Schedule Feasibility
 Pre-Implementation Phase
Feasibility Analysis
The Readiness Matrix

• Need Establishment Application People Issues Data Issues Integration with Other Technology/Infras Miscellaneous Readiness
• Feasibility Analysis Systems tructure Issues Issues (Average Score)
• Package Selection
• Hiring of Consultants
IS Application 1

IS
Application 2
.
.
Total Sore
 Pre-Implementation Phase
Package (Vendor) Selection
1. Requirement identification
• Identify and document user and system requirement, and use BPR if required
2. Preparation of database of ERP vendors and ERP packages
• Need Establishment
• Feasibility Analysis • Aspects of vendors to be analyzed
• Package Selection • The product offering
• Hiring of Consultants • The target segment
• The client list
• Implementation philosophy and support services
• The hardware and software infrastructure required
• The financial strength etc.
3. Matching user requirements to ERP
• Broadly understands the match between its business processes and the vendor’s software
package
• “As Is” vs “To Be” models to determine user requirements
 Pre-Implementation Phase
Package (Vendor) Selection
4. Request for bids/proposal (RFP/RFB)
• A standardized response to compare the products on a structured format
• RFB/RFP includes the type of ERP System, specific functionality, specified hardware and
• Need Establishment
•
software infrastructure, customization required, training requirement, pricing, timeline
Feasibility Analysis
• Package Selection etc.
• Hiring of Consultants
5. Vendor analysis and selection
• Bids thus received are opened and evaluated on the pre-specified dates, generally by a
committee
• Objective is to short-list only few top vendors with which to start negotiating a purchase
6. Negotiation and contract agreement

7. Delivery
 Popular ERP systems…

• Need Establishment
• Feasibility Analysis
• Package Selection
• Hiring of Consultants
 Implementation Phase
• Preparation of Implementation Plan
• Formation of steering committee
• Preparation of Implementation Plan
• Acquisition of facilities
• Formation of steering committee
• Acquisition of facilities • Business Process Reengineering (BPR)
• Business Process Reengineering (BPR)
• Users’ training • Users’ training
• Testing
•
•
Documentation
Go Live
• Testing
• Change Management
• Documentation
• Go Live
• Change Management
ERP Implementation Choices
• Vanilla
• Implementation without making any changes in the ERP System
• Gets the best advantage of the best practices built into ERP software
• Need to align business processes to the ERP System.
• Minimum time and cost to implement ERP
• Comprehensive
• Implementation of full functionality of the ERP software in addition to the industry specific
modules
• Requires high level of Business Process Re-engineering as well as customization of legacy
systems
• Most expensive and time consuming approach
• Middle-of-the-Road
• Involves some changes in the ERP software, and major business re-engineering
ERP Conversion Strategies
• Phased Strategy
• ERP modules are implemented one at a time or in a group of modules at a time, often
a single location at a time. Hence, also referred to as “Implementation by Segment”
• Variants - Phased roll out by module, by business/functional unit, by geographical
location
• A sequential implementation of designing, developing, testing and installing of the
modules
• When a new data collection activities are implemented, and an interface mechanism
with the old system needs to be developed
• Moderate resource requirement during the phase
• Incremental learning and knowledge building
• Advisable where systems only require upgradation of the old systems
ERP Conversion Strategies
• Phased Strategy
• PROS –
• Very helpful if the team is new and less experienced in the given technology
• Provides enough time to consolidate all the learning and thus allow subsequent phases can go
smoother
• It may not need such meticulous planning in terms of fall back options
• Less difficult to manage as the focus is limited
• Employees have enough time to familiarize themselves with the new system
• In case of any failure on one system, it may not have an adverse cascading effect on others
• With conversion occurring in parts, time is available for adjustments
• CONS –
• Costs incurred in developing temporary interfaces with the old systems and intermediate failures
thus involved,
• Feeling of “pendency”
ERP Conversion Strategies
• Phased Strategy
• Big-Bang Strategy
• An entire suite of ERP application is implemented at all locations, at the same time
• System goes from a “test version” to actual working system in the shortest possible time
• Three step process
• First Step – virtually all relevant processes and artifacts are chosen (or developed) and implemented in the
software
• Second Step – All modules are tested individually and for their interfaces with other modules
• Third Step – All the modules are implemented
• There is a time gap when no system is working, hence advisable when –
• System is not replacing any other system
• Old System is judged absolutely worthless
• New System is either very small or simple
• Design of the new system is drastically different from the old system
ERP Conversion Strategies
• Phased Strategy
• Big-Bang Strategy
• PROS –
• No need for temporary interfaces,
• Limited need to maintain and revise legacy system,
• Shorter implementation time and cost,
• Cost effective in the long run
• Implementation date is fixed and everybody is mentally prepared
• CONS –
• High risk of failure - Any failures on one system can have a cascading effect on others
• High peak resource requirement
• Needs very meticulous planning in terms of fall back options
• More difficult to manage and there may be multiple dependencies
• Employees may have less time to familiarize themselves with the new system
• There could be an “Initial Dip Phenomenon”
ERP Conversion Strategies
• Phased Strategy
• Big Bang Strategy
• Parallel Strategy
• Both the legacy and the ERP Systems are run in parallel for some time, until it
has been tested thoroughly. Opposite of Big Bang Strategy
• Output from each systems are compared and differences reconciled
• Expensive in terms of duplicating of facilities and personnel to maintain the
dual system
• Required in certain essential systems like payroll, examination and defense
systems
ERP Conversion Strategies
• Phased Strategy
• Big Bang Strategy
• Parallel Strategy
• PROS –
• Accuracy of the system is properly checked
• The least risky implementation
• Pace of change is much slower than big bang but faster than phased approach
• In case of any unforeseen failure with the new system, the old system still continues
• Allows overlap and fall-back controls
• Does not need very meticulous planning in terms of fall back options
• CONS
• In terms of pure financial terms, this is the most expensive solution
• Employee has to enter data into both the system
• Employee may continue to use the old system thus making the new system least effective
• Users tend to compare the old and new and take an unnecessarily negative stance against the unfamiliar
Post-implementation Phase
• Evaluation of ERP
• Maintenance of ERP
Trends
• ERP on Cloud – Discuss!

• Individual Assignment 1 –
• What is an Open source ERP
• Explore major three Open source ERP vendors and their pricing (if any)
• Pros and Cons

• Individual Assignment 2 –
• Read Clash of Titans – Panaroma Consulting Report 2020 – and answer the following
• What are the main criteria on which different ERP vendors have been reviewed
• Which criteria do you think is the most important and why?
• Which vendor is performing best as per your understanding in the Indian Market?

• Individual Assignment 3 –
• Go to iimjobs.com and search for top five job roles related to ERP
• Jot down their job description, eligibility criteria and requirements
• Class Assignment
• Read the case reading for the next session – Cisco Systems Inc –
Implementing ERP
• Answer the following questions
• What factors had made the difference between success and failure?
• Where had they been smart?
• Where had they been just plain lucky?
• Could they do it again if they had to?