Bridging the Gap [Aug 2012]

August 23, 2012 9:51 am

Enterprise Resource Planning or ERP bridges the information gap across the organisation. Sukhad Kulkarni of Fujitsu Consulting India highlights the advantages of ERP systems in increasing efficiency of manufacturing plants
Manufacturing sector has always been a vital part of the world economy. As a sectoral analysis shows, the manufacturing sector contributed as large as 49 per cent of the GDP in China, and between 20 – 39 per cent of the GDP in the top-10 economies of the world. It has supported millions of jobs. Manufacturing is considered as a wealth producing sector of the economy; but on the other hand, the manufacturing operations do involve significant environmental and social costs.
Over the years, the sector has evolved more as an ‘ecosystem’. There are conglomerates spread across continents, and there are small and medium enterprises (SMEs) working in the form of ancillary units and catering to their various needs.
In the history of several decades, the manufacturing sector has undergone many ups and downs. It has impacted the other sectors like real estate, banking, and the so-called wealth-consuming sectors like services. The manufacturing sector has been severely challenged on many fronts; chief of them are the global competition, rising costs of energy, land, services, labour, freight, finance etc. On the other hand, the manufacturer must be imaginative and innovative to consistently improve on the product quality, cost, and meeting the timelines. Productivity, efficiency, quality, variability in cost structure, and innovation are the few significant factors that constitute to the magic formula of the sustainable growth of a manufacturer.
The information technology tried answering to the challenges of integrated transaction processing, real time reporting, common database, control over operations, collaboration beyond enterprise etc. Before the evolution of ERP, the manufacturing sectors were running on the MRP (Material Requirement Planning; and later Manufacturing Resource Planning). In 1990, the Gartner Group first employed the acronym ERP; which represented a larger, comprehensive, integrated application beyond manufacturing.
Although the initial versions and deployment methodologies were more suitable and affordable to the larger enterprises, the ERP system vendors have brought the products and services which are best suited to the small and medium size businesses as well. The ERP systems have now been an integral part of a manufacturing organisation’s strategy, budgets and the IT roadmap.
ERP systems have played a key role in the manufacturing sector. It connects with every component of a manufacturing operation and helps achieving the organisation wide strategic objectives such as improvement in efficiency, streamlining operations, reducing the number of independent and disintegrated systems etc. The ERP system eliminates the risks of running with redundancy of multiple systems; and provides a centrally controlled, enterprise wide information repository.
The greatest strength of the ERP system is integration. Although the ERP system touches upon the transactional processes across various business functions (and their sub-functions) such as finance, costing, procurement, inventory management, sales, customer service, production, quality, plant maintenance, human resources etc; it provides a common database, a seamless flow of the transactional data, and a consistent, real-time information system across all the business functions. It also brings a common user experience through uniform user interface and standard operating procedures. This helps improving the user efficiency to a large extent. Thus, the ERP system forms a robust database housing an enterprise wide master data and transaction records. The technology also provides highly controlled access authorisation and information security to the enterprise data.
Process Governance The ERP system helps bringing in uniformity and standardisation to the key business processes and information system across the organisation. Localised statutory compliances and certain key aspects in manufacturing like consumption accounting, material movements, inventory valuation, etc. can be governed at global level. Thus, the CXO offices can get a clear visibility of the process quality and process performance. Through the ERP systems, check points and control mechanisms can be introduced which in turn help the organisation to bring a high degree of process governance. It also provides the stakeholders an opportunity to improve the business process performance, effectiveness and transformation.
Common, integrated, unified Information SystemThe ERP systems bring capabilities of reporting not only the transactional aspects but also the key ratio analytics. Key performance indicators such as profitability, inventory turnover, asset turnover, OEE, FPR, excess freight, DSO can be monitored and tracked in a real-time fashion. By cultivating a single view of the organisation wide processes and data, the business community is much better equipped to take critical decisions with better predictability and accuracy.
The ERP systems are often termed as ‘One stop Solution from Shop floor to Top floor’. They provide a big aid to the production and procurement planners. They not only create the procurement proposals by arithmetic calculations, but also consider share of business, capacity constraints, sourcing preferences, and provide simulation models for running ‘what-if’ simulations. The technological advancements have now enabled enormous opportunities to collaborate beyond the enterprise boundaries. While the ERP remains the information backbone, the advent of connecting with the customers, suppliers, business partners, manufacturing execution systems have brought a significant insight to a manufacturer. Integrating with mobility solutions and social media is the current-gen wave. By moving outside of the enterprise walls, the supply chain, customer interactions, product lifecycle management, talent management has become extremely faster, better and cheaper.
With ERP implementation, there is a phenomenal opportunity of business process re-engineering. The manufacturer is able to access and deploy the business best practices through a right kind of ERP system deployment. Benchmarks at various facets of the peer industry are easily accessible, and the manufacturer is able to get an insight of his performance against these benchmarks. This brings tremendous advantage of globalising the key business processes and thereby a paradigm shift into managing overall business.
Cloud ERP and SaaS ERPERP software is designed to make business processes (sales, orders, manufacturing, accounting, invoicing, etc.) more efficient. The cloud accomplishes this by offering rapid scalability, pay-as-you-go pricing, and eliminating the burden of client-software. In the recent article in Forbes, David Yarnold states, “The dominant rigidity of on-premise ERP systems appears to be evaporating with the advent of more flexible cloud-based applications.” Cloud technology would be referred to as an infrastructure tool that can be used to reduce hardware and IT costs; while SaaS would be referred to as a deployment and business model that provides customers with a new way to purchase software. As seen from the diagram, one can have cloud without SaaS, SaaS without Cloud, or SaaS enabled by cloud. Cloud is a type of technology to run applications with SaaS; a type of delivery mechanism for applications.Myths about ERPThere are a few myths about ERP, mainly surrounding the size of the business, infrastructure, work culture, uniqueness of business, localisation requirements, process maturity, capital investment, maintenance cost, and the overall concept of ERP as such. The most commonly heard are – ‘ERP takes care of everything’ or ‘ERP adds to the work and processes’ or ‘ERP will make many jobs redundant’.
FactsThe facts are different. In the era of multi-location, distributed production environment, ERP systems have greatly helped managing complex activities in an organisation. They have helped deploying appropriate control mechanism and procedures. The successful ERP implementations have yielded brilliant results. Manual processes have been re-engineered, automated, planning and scheduling has become highly efficient, inventory is more accurately assessed and there are better controls over expenditures and overheads. Business performance measurement has become more objective and quantifiable. According to a survey, the ERP implementations have helped reducing inventory costs, operating costs and administration costs in the range of 10 per cent to 21 per cent. The benefits are myriad and beyond the tangible cost saving. They can improve the sales, customer service, responsiveness, hiring practices, employee engagement, talent management, productivity and quality. The ERP implementations have provided qualifiable ROI, and have brought opportunities of job enrichment to employees.