March 28, 2020
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The World According To ERP

Thanks to Enterprise Resource Planning, a CEO now knows every detail of his firm.

The World According To ERP

CORPORATE wars have been traditionally fought in the marketplace, right? And then competition went ballistic, the environment became proof for chaos theory, the profit margins turned anorexic. As companies across the country, and in all industries, are realising, the war has to be waged as much within as outside. Businesses have to learn to strive for perfection first before taking on the competitor.

Perfection in today’s economy comes from information. The right information with the right people at the right time. Squeezed as a number of Indian companies are for profits and growth, they’re realising that earnings can be augmented by rationalising costs and inventory, by ensuring that the vendor does not dump his supplies, and cost, to the company. After all, the warehousing of raw materials and finished products, delays on the shopfloor and such routinely accepted practices do have a large element of hidden costs in them.

This is where Indian businesses have discovered – and are discovering – a new god: ERP. Nearly 300 corporates, names that will appear only after whipping the cream of companies in India, have already taken the plunge into the world of Enterprise Resource Planning. A revolutionary management technique – or a fad as some sceptics call it – which costs nearly $13 billion to 20,000 companies globally. And more are jumping on to the bandwagon everyday. The ERP industry is expected to grow by a whopping 60 per cent every year worldwide for the next five years.

What ERP does is link every function of the organisation, from human resources to finance to manufacturing, and often even suppliers and customers, in a seamless flow of information. The key is to "integrate" all information, so that you know at any point of time exactly what’s going on in the company. In its ultimate form, a CEO can actually track a single motor part that has been bought from a supplier from purchase and quality control through manufacturing – which particular scooter it is going into – and down the distribution chain to the man who buys that scooter. At every point, he also knows the exact cost and time of the part moving from suppplier to customer.

Suppose a customer walks into the CEO’s office and wants delivery within two weeks. With a few quick taps on the keyboard, the CEO mulls: "If I coax ABC to postpone the delivery of their schedules for one week and the same for BCD I’ll be able to meet this unexpected demand. And rake in more profits…" And presto! Even as the thought process is complete, the decision has already been made.

In the absence of the ERP package, the CEO would have convened a meeting of heads of various departments while he would have had to ask the prospective client to wait for a couple of days. By the time the order would be finalised, one week would have elapsed. By providing real-time information regarding all aspects of functioning of a company, the management information system helps effective planning which finally results in lower overheads. Result, reduced production costs. The goal: as always, higher profits. But, higher profits for both seller and buyer. The ERP-enabled seller can grab an opportunity and sell to a customer for a higher profit, but the customer too gets what he wants in the time frame that he has demanded.

The reasons for Indian companies adopting ERP are obvious. "The shift from a licensed to a liberalised economy has made the difference," says Oracle Corporation country manager Shekhar Dasgupta. With the experience of a number of large companies which have implemented Oracle’s ERP solutions, he says that automation does help in taking effective decisions. Deepak Ruhchandani, marketing director of Baan, another major ERP solutions provider, agrees. "The shift is taking place in the attitude of companies because they are feeling the pressures of competition."

Rationalisation of input costs is the key because it helps cut capital expenditure and operating costs. What is wonderful about the new method of working is that the ERP package can be as beneficial for Reliance Industries as an upstart one- year- old. For a different price, of course.

Take the example of Arvind Mills Limited ( AML ), one of the world’s largest denim manufacturers. To help its dream of being the leading global brand in every denimwear segment a reality, Arvind knocked on the doors of SAP India, subsidiary of the world’s largest ERP consultant, SAP of Germany. AML managing director Sanjay Lalbhai realised that the IT requirements of the company were being met on a piecemeal basis. To complement the growing business, a comprehensive strategy was put in place. And, hence, the SAP financial, accounting, treasury, controlling, production planning, materials management, and HR packages for AML .

Lalbhai had to create a new team consisting of his best professionals— they were called SAPFIRE —which could implement the package in seven months. Says Vikram Rao, president, AML : "This kind of handshake is permanent, and not introductory." Phase two of the project will seek to measure the processes and lead the way for business process re- engineering ( BPR ).

ALL this can cost a bomb, and more. For the small unit operating out of small premises, it would perhaps cost Rs 2 lakh. For larger companies, it could be a hundred times more. Reason? The operations of the bigger company are far more complex. So, naturally, it is more difficult to implement the ERP package. But there are enough people who believe that all this is a small price to pay to ensure that the enterprise does not get the guillotine when faced with the vagaries of competition. In essence, humans may fail but if systems are followed the organisation will not. This is the message that ERP vendors seek to give Indian companies.

Of course, when hundreds of companies have their systems in place, the cost of installing a comprehensive system can be brought down. To ensure that, all ERP vendors are now hawking solutions which are web- enabled— log on to the net and exchange information. In essence, several locations can function as islands and yet remain connected through the Internet. "That (the Internet) is the future," says Anil Bakht, CEO of Eastern Software Systems ( ESS ), confirming that his company is also planning to provide its solutions on the net.

Writes Paul Tate, executive editor of The Economist Group’s magazine Information Technology in Dynamic Enterprise Innovation , a Baan publication: "Like it or not, ready or not, across a wide range of business activities, innovat ive ideas spell the difference  between market survival and failure."

A cursory glance at several Indian companies, which have flourished during the licence regime, only confirms what Tate— who mentions products and services, sales chain, processes, supply chain, management and corporate culture as the areas which need constant innovation— has to say. Oracle, for example, has already provided ERP solutions for Bharti Cellular, British Petroleum, Indal, Kellogg’s and a host of other companies.

Interestingly, Indal’s parent company, Alcan, is implementing an ERP package after having seen its success in India. Sony, too, implemented the ERP package in India before deciding to introduce it globally. Such is the ERP ’s obsession to cut costs that storage of raw material not planned for immediate and even warehousing of finished products beyond a few days are considered inflating costs. "Reliability in time helps gain competitive advantage," Ruhchandani says, emphasising the need for a management info system. Questions Oracle’s Grover: "If the report regarding receivables for an large company takes 15 days to be compiled, the money is already blocked for that period. You can only plan from the 16th day."

Compare that with companies without real- time information. "We have gone to sites where companies are ordering raw materials when they have enough for six months," recalls Bakht of ESS , a company concentrating on marketing its package, called MAKESS , to small businesses.

But is ERP the ultimate system? Not quite. " ERP comes in when all the designs of the product are frozen and if changes are required, it can cost quite a sum," says Shantanu Rai, regional specialist with US- based Parametric Technologies Corporation ( PTC ). In addition, the success of implementing the ERP package cannot be guaranteed. Warns Ruhchandani: "Implementing it across the supply chain is the toughest thing."

Another problem crops up with the traditional Indian businessmen, hungry to find a loophole to evade excise and other taxes. ERP is not for them, as the system is all about transparency.

PTC has taken the ERP concept to a new plane where it combines the advantages of the CAD / CAM business with the shortcomings of the ERP package. The basic concept is the same, but the result: a software called Windchill which takes care of everything "right from the time when the product is conceptualised," says K. P. Unnikrishnan, PTC country marketing manager.

Since ERP concentrates on systems during the manufacturing, distribution and other processes, Unnikrishnan believes there is still a void between CAD / CAM and ERP . "This is what we are seeking to address." And the results are showing— in less than two months of its launch, the product has totted up sales of over $10 million globally. For Windchill, the size of the company is not a consideration. "We are talking with companies which are Rs 100- crore, Rs 1,000- crore and Rs 5,000- crore," says Unnikrishnan.

The future is here but for how long? That’s the billion- dollar question before strategists. If ERP succeeds manufacturing resource planning ( MRP ), can Global Resource Planning be far behind? Right now, the science of information management is expanding its horizon everyday.

With Archana Rai in Bangalore

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