wict2011 submission 171

8/3/2019 Wict2011 Submission 171

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ERP- No thanks!Veena Bansal

Dept. of Industrial and Management EngineeringI I T Kanpur

IndiaEmail: [email protected]

A K MittalDept. of Industrial and Management Engineering

I I T KanpurIndia

Email: [email protected]

Abstract We were approached by a small retailing enterprise,referred to as RetailS, to help them implement an ERP system fortheir business because RetailS had no in-house IT capability whocould lead an ERP implementation. The management of RetailSwanted to provide limited access to data to their employees andhave real-time access to all the data themselves. During our effort,we discovered that small IT vendors are very disorganised. Manyadditional issues surfaced during our effort that could not beresolved in a timely manner due to various reasons that wedescribe in this article along with the lessons learnt. We evaluateour experience on various known parameters from the literature.

Keywords -ERP; SMEs; business integration;

I. INTRODUCTION

We were approached by a small retail company in June2008 to help them implement an ERP system. Let us callthis company RetailS. We provide details of the companyin section II and the sales process is described in III. Thesection IV highlights the reasons for the management toimplement an ERP system. We describe the implementationeffort and its outcome that turned out to be a failure insection V. We then evaluate the reasons for our failure with

the known causes from literature in section VI to concludethe paper. This article refers to literature in the last sectionthat is different from the convention where literature reviewis done at the beginning of the paper. This article may alsoserve as a case for students. We provide analysis of the casein section VI that will help a reader to gain understanding.

An ERP system is dened as a comprehensive software package that stores, retrieves, modies and processes thetransactions of all the functions of an enterprise in an inte-grated fashion. From an information technology perspective,ERP is a semi-nished product with tables and parametersthat an organisation and its implementation partner congureaccording to the business needs. As we will explain in sec-

tion V, we could not nd a semi-nished product that wecould congure and start using for RetailS. But let us rstlearn about the company.

II . C OMPANY STRUCTURE AND ITS BUSINESS L INES

RetailS was formed in 1995. The company deals primarilyin metallic packaging material. It also deals in some foodproducts. Figure 1 shows various business lines that RetailSpursues. The turnover of company is about 10 million USDand the company has less than 30 employees. RetailS has 3

managing directors, a sales department, a purchase departmentand a nance & accounting department.The organisation struc-ture is shown in gure 2 using organisational model conventionused by SAP.

The management consists of one CMD and two managingdirectors. All three of them can make day-to-day decisions butthe policy decisions cannot be taken without the consent of the CMD. Purchase and sales department have approximately

10 persons each. Finance department consists of 2 full timeemployees and one part time consultant who visits as andwhen required. The turn over of the company is 30,000 USDper person per month. This gure indicates the efciency of the company. None of the material that RetailS deals in ismanufactured by the company. The parameters associated witha a product are just too many.

Just to get an idea, let us consider a metallic Easy OpenCan, one of the items that RetailS deals in. We have seen thesecans used by Coke/Pepsi (RetailS may not be supplying cansto Coke/Pepsi). The parameters associated with these cans areas follows:

i. Capacityii. Capacity Unitiii. Diameter of the caniv. Height of the canv. Diameter of the top lidvi. Diameter of the bottom lidvii. Colour of the canviii. Colour of the lidix. Colour of the lacquerx. Text to be written on the lid

The top lid and bottom lids are separate components thatmay have their own specications such as thickness, tabdesign, its location and style etc.. The CMD explained the

business processes to us in detail that we describe next. Theobjective is to understand the requirements and the concernsthe CMD had.

III. B USINESS PROCESSES OF R ETAIL S

The sales man takes orders from a customer and then getsthe material from a supplier directly shipped to the buyer. Thisseemingly simple process involves many steps and multipleoutcomes for each step. Figure 3 shows simplied version of the process using EPC notation (from SAP). Let us look atthis process stepwise.


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RetailSDL

ReatlS

Packaging

PureInstantCoffeePowder

Agglomerated

Coffee

ChicoryMixCoffee

BlendedCoffeePowder

SteelFoodCans

PeelOff

Lids

Printed &LacqueredTinplates

AluminiumNeck Foils

PaperLabels

SteelCan

EasyOpenEnds

Ends

Tin Lids

Material

CansSteel

CansAluminium

RetailSDB

ProductsFood

Fig. 1. Various Business Lines of RetailS

1) The salesman of RetailS may approach a potentialbuyer and ask him his requirements. There are fourpossibilities:

a) The effort to contact may fail due to change incontact details.

b) The potential buyer may not have any require-

ments.c) The potential buyer may ask the sales man tocontact later.

d) If there is a requirement, he may give him hisapproximate requirements in terms of products,price, quantity and timeline.

In case 1a, the salesman would record his effort in hislog book and make another attempt to get the changedcontact information. In case 1b, the salesman wouldrecord his effort in his log book. The recording serves

two purpose, one- no other sales person should contactthem; two- tells the management about the activities of the sales staff.In case 1c, the salesman would like to record the call anda reminder to himself to contact again. A mechanism isrequired to remind the sales person to contact the partyagain. It is worthwhile to point out that RetailS shouldcontact the potential buyer as promised even if the salesperson have left the organisation or is on leave. Again, anERP system would help sales staff to make the follow-upcall.In case 1d, he would like to record the details of thepotential buyer along with requirements and move on tostep 2.

2) All ve components- items, quantity, price, deliverydate- of the order, payment terms need to be dealt with.


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Purchase Sales Finance Management

Person1

Person2

Person3 Person3

Person2

Person1 Person1

Person2

CMD

MD

MD

RetailS

Fig. 2. Organisation Diagram for RetailS

Let us look at each of them next.a) Items included in the order: The salesman would

check the existing list of items that Retails sells.Each item is very complicated and may have asmany as 10 different parameters. The sales manmust check all of them. If the potential customeris interested in a new product, the salesman getsin touch with the management to check if RetailSwants to supply the new product before committinganything to the potential buyer. Management maydecide to supply the product. This would trigger achain of activities that would include identifying

vendors, negotiating prices, delivery period andincluding all this information in the database of the company.If Retails is not interested in the new product,the sales man would convey the message to thepotential customer accordingly.

b) Quantity and Inventory: The salesman checkswith the purchase team for the availability of theitems in the desired quantity by required deliverydate. The checking has to be done very carefullyagainst all parameters of the order. This process isvery error prone. Purchase team will perform thepurchase in a manner similar to sales.

c) Delivery Date: In order to x a delivery date, thefollowing components are considered:i) manufacturing time

ii) shipping time that depends on the location of the buyer. If the buyer is overseas, distancefrom the nearest port plays an important role.Retails has to give a delivery date that it wouldbe able to honour in spite of the potential delaysin manufacturing and shipping.

d) Price: Price list is consulted to check the availabil-

ity of the price for the item(s) of the potential order.If the price list is valid (it is less than a monthold) and the price is available for the item(s) of the order, the sales person can use these details inhis further communication. If the price list is staleor a price is not available, the sales person wouldhave to contact the management for the price.

e) Payment Terms: The salesman also negotiatespayment terms with the potential buyer.

3) The sales person after obtaining all required informa-tion, records them, creates a quote and (e)mails to thepotential buyer. At present, RetailS has paper les for

each customer containing all communications.4) The sales person is expected to make follow up calls tothe potential customer and convert him into a customer.When the sales person contacts a potential customeragain, any of the 4 key components of the order mayget modied including items, price, quantity or deliverydate. The sales man may have to do another iteration of steps 3 and 4 before actually receiving a order.

5) The material is shipped directly to the customer througha shipping agency.The shipping agency is also contactedand space on the shipping vessel is reserved by thesalesman. The terms and conditions are also negotiatedby the salesman.

6) All material is insured before transporting.7) As soon as a potential order is in view, the purchase

team has to become active. The interaction of thepurchase team with with potential vendors is similar tothe interaction of sales team with potential customers.We would not detail the purchase process further.

When we started talking to the CMD of RetailS, he voicedmany of his concerns and his reasons for wanting to deployan ERP system. We have mentioned some of his concernswhile describing the process above and an overall picture of


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Appx Requirements

ItemsQuantityPriceTime line

Contact Potential Buyer Contacted by Potentail Buyer

RecordReq

Inventorynot available

Invokepurchasecycle

Check inventory

RefineRequirements

PrepareQuotation

MgmtApproval

DispatchQuotation received

Order

Mgmt

Customer

ShipmentArrangements Insurance

DispatchMaterial

SendInvoice

ReceivePayment

LogEffortActvity

No requirementContact later

LogEffortActvity

ContactLaterReminder

Send Orderto Supplier

FollowupSupplier

Supplier

Fig. 3. Sales Process for RetailS

his concerns is given next.

IV. W HY RETAIL S WANTED ERP SYSTEM

Prices and their validity: Associated with each item thatRetailS deals in, there is a sale price. The managementxes prices for the known items and creates a price list.These prices are generally valid for a month. In certain

cases, the prices may uctuate in a positive or negativedirections about which only the management knows. It isthe responsibility of the management to update the pricelist. Since the management team consists of only threepeople and they are multi-tasking, it is not unusual forthem to forget to update the price list. Sometimes, themonthly update of the price list is also not done. Thesales staff may use the old list and cause loss to RetailSor overprice the customer that may result in loss of thecustomer, or his goodwill or both.The sales price is dependent on the purchase price. Themanagement negotiates with the vendors the purchaseprice before creating the sales price list.The management wanted an IT system that will send areminder to the management after a month to update theprice list. The IT system should also prevent the salesstaff to use a stale price.

Reduce Errors:Every order involves details that need to be carefullydened. There are multiple parameters associated witha product that Retails deals in. A mistake or omission of one of the parameters may result in delay, cancellationor rejection of the entire order. IT system can force the

staff to check every parameter.For instance, the payment terms have to be dened andagreed upon by Retails and the customer. Any omissionor mistake may cause delay or confusion in the payments.IT system can help Retails create a master list of possiblepayment terms to avoid any errors.

Follow up Retails needs to frequently follow up with theircustomers, vendors and shipping agents. A customer iscontacted multiple times during the process of a sale thatalso requires staff to contact the vendors multiple times aswell. IT system can generate a reminder to the concernedstaff for a follow up activity.An issue that management faces here is that the remainingsales team may not know about the call and others mayalso call the same potential buyer resulting in possibleannoyance. An immediate solution is to divide the com-panies or zones among the sales staff. The solution suffersfrom usual load-balancing issues. The more reasonablesolution is to have a real-time integrated platform wherethe call details and its outcome may be recorded for the

sales team to see. This was one the reasons, managementwanted an ERP Trade Secret: Retails succeeds in their business by iden-

tifying customers, providing them the items of requiredquality at agreed upon prices in a timely manner. All thisis possible if the vendors supply them quality items ata reasonable cost and on agreed upon time. Retails hasto protect price information from their existing compe-tition and from the potential competition that may evenshoot up from within Retails. The information should be


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available in a very selective manner to the employees.IT system can help Retails to make only the requiredinformation available to an employee.

Reports: It systems can provide required reports to themanagement about the organisation in real time in desiredformat.

V. I MPLEMENTATION D ETAILS

Budget and Time Line: The data collected from varioussources indicates that an ERP implementation costs around1% of the turnover of the company. For Retails, this gureturns out to be INR. 50,000,00. As mentioned earlier, Retailsis a very efcient company and this gure is way too highfor an ERP implementation. Also, Retails is happy with aproprietary software that they use for their nancial accountingand didnt want to include nancial accounting in the ERPsystem. They wanted to move in a phased manner. Themodules to implement are just about 1.5 out of 14 using SAPas a reference. Accordingly, we expected to be able to nd asolution for about INR. 5,000,00.

We expected the entire project to take about 6 months andfollowing is the break up:

Requirements Gathering and Documentation: One month Customisation buy the vendor of his product. This phase

is required because the ERP solutions for small enter-prises are not standardised as for large organisations.: Onemonth

Deploy: 2 Weeks Testing and data migration: One month Training: One month Leverage: One and a half month

Vendor Selection: There are three different channels to locatea vendor:

Search engines such as Google Business directories and Yellowpages Personal contactSearch engine and business directories gave us more than

50 potential ERP vendors. We went to the websites and basedon the look & feel and the last update, we short-listed about15 companies to contact. Some of the companies could not becontacted because either their phone number was stale or thecompany didnt exist any more. Some of the websites overclaimed their expertise and they were dropped from furtherconsideration after rst interaction. We were looking for acompany based in Delhi (NCR) region. If a company didnthave presence in NCR, it was also dropped. We managed toget a list of about 6 companies to interact with us. We madeappointment and waited anxiously on each appointment forthe company representative. To our utter surprise, each one of them was late for his appointment. Since these appointmentswere spread over a week and all these companies were inNCR region, we failed to nd any valid reason. Moreover,these representative turned up without any preparation. Noneof our questions were answered. The whole experience wasvery disappointing and we decided to try the next channel-personal contact.

We approached our friends and colleagues for nding anERP vendor. We quickly zeroed upon two companies, bothwere located in NCR region. We made appointment with oneof the company and the guy arrived about 45 minutes late. Thiswas the rst meeting that was organised at Retails and CMD of Retails was present. He questioned the company representativeand objected to his being late. His response was very annoyingand we dropped his company. We then moved onto our lastoption- let us call this company- KN and its CMD- Mr. Tiwari(not his real name). Mr. Tiwari also arrived late but by now,we all had lowered our expectations and decided to impressupon him to be on time from next time onwards.

First interaction with Mr. Tiwari was reasonable and weall felt that we can work with him. His team members were just about average or below average from our expectation. Mr.Tiwari showed us his product that they delivered to anotherclient. His claim was that he can quickly adapt the existingsystem to suit requirements of Retails. After 2 meetings, theterms and conditions of the contract were nalised and a timeline for various phases that were in accordance to the schedule

we had in mind. Everything got formalised and a contractbetween Retails and KN was signed. The signing amount waspaid to KN right away. The team consisted of the following:

CMD, RetailS: Champion and Business Process Owner Consultant: Interface between KN and RetailS Mr. Tiwari: Champion from KN Mr. Abhishek + 2 others: Project Manager + Developers

+ Tester

The work started by KNs team collecting requirements.During the meetings, the team seem to be taking notesbut eventually we discovered that the information didnt getcollated properly. After couple of meetings, it became clear

that the team is not equipped with the skill set required. Aftera period of almost 10 months and enormous amount of effort,we had made no progress. The product showed initially didntt the requirements at all. During these 10 months, availabilityof KNs team and CMD, Retails were not as much as wasrequired by the project. The consultant over-trusted KN anddidnt carefully match the initial product that KN claimedto almost for RetailS. The consultant also didnt visit thecompanys ofce and no cross-check with KNs clients wasdone. After 10 months, the consulted briefed CMD, Retailswho then called Mr. Tiwari and his team for a discussion. Afterthe discussion, Mr. Tiwari brought in another person, namesNimesh (not his real name) into the project and removed

everyone else from the project. Nimesh quickly picked up thethreads and started developing a product from the scratch.

We had to sit again with him to tell him the requirements.He progressed quickly and we started looking forward toseeing the nal product. Nimesh had another commitment andsome of his health problems kept him away from the project.When he became available, CMD, RetailS got busy withanother business line that he was exploring. The work on theproject completely stopped as he was just not available and hedidnt depute anyone else on the project. There was a total gap


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for almost 6 months. In the mean time, the consultant movedfrom Delhi and got busy. After spending almost 15 months onthe project, nothing got deployed. After the consultant settleddown, Nimesh was contacted to continue the project. By now,Nimesh had moved on and he was no more interested in theproject.

VI. E VALUATION OF THE PROJECT AND CONCLUSION

The ERP solution for RetailS never got deployed. We haveused [1] as a reference to identify the reasons for the failure.This paper has produced a consolidated list of all the criticalfactors from various sources [2], [3], [4], [5] etc. Theevaluation is done with the objective of learning from themistakes and be able to enhance the chances of success nexttime around. There are eleven identied factors critical to anERP implementation success spread over all phases of theproject including go-live and maintenance . Since we nevergot to these phases, we will not worry about the two factorsapplicable to these two phases. That leaves us with nine factorsout of which two factors were the deciding factors that wediscuss next.

ERP Teamwork and CompositionAs explained earlier, the only person from the RetailSon the team was CMD who was not always availableand there were long gaps between his availability.The vendor and his team was also not committed tothe project. The consultant didnt realise in time theimpact on the project. The project gets poor ratingon this factor.

Business Process Reengineering and CustomisationThis turned out to be the deciding factor. The vendorinitially indicated that they have a product and itwould require very little change for Retails. It turned

out later on, that they were developing the productfrom the scratch for RetailS. It was a big mistake onthe part of the consultant not to do a gap analysis atall. The project gets very poor rating on this factor.

Next time around, rst factor will be less critical as wehave already gathered requirements and we will need lesstime from the CMD. The second factor will be the decidingfactor. We will have to make sure that we nd a product thatalmost ts RetailS in terms of data, process and user [6].Organisational t has been identied as an important factor in[6] and the reason has been cited as the excessive amount of effort required to adapt the ERP system or business processesor both.

In [7], a scenario has been identied where small en-terprises go for supplier/consultant driven ERP implementa-tion. The management treats ERP implementation as non-ITexercise and this has been cited as a reason for failure. Incase of RetailS, IT department and expertise do not exist andthe organisation had no choice but opt for supplier/consultantdriven implementation.

In case of RetailS with no in-house IT capability, the re-sponsibility of entire project was on the consultant. There wereno documented processes that could be used as references.

The CMD had to describe the process that the project teamdocumented. The CMD had no knowledge of the modellingtechniques and was reluctant to learn to verify the documents.As a result, sometimes a confusion could not be resolvedbeyond doubt. We hope that our experience and analysis havetaught us important lessons for future.

ACKNOWLEDGMENT

The authors would like to thank ReatilS for giving theopportunity to one of the authors to implement ERP systemfor them.

R EFERENCES

[1] F. Nah and J. Lau, Critical factors for successful implementation of enterprise Systems , Business Process Management Journal, 7(3): 285-296, 2001.

[2] C. Holland and B. Light, A critical success factors model for ERP Implementation , IEEE Software (May/June), 3035, 1999.

[3] A. Y. T. Sun, et al, Achievements for Enterprise Resource Planning(ERP) System Implementation based on Critical Success Factors (CSFs) ,International Journal of Production Economics, 98, 189-203, 2005.

[4] P. Bingi, M. K. Sharma and J. K. Golda, Critical issues affecting an ERPimplementation , Information Systems Management (Summer),7-14, 1999

[5] M. Sumner, Critical success factors in enterprise wide informationmanagement systems projects , Proceedings of the Americas Conferenceon Information Systems (AMCIS), 232-4, 1999.

[6] Kyung-Kwon Hong and Young-Gul Kim, The critical success factors for ERP implementation: an organizational t perspective , Information andManagement, 40, 25-40, 2002.

[7] A. Marsh, The Implementation of Enterprise Resource Planning Systemsin Small-Medium Manufacturing Enterprises in South-East Queensland: A Case Study Approach , ICMIT, 592-597, 2000.

wict2011 submission 171

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