Executive Summary
The background for this paper is the analysis of the "Large Technology Company" referred to as LTC hereafter. The paper looks at the LTC's requirements for an ERP system recommends a suitable ERP solution for the company. Due to the growing complexity of the business environment in most industries and the increased globalization and the resulting internationalization, managing and utilizing information effectively is very important for the success of modern companies. Managing the whole operations requires IS that can integrate both external and internal information into readily available and usable forms. ERP systems are being used by many companies to manage their business processes and to integrate all the different operations in order to enhance information flow within the company as well as collaboration with partners, suppliers, and customers.
The major business benefits that are expected to occur due to the implementation of the ERP are to improve the business processes, productivity, performance, and the inclusion of best practices. Since there are areas where no business processes have been defined, the company expects that the ERP system would help define and put in place business processes there. The expectation is that the ERP implementation would also improve the current business processes where they exist. The improvement of supply chain management and logistics is an important goal as are the improvement of financial management, sales processes, and customer service management. The expectations are that the project management, invoicing, and planning activities are also positively affected by the ERP implementation.
The major technology benefits are that the ERP system implementation would enhance the information flow due to the integration of various functions. The ERP system should be able to scale based on the business requirements. The ERP system would improve the effective use of e-commerce websites. The ERP system is expected to lower technology maintenance costs and lower license costs.
Section 1: Problem Identification
The organization that has been selected for study for this paper is a technology company that provides energy savings solutions for the process industry, and will be called Large Technology Company or LTC in the paper going forward. It started as a start-up company but scaled exponentially over a very short period. It provides energy saving solutions for compressed air systems, fans, pumps, conveyors and other energy consuming systems. LTC has a technology platform that can be used for monitoring the energy efficiency of industrial processes. It is a tool for collecting data on energy consumption and presenting the information in an understandable and usable form. This enables the users to understand how their production processes consume energy and how the process quantities and energy usages are tied together. This will further enable the energy usage transparent and hence helps in optimization of usage. The platform consists of two elements LTC Gateways and LTC Cloud software services. As seen in Figure 1, the Gateway collects data through Gateway units installed in the customer’s premises from sensors, analyzers, and transmitters. The Gateway units are installed based on the mapping of the surveillance points and machines that the customers want to be monitored. They are easy enough to be installed by anybody and can be connected to any of the existing meters. The data so collected is sent to the LTC Cloud, which is a cloud-computing environment that lets the customer view the information after it is processed so that the tailored reports and charts can be viewed from anywhere in the world on a web-enabled device.
Figure 1: LTC Platform
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LTC has two different services the platform only service or ESaaS (Energy Savings as a service). In the first case, the monitors are installed and the data collected and fed to the cloud-computing platform. The customer gets access to the reports and charts and decides about what to do to optimize. ESaaS, on the other hand, gives LTC the full responsibility to make the required changes to provide the savings for the company and operates in no savings - no cost guarantee.
LTC is a large company with an aggressive growth strategy. Due to the nature of the business, the future operations are difficult to forecast accurately because the whole business concept is new and LTC needs to be able to adapt to the market needs. As the company’s operations have not been streamlined yet, many of the processes and procedures need to be planned and created without the possibility of comparison with existing procedures. The IS solution should be scalable and comprehensive enough so that LTC’s operations will not outgrow the system in the near future. However, there are constraints for the IS solution in terms of costs and scope. The activities that need to be supported by the IS Solution include sales process and customer relationship management (CRM) functions, human resources, project management, financial management, and purchasing and other logistic activities.
The requirements that the IS solution should achieve are to
Reduce time and cost of business processes
Achieve faster transaction processing using common data
Improve operational performance. This can be done by, say, reducing excess inventory and accounts receivables apart from others.
Improve supply chain management by improving linkages with suppliers and customers
Implement business processes that include the best practices
Improve information quality in various aspects such as availability, accessibility, accuracy, and timeliness
Improve the customer service and financial management
Enhance the organizational communication with customers and suppliers
Improving the e-commerce by improving the e-business and web-based interfaces
Lower information technology maintenance costs and possibly even lower license fees compared to using multiple separate systems
Improving the availability of information for planning and control
The business environment of most industries is complex as it has become globalized. Managing and utilizing information becomes very important for such organizations. As these companies concentrate on core competencies and outsource the rest of the activities, it is leading to complicated communications with the partner and contractor networks that are sometimes internationalized. To manage the operations, the information systems of all these networks must work in concert with the organization’s communications systems by integrating the internal and external information systems. Information technology solutions such as ERP systems can help the organization achieve this by managing their business processes, integrating all the different operations, and by enhancing information flow within the company as well as the collaborators, partners, customers, and suppliers. The company had identified that though everybody in the company will be affected by the implementation of the IS Solution, the main stakeholders are the management, the human resources staff, the IT staff, the customer service staff, the sales staff, the accounting staff, the logistics department, the suppliers, and the customers. To be able to have a single solution that can help all the above objectives to be achieved, the IS solution that has been selected was to implement ERP system. The ERP system will help the strategic and operational planning, sales and distribution, maintenance management, logistics management, human resources management, materials management, procurement, quality management, and finance and accounting. LTC is adopting an ERP system because implementing an ERP system at an early stage is beneficial as many business processes are yet to be established and therefore the need for reengineering is comparatively less, which decreases the employees’ resistance to change. The early implementation also helps LTC avoid many problems related to changing a familiar IT system and entrenched procedures. The Business Objectives that have to be satisfied by the ERP system are customer orientation, standardization, efficiency, and planning.
Section 2: Analysis of existing technologies
An analysis of the existing technologies at the LTC was done prior to the selection of the ERP software. The Information Systems & Technology (IS&T) group was mainly responsible for providing technical support to the operations function. The key divisions under this function are commercial (procurement, inventory, tendering, warehouse, and so on), engineering and projects, maintenance, business support, and a newly established division under the name of new services. The field support services, warehouses, and workshops, are under commercial and maintenance divisions respectively. The IS&T department had the mandate of providing computer and networking services to employees. The company ran Novell Netware and PCs were used for applications such as payroll and finance. The structure of the IS&T consisted of a networking unit and applications unit. The total number of IT staff, including network engineers, programmers and customer support staff was under 50. The following in-house applications were being used:
Financial Applications: General Ledger, Accounts Payable, Accounts Receivable, Payroll
Material Management: Inventory Management, Fixed Assets
Miscellaneous: Employee Database, Maintenance Work Order, Historical Database
The applications that were being used were either developed by third parties or in-house team but they were later on supported, maintained and enhanced by the IS&T. Data exchange among these applications was very limited. The management reports were predetermined with no flexibility. They were printed and distributed on a periodic or on-request basis. Management had to depend on the availability of the data, which was limited and decision-making required gathering information manually from various resources every time. Initially, the computers were only available to a select few based on their work profile but gradually all employees were provided with PC workstations with Windows or Macintosh operating system using word processing tools and other office applications. The PCs were eventually networked so the company decided to have a centralized storage system.
In the initial stages, the information technology group took the initiative by conceiving the idea for any technology changes or upgrades, which included software and application upgrades. They did the cost benefit analysis, in collaboration with the various department heads, and presented the plan to the higher management. This was either approved or rejected. On approval, based on the plan, the changes were affected either by the in-house team or by outsourcing, based on the capabilities of the in-house team. This process was later changed so that the users came up with the IS initiatives, perform the cost-benefit analysis in collaboration with the information technology team. The information technology team acted as a cost center and charged back the users for all services, including any new initiatives. The users had freedom to approach external vendors and get quotations from them for comparison. This process allowed better budgeting as resources were allocated based on user requests in advance. Consistent with this approach, the mission of the IS group was redefined as service provision and workshops for IS personnel were conducted to teach how to become high-quality service providers. The IT department was later turned into a division with five-year investment plans for long-term and users were allowed to outsource short-term projects.
The company presently has an ES/9000 mainframe, with MVS operating system. It had LAN and WAN infrastructure, using Novell and TCP/IP. There were about 700 users. About 100 users connected to the mainframe using dumb terminals while the rest used either a PC or a Macintosh. The company had outsourced the cloud services to a private cloud service. The company developed and used proprietary software for managing the integration of information from its sensors and it was reaching its maximum capacity. The company used many individual programs for marketing and sales, running on each sales personnel’s PC or Mac, without any integration. The logistics and planning systems, similarly, consisted of thousands of programs. Many of these programs were person-specific or location specific and not used by everybody.
There were a few problems with the current IT set up:
Only a few functions / processes were automated using database applications
All the applications were working in silos without any exchange or integration among them
The maintenance of these applications was very difficult due to the lack of documentation of source code, process information among the development team, and so on
Most business areas were not automated – hardly any decision-making was fully supported by the existing applications
Most of the company’s processes were cross-functional, however, the existing applications only supported a small portion of the cross-functional processes, so the value generated by these applications was offset by the subsequent manual flow of the information
The architecture of the applications itself was weak. The system controls were inappropriate, allowing human error during data entry. As a result, the management had little confidence in the reports generated from the system, resulting in a forced parallel-run of the manual registers and files for reconciliation and validation purposes
The core business areas were handled by manual processes. More than 80% of the staff was working in field operations (customer locations); while 10% were based in the Head office and the remaining 10% were deployed in field support services (workshops, warehouses, base camps, and so on). None of these areas had IT systems to support their processes
Long-employed staff with built-up tacit knowledge of the company became the only source of information. Lack of process documentation aggravated the problem and a few key positions held most of the process knowledge, creating critical organizational risk
Section 3: Analysis of existing resources
The sales process, which includes keeping track of all the appointments and customer calls, is currently manual, time-consuming, and hence difficult to keep all the pieces of information together. Due to the lack of common information repository, each sales person keeps his own records of customers, opportunities, and prospects and information sharing are problematic. The sales people have to keep track of customer calls and appointments manually, which was becoming tedious. More than the tedium, the problems that can arise in such a system were due to the availability of information in silos. If a particular sales person became temporarily non-available, due to sickness or similar incident, information sharing becomes a bottleneck. A solution to this problem could be implementing an ERP solution, most of which contains a CRM (Customer Relationship management) tool. The CRM tool would enable the sales people to organize all the customer-related information and make it available for the entire sales force while automating the repetitive process related tasks so that the sales force can focus on the actual sales. Figure 2 shows the current sales process with the orange boxes showing the manual sales processes.
Project management is a major issue for LTC, since the services that the company sells are handled as customer projects. All the components and services that are purchased for a project, as well as travel and labor costs, must be allocated to the right project so that the actual costs can be rightly apportioned to that project. This information is needed for monitoring and controlling costs of a particular project as well as making decisions concerning future projects. Currently, the cost control is quite problematic because many employees do different tasks for different projects but there is no proper way to allocate hours to each project separately. Tracking the components that are purchased for a certain project and installed in the customers’ premises over their life cycles becomes problematic without a proper tool, as more and more projects start.
LTC has outsourced its accounting and bookkeeping to an outside agency. The invoicing is not transparent and approval of purchase invoices requires too much work. Approval of purchase is time-consuming, as a lot of work is required to do that. Since allocating the purchase invoices and travel expenses to the right projects is problematic, financial accounting is also a problem. Handling travel expenses are quite burdensome, currently. Finding information from historical transactions requires approaching the external agency which charged by the hour and hence rather expensive. Due to this lack of ready availability of historical data, the company has suffered in strategic, tactical, operational planning. LTC is looking to automate, simplify and clarify the invoice circulation and the entire bookkeeping process with the new ERP system.
The company has multiple locations and information is being stored separately at those locations. The advantage of using an ERP system in logistics is the integration of information throughout the supply chain. This can improve operating performance, reduce costs and inventory . The logistics need a systematic approach to procurement, warehousing, and transportation. The whole supply chain requires rationalization. Current process lacks efficiency in the way the contracts with suppliers, transportation companies, and the warehousing and assembly are being carried out. At present, all components are purchased from various places, but separately for each project. They are then brought to one of the manufacturing locations, assembled, and shipped back to the customer’s place. Therefore, it is possible that components are purchased in China, shipped to the manufacturing plant in another country, assembled there and shipped back to China for deployment. By geographically decentralizing and restructuring the logistics, more efficiencies can be attained. By this, for deployment in China, the organization can purchase, assemble, store, and transport components in China, to save on transportation and customs costs. An ERP system would be able to facilitate the supply chain management. Improved inventory management is possible as, for example, order entry can allow immediate access to inventory, product data, customer credit history and prior order history. This kind of availability of information enables the organization to optimize production schedules and inventory levels increase productivity and therefore increases customer satisfaction.
LTC has offices in multiple locations. The company has a good working atmosphere and people are supportive of each other and any initiatives taken by the company. The company culture is an open culture in each of these locations. However, the communication between each of these locations is problematic and some issues of importance at one location are overlooked by the other locations. There is an intranet site called LTC wiki, which is a forum for both formal and informal announcements enable workers to know what is going on with the company and other employees’ individual tasks. This helps the employees be aware of what is happening in other locations. While the communications are not currently a problem, if the company grows in the similar manner as it has been growing, then there is a potential for issues creeping up. Managing the information is taking up a considerable amount the organization’s time and effort. It is also creating a problem as managers are struggling to monitor the information that is being shared on the intranet so that the privacy and trade secrets are not being shared inadvertently shared. As the company grows, this problem can only get bigger. An ERP system could facilitate the communication related to projects and other business processes. It can also facilitate various role-based and rule-based accesses so that only the relevant information will be shared with the relevant people.
Section 4: Analysis of potential solutions and risks
ERP entails a significant amount of risk due to the large investments and hence the risks should be analyzed. The ERP project investments differ from other production investments because it is often a strategic investment and the success of the project is not typically measured in monetary terms but by comparing the outcomes with the goals and objectives. By identifying the risks, they can be mitigated or prevented. The risks were derived from the analysis of the present state as well as from ERP implementation narratives of other companies’. Three different types of risks can occur during an ERP implementation; 1) risks of ERP system selection, 2) risks of ERP system implementation, and 3) risks of ERP usage.
Risks occurring due to the selection of wrong ERP system can be fatal. The risk matrix given in Figure 4 shows the impact of different factors.
Figure 4: Risk matrix of ERP system selection
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Risks of selecting an unsuitable ERP system are high as the processes at LTC are not mature, as they have not kept up with the explosive growth. The company had to make up processes on the fly. Hence, it is difficult to select an ERP system as the selection is based on the status of the business today and prediction of the future, but LTCs future is difficult to forecast accurately, as there are no companies in the same space with mature processes. The other factor is the selection of the vendor who can manage the implementation, training, and other consultation while the LTC staff can work on developing its proprietary software for LTC Cloud and its integration with the ERP system. The technology platform is important and since most ERP systems are compatible with the current technology environment of LTC, the risks are minimal here.
The risks with implementation include the risks due to improper change management. ERP implementation is a huge change and people have to participate in this change, the different subject matter experts (SMEs) should contribute to this, and the users should be committed to the implementation and be ready for changes in business processes. Even for a company like LTC with no set procedures currently, there will be procedures that have to be followed by the implementation. The staff should be committed to supporting the new processes or else the implementation will fail. In this phase, the possibility of unforeseen events is high. The capability of the staff contributing to the implementation and take care of their daily business at the same time depends greatly on communication, project planning, and project management. The extra effort needed has to be justified so that they understand the necessity of their contribution. The staff has to be informed about their tasks and responsibilities well in advance. There is a risk that the system will not work as expected. The relationship between the organization and the vendor is essential for the success of the implementation. Although ERP systems can be very advantageous for the organizations using them, the implementation of these systems has often proven to be problematic. In addition to problems regarding the ERP implementation process, there are other disadvantages associated with ERP solutions. Probably the biggest downside to ERP systems is the high costs of the technology. For big companies, the implementation of ERP systems is a multi-million dollar undertaking with the consulting fees sometimes being higher than the ERP system license fees. Only a few companies can use the ERP solution right out of the box and most companies need to tailor the solution for their organization. This includes both configuration and modification of the system, which can be tedious and costly. ERP systems can be too rigid and difficult to adapt to the existing or required workflow and business processes of certain companies. In these cases, the adoption of ERP can cause loss of flexibility and complicate the everyday work of the users.
There are several risks associated with the use of ERP usage. ERP systems introduce “best practices,” and although these can improve companies’ business processes, they create challenges for ERP implementation, as they tend to replace those very business practices that have been the source of the company’s competitive advantage. With ERP system in place, the old processes that could have provided the flexibility that would differentiate a company may have been lost forever. The best practices may also clash with the organizational culture resulting in culture clash leading to further problems. The changes due to the implementation of new best practices lead to changes in the way the staff work and this could lead to resistance from the workers. The reason for the failure of many IS solutions is this resistance to change by the workers and has to be managed by the organization if the implementation has to be successful. The benefits of ERP are not realized unless the system is utilized properly and used as it was designed to. System updates can prove to be problematic due to the integrations with other programs or if the system is heavily modified, but since LTC is essentially starting with a clean slate, these problems are minimal and the processes can be designed to fit the system with minimal tailoring. LTC is also looking for a comprehensive system so there is less need for integration. Both these will result in a less costly solution. However, since the future of LTC is unpredictable, the ERP system should support customizations if needed in the future. There is a risk that the ERP implementation may not appear to deliver any benefits to everybody. This will result in the employees not using the system properly, which causes redundancy. To prevent this, the business objectives must be clearly defined, monitored, and evaluated regularly. An important issue to consider is to have a plan in case the vendor has to be changed. Finally, the data that is required for the functioning of ERP must be properly input so that the desired benefits are derived.
Section 5: Proposed solution and recommendations
LTC plans on global expansion so an ERP system that supports international business activities and readiness for various localization are preferred. The system should be comprehensive enough to support all the business processes of the company and should integrate with the companies email and calendar. The most important processes for LTC include the sales process, processes related to the projects, financial management processes, and logistic processes.
Figure 5: Vendor evaluation for ERP system
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During the ERP selection process, the vendor evaluation matrix for selecting the ERP system (Figure 5) was used. The SAP ERP package was selected as it satisfied all the requirements, is supported widely by different vendors, and had features such as schedule management using the project system (PS) module while providing functions for controlling and forecasting costs using the cost controlling (CO) module. A project management team was formed. The five-stage process for ERP implementation is proposed (Figure 9, in the appendix).
Stage 1: Project Preparation
Organizing the project, steering committee, and the project team so that the ERP project team has representatives from all functional units related to ERP
Definition of scope and vision-based performance including objectives
Detailed project plan creation. Implementation plan and assignment of responsibilities
Stage 2: Business Blueprint
There are two approaches to ERP implementation. The business processes that are existing in the organization can be reengineered to suit the functions and business processes available in the ERP system. Alternatively, the ERP system modules can be customized/modified to fit the organization’s business processes. This is the preferred method if the organization wishes to maintain its existing business processes, as they might be the reason for their competitive edge. However, many researches indicate that ERP customizations should be avoided or minimized in order to achieve the full benefits of the ERP systems.
Analysis of current business process
Flowcharting of the processes
New process design mapping
BPR (Business Process Reengineering) redesign
Hierarchy, Scenarios, Scripts, and Tables
Selecting ERP system
Education about ERP system selection process
Mastering ERP system configuration and functionality
Stage 3: Realization
Technical development
Modifications
Interfaces
Data conversions
(Optional) Pilot project
Stage 4: Final Preparation
Tuning and testing
Finalize processing options, profiles, menus, and testing robustness
Educate and train critical mass on processes, data discipline, and modules. End user training is necessary and a critical factor for the success of an ERP implementation. The complexity of the integrated ERP system necessitates the end user training so that the users obtain a robust understanding of the system and know how to use it. Consequently, training and education will maximize ERP benefits .
Stage 5: Go live and support
Bring ERP modules live
Improve and expand ERP systems continually
The proposed solution for the sales process after ERP implementation is in Figure 6. As mentioned earlier, the activities related to sales and customer relationship management requires manual work now. The ERP system is expected to have tools for automating unnecessary repetitive manual tasks that LTC’s sales people are currently carrying out and the ERP utilizes a database to centralize the information. Figure 6 illustrates the simplified outline of a sales process after the implementation. The orange boxes represent the manual tasks that LTC’s sales staff must do and the yellow boxes represent the tasks that are automated fully or partially by the ERP system. The system continues to create the bill of materials, picking lists and/or purchase orders according to the order and finally generates an invoice to the customer.
Figure 6: Sales process of ERP implementation
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LTC’s projects can be relatively complex and long lasting. The ERP system must be able to facilitate the project management and provide useful reports and information concerning the projects. ERP’s project management tool will facilitate the controlling and monitoring of the project’s costs and progress. It will ensure that all the hours worked for the project are attributed to that project and all the purchases for the project are invoiced to the right project. In LTC’s case, some customer projects can go on for long periods after the installation. Therefore, the system’s ability to monitor the installed items, track and record customer requests, and create and send repetitive invoices, is important. Figure 7 illustrates an example of the outline of LTC’s customer project in the ERP system.
Figure 7: Outline of a customer project in ERP system’s project management tool
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The ERP system's financial management tool is important for LTC’s future, as it will contribute to the overall efficiency and productivity of the company. The real-time access to financial information enhances decision-making. The ERP systems’ financial modules support budgeting, bank reconciliation, and multiple currencies. It creates automatic journal entries from transactions. It can automate the allocation of these transactions to a project or a profit center. Currently, the financial management system for LTC is outsourced and hence the access to historical financial information is problematic. The present system creates lags before the transactions are recorded and allocation of some of the transactions to the right project is not optimal. The invoice circulation is not satisfactory. Figure 8 shows a simplified outline of the purchase invoice circulation with the expected functionality after implementation of the ERP system.
Logistics management is important for LTC’s operations even though it is not a manufacturing company. LTC's energy savings services need hardware to be purchased, assembled, stored, and transported to the customers’ premises. All these activities must be planned and turned into efficient logistic processes that will form the basis of the logistic operations. The ERP system will support purchase activities by automating the purchase order creation and related invoicing, transportation activities, inventory management, and warehouse management. LTC should be able to optimize the supply chain management by creating processes for the same. ERP system has a major role in controlling the information flows related to the supply chain and in automating several tasks that currently need to be done manually.
Figure 8: Purchase invoice circulation with ERP system
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Appendix
Figure 9: Five-stage ERP implementation process
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