Description
The documents includes Essar group, Pantaloon retail, Madras cement, adventec coils, Hershey ERP failuresThis doc on Operations management covers topics like ERP, SAP R/3, SAP implementation, selecting SSA ERP.
OPERATIONS MANAGEMENT
ERP
An Operations Strategy
ESSAR STEEL
Introduction: The Essar group The Essar Group is one of the India’s largest business houses with an asset base of US$3 bn and interests in core industries like Steel, Shipping, Oil and Gas, Power, Telecom and Finance. Essar entered the Iron and Steel business in 1989 by setting up a 1.76 million tons per annum facility to produce Hot Briquetted Iron (HBI). This plant is the largest in the world. Essar has also set up a 2 million ton flat products steel plant. Overview: Essar Steel Essar Steel is a global producer of steel with a footprint covering India, Canada, USA, the Middle East and Asia. It is a fully integrated flat carbon steel manufacturer—from iron ore to ready-to-market products. Its products find wide acceptance in highly discerning consumer sectors, such as automotive, white goods, construction, engineering and shipbuilding. No wonder it is India's largest exporter of flat products, selling almost one-third of its production to the highly demanding US and European markets, and to the growing markets of South East Asia and the Middle East. Its lean team gives it one of the highest productivities and lowest manpower costs among steel plants internationally. Need for ERP: Essar Steel has a current capacity of 9 million tons per annum (MTPA). With its aggressive expansion plans in India as well as Asia and the America, its capacity will go up to 20 to 25 MTPA by 2012. A backward integration project in the shape of a 3.3 million tpa iron ore pelletisation plant has been set up to manufacture and supply high quality iron ore pellets. Essar has emerged as the largest fully integrated manufacturer of high-quality flat products in the western region of India - the hub of industrial activity in the country. Essar needed a fully integrated IT system to manage this huge set up. According to Anil Kastuar, C.I.O. Steel Business, Essar had a non-integrated system focused solely on finance. It was not linked to Production Planning, Materials Management or Sales & Distribution Management. This is not an era when decisions can be taken based on standalone
solutions. They must be based on inputs from other business areas. Essar needed a solution and it looked at SAP.s R/3, which fulfilled its objective. Why SAP.s R/3? ? Integration is of the essence in a complicated industry. To produce high-quality steel with the best ingredients, accuracy in the product mix was crucial. To enable this there was a need for an integrated and live information system. ? Essar deals with complex products, sizes, 10 grades. The wrong slab in the wrong furnace could create havoc. The company needed a system to manage all this ? It also had to track everything from raw material to production and finally its shipment. The transportation by road of say, 250 tons of steel a day, is dependent on a powerful information system. Essar selected SAP.s R/3 based on the strengths of the system and on its success elsewhere ? Its corporate culture is driven by respect for the best available in the market. SAP.s R/3 turned out to be the most powerful, proven software that could run a complicated business such as Essar’s SAP is able to provide solutions for a variety of industries. It is not an industry-specific solution. It is not a hardware-specific solution. It is an enterprise-wide solution with industry specific components for businesses like Essar’s. Implementation and control of SAP.s R/3 with a Big Bang Let us see why Essar chose to unfold the entire R/3 suite in one go calling it their Big Bang approach. ? Its steel plant was close to being commissioned and it needed to take care of each business process. This is why Essar decided to go for the Big Bang approach. ? Essar’s modules included: Finance, Asset-Management, Product Planning, Plant Maintenance, Sales and Distribution, Quality Management, Controlling, Commitment Accounting. The first 12 months saw the implementation of 3 modules: Finance, Material
Management and Controlling. All the production related modules went live in the 2nd phase, 3 months later. ? ? Essar had the help of their respected business managers in the implementation stages. They also had the assistance of a team of IT professionals and implementation consultants from Coopers & Lybrand ? Big Bang implementation was successful, primarily because of Essar’s confidence in jointly taking a seeming risk with Coopers & Lybrand. C&L’s well qualified, dedicated and experienced consultants with guidance from C&L.s global SAP Centre of Excellence,Hamburg, were able to meet the stringent deadline because of team spirit and dedicated Essar’s users and IT professionals who were supportive and responsive. For example when C&L had a problem with its Commitment Accounting, Essar flew down a consultant from Singapore to help Benefits of SAP.s R/3: ? It is imperative that the company knows, right from the time it takes orders, what its likely delivery schedule will be. All information from raw material procurement to inventory of finished products should be absolutely live. SAP provides a solution ? SAP R/3 solution binds every individual and every department with one objective efficiency. There can be no conflict of data. If there is a problem it surfaces the same day ? ? ? The cycle of customer enquiry to delivery has been reduced Essar’s truck turnaround time is reducing The ERP facility that SAP offers as a part of its production planning module is used extensively. The company is able to accurately plan procurement of spares and goods, raw materials and stocks ? Accounting has become totally decentralized. Every transaction that takes place in the plant updates the book of accounts automatically. For the first time the company is likely to close the first half of its balance sheets within 25 days of its closing period
ERP at Pantaloon Retail
IT is a critical function in a retail organization as it is one of the key enablers that drive business right from an inception stage to the moment when merchandise is sold into the hands of the consumer. The loop doesn't end here as feedback and response is fed back into the system. Successful IT strategy and deployment is one of the key differentiating factors, which give retailers a competitive edge over their rivals. About The Company: Pantaloon Retail (India) Limited, is India’s leading retailer that operates multiple retail formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in Mumbai (Bombay), the company operates over 11 million square feet of retail space, has over 1000 stores across 63 cities in India and employs over 30,000 people. The company’s leading formats include Pantaloons, a chain of fashion outlets, Big Bazaar, a uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends the look, touch and feel of Indian bazaars with aspects of modern retail like choice, convenience and quality and Central, a chain of seamless destination malls. Some of its other formats include, Depot, Shoe Factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Star and Sitara. The company also operates an online portal, futurebazaar.com. A subsidiary company, Home Solutions Retail (India) Limited, operates Home Town, a largeformat home solutions store, Collection i, selling home furniture products and E-Zone focussed on caterng to the consumer electronics segment. Reason For Selection Of Pantaloon: Pantaloon Retail is the flagship company of Future Group, a business group catering to the entire Indian consumption space. Pantaloon Retail forayed into retail in 1997 with the launching of its fashion retail chain, Pantaloons in Kolkata. In 2001, it launched Big Bazaar, a hypermarket chain. This was followed by Food Bazaar, a food and grocery chain. Next up was Central, a first of its kind located in the heart of major Indian cities. Some of its other formats include,
Collection i (home improvement products), E-Zone (consumer electronics), Depot (books, music, gifts and stationary), aLL (a Little Larger, fashion apparel for plus-size individuals), Shoe Factory (footwear) and Blue Sky (fashion accessories). It has recently launched its e-business venture, futurebazaar.com. The group's subsidiary companies include, Home Solutions Retail India Ltd, Pantaloon Industries Ltd, Galaxy Entertainment and Indus League Clothing. The group also has joint venture companies with a number of partners including French retailer Etam group, Lee Cooper, Manipal Healthcare, Talwalkar's, Gini & Jony and Liberty Shoes. Planet Retail, a group company owns the franchisee of international brands like Marks & Spencer, Debenhams, Next and Guess in India. Due to its extreme vastness and high level complexity, the company has due significance in implementation of enterprise resource planning model. Need For ERP: With growing competition in the retail industry, store operations have gained more importance with changing times. Successful retailers are those who know that the battle for customers is only won at the frontline, which in the case of a retail chain is at its stores. As per our case study, Pantaloon was regularly opening stores in the metros as a part of its major expansion plan. Due to this rapid development, there was an urgent need for a reliable enterprise wide application to help run its business effectively. The basic need was to have a robust transaction management system and an enterprise wide platform to run the operations. The company was looking for a solution that would bring all of its businesses and processes together. After a comprehensive evaluation of different options and software companies, the management at Pantaloon decided to go in for SAP. Currently Pantaloon is growing at a rapid pace, and to maintain its competitive edge, a complete IT infrastructure revamp has been pursued and the strategic relationship with SAP is in this direction. SAP is already implemented for the retail business across all business functions including finance, category management, SCM and store back office and is covering all stores across India. BI solutions from SAP are in place and are implementing management dashboards and advanced analytics using niche solutions The Solution: In view of the above constraints, SAP retail solutions was implemented which supports the qualities of product development, including ideation, trend analysis, and collaboration with
partners in the supply chain; sourcing and procurement, which involves working with manufacturers to fulfill orders according to strategic merchandising plans and optimize cost, quality, and speed–variables that must be weighted differently as business needs, buying plans, and market demand patterns change; managing the supply chain, which involves handling the logistics of moving finished goods from the source into stores and overseeing global trade and procurement requirements; selling goods across a variety of channels to customers, which requires marketing and brand management; managing mark-downs and capturing customer reactions, analyzing data, and using it to optimize the next phase of the design process. In a Nutshell Aim : To deploy a robust transaction management system and an enterprise-wide platform to run its operations. Solution Implemented by : SAP retail solution : SAP team with the help of Novasoft, Singapore Number of users Time taken Cost of implementation : Around 1,200 : About six months : About
The implementation The implementation of SAP retail solution at Pantaloons was outsourced to a third party. The implementation was done by the SAP team with help of Novasoft which is based out of Singapore. Some people from Pantaloon also assisted in the project. About 24 qualified people worked on this SAP implementation. SAP was chosen as the outsourcing party on a turnkey
basis. This project was headed by Pantaloon’s Chief Information Technology Officer, Chinar Deshpande Three Phases of Implementation of SAP: SAP implementation is not a single phase process. The project was divided into three phases. First Phase: The first phase involved blueprinting existing processes and mapping them to the desired state. In this phase, the entire project team worked on current processes within the structure of the organization, analyzed and drafted them. This blueprint was later used in the formation of new states of the solution. Since the SAP would combine all the processes, each and every one of these had to be evaluated. Second Phase: In the second phase, the SAP platform was developed with the help of Novasoft’s template which was predefined by SAP after evaluation of Pantaloon’s needs and expertise in retail solutions. Third Phase: The last phase in this project was for stores to switch over to the new system and for current data to be ported. Before the SAP implementation, all the data was unorganized. This data had to be migrated to the new SAP application. The project was flagged off on 15th June 2005 and took about six months to finish. It went live at the head office on 1st January 2006. The stores went live on SAP from 1st January 2006 to 30th June 2006. Benefits and Challenges The key challenges in this project were not in the implementation. The difficulties were faced during the data migration and in managing the interim period when the project was underway for about six months. Migrating unorganized data to an organized format is indeed a challenging task. Pantaloon has not been able to see immediate benefits from this implementation. This application certainly has long term benefits which are seen when the performance of various aspects are
analyzed. It is too early to calculate RoI. They have already started working on MAP (Merchandise Assortment Planning), Auto-Replenishment and Purchase Orders. Pantaloons also hopes to use these systems to optimize their inventory and cut it by about two to four weeks (depending on the line of business) Maintenance & Hardware SAP retail solution is currently being used by around 1,200 employees across the organization. For maintaining this implementation and its related applications, Pantaloon has an in-house team and it has outsourced ABAP resources. They are also in the process of setting up a SAP Competency Centre. The system runs on a HP Superdome server on HP UNIX 11i and the database is from Oracle. The cost of this project was about $10 million. Future projects After the successful implementation of SAP for its retail chain, Pantaloon plans to go ahead with IT projects such as implementation of WMS with RFID, Customer Intelligence and CRM. Inventory and Promotions Optimization will be pursued later this year. Security Standards Followed: HR is playing a crucial role in creating awareness among employees. Growth of manpower is phenomenal for Pantaloons. In order to ensure that information security is controlled within the company’s premises, Pantaloons is under a major plan for educating their manpower. With this in mind, they have tightened their internal processes, while the HR practices are in line with the company’s overall policies. Pantaloon has put strong firewalls-both hardware and software. This apart, they have tried to combine best of prevailing standards in the industry, ranging from perimeter security to desktop level security. Taking into account the geographic spread and the nature of business they have segregated the internal set-up from the outward facing infrastructure and implement the best in class products, services and solutions.
MADRAS CEMENT ABOUT THE COMPANY
Madras Cements Ltd is the flag ship company of Ramco Group, a well known business group of South India. It is based at Chennai. The main product of the company is Portland Cement manufactured through the four advanced production facilities spread over South India. The cement capacity is 8 million tons per annum. The company is the sixth largest cement producer in the country and the second largest in South India. Ramco Supergrade is the most popular cement brand in South India. The company also produces Ready Mix Concrete and Dry Mortar products. In addition, the company also operates one of the largest wind farms in the country. As on 31 March 2006, the company has made a turnover of Rs 1013 Crores and has a fixed assets base of Rs 1641 Crores. It has won many prestigious awards and is considered as one of the most energy efficient company in the country.
NEED FOR ERP
? MCL had several 'islands' of systems (its own legacy applications) running across its three manufacturing plants and its corporate office in Chennai. To gain a competitive advantage, it had begun investing in computerizing its payroll, finance, inventory, and invoicing systems in 1985. Over time every plant had its own systems, platforms, and processes. Due to a lack of integration and different reporting formats across plants, reports got delayed and accounts did not tally. The flow of information to the corporate office was not on time. Key information such as financial and production details were not uniformly available and there was a mismatch of information generated by production plants sent to the corporate office. This resulted in unnecessary delays in preparing a monthly accounts report. Shopping for software in-house Once the management decided to go in for an ERP system, the first choice was Ramco Systems' e.Applications because the company felt that choosing a package from their own group company would ensure smoother implementation and better servicing. It was also felt that implementing Ramco e.Applications would ensure smoother integration with other Ramco applications such as the real time system and open cost mining system
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used by MCL. e.Applications had a suite of Web-enabled products for the cement vertical. This version offered continuous process productions suite, productivity tools and reporting formats.
ERP AS A SOLUTION IN BRIEF: IN A NUTSHELL Company Product Locations connected Madras Cements is a cement manufacturer. It also goes by the name Ramco Cements. Ramco e.Applications 3.1 C Rel 5 Chennai, RR Nagar, Jayanthipuram, Alathiyur
Modules Finance, sales, logistics, CPP (Continuous Process Production), ore management being systems, maintenance, customizations for sales, logistics and HR implemented No of users Operating System Database Servers Cost 350 users Windows 2003 SQL Server 2000 12 Compaq ProLiant 5500 servers (Pentium III dual Processor, 1GB RAM and 36 GB HDD) Rs 12 crore (cost includes ERP package, hardware, OS, database and networking)
IMPLEMENTATION
? The first phase of the implementation was undertaken in November 1999 and was completed in about eight months. The major task was to map existing processes across nine functional modules such as-finance, sales, logistics, CPP (Continuous Process Production), ore management systems, maintenance, customizations for sales and logistics and HR, and to create a standard set of 'to be' processes, and then test them. The team consisted of people from the plant and the corporate office. It took a month per module to map the existing processes and convert them into 'to be' processes. There were a few customization problems.
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This was followed by a comprehensive training program, which covered the basic overview of ERP as well as details about the impact of ERP on each of the nine e.Applications modules.
EFFECT OF ERP
? ? ? ? ? ? ERP brought visibility into Madras Cements' business. Ramco's e.Applications (ERP) helped Madras Cements streamline its information flow. It has resulted in efficient capacity planning and utilization and helped eliminate wastage. The implementation has streamlined transactions systems across plants. It has helped MCL develop an in-house MIS (Management Information System), which helps the management get information from its plants on a daily basis. There was a substantial improvement in capacity utilization across the organization. For instance, it was found that some costly mining equipment was underutilized. After comprehensive analysis of mines, equipment and shift (labour) performance, 60 percent of heavy equipment has been withdrawn from operations due to poor performance and underutilization. The number of shifts has been reduced from three to two and by continuous monitoring, production and processes have been synchronized.
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ADVANTEC COILS
Introduction to Advantec Coils Advantec Coils Private Limited (APCL) was established in 1993. ACPL is a supplier to vendors like Hitachi and Carrier and has its own brand of indoor air conditioning units called Azure. Driven by exponential growth, the company has reinforced its position in its core competency areas through a series of carefully planned and executed vertical integration measures, from making its own moulds to establishing its own in-house injection moulding facility. In fact, Advantec was the first company in India to have its own moulds and continues to be the only Indian manufacturer to offer such an immense range of models. Advantec’s core business philosophy is built around the simple axiom that if you consistently deliver the right quality at the right price, and adhere to your commitments in respect of timelines and delivery schedules, you are sure to achieve growth both in terms of turnover as well as an expanding customer base. Need for ERP The company operates in a highly competitive business environment, which is characterized by seasonal demand patterns and high requirements during festivals. The onslaught of competition from low-priced Chinese products had increased the pressure to perform. Earlier, Advantec used to import moulded plastic components for air-conditioners from the East, and assemble them in India. Shipments rose from by 75% in 3 years. Its heater exchange coil sales also increased to 35,000 per month. Advantec decided to vertically integrate its business due to competitive pressures, and to lower the cost of raw material inputs, so it began manufacturing in-house the components necessary for the production of split air-conditioners. Meanwhile, its revenues nearly doubled in 3 years. To meet its growth plans it needed systems that helped in forecasting to absorb demand and market fluctuations.
After Advantec started manufacturing all the components in-house, even the smallest component had to be accounted for. The company was using Tally and Excel spreadsheets for accounts and inventory management and stand-alone software for automating the HR function. A purchase order (PO) for buying raw materials for different components was not linked to the bill of material (BOM). Tally’s limitations resulted in overstocked inventories. The accounting system was not able to give the exact BOM required to manufacture a given quantity of components. There was no means to check the inventory holding against production. Additionally, there was no visibility in our manufacturing supply chain and inventory. Checking the credentials of suppliers and the materials supplied by them was another bottleneck. One of the problems was that we were not able to do the costing of the end-product, the materials required and distribution in the absence of an integrated enterprise application. Due to the unavailability of even the smallest of components like a sticker, production could get delayed adversely impacting the time-to-market. On the other hand, maintaining excess inventory levels could be an expensive proposition considering the costs involved in holding the inventory. Implementation of ERP For an enterprise that plans to implement applications like ERP it is crucial to complete their homework on three basic elements: gathering of business data, setting and follow up of business policies, and establishing standard business practices that the application will handle. ACPL had started their home work around eight months prior to the beginning of the implementation. ACPL required a solution that would help the company improve its operations while remaining competitive by performing the following functions: ? ? ? ? ? Effective allocation planning and control of crucial resources like man and machine Well-tuned production environment with good synchronization among the various units to enable adaptation to the fluctuations in demand. Effective cost control to be able to deliver better value to its customers. Inventory visibility among the various units and inventory reduction across the supply chain.
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Availability of up-to-date and concise information to the top management to allow better decision-making.
These requirements warranted an enterprise-wide automation solution. Basically, Advantec needed smoother operations to sustain the company’s growth curve. After much deliberation, it implemented an ERP solution. Defying the traditional myth that ERP is only meant for large enterprises, ACPL chose to implement an ERP solution. It deployed SSA Baan ERP IV, which helped in effective inventory management and allowed the company to cater to seasonal spikes in demand. ACPL spent Rs 30 lakh on the hardware, software, support and implementation costs which was less than 1% of their turnover. The company opted for a seven-user license from SSA Global, India, with three modules, namely - manufacturing, distribution and financials. Advantec has clear cut internal policies in place for effective use of these licenses. They have allocated separate morning and evening slots for users from the production department, and a 24 hour usage period for the store department. This ensures that users from the financial department cannot use the application while the production department is using it. Additionally, Baan provides the facility for automatic logout of a user from the application if it is idle for five minutes. Selecting SSA Baan ERP According to Singh, while the need for an ERP was imperative, one of the key concerns was the time taken to adopt new information architecture and the disruptions that could arise in the organization's operations. The fact that ERP has been notorious for time and cost overruns was bound to create apprehensions and influence the final decision. This was specially so when ACPL had already deferred the decision to implement an ERP system earlier. Yet, one of the company's biggest compulsions was to plan production for the coming season. It needed a solution that would allow smooth and quick adoption of a new system without any compromise in its functionality.
After considering several ERP solutions, the decision was taken in favor of SSA Baan ERP IV since the solution provided everything ACPL was looking for: robustness, close fit with the business requirements, and cost-effectiveness. Polaris was chosen for implementing the solution because of its vast experience in SSA Baan ERP implementation and project management skills. Moreover, its 'Speed' framework promised to carry out the implementation in less than two months. Polaris’ SPEED frameworks used pre-defined templates for data collection, business reference models and process documentation; this helped speed up the deployment. During the process, Polaris trained 10 users on SSA Baan 4. A short turnaround time for resolving issues was ensured by holding regular meetings with the top management of Advantec to sort out contentious issues. Advantec maintained both SSA Baan 4 and Tally 6.3 in parallel till March 2005. By April 1, 2005 it completely moved to SSA Baan 4 with all modules, and discontinued Tally. Stages of implementation The company implemented the Manufacturing, Finance, and the Distribution modules of SSA Baan ERP IV. The Manufacturing module provides functionalities like Master Production Scheduler (MPS), Material Requirement Planning (MRP), Shop Floor Control (SFC), Production Planning (PP) and Control, and Capacity Requirements (CCR). Under the Finance module, the solution delivers functionalities like General Ledger, Accounts Payable and Receivables, Costing, Budgeting, Fixed Receipts, and Taxation. The distribution module includes Purchase Control, Inventory and Sales and Marketing functions.
A successful implementation Besides 'Speed' some of the other reasons for successful implementation were: ? ? ? ? ? ? ? ? ? ? ? Ability to effectively handle demand fluctuations. Inventory visibility across various units, enabling better-informed decisions and commitments to customers. Elimination of information islands scattered across the different business units of Advantec, and replacement of disparate systems by a single system. Clear and concise definition of Bill of Materials. Accurate production planning and materials requirement planning. Accurate costing of each order, and indication of having made a profit or loss. Inventory-based invoicing which was not possible in legacy systems. Automatic posting of logistics information to finance, which was manually done in the past. Streamlining of payment and receipts procedures. Automatic preparation of the Balance Sheet and Profit & Loss accounts; consolidation of financial information. The tangible benefit that is being felt is the reduction in the inventory levels. Within two years the company achieved 25 to 30% reduction in the inventory level.
What lies ahead As the system stabilizes and once the required data is generated, the company hopes to start utilizing the system for generating intelligent analysis reports like understanding demand patterns in the market, and specific patterns of demands from its OEM partners. Advantec’s technical team is also studying SSA Global’s new version, ERP LN (the next version after SSA Baan 4), and how it can be beneficial to its business.
Analyzing ERP failures in Hershey
There are chances of minute errors in an ERP implementation process. These errors are not negligible and could undermine ERP implementation process. If one were to analyze an ERP failure story it will be evident that these mistakes cost the bounty in the long run. The pathetic issue is that many bigger companies also failed to be cautious and paid the price later and that too heavily. The following study shows how things got messed up due to process failure in an organization, after ERP's intervention. Company Profile Hershey is a leading manufacturer of chocolates, confectionaries and beverages in United States of America. They offer lots of delicious and lip smacking chocolates in various assortments. The company also makes sugar free chocolates and products suiting the nutritional constraints of the customers. What started as a small entity by Milton S. Hershey in Pennsylvania has now become a very big company commanding a stake in the U.S. food market. They are also an important player in the international scenario. An Outline of the problem The technical team at Hershey had been working hard to implement ERP solutions for more than three years. They had chosen to implement SAP ERP a favorite choice of corporate ever since SAP ventured on to the service in the year 1992. This process went on during the peak periods when business was expected to do its best. The company had chosen to implement ERP by using a popular method whereby the whole process was brought into action at a stretch. The implementation and the business process which followed it proved to be a major setback for the company. There was a heavy loss in profits and sales. Reasons Hershey was prompt in doing things expected by an ERP vendor. They did not resort to any move capable of disturbing the plans of the vendor. They had extended full cooperation to the vendor in all aspect. There was really nothing to complain from the vendor's point of view or
from the technical point of view. However the following issues led to their downfall in an unexpected manner. Choosing the Wrong time for implementation This is citied to be the first and foremost reason for the debacle. The business prospects are slated to be promising in this period. The companies cannot be expected to change their way of business or restructure at this point of time. It is the period wherein competitors will vie in with each other to become the market leader and as well as defeat their rivals. In other words the company must concentrate on its core activities which will directly or indirectly reflect on the income generated. This is not to mean that the development activities and others that are not connected with profit making should be ignored. They should also be given due importance. They should take place simultaneously and of course receive the proper attention. The company will be more focused on trade activities while the amount of energy spent on the others will be considerably low.
When this is the case Hershey made a blunder of not only restructuring the business process and changing it but it went to the extent of spending the whole time and efforts on implementing Enterprise resource planning. This disrupted the normal functioning of the business and as well as created lots of confusions in the company. Since their attention was wholly diverted to ERP it was not possible to rectify the uncertainties that emerged in the business as a result of ERP.
When they tried to do that the attention paid to ERP was low. As a result the business faced a tragedy. Firstly they could not make good the sudden damages caused. On the process of doing the same they were not able to concentrate on ERP which was nearing completion. When the subsequent process were carried the company again had a rude shock because the ERP systems were not working in full Capacity as there were some final touches which were not done.
The company would have very well avoided this trouble if only they thought of going ahead with ERP during those occasions when the business process in the whole market experiences a slow movement. Any business will have such periods in all the years. Since Hershey took the right decision in the wrong time things were totally against their favor. If something had gone wrong
in the dull period they would have very well concentrated on that and made ERP a hit if. Since the companies can very well work on that process and pay full attention because of the slow/no business activities any potential trouble could have been easily averted and an ERP failure story would not have taken place. Too much of workload ERP is a complex process which calls for lots of maneuvering and processing in the company. The company needs to put many efforts in order to ensure the success of this process. As seen in the earlier paragraph the company should go ahead with the process only after assuring that it has the necessary time and can put the necessary efforts to ensure the success of the enterprise operation.
However the company made another mistake in addition to implementing it at the wrong time. They had also implemented many more enterprise applications like CRM and others. The company was at the receiving end by this time. They had already messed up by choosing the wrong time and spoiled the business prospects. They only found that things were getting worse and not better with the simultaneous implementation of the enterprise applications.
When they were about to rectify the business process ERP and other applications were not implemented fully. Hence when they came back after making major changes in the business process to suit the enterprise applications modality of operations the applications were not functioning with full vigor not only because of the incomplete works but also due to the break in continuity. Big-Bang Approach To quicken the implementation process, Hershey Halloween opted for the Big Bang implementation. Hershey simultaneously implemented a customer-relations package and a logistics package even without testing some of the modules. Hershey increased the overall complexity and employee learning curve.
Un-entered data ?Surge Storage? capacity not recorded as storage points in the ERP – Orders from many retailers and distributors could not be fulfilled, even though Hershey had the finished product
Why ERP Projects Fail? How to avoid specifically what happened at Hershey in 99 1. Focus on business processes and requirements first: It's easy to get dazed with the amazing set of capabilities of enterprise software. None of that really matters. Concentrate on what you want to do and not on what all can be done. Get you requirements right and then choose the solution rather than choosing ERP software first and then thinking what now. 2. Do not rush, acknowledge that most software projects have slippage : In 1999 Hershey was rushing to meet an immovable deadline, since it was trying to get off legacy systems that might not continue to work correctly as of Jan. 1, 2000. The project was planned to go live in April, an inactive month in candy business. Inevitably, there were slippages leading to postponement till October. This led to system going live in the busiest month October. Certainly a bad time to bring in major changes. 3. Go Piecemeal, a bit at a time: In enterprise software it is almost always a bad idea to introduce major changes at one go. Train your staff, introduce change in one department and then move on till the entire organization gets the cake. 4. Plan properly, make sure it's a positive NPV project, include post-implementation performance measurement: This requires doing more than just developing a high-level business case to get approval from upper management or your board of directors. It also entails establishing key performance measures, setting baselines and targets for those measures, and tracking performance after golive. This is the only way to truly realize the benefit potential of ERP.
5. Don't load your project with too many goals: Hershey wanted the ERP solution to meet its Y2K needs as well. From a cost perspective this looks like an effective solution. But to make this solution realize the light of day, one needs to plan well in advance. Overambitious projects have a little chance of success. 6. Commitment from company executives: Any project without support from its top-management will fail. Support from a CIO or IT Director is fine, but it's not enough. No matter how well-run a project is, problems arise (such as conflicting business needs), so the CEO and your entire C-level staff needs to be on board to drive some of these. 7. Devote more time up front rather than jumping in straightaway: An ERP vendor's motive is to close a deal as soon as possible. Yours should be to make sure it gets done right. Too often, companies jump right in to a project without validating the software vendor's understanding of business requirements or their project plan. The more time you spend ensuring these things are done right at the beginning of the project, the less time you'll spend fixing problems later on. 8. Ensure adequate training and change management: ERP systems involve big change for people, and the system will not do you any good if people do not understand how to use it effectively. Therefore, spending time on money on training, change management, job design, etc. is crucial to any ERP project. 9. Make sure you understand why you're implementing ERP: This is arguably the most important one. It's easy to see that many big companies are running SAP or Oracle and maybe you should too, but it's harder to consider that maybe you don't need an ERP system at all. Perhaps process improvement, organizational redesign, or targeted best-ofbreed technology will meet your business objectives at a lower cost. By clearly understanding your business objectives and what you're trying to accomplish with an ERP system, you will be able to make a more appropriate decision on which route to take, which may or may not involve ERP.
10. Value the Data: Make sure data provided to the ERP program is accurate. In Hershey's case, there were various unrecorded warehouses and the program had no way to find out the exact inventory position. Data management is one of the critical ingredients of a successful ERP project.
Conclusion The company could have avoided this menace if only they remained focused. They would have set an example for success instead of an ERP failure story. Companies have failed to learn from the ERP failure story in 1998.They had performed explicably in all areas whereby companies usually make mistakes like not cooperating with the vendor or not changing the business process. It is therefore evident that ERP implementation is a long drawn process which needs to be implemented meticulously as even the minute mistake will spoil the hopes and purpose of the project.
doc_615874187.docx
The documents includes Essar group, Pantaloon retail, Madras cement, adventec coils, Hershey ERP failuresThis doc on Operations management covers topics like ERP, SAP R/3, SAP implementation, selecting SSA ERP.
OPERATIONS MANAGEMENT
ERP
An Operations Strategy
ESSAR STEEL
Introduction: The Essar group The Essar Group is one of the India’s largest business houses with an asset base of US$3 bn and interests in core industries like Steel, Shipping, Oil and Gas, Power, Telecom and Finance. Essar entered the Iron and Steel business in 1989 by setting up a 1.76 million tons per annum facility to produce Hot Briquetted Iron (HBI). This plant is the largest in the world. Essar has also set up a 2 million ton flat products steel plant. Overview: Essar Steel Essar Steel is a global producer of steel with a footprint covering India, Canada, USA, the Middle East and Asia. It is a fully integrated flat carbon steel manufacturer—from iron ore to ready-to-market products. Its products find wide acceptance in highly discerning consumer sectors, such as automotive, white goods, construction, engineering and shipbuilding. No wonder it is India's largest exporter of flat products, selling almost one-third of its production to the highly demanding US and European markets, and to the growing markets of South East Asia and the Middle East. Its lean team gives it one of the highest productivities and lowest manpower costs among steel plants internationally. Need for ERP: Essar Steel has a current capacity of 9 million tons per annum (MTPA). With its aggressive expansion plans in India as well as Asia and the America, its capacity will go up to 20 to 25 MTPA by 2012. A backward integration project in the shape of a 3.3 million tpa iron ore pelletisation plant has been set up to manufacture and supply high quality iron ore pellets. Essar has emerged as the largest fully integrated manufacturer of high-quality flat products in the western region of India - the hub of industrial activity in the country. Essar needed a fully integrated IT system to manage this huge set up. According to Anil Kastuar, C.I.O. Steel Business, Essar had a non-integrated system focused solely on finance. It was not linked to Production Planning, Materials Management or Sales & Distribution Management. This is not an era when decisions can be taken based on standalone
solutions. They must be based on inputs from other business areas. Essar needed a solution and it looked at SAP.s R/3, which fulfilled its objective. Why SAP.s R/3? ? Integration is of the essence in a complicated industry. To produce high-quality steel with the best ingredients, accuracy in the product mix was crucial. To enable this there was a need for an integrated and live information system. ? Essar deals with complex products, sizes, 10 grades. The wrong slab in the wrong furnace could create havoc. The company needed a system to manage all this ? It also had to track everything from raw material to production and finally its shipment. The transportation by road of say, 250 tons of steel a day, is dependent on a powerful information system. Essar selected SAP.s R/3 based on the strengths of the system and on its success elsewhere ? Its corporate culture is driven by respect for the best available in the market. SAP.s R/3 turned out to be the most powerful, proven software that could run a complicated business such as Essar’s SAP is able to provide solutions for a variety of industries. It is not an industry-specific solution. It is not a hardware-specific solution. It is an enterprise-wide solution with industry specific components for businesses like Essar’s. Implementation and control of SAP.s R/3 with a Big Bang Let us see why Essar chose to unfold the entire R/3 suite in one go calling it their Big Bang approach. ? Its steel plant was close to being commissioned and it needed to take care of each business process. This is why Essar decided to go for the Big Bang approach. ? Essar’s modules included: Finance, Asset-Management, Product Planning, Plant Maintenance, Sales and Distribution, Quality Management, Controlling, Commitment Accounting. The first 12 months saw the implementation of 3 modules: Finance, Material
Management and Controlling. All the production related modules went live in the 2nd phase, 3 months later. ? ? Essar had the help of their respected business managers in the implementation stages. They also had the assistance of a team of IT professionals and implementation consultants from Coopers & Lybrand ? Big Bang implementation was successful, primarily because of Essar’s confidence in jointly taking a seeming risk with Coopers & Lybrand. C&L’s well qualified, dedicated and experienced consultants with guidance from C&L.s global SAP Centre of Excellence,Hamburg, were able to meet the stringent deadline because of team spirit and dedicated Essar’s users and IT professionals who were supportive and responsive. For example when C&L had a problem with its Commitment Accounting, Essar flew down a consultant from Singapore to help Benefits of SAP.s R/3: ? It is imperative that the company knows, right from the time it takes orders, what its likely delivery schedule will be. All information from raw material procurement to inventory of finished products should be absolutely live. SAP provides a solution ? SAP R/3 solution binds every individual and every department with one objective efficiency. There can be no conflict of data. If there is a problem it surfaces the same day ? ? ? The cycle of customer enquiry to delivery has been reduced Essar’s truck turnaround time is reducing The ERP facility that SAP offers as a part of its production planning module is used extensively. The company is able to accurately plan procurement of spares and goods, raw materials and stocks ? Accounting has become totally decentralized. Every transaction that takes place in the plant updates the book of accounts automatically. For the first time the company is likely to close the first half of its balance sheets within 25 days of its closing period
ERP at Pantaloon Retail
IT is a critical function in a retail organization as it is one of the key enablers that drive business right from an inception stage to the moment when merchandise is sold into the hands of the consumer. The loop doesn't end here as feedback and response is fed back into the system. Successful IT strategy and deployment is one of the key differentiating factors, which give retailers a competitive edge over their rivals. About The Company: Pantaloon Retail (India) Limited, is India’s leading retailer that operates multiple retail formats in both the value and lifestyle segment of the Indian consumer market. Headquartered in Mumbai (Bombay), the company operates over 11 million square feet of retail space, has over 1000 stores across 63 cities in India and employs over 30,000 people. The company’s leading formats include Pantaloons, a chain of fashion outlets, Big Bazaar, a uniquely Indian hypermarket chain, Food Bazaar, a supermarket chain, blends the look, touch and feel of Indian bazaars with aspects of modern retail like choice, convenience and quality and Central, a chain of seamless destination malls. Some of its other formats include, Depot, Shoe Factory, Brand Factory, Blue Sky, Fashion Station, aLL, Top 10, mBazaar and Star and Sitara. The company also operates an online portal, futurebazaar.com. A subsidiary company, Home Solutions Retail (India) Limited, operates Home Town, a largeformat home solutions store, Collection i, selling home furniture products and E-Zone focussed on caterng to the consumer electronics segment. Reason For Selection Of Pantaloon: Pantaloon Retail is the flagship company of Future Group, a business group catering to the entire Indian consumption space. Pantaloon Retail forayed into retail in 1997 with the launching of its fashion retail chain, Pantaloons in Kolkata. In 2001, it launched Big Bazaar, a hypermarket chain. This was followed by Food Bazaar, a food and grocery chain. Next up was Central, a first of its kind located in the heart of major Indian cities. Some of its other formats include,
Collection i (home improvement products), E-Zone (consumer electronics), Depot (books, music, gifts and stationary), aLL (a Little Larger, fashion apparel for plus-size individuals), Shoe Factory (footwear) and Blue Sky (fashion accessories). It has recently launched its e-business venture, futurebazaar.com. The group's subsidiary companies include, Home Solutions Retail India Ltd, Pantaloon Industries Ltd, Galaxy Entertainment and Indus League Clothing. The group also has joint venture companies with a number of partners including French retailer Etam group, Lee Cooper, Manipal Healthcare, Talwalkar's, Gini & Jony and Liberty Shoes. Planet Retail, a group company owns the franchisee of international brands like Marks & Spencer, Debenhams, Next and Guess in India. Due to its extreme vastness and high level complexity, the company has due significance in implementation of enterprise resource planning model. Need For ERP: With growing competition in the retail industry, store operations have gained more importance with changing times. Successful retailers are those who know that the battle for customers is only won at the frontline, which in the case of a retail chain is at its stores. As per our case study, Pantaloon was regularly opening stores in the metros as a part of its major expansion plan. Due to this rapid development, there was an urgent need for a reliable enterprise wide application to help run its business effectively. The basic need was to have a robust transaction management system and an enterprise wide platform to run the operations. The company was looking for a solution that would bring all of its businesses and processes together. After a comprehensive evaluation of different options and software companies, the management at Pantaloon decided to go in for SAP. Currently Pantaloon is growing at a rapid pace, and to maintain its competitive edge, a complete IT infrastructure revamp has been pursued and the strategic relationship with SAP is in this direction. SAP is already implemented for the retail business across all business functions including finance, category management, SCM and store back office and is covering all stores across India. BI solutions from SAP are in place and are implementing management dashboards and advanced analytics using niche solutions The Solution: In view of the above constraints, SAP retail solutions was implemented which supports the qualities of product development, including ideation, trend analysis, and collaboration with
partners in the supply chain; sourcing and procurement, which involves working with manufacturers to fulfill orders according to strategic merchandising plans and optimize cost, quality, and speed–variables that must be weighted differently as business needs, buying plans, and market demand patterns change; managing the supply chain, which involves handling the logistics of moving finished goods from the source into stores and overseeing global trade and procurement requirements; selling goods across a variety of channels to customers, which requires marketing and brand management; managing mark-downs and capturing customer reactions, analyzing data, and using it to optimize the next phase of the design process. In a Nutshell Aim : To deploy a robust transaction management system and an enterprise-wide platform to run its operations. Solution Implemented by : SAP retail solution : SAP team with the help of Novasoft, Singapore Number of users Time taken Cost of implementation : Around 1,200 : About six months : About
The implementation The implementation of SAP retail solution at Pantaloons was outsourced to a third party. The implementation was done by the SAP team with help of Novasoft which is based out of Singapore. Some people from Pantaloon also assisted in the project. About 24 qualified people worked on this SAP implementation. SAP was chosen as the outsourcing party on a turnkey
basis. This project was headed by Pantaloon’s Chief Information Technology Officer, Chinar Deshpande Three Phases of Implementation of SAP: SAP implementation is not a single phase process. The project was divided into three phases. First Phase: The first phase involved blueprinting existing processes and mapping them to the desired state. In this phase, the entire project team worked on current processes within the structure of the organization, analyzed and drafted them. This blueprint was later used in the formation of new states of the solution. Since the SAP would combine all the processes, each and every one of these had to be evaluated. Second Phase: In the second phase, the SAP platform was developed with the help of Novasoft’s template which was predefined by SAP after evaluation of Pantaloon’s needs and expertise in retail solutions. Third Phase: The last phase in this project was for stores to switch over to the new system and for current data to be ported. Before the SAP implementation, all the data was unorganized. This data had to be migrated to the new SAP application. The project was flagged off on 15th June 2005 and took about six months to finish. It went live at the head office on 1st January 2006. The stores went live on SAP from 1st January 2006 to 30th June 2006. Benefits and Challenges The key challenges in this project were not in the implementation. The difficulties were faced during the data migration and in managing the interim period when the project was underway for about six months. Migrating unorganized data to an organized format is indeed a challenging task. Pantaloon has not been able to see immediate benefits from this implementation. This application certainly has long term benefits which are seen when the performance of various aspects are
analyzed. It is too early to calculate RoI. They have already started working on MAP (Merchandise Assortment Planning), Auto-Replenishment and Purchase Orders. Pantaloons also hopes to use these systems to optimize their inventory and cut it by about two to four weeks (depending on the line of business) Maintenance & Hardware SAP retail solution is currently being used by around 1,200 employees across the organization. For maintaining this implementation and its related applications, Pantaloon has an in-house team and it has outsourced ABAP resources. They are also in the process of setting up a SAP Competency Centre. The system runs on a HP Superdome server on HP UNIX 11i and the database is from Oracle. The cost of this project was about $10 million. Future projects After the successful implementation of SAP for its retail chain, Pantaloon plans to go ahead with IT projects such as implementation of WMS with RFID, Customer Intelligence and CRM. Inventory and Promotions Optimization will be pursued later this year. Security Standards Followed: HR is playing a crucial role in creating awareness among employees. Growth of manpower is phenomenal for Pantaloons. In order to ensure that information security is controlled within the company’s premises, Pantaloons is under a major plan for educating their manpower. With this in mind, they have tightened their internal processes, while the HR practices are in line with the company’s overall policies. Pantaloon has put strong firewalls-both hardware and software. This apart, they have tried to combine best of prevailing standards in the industry, ranging from perimeter security to desktop level security. Taking into account the geographic spread and the nature of business they have segregated the internal set-up from the outward facing infrastructure and implement the best in class products, services and solutions.
MADRAS CEMENT ABOUT THE COMPANY
Madras Cements Ltd is the flag ship company of Ramco Group, a well known business group of South India. It is based at Chennai. The main product of the company is Portland Cement manufactured through the four advanced production facilities spread over South India. The cement capacity is 8 million tons per annum. The company is the sixth largest cement producer in the country and the second largest in South India. Ramco Supergrade is the most popular cement brand in South India. The company also produces Ready Mix Concrete and Dry Mortar products. In addition, the company also operates one of the largest wind farms in the country. As on 31 March 2006, the company has made a turnover of Rs 1013 Crores and has a fixed assets base of Rs 1641 Crores. It has won many prestigious awards and is considered as one of the most energy efficient company in the country.
NEED FOR ERP
? MCL had several 'islands' of systems (its own legacy applications) running across its three manufacturing plants and its corporate office in Chennai. To gain a competitive advantage, it had begun investing in computerizing its payroll, finance, inventory, and invoicing systems in 1985. Over time every plant had its own systems, platforms, and processes. Due to a lack of integration and different reporting formats across plants, reports got delayed and accounts did not tally. The flow of information to the corporate office was not on time. Key information such as financial and production details were not uniformly available and there was a mismatch of information generated by production plants sent to the corporate office. This resulted in unnecessary delays in preparing a monthly accounts report. Shopping for software in-house Once the management decided to go in for an ERP system, the first choice was Ramco Systems' e.Applications because the company felt that choosing a package from their own group company would ensure smoother implementation and better servicing. It was also felt that implementing Ramco e.Applications would ensure smoother integration with other Ramco applications such as the real time system and open cost mining system
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used by MCL. e.Applications had a suite of Web-enabled products for the cement vertical. This version offered continuous process productions suite, productivity tools and reporting formats.
ERP AS A SOLUTION IN BRIEF: IN A NUTSHELL Company Product Locations connected Madras Cements is a cement manufacturer. It also goes by the name Ramco Cements. Ramco e.Applications 3.1 C Rel 5 Chennai, RR Nagar, Jayanthipuram, Alathiyur
Modules Finance, sales, logistics, CPP (Continuous Process Production), ore management being systems, maintenance, customizations for sales, logistics and HR implemented No of users Operating System Database Servers Cost 350 users Windows 2003 SQL Server 2000 12 Compaq ProLiant 5500 servers (Pentium III dual Processor, 1GB RAM and 36 GB HDD) Rs 12 crore (cost includes ERP package, hardware, OS, database and networking)
IMPLEMENTATION
? The first phase of the implementation was undertaken in November 1999 and was completed in about eight months. The major task was to map existing processes across nine functional modules such as-finance, sales, logistics, CPP (Continuous Process Production), ore management systems, maintenance, customizations for sales and logistics and HR, and to create a standard set of 'to be' processes, and then test them. The team consisted of people from the plant and the corporate office. It took a month per module to map the existing processes and convert them into 'to be' processes. There were a few customization problems.
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This was followed by a comprehensive training program, which covered the basic overview of ERP as well as details about the impact of ERP on each of the nine e.Applications modules.
EFFECT OF ERP
? ? ? ? ? ? ERP brought visibility into Madras Cements' business. Ramco's e.Applications (ERP) helped Madras Cements streamline its information flow. It has resulted in efficient capacity planning and utilization and helped eliminate wastage. The implementation has streamlined transactions systems across plants. It has helped MCL develop an in-house MIS (Management Information System), which helps the management get information from its plants on a daily basis. There was a substantial improvement in capacity utilization across the organization. For instance, it was found that some costly mining equipment was underutilized. After comprehensive analysis of mines, equipment and shift (labour) performance, 60 percent of heavy equipment has been withdrawn from operations due to poor performance and underutilization. The number of shifts has been reduced from three to two and by continuous monitoring, production and processes have been synchronized.
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ADVANTEC COILS
Introduction to Advantec Coils Advantec Coils Private Limited (APCL) was established in 1993. ACPL is a supplier to vendors like Hitachi and Carrier and has its own brand of indoor air conditioning units called Azure. Driven by exponential growth, the company has reinforced its position in its core competency areas through a series of carefully planned and executed vertical integration measures, from making its own moulds to establishing its own in-house injection moulding facility. In fact, Advantec was the first company in India to have its own moulds and continues to be the only Indian manufacturer to offer such an immense range of models. Advantec’s core business philosophy is built around the simple axiom that if you consistently deliver the right quality at the right price, and adhere to your commitments in respect of timelines and delivery schedules, you are sure to achieve growth both in terms of turnover as well as an expanding customer base. Need for ERP The company operates in a highly competitive business environment, which is characterized by seasonal demand patterns and high requirements during festivals. The onslaught of competition from low-priced Chinese products had increased the pressure to perform. Earlier, Advantec used to import moulded plastic components for air-conditioners from the East, and assemble them in India. Shipments rose from by 75% in 3 years. Its heater exchange coil sales also increased to 35,000 per month. Advantec decided to vertically integrate its business due to competitive pressures, and to lower the cost of raw material inputs, so it began manufacturing in-house the components necessary for the production of split air-conditioners. Meanwhile, its revenues nearly doubled in 3 years. To meet its growth plans it needed systems that helped in forecasting to absorb demand and market fluctuations.
After Advantec started manufacturing all the components in-house, even the smallest component had to be accounted for. The company was using Tally and Excel spreadsheets for accounts and inventory management and stand-alone software for automating the HR function. A purchase order (PO) for buying raw materials for different components was not linked to the bill of material (BOM). Tally’s limitations resulted in overstocked inventories. The accounting system was not able to give the exact BOM required to manufacture a given quantity of components. There was no means to check the inventory holding against production. Additionally, there was no visibility in our manufacturing supply chain and inventory. Checking the credentials of suppliers and the materials supplied by them was another bottleneck. One of the problems was that we were not able to do the costing of the end-product, the materials required and distribution in the absence of an integrated enterprise application. Due to the unavailability of even the smallest of components like a sticker, production could get delayed adversely impacting the time-to-market. On the other hand, maintaining excess inventory levels could be an expensive proposition considering the costs involved in holding the inventory. Implementation of ERP For an enterprise that plans to implement applications like ERP it is crucial to complete their homework on three basic elements: gathering of business data, setting and follow up of business policies, and establishing standard business practices that the application will handle. ACPL had started their home work around eight months prior to the beginning of the implementation. ACPL required a solution that would help the company improve its operations while remaining competitive by performing the following functions: ? ? ? ? ? Effective allocation planning and control of crucial resources like man and machine Well-tuned production environment with good synchronization among the various units to enable adaptation to the fluctuations in demand. Effective cost control to be able to deliver better value to its customers. Inventory visibility among the various units and inventory reduction across the supply chain.
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Availability of up-to-date and concise information to the top management to allow better decision-making.
These requirements warranted an enterprise-wide automation solution. Basically, Advantec needed smoother operations to sustain the company’s growth curve. After much deliberation, it implemented an ERP solution. Defying the traditional myth that ERP is only meant for large enterprises, ACPL chose to implement an ERP solution. It deployed SSA Baan ERP IV, which helped in effective inventory management and allowed the company to cater to seasonal spikes in demand. ACPL spent Rs 30 lakh on the hardware, software, support and implementation costs which was less than 1% of their turnover. The company opted for a seven-user license from SSA Global, India, with three modules, namely - manufacturing, distribution and financials. Advantec has clear cut internal policies in place for effective use of these licenses. They have allocated separate morning and evening slots for users from the production department, and a 24 hour usage period for the store department. This ensures that users from the financial department cannot use the application while the production department is using it. Additionally, Baan provides the facility for automatic logout of a user from the application if it is idle for five minutes. Selecting SSA Baan ERP According to Singh, while the need for an ERP was imperative, one of the key concerns was the time taken to adopt new information architecture and the disruptions that could arise in the organization's operations. The fact that ERP has been notorious for time and cost overruns was bound to create apprehensions and influence the final decision. This was specially so when ACPL had already deferred the decision to implement an ERP system earlier. Yet, one of the company's biggest compulsions was to plan production for the coming season. It needed a solution that would allow smooth and quick adoption of a new system without any compromise in its functionality.
After considering several ERP solutions, the decision was taken in favor of SSA Baan ERP IV since the solution provided everything ACPL was looking for: robustness, close fit with the business requirements, and cost-effectiveness. Polaris was chosen for implementing the solution because of its vast experience in SSA Baan ERP implementation and project management skills. Moreover, its 'Speed' framework promised to carry out the implementation in less than two months. Polaris’ SPEED frameworks used pre-defined templates for data collection, business reference models and process documentation; this helped speed up the deployment. During the process, Polaris trained 10 users on SSA Baan 4. A short turnaround time for resolving issues was ensured by holding regular meetings with the top management of Advantec to sort out contentious issues. Advantec maintained both SSA Baan 4 and Tally 6.3 in parallel till March 2005. By April 1, 2005 it completely moved to SSA Baan 4 with all modules, and discontinued Tally. Stages of implementation The company implemented the Manufacturing, Finance, and the Distribution modules of SSA Baan ERP IV. The Manufacturing module provides functionalities like Master Production Scheduler (MPS), Material Requirement Planning (MRP), Shop Floor Control (SFC), Production Planning (PP) and Control, and Capacity Requirements (CCR). Under the Finance module, the solution delivers functionalities like General Ledger, Accounts Payable and Receivables, Costing, Budgeting, Fixed Receipts, and Taxation. The distribution module includes Purchase Control, Inventory and Sales and Marketing functions.
A successful implementation Besides 'Speed' some of the other reasons for successful implementation were: ? ? ? ? ? ? ? ? ? ? ? Ability to effectively handle demand fluctuations. Inventory visibility across various units, enabling better-informed decisions and commitments to customers. Elimination of information islands scattered across the different business units of Advantec, and replacement of disparate systems by a single system. Clear and concise definition of Bill of Materials. Accurate production planning and materials requirement planning. Accurate costing of each order, and indication of having made a profit or loss. Inventory-based invoicing which was not possible in legacy systems. Automatic posting of logistics information to finance, which was manually done in the past. Streamlining of payment and receipts procedures. Automatic preparation of the Balance Sheet and Profit & Loss accounts; consolidation of financial information. The tangible benefit that is being felt is the reduction in the inventory levels. Within two years the company achieved 25 to 30% reduction in the inventory level.
What lies ahead As the system stabilizes and once the required data is generated, the company hopes to start utilizing the system for generating intelligent analysis reports like understanding demand patterns in the market, and specific patterns of demands from its OEM partners. Advantec’s technical team is also studying SSA Global’s new version, ERP LN (the next version after SSA Baan 4), and how it can be beneficial to its business.
Analyzing ERP failures in Hershey
There are chances of minute errors in an ERP implementation process. These errors are not negligible and could undermine ERP implementation process. If one were to analyze an ERP failure story it will be evident that these mistakes cost the bounty in the long run. The pathetic issue is that many bigger companies also failed to be cautious and paid the price later and that too heavily. The following study shows how things got messed up due to process failure in an organization, after ERP's intervention. Company Profile Hershey is a leading manufacturer of chocolates, confectionaries and beverages in United States of America. They offer lots of delicious and lip smacking chocolates in various assortments. The company also makes sugar free chocolates and products suiting the nutritional constraints of the customers. What started as a small entity by Milton S. Hershey in Pennsylvania has now become a very big company commanding a stake in the U.S. food market. They are also an important player in the international scenario. An Outline of the problem The technical team at Hershey had been working hard to implement ERP solutions for more than three years. They had chosen to implement SAP ERP a favorite choice of corporate ever since SAP ventured on to the service in the year 1992. This process went on during the peak periods when business was expected to do its best. The company had chosen to implement ERP by using a popular method whereby the whole process was brought into action at a stretch. The implementation and the business process which followed it proved to be a major setback for the company. There was a heavy loss in profits and sales. Reasons Hershey was prompt in doing things expected by an ERP vendor. They did not resort to any move capable of disturbing the plans of the vendor. They had extended full cooperation to the vendor in all aspect. There was really nothing to complain from the vendor's point of view or
from the technical point of view. However the following issues led to their downfall in an unexpected manner. Choosing the Wrong time for implementation This is citied to be the first and foremost reason for the debacle. The business prospects are slated to be promising in this period. The companies cannot be expected to change their way of business or restructure at this point of time. It is the period wherein competitors will vie in with each other to become the market leader and as well as defeat their rivals. In other words the company must concentrate on its core activities which will directly or indirectly reflect on the income generated. This is not to mean that the development activities and others that are not connected with profit making should be ignored. They should also be given due importance. They should take place simultaneously and of course receive the proper attention. The company will be more focused on trade activities while the amount of energy spent on the others will be considerably low.
When this is the case Hershey made a blunder of not only restructuring the business process and changing it but it went to the extent of spending the whole time and efforts on implementing Enterprise resource planning. This disrupted the normal functioning of the business and as well as created lots of confusions in the company. Since their attention was wholly diverted to ERP it was not possible to rectify the uncertainties that emerged in the business as a result of ERP.
When they tried to do that the attention paid to ERP was low. As a result the business faced a tragedy. Firstly they could not make good the sudden damages caused. On the process of doing the same they were not able to concentrate on ERP which was nearing completion. When the subsequent process were carried the company again had a rude shock because the ERP systems were not working in full Capacity as there were some final touches which were not done.
The company would have very well avoided this trouble if only they thought of going ahead with ERP during those occasions when the business process in the whole market experiences a slow movement. Any business will have such periods in all the years. Since Hershey took the right decision in the wrong time things were totally against their favor. If something had gone wrong
in the dull period they would have very well concentrated on that and made ERP a hit if. Since the companies can very well work on that process and pay full attention because of the slow/no business activities any potential trouble could have been easily averted and an ERP failure story would not have taken place. Too much of workload ERP is a complex process which calls for lots of maneuvering and processing in the company. The company needs to put many efforts in order to ensure the success of this process. As seen in the earlier paragraph the company should go ahead with the process only after assuring that it has the necessary time and can put the necessary efforts to ensure the success of the enterprise operation.
However the company made another mistake in addition to implementing it at the wrong time. They had also implemented many more enterprise applications like CRM and others. The company was at the receiving end by this time. They had already messed up by choosing the wrong time and spoiled the business prospects. They only found that things were getting worse and not better with the simultaneous implementation of the enterprise applications.
When they were about to rectify the business process ERP and other applications were not implemented fully. Hence when they came back after making major changes in the business process to suit the enterprise applications modality of operations the applications were not functioning with full vigor not only because of the incomplete works but also due to the break in continuity. Big-Bang Approach To quicken the implementation process, Hershey Halloween opted for the Big Bang implementation. Hershey simultaneously implemented a customer-relations package and a logistics package even without testing some of the modules. Hershey increased the overall complexity and employee learning curve.
Un-entered data ?Surge Storage? capacity not recorded as storage points in the ERP – Orders from many retailers and distributors could not be fulfilled, even though Hershey had the finished product
Why ERP Projects Fail? How to avoid specifically what happened at Hershey in 99 1. Focus on business processes and requirements first: It's easy to get dazed with the amazing set of capabilities of enterprise software. None of that really matters. Concentrate on what you want to do and not on what all can be done. Get you requirements right and then choose the solution rather than choosing ERP software first and then thinking what now. 2. Do not rush, acknowledge that most software projects have slippage : In 1999 Hershey was rushing to meet an immovable deadline, since it was trying to get off legacy systems that might not continue to work correctly as of Jan. 1, 2000. The project was planned to go live in April, an inactive month in candy business. Inevitably, there were slippages leading to postponement till October. This led to system going live in the busiest month October. Certainly a bad time to bring in major changes. 3. Go Piecemeal, a bit at a time: In enterprise software it is almost always a bad idea to introduce major changes at one go. Train your staff, introduce change in one department and then move on till the entire organization gets the cake. 4. Plan properly, make sure it's a positive NPV project, include post-implementation performance measurement: This requires doing more than just developing a high-level business case to get approval from upper management or your board of directors. It also entails establishing key performance measures, setting baselines and targets for those measures, and tracking performance after golive. This is the only way to truly realize the benefit potential of ERP.
5. Don't load your project with too many goals: Hershey wanted the ERP solution to meet its Y2K needs as well. From a cost perspective this looks like an effective solution. But to make this solution realize the light of day, one needs to plan well in advance. Overambitious projects have a little chance of success. 6. Commitment from company executives: Any project without support from its top-management will fail. Support from a CIO or IT Director is fine, but it's not enough. No matter how well-run a project is, problems arise (such as conflicting business needs), so the CEO and your entire C-level staff needs to be on board to drive some of these. 7. Devote more time up front rather than jumping in straightaway: An ERP vendor's motive is to close a deal as soon as possible. Yours should be to make sure it gets done right. Too often, companies jump right in to a project without validating the software vendor's understanding of business requirements or their project plan. The more time you spend ensuring these things are done right at the beginning of the project, the less time you'll spend fixing problems later on. 8. Ensure adequate training and change management: ERP systems involve big change for people, and the system will not do you any good if people do not understand how to use it effectively. Therefore, spending time on money on training, change management, job design, etc. is crucial to any ERP project. 9. Make sure you understand why you're implementing ERP: This is arguably the most important one. It's easy to see that many big companies are running SAP or Oracle and maybe you should too, but it's harder to consider that maybe you don't need an ERP system at all. Perhaps process improvement, organizational redesign, or targeted best-ofbreed technology will meet your business objectives at a lower cost. By clearly understanding your business objectives and what you're trying to accomplish with an ERP system, you will be able to make a more appropriate decision on which route to take, which may or may not involve ERP.
10. Value the Data: Make sure data provided to the ERP program is accurate. In Hershey's case, there were various unrecorded warehouses and the program had no way to find out the exact inventory position. Data management is one of the critical ingredients of a successful ERP project.
Conclusion The company could have avoided this menace if only they remained focused. They would have set an example for success instead of an ERP failure story. Companies have failed to learn from the ERP failure story in 1998.They had performed explicably in all areas whereby companies usually make mistakes like not cooperating with the vendor or not changing the business process. It is therefore evident that ERP implementation is a long drawn process which needs to be implemented meticulously as even the minute mistake will spoil the hopes and purpose of the project.
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