What drives ERP?

• Business drives
 Customer Satisfaction
 Business Development - new areas, products, services
 Ability to face competition
 Efficient processes required to push the company to top gear
• IT drives
 Present Software does not meet business needs
 Legacy systems difficult to maintain
 Obsolete hardware/software difficult to maintain
 Drivers
The market for ERP however does not sound so depressing.
Companies still have growth avenues which include:

• Less penetrated modules within the ERP suite, both horizontal

and vertical.

• The new horizontal areas include E-commerce, Customer

relationship management, Supply chain management, plant
maintenance, field service, data warehousing, product data
management, etc.

• Among the vertical application are industries such as retail, utilities,

insurance, and government organizations. The mid market
segment presents immense opportunities.
 Drivers (contd…)
• The margins from SMEs will be far below that from the larger
players. They are relatively less sophisticated on the technology
side.

• Another major demand driver will be the e-commerce wave. As

more and more company move towards e-commerce it becomes
necessary to implement ERP solutions.
 Hurdles for the growth of ERP market
Except for SAP most other players have witnessed a
slowdown in revenue growth. The main constraints to
growth for the sector can be classified as:
• Saturation of the certain horizontal applications including Finance
and accounting, MRP etc which accounted for nearly 45% of the
ERP revenues during1998.
• Saturation of large customers. Most of the Fortune 500
companies and companies having revenues over $1bn have
already implemented ERP.
• Though the medium enterprises provide a good opportunity for
growth, pricing for these companies will have to be highly
competitive and margins may come under pressure. Thus smaller
players who have a cost advantage will have an edge over the
others.
 ERP in India

• Until recently Indian organizations were in a sellers market and

operating in a regulated environment. They grew by managing
the environment, rather than innovating and improving internal
efficiencies.
• The customer was taken for granted and quality was available
only at a premium. With globalization and gradual lifting of
regulation, there is a paradigm shift in running the business.
• Indian companies now need to increase customer focus, improve
speed of delivery, be cost competitive and provide value for
money (improved quality at lower price).
• Indian companies therefore need to implement ERP systems for
improving their business processes and becoming more
competitive in the global environment.
What Types of Businesses Use ERP Systems?
Enterprise Resource Planning (ERP) software supports the
distribution of information between various functional departments
and geographic locations of a company. A business seeking to
purchase and implement an ERP system should perform
extensive due diligence on the available systems and suppliers.
Manufacturers:
Many manufacturing companies rely on ERP systems to
communicate data between departments such as production,
shop floor planning, purchasing, accounting. ERP systems give
manufacturing companies a more effective communication tool
between internal departments and external suppliers. Many
manufacturing companies that use just in time (JIT) inventory
management allow external suppliers to integrate with their ERP
systems. This integration allows suppliers to make proactive
inventory decisions based on real-time data.
• Big-Box Retailers:
Most big-box retail stores use ERP systems to communicate
information between individual retail locations, distribution
centers, corporate headquarters and suppliers. Because big-box
retailers maintain millions of items in inventory spread across
multiple areas, an ERP system is the only feasible way to
manage all of the data.
• 3PL Providers:
Many third-party logistics providers (3PLs) use ERP systems to
manage internal business requirements and external client
requirements. 3PL companies’ act as specialists in various areas
of the supply chain industry. Some 3PL providers specialize in
warehousing and logistics, while others specialize in returns
management and process improvement. ng an ERP system that’s
easily configurable is essential.
 ERP Business Benefits
The following framework of five benefit dimensions
tries to classify the types of benefit that organizations
can achieve by using ERP systems and provide a
comprehensive foundation for planning, justifying, and
managing the system
1) Operational Benefits (Dimension 1)
2) Managerial Benefits (Dimension 2)
3) Strategic Benefits (Dimension 3)
4) IT infrastructure benefits (Dimension 4)
5) Organizational benefits (Dimension 5)
 I. Operational Benefits (Dimension 1)
1.1 Cost reduction:
o Labor cost reduction: the automation and removal of redundant processes or
redesign of processes led to full time staff reduction in tasks in each
business areas including: customer services, production, order fulfillment,
administrative processes, purchasing, financial, training and human
resources.
o Inventory cost reduction in management, relocation, warehousing, and
improved turns.
o Administrative expenses reduction in printing papers and supplies.

1.2 Cycle time reduction:

o Customer support activities in order fulfillment, billing, production, delivery
and customer services.
o Employee support activities in reporting, month-end closing, purchasing, or
expense requisition, HR and payroll and business learning.
o Supplier support activities in speed payments and combined multiple orders
with discount gained.
 I. Operational Benefits (Dimension 1)

1.3 Productivity improvement. Products produced per employee or

labor cost, customer served per employee or labor cost, or mission accomplished
per employee in non-profit organization.

1.4 Quality improvement. Error rate reduction, duplicates reduction,

accuracy rate or reliability rate improvement.

1.5 Customer services improvement. Ease of customer data

access and customer inquiries
 II. Managerial benefit (Dimension 2)

2.1 Better resource management.

o Better asset management for improved cost, depreciation, location,
custodian, physical inventory and maintenance records control.
o Better inventory management for improved inventory turns, stock
allocation, quick and accurate inventory information, just-in-time
replacement and having a variety of options dealing with various
requests.
o Better production management for optimized supplying chain and
production schedules.
o Better workforce management for improved manpower allocation, and
better utilization of skills and experiences.
2.2 Better decision making.
! Improved strategic decisions for improved market
responsiveness, better profit and cost control, and
effective strategic planning.
 II. Managerial benefit (Dimension 2)

2.2 Better decision making.

o Improved strategic decisions for improved market responsiveness,
better profit and cost control, and effective strategic planning.
o Improved operational decisions for flexible resource management,
efficient processes, and quick response to work changes.
o Improved customer decisions with flexible customer services, rapid
response to customer demands and quick service adjustments.
2.3 Better performance control
o Financial performance control by lines of business, by product, by
customers, by geographies or by different combinations
o Manufacturing performance monitoring, change prediction and quick
adjustments
o Overall operation efficiency and effectiveness management
 III. Strategic benefits (Dimension 3)
3.1 Support current and future business growth plan in
o Business growth in transaction volume, processing capacity and
capability
o Business growth with new business products or services, new divisions,
or new functions in different regions
o Business growth with increased employees, new policies and
procedures
o Business growth in new markets
o Business growth with industry’s rapid changes in competition, regulation
and markets
3.2 Support business alliance
by efficiently and effectively consolidate newly acquired companies into
standard business practice
 III. Strategic benefits (Dimension 3)
3.3 Build business innovation :
o By enabling new market strategy
o By building new process chain
o By Creating new business
3.4 Build cost leadership
o by achieving economies of scale through streamlined processes or
shared services.
3.5 Generate or enhance product differentiation
o By providing customized product or services to different customer
requirements,
o By providing lean production with make-to-order capabilities.
3.6 Build external linkage with suppliers, distributors and related
business parties.
 III. Strategic benefits (Dimension 3)
3.7 Enable Worldwide expansion
o with centralized world operation
o with global resource management
o with multi-currency capability
o with Global market penetration
3.8 Enabling E-business by attracting new or getting closer to
customers through the web integration capability. The web-enabled ERP
system provide benefits in business to business and business to
individual in:
o Interactive customer service
o Improved product design through customer direct feadback
o Expanding to new E-market
o Building virtual corporation with virtual supply and demand consortium
o Deliver customized service
o Provide real time and reliable data enquiries.
 IV. IT infrastructure benefits (Dimension 4)

4.1 Increased business flexibility by response to internal and

external changes quickly at lower costs and provide range of options in
react to the change requirements.
4.2 IT costs reduction in:
o Mainframe or hardware replacing
o IT expense and staff for developing and maintaining the system
o System architecture design and development
o System modification and maintenance
 IV. IT infrastructure benefits (Dimension 4)
4.3 Increased IT infrastructure capability: stable and flexible
for the current and future business changes
Stability:
o Streamlined and standardized platform
o Global platform with global knowledge pipeline
o Database performance and integrity
o Continuous improvement in system process and technology ! Global
maintenance support
Flexibility:
o Modern technology adaptability
o Extendable to external parties
o Expandable to a range of applications
o Comparable with different systems ! Customizable and configurability
 V. Organizational benefits (Dimension 5)
5.1 Support business organizational changes in structure, and processes
5.2 Facilitate business learning and broaden employ skills
o Learned by entire workforce
o Shorten learning time
o Broaden employees’ skill
5.3 Empowerment
o Accountability, more value-added responsibility
o More pro-active users in problem solving
o Users have ownership of this system
o Greater employee involvement in business management
5.4 Changed culture with common visions
o Efficient interpersonal communication
o Interdisciplinary thinking, coordinate and harmonize differences, and
interdepartmental processes .
o Consistent vision across different levels of organization
 V. Organizational benefits (Dimension 5)
5.5 Changed employee behavior with shifted focus
o More critical managing and planning matters ! More concentration on
core work
o Customer and market focus
o Move from back office to the front office
5.6 Better Employee morale and satisfaction:
o Increased employee satisfaction with better decision making tools
o Increased employee efficiency of field operations and services
o Satisfied users for solving problems efficiently
o Built morale with better system performance
o Satisfied employees for better employee service