ERP AND SCM SYSTEMS INTEGRATION: THE CASE OF A VALVE MANUFACTURER IN CHINA

Presented by – Abhinav Sirohi (05)

Ankit Raj (30)Apoorva Garg (39)

Kanik Maheshwari (80)

Presentation Flow

Introduction and the need of integration

Case Methodology

Background of the company

Problems with ERP systems and e-SCM systems

Implementation and Conclusion

Limitations of ERP

ERP systems are primarily built on transactions-based systems.

ERP captures and processes necessary data and assists functions such as sales and services, procurement and logistics execution, product development and manufacturing, etc

Crossing organizational boundaries Lack of flexibility in dealing with ever-

changing requirements dearth of functionalities that focus on

managing transactions

Benefits of SCM systems

SCM provides additional layers of decision support both within and beyond organizational boundaries

SCM provides visibility, planning, collaboration, and control across and beyond the enterprise.

SCM systems consider all constraints simultaneously and develop a higher quality plan relatively quickly

To provide higher business value ..

ERP SCM System

Key considerations in enterprise systems implementations

Top management

support

project management

team competence

interdepartmental cooperation

and communication

clear goals and objectives vendor support

careful package selection

data analysis and conversion

dedicated resources

user training- education on new business

processes

business process re-engineering

minimal customization

change management

Internal and external

integration through

consolidation of system

instances

standardization of data and

process definitions

process flow improvement to

fit with the system and

business needsaddition of analytical

capabilities transform robust

data access to useful business

knowledge

Consideration of social, cultural,

and organizational

aspects

Strategies and sequences for

realigning business

processes

use of quality management

programs

Emergence of right strategic

plans overcoming

power struggle and politics

Software suitability,

appropriate system

integration strategy and technology

information quality

The Case - Neway—a major manufacturing organization in China

Basis of Case Study

Motivation

• Overcome limitation of ERP and legacy systems• Leverage complementary nature of ERP and SCM Systems.• Meet Strategic Objectives.

Execution

• Procurement and use of hardware and software, and human resources

• Requirements for efficient project management• Adaptive emphasis during implementation.

Challenges

• Organizational and business process oriented.• Technical• China Specific

Impact

• Standardization of processes• Holistic Integration• Competitive advantage

The research questions studied in the case study

Why was the organization prompted to integrate the ERP and the SCM systems?

How was the integration project managed and what resources were required to manage it?

What challenges and obstacles were faced by the organization and how were they solved?

What changes were required to the existing processes due to integration?

Neway’s original ERP system• Neway’s existing ERP system was implemented by Summiteam, a local ERP

systems provider. The system consisted of four major subsystems that paralleled the set of functions in ERP systems today.

Sales and distribution• This supported customer management, order management, order fulfillment,

and distributor management. It gave users access to aggregated operational data from all sources, and helped them complete their sales cycle from price quotation to invoicing and payment.Manufacturing

• This supported planning and scheduling, inventory management, and manufacturing control.

• It included quality management, asset/equipment maintenance management, inventory management, and production planning management.Human resource

• This supported staff, payroll, time, and organizational management, performance evaluation of staff members, and career planning management

Accounting and financial analysis• This supported accounting, financial control, and financial analysis. It

integrated all business performance data and provided comprehensive and systematic financial reports

Process flow at Neway

Problems with the original ERP system and existing business practices• Data were outdated and inaccurate.• Materials in the warehouse would be damaged and missing

and this would not be recorded on time, resulting in poor customer satisfaction when manufacturing activity stopped due to lack of materials.

• Workers picked materials based on their experience and new workers took several weeks to learn this.

• Pickers could not ensure proper rotation of the inventory and work-in-process inventory was not always recorded.

• Products were put away with incorrect or missing labels.• Paper printing, paper delivery, and paper accumulation

consumed resources, increased the cost of production, and caused delays. Lost or damaged documents resulted in incorrect recording.

• As there was no accurate measurement of labor productivity, supervisors were not able to provide feedback or rewards to workers as activities were completed.

• Neway did not have standard procedures to evaluate vendors, and to add or drop them as needed.

Neway implemented the e-SCM system from the vendor Wmsvision.

Neway’s e-SCM system

Schematic representation of e-SCM

The e-SCM system obtains up-to-date planning information from the ERP system and generates operational details that are returned to the ERP systemIt allocates tasks to unoccupied workers based on required completion times. Then it instructs workers to finish assigned tasks through radio frequency handheld devices that have wireless connections via a local area networkAs soon as a task is finished, relevant feedback information is sent to the ERP system in XML. The workers use handheld devices to collect accurate inventory information in real time, eliminating paper work.

Receiving and storing materials, etc.• When materials are received the system fills

outstanding purchase orders and prints inspection labels for each receiving activity

• The materials are inspected and the system auto-prints inspection result labels and attach them to packages of materials

• the system determines the best locations for the materials and selects idle workers to store the packages

Warehouse Management• It involves two key operations—cycle count

and inventory adjustment.• If the cycle count results in discrepancies,

then the e-SCM system sends notifications to the ERP system.

Picking and shipping• As soon as picking tickets are released,

the system modifies the inventory data.• It calculates the number and size of

containers for shipping operations and instructs pickers which containers to select for picking and which order to send in each container.

Order management• The e-SCM system generates inbound

orders based on purchase orders and outbound orders based on either production or customer orders.

• These orders are automatically released.

Implementation and integration ofthe e-SCM system

Infrastructure

Management

• Hardware - The e-SCM system and ERP systems were housed on different servers which were networked with three PCs, three printers, a wireless access point, and two switches.

• Software - three main software components were the ERP system from Summiteam, the e-SCM system from Wmsvision, and the Oracle 8i database management system.

Human Resource

Management

• A six member project team led by the project manager who reported to the vice general manager who provided boundary coordination between the three teams

• Summiteam had a three member team responsible for developing the new XML interface for the ERP system

• Wmsvision team had 7 member including the leader who was the project manager

Financial Resources

Management

• Cost Breakup for entire project -• one-time license fee = US $15,000• Annual maintenance fee = US $3000• Cost of new hardware = US $35,725• Customization of the ERP system = US $6000• Implementation of the project = US $30,000• Additional expenses = US $1500• Total Budget = US $92,000

Project management• Defined the scope of the project, focusing on key

issues in inventory tracking, order management, and resource allocation.

• Initial requirements analysis, agreements among project partners, including timelines and staffing, IT infrastructure, human resources, budgeting and financing, and transition and maintenance planning

Initial Planning

• Issues encountered were prioritized and discussed by representatives from all groups every other day

• The three project managers met every week to evaluate progress and take corrective actions as needed.

• Weekly status update was reported to vice general manager. In case of conflict, he used to provide necessary support.

Progress monitoring and control

• Thorough testing was done in 3 phases – unit testing , integration testing and finally beta testing

• Training was provided to take over responsibilities of running the systems.

• The system was incrementally backed up every 5 min and a full backup was performed every night.

Transition and

maintenance planning

Challenges and solutions of the e-SCM system implementation

ConclusionThe e-SCM changed many basic processes at Neway’s manufacturing facilities and was able to provide benefits such as real time inventory information update, better picking activities, and establishment of effective collaboration with vendors and customers.

Benefits in operational measures about 6 weeks after the integration

of the systems.

• The implementation also provided direct cost savings for Neway, enabling them to reduce lost sales by about US $20,000 per year.

• Equally, reduction in raw inventory by 15 days resulted in a cost reduction of approximately US $1 million per year and by reducing the monthly purchase frequency from 50 to 10, the e-SCM system produced a savings of US $4800 per year. Thus the project resulted in a high return on investment.

Conclusion Contd …• As it did not possess enough in-house expertise, therefore it employed

Wmsvision, which had a Chinese speaking implementation team to provide a customized e-SCM system.

• Team members agreed to adopt XML as the standard for data exchange between the ERP and e-SCM systems. This was partially due to available expertise among team members and the ability of the ERP system to handle XML files.

• The focus on a paperless environment reduced individual order entry errors, and the adoption of handheld devices and technology introduced in a gentle manner among the factory workers

• At the initial stages of the project the team members had to determine their shortcomings and remedy them quickly. They even had to identify associates with proven expertise in a particular area (e.g., XML) to lead the implementation for that particular topic.

• Senior Management active involvement helped solve various organizational issues, and enabled the project to remain on time.

• Finally, the use of a simulation system for training users allowed them to obtain practice with the new system before it was deployed.