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ASSIGNMENT ON ERP ENABLED BPR

SUBMITTED TO: PROF. DAKSHINA MURTHY

SUBMITED BY: NIHAD ALI

(0920318)

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WHAT IS BUSINESS PROCESS RE-ENGINEERING?

Business Process Reengineering means not only change -- but dramatic change.

What constitutes dramatic change is the overhaul of organizational structures,

management systems, employee responsibilities and the use of information

technology. It was introduced by Dr.Michael Hammer in 1990s. Business

Reengineering is the fundamental rethinking and radical redesign of business

processes to achieve dramatic improvements in critical, contemporary measures

of performance, such as cost, quality, service, and speed. Hammer illustrates

reengineering with the revolution that took place in Ford s system of accounts

payable. In the early 1980s, Fords auditors carefully studied accounts payable

activities and concluded that, by consolidating, by rationalizing processes, and by installing new computer systems, staff could be cut twenty percent -- from

500 employees to 400.

We should reengineer our [organizations]; use the power of modern

information processing technology to radically redesign our ... processes in

order achieves dramatic improvements in their performance.... We cannot

achieve breakthroughs in performance merely by cutting fat or automatingexisting processes. Rather we must challenge the old assumptions and shed old

rules. MichaelHammer

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Hammer (1990) has described some of the principles of reengineeringthe business processes as follows:

3 Organize around outcomes, not tasks.3 Have those who use the output of the process perform the process.3 Subsume information-processing work into the real work that produces

the information.

3 Treat geographically dispersed resources as though they werecentralized.

3 Link parallel activities instead of integrating their results.3 Put the decision point where the work is performed, and build control

into the process.

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3 Capture information once and at the source. Common Steps in BPR

y Project Phases Required ForSuccessful BPR:y Phase 1: Begin Organizational Changey Phase 2: Build the Reengineering Organizationy Phase 3: Identify BPROpportunitiesy Phase 4: Understand the Existing Processy Phase 5: Reengineer the Processy Phase 6: Blueprint the New Business Systemy Phase 7: Perform the Transformation

Phase I Begin Organizational Change

y Assess the current state of the organizationy - Explain the need for change(Consolidate the problems which can be

converted into opportunities-Creates potential for trying new

technologies)

y - Illustrate the desired statey - Create a communications campaign for change

Phase -2 Build the Re-engineering Organization

y Establish a BPR organizational structurey Establish the roles for performing BPRy Choose the personnel who will reengineer

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Phase3 Identify BPR Opportunities

y - Identify the core/high-level processesy - Recognize potential change enablersy

- Gather performance metrics within industry

y - Gather performance metrics outside industryy - Select processes that should be reengineeredy - Prioritize selected processesy - Evaluate pre-existing business strategiesy - Consult with customers for their desires --- quality .deliveryy - Determine customer's actual needs.y - Formulate new process performance objectivesy - Establish key process characteristics

Phase4 Understand the existing process

y Understand why the current steps are performedy - Model the current processy - Understand how technology is currently used COBOL Unix based

system

y - Understand how information is currently used batch system noninteractive text based terminals(NO GUI)

y - Understand the current organizational structure(slow to react tocustomer needs)

y - Compare current process with the new objectives cycle time reduction fast in reacting to customer needs competitive in mark

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Phase5 Re-engineer the process

y - Ensure the diversity of the reengineering team (Top management,User Group, Developers Group)

y - Question current operating assumptionsy - Brainstorm using change levers Selecting the correct technology

within Budget

y - Brainstorm using BPR principlesy - Evaluate the impact of new technologies Competitive Advantage,Cycle time reduction, Work life enrichment

y - Consider the perspectives of stakeholders Faith in the informationsystem

y - Use customer value as the focal point Quality and Delivery

Phase 6 Blueprint the new Business System

y Activitiesy - Define the new flow of worky - Model the new process stepsy - Model the new information requirementsy - Document the new organizational structurey - Describe the new technology specificationsy - Record the new personnel management systems

y Phase 7 Perform the Transformationy - Develop a migration strategy A project plany - Create a migration action plan PERT network with important

milestones

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y - Develop metrics for measuring performance during implementationy - Involve the impacted staff Consult Users who are going to use the

system

y - Implement in an iterative fashion - Building proto typesy - Establish the new organizational structuresy - Assess current skills and capabilities of workforcey - Map new tasks and skill requirements to staffy - Re-allocate workforcey - Develop a training curriculum

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ERP and BPR- Inseparable twins(How ERP facilitates BPR?)

MichaelHammer in his path breaking article Reengineering Work: Dont

automate, Obliterate published in Harvard Business Review, defined BPR as -

use the power of modern information technology to radically redesign

business processes in order to achieve dramatic improvements in their

performance .

For BPR to succeed or achieve the intended benefits information technology has

a critical role to play as the key enabler of business processes

Organisations have following options:

1. Reengineer business processes before implementing ERP

2. Directly implement ERP and avoid reengineering

In the first option of reengineering business processes, before

implementingERP, the organisation need to analyse current processes, identify

non valueadding activities, redesign the process to create value for the customerand then develop an in-house applications or modify an ERP system package to

suit the organisations requirements. In this option employees will develop a

good sense of process orientation and ownership. This would be a customized

solution considering the organisations structure, culture, existing IT resources,

employee needs and promises relatively less disruption to routine work during

the change program. It is likely to have a high probability of implementation.

But there engineered process may not be the best in the class, as organisation

may not have access to the world-class research and best practices. Moreover,

this maybe the only chance to radically improve in near future and going for

less than the best may be a costly mistake. Plus developing an in -house

application/implementing a modified ERP can take lot of time.

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In the second option of implementing ERP package with minimum deviation

from the standard settings i.e. one size fits all. All the processes in a company

should conform to the ERP model and the organisation has to amend its current

work practices and switch over to what the ERP system options offers. This

option offers a world-class efficient and effective process with built in measures

and controls and is likely to be quickly installed (need not necessarily be

quickly implemented fully). But if the employees do not have clarity of existing

processes and good understanding of their internal customer needs or current

processes are not well defined and documented, it is quite possible that while

selecting the standard process from the ERP package, employees may not be

able to perceive the difficulties likely to be encountered during implementation

stage. Employees would lack process ownership and orientation. Other than

technical issues like organisation structure, culture, lack of involvement of

people can lead to major implementation difficulties and full benefits of

standard ERP package may not be achieved. Situation may arise that after

implementing ERP, organisation may have to reengineer its processes. This

could be a very costly mistake.

Theoretically the third option of reengineering business processes during

implementation of ERP also exists. It may sound to be the best option but being

an ideal situation it does not seem to be practical option and is likely to cause

maximum disruption to existing working. It should not be forgotten that during

BPR & ERP initiatives, routine work is still to be carried out and customers

served.

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AN EXAMPLE FORSUCCESSFULAPPLICATION OF BPR-

FORDMOTORS NEWACCOUNTS PAYABLE MANAGEMENTSYSTEM

Case 1: Ford MotorCo. reengineering its accounts payable processes

In the early 1980s, when American automotive industry was in a depression,

Fords top management put accounts payable along with many other

departments- under the microscope in search of ways to cut costs.

At that time, Fords North American accounts payable department employed

500 people. By using computers to automate such processes, Ford thought it

could cut head count by 20%. Pretty good, thought Fords executives, until they

visited Mazda.

The Ford managers noted that the admittedly smaller company took care of its

accounts payable chores with only five people. The contrast Fords 500 people

to Mazdas 5- was too great to attribute just to the smaller companys size.

Finally, to match Mazdas efficiency, Ford realized that it would have to rethink

the entire process in which the accounts payable department took part.

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Under the old system, a number of paper documents was processed sequentially

by 3 functions who participate in the process indirectl y with a work force of 500

clerks to perform many intermediate steps:

(1) The purchasing function issues a purchase order to the supplier and

sends a copy to the accounts payable function.

(2) Upon arrival of purchased goods, the inventory function sends a copy

of the receiving document to the payable function.

(3) When the invoice from the supplier arrives in the mail, the payable

function matches it against the purchase order and the receiving document

before issuing payment to the supplier.

(4) Much of efforts are needed to resolve frequent discrepancies betweenthe documents, and a total of 14 data items must be checked in the process.

Fords new accounts payable process looks radically different. Accounts

payable clerks no longer match purchase order wi th receiving document,

primarily because the new process eliminates the invoice entirely. With a work

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force of only 125, the 3 functions participate in the process directly by accessing

a shared database, eliminating many intermediate steps and sequential flow of

paper documents. The new process looks like this:

(1) The purchase order is entered into the shared database by the

purchasing function.

(2) Upon receiving goods, the inventory function accesses the database. If

a match is found, the goods are shipped and the status of the order in the

database is updated. Otherwise, the goods are returned to the sender.

(3) The payable function routinely accesses the database to prepare

payment checks for orders that have changed status, and invoices from suppliers

are eliminated.

(4) Matching and discrepancy resolution of paper documents are no

longer needed, and only 3 data items need to be checked in the process.

The basic concept of the change at Ford is simple. Payment authorization,

which used to be performed by accounts payable, is now accomplished at the

receiving dock. And the result is a 75% improvement in head count