Selection and Selection and Implementation of an Implementation of an

ERP SystemERP System

Section I: Introduction Section I: Introduction and Selection of an and Selection of an

ERP SystemERP System

IntroductionIntroductionIt is a major business decision for a manufacturing company to

make the decision to select and implement an ERP system within

their organization.

If done properly it will be a profitable and enjoyable experience.

However, if it is implemented poorly all concerned will be

disappointed with the results.

Step 1: Project Step 1: Project OrganizationOrganization

To be successful the effort of selecting and implementing an ERP system must have high priority and visibility within an

organization.

It is advisable to give the effort the status of a major project and require regular progress reviews at the appropriate levels of

management.

ERP implementation truly is a company-wide effort and is doomed to failure if treated as anything less.

Project OrganizationProject Organization

Selecting a Project ManagerSelecting a Project Manager

Project Manager

Key user of the new ERP system who has a good deal of experience and high level of credibility within your company.

Should be trained in the techniques of project management.

Common Hiring MistakesCommon Hiring Mistakes

Mistakes made when hiring ERP project managers:

Hiring an ERP "expert" from outside the company It's easier to teach an internal person about ERP than it is to teach an

ERP expert about your company, products, and culture.

Hiring a new person just out of college (e.g., a person with a computer science degree)

Although they may have enormous potential, they may not yet have creditability.

This mistake is usually made when management sees ERP as only another system and not as a company-wide system.

The Project TeamThe Project Team Project Team

Responsible for the day to day management of the ERP selection and implementation.

Team members represent their different functional areas.

Team members manage selection and implementation tasks and may also do work on these tasks.

Budget/FundingBudget/FundingManagement should establish budget guidelines for

the project prior to beginning the projectProject team needs a budget that they can use for

planning and executing the projectMany companies have no idea what to pay for an ERP

systemMany decision-makers turn to vendors

A better way is to ask, "Why are we doing this and how will we benefit?" By answering these questions, an organization can begin establishing an ERP budget-a valuable tool for negotiation.

Budget/Funding, cont.Budget/Funding, cont. Before issuing a Request for Proposal (RFP) to vendors, apply a standard for

estimating the ERP implementation budget.

Find a reasonable method for ERP implementation budgeting. Example: This method uses a calculation based on the company's annual

sales. Experience has shown that companies will spend 1 to 3 percent of annual sales on the total acquisition costs of a new ERP system. This includes the cost of software, hardware, implementation, first year maintenance, licensing fees, tailoring reports, providing interfaces for other software applications, and other miscellaneous costs. In other words, this estimate should cover the "total cost of ownership" for the new system.

Project ScheduleProject Schedule

Must have enough detail so that it can be used as a primary tool for managing the project.

Tasks should include time frames for completion and responsibility assigned by position or name.

Using a project management program like Microsoft Project or equivalent is recommended

Step 2: Analyze and Step 2: Analyze and Document Functional Document Functional

RequirementsRequirements

Functional RequirementsFunctional Requirements An important prerequisite to selecting an ERP software package is

to document the functionality required to support business.

This effort should also include where possible, functionality to support business objectives in the future.

These requirements will be used as one of the criteria for evaluating and selecting the most appropriate software package.

For an organization that has never documented requirements this could be a daunting task; however, this section provides some suggestions and guidance to keep the task as simple as possible.

Gather RequirementsGather Requirements The project team can analyze and document the functional requirements.

The project manager can organize and conduct interviews with people in various departments throughout the company. From these interviews a formal requirements document is produced.

Alternatively, the project manger can request written requirements from each department and then organize the responses into a requirement document.

Often a combination of the two methods works well, but at any rate someone who is knowledgeable of the company and ERP functionality should document requirements.

If no one within the organization is qualified, it is not unusual for companies to enlist outside help.

Two Types of RequirementsTwo Types of Requirements

To keep the requirements documentation process as simple as possible it can be classify into two types:

General or Standard requirements

Special Interest requirements

General or Standard RequirementsGeneral or Standard Requirements By definition these requirements include functionality that most

systems provide and most companies require. List the primary functions or departments which should be

supported by the new system. These may include, but is certainly not limited to: Receiving Shipping Marketing/Sales Forecasting Human Resources Engineering Accounting Sales order entry Sales order scheduling Material planning and scheduling Production planning and scheduling Capacity planning and control Purchasing Inventory control

General or Standard General or Standard Requirements, cont.Requirements, cont. After determining the major functions , it can be expand to the next

level of description. Example 1:

Accounting is an area or department that is an integral part of the ERP system, however, it is not necessary for to describe every function that the accounting department requires from the system.

List the requirements in more general terms such as "must handle accounts payable, accounts receivable, general ledger, etc."

Example 2: Another example might be purchasing. Requirements could be

listed as: “must support contract purchases and blanket purchases, has Request For Quotation capability, etc.”

Special Interest RequirementsSpecial Interest Requirements More detailed requirements that are very important to company

Requirements the vendor needs to understand in more detail, like how management needs the system to support business. Examples:

The system must be able to assign and track product serial numbers by sales order.

The system must be able to track and cross reference engine serial numbers to product serial numbers.

The system must support accumulation of labor by person to a work order.

The system must support the calculation of labor efficiency by individual or work center.

The system should provide the ability to accumulate warranty labor and material cost by serial number.

Step 3: Conduct Search Step 3: Conduct Search for Appropriate Systemfor Appropriate System

ERP – Options

OPTION 1 – MAKE [Using Internal resources]

Developing a custom-built ERP package, specific to therequirements of the organization, with the help of thein-house IT department

OPTION 2 - BUY

Going for Tailor-made ERP packages available in the market likeSAP, Oracle applications, Baan, PeopleSoft etc.

OPTION 3 – MAKE [using External resources]

Developing a custom-built ERP package, specific to therequirements of the organization, with the help of a software solution provider

Building ERP solutions using Internal Sources

ERP – Building using Internal resources – The Facts Lack of adequate & qualified manpower Not driven with clear focus on expectations, time & cost Poor software project management Lack of seriousness with the Management & the IT Team High employee turnover Lot of schedule gaps during Project execution Normally project life is more Frequent change in the scope with the approval of the Management

Tailor-made

ERP

Solutions

Tailor-made ERP solutions

About this option Execution Phases

ERP product selection phase Product selection - Parameters Preparation Phase ERP product acceptance - Options Gap Analysis Production Phase Implementation Phase Post-Implementation Phase

Pitfalls & Points of Concern Critical Success factors

About Generalized off the shelf application s/w

packages Modules based on rich functionalities for all

business functions User tested with lot of installations No lead time requirement for software

development Tuned for more users/networks with adequate &

in- built security

Parameterized for flexibility Can sit on latest hardware & software platforms Upgradation of functionalities with version

control

Execution phases

ERP product selection

Preparations

Production

Implementation

Post-Implementation

ERP Product selection Phase

ERP Team formation for selection Appointment of Consultants [if needed] Scoping study Product selection Implementation partners selection Hardware/Communication cost estimation

Product Selection - Parameters

Reputation of the ERP product No.of installations in the geographical vicinity % of the overall functional availability Customization possibilities After sales support Your investment plan & budget Implementation partner’s track record

Technology

Support

Costs

5 Strategic5 StrategicRequirementRequirementLevelsLevels

FunctionalityGoal:Goal:To select theTo select theMost Suitable Software Most Suitable Software Package SolutionPackage Solution

Vendor

ERP Product selection Criteria

ERP product acceptance - options

1. Adapting directly, all the functions available in the ERP Product [Applicable for startup companies]

2. Change the way the firm does the business to fit the product [Compromising]

3. Customize the ERP product to suit the business Processes. [Customization]

GAP Analysis

This is the process to identity the gaps by mapping the expectations of the company with the capabilities of the ERP product

Results of Gap Analysis

Directly Supported Workaround suggested Extension required Change in business process – suggested Not full supported Manual – not under the scope of ERP

Production Phase

Installing the software & hardware

Tuning the software to meet the customization needs

Master & Control data arrival as per the Product data structures

Location & people specific roles & rights allocation for module access & security

Implementation Phase

Pilot run

Resolving the Pilot run issues

Training the end users

Live run

Post-Implementation Phase

Regular monitoring

Tuning [hardware/software] for patching the performance issues

Maintenance

Pitfalls & Points of concern

Costly comparing to custom-built options Lot of hidden costs Chances of cost & time overrun are high The Level of customization/Indianization Compulsion to pay for redundant modules/features Vigorous involvement of all during implementation Non-availability of special practices like Customer Complaint, Logistics Linking historical data – offline & painful The requirement of Change Management is a must Dependency on outsiders is high IT department – Poor grip on the Implemented systems

Critical Success Factors

The firm & optimistic approach of the Management- on adapting the ERP product driven methodologies- on customization- on monetary commitments

The dedicated Team Good Training Strict adherence to the Project schedules Right technical infra-structure Change Management

Custom-built

ERP

Solutions

using external resources

Building ERP using Ext.sources

About this option The Principle! The Steps Why? Points of Concern Software Vendor selection Critical Success factors

About

Here the whole package is designed & built

by keeping a specific enterprise & its business Practices in mind by incorporating the improvements/additions with due integration without compromising or changing the current way of doing the business and providing flexibility to accommodate your business fluctuations

The Principle!

The best as seen elsewhere, need not be the the best for you.

What is your best is what can be successfully implemented

The Steps

1. Software vendor selection2. Detailed study by the vendor3. Scope & platform finalization4. Freezing the commercials5. Development6. Hardware addition/upgradation7. Old master/transaction data migration8. Parallel run with Integration & connectivity

check9. Implementation10.Maintenance

Why?

Very economical while comparing the cost of implementing tailor-made ERP solutions Less prone for hidden-cost hits The company can opt for its choice of Hardware, Software & communication platforms based on the skill availability The company and the software vendor have the direct relationship during the project execution. The proximity would be high & convenient. IT department has good control over the Project What is required only would be considered under the scope – No redundancy

Why? - Cont.

The requisite flavor of E-Biz & work-flow components can be embraced towards value edition The existing practices & applications can be tuned and linked with the proposed package Maintenance & improvements are easy & less costlier. Even IT team can maintain the setup after getting the source code

Points of Concern

Software development vendor selection

Requirement/scope finalization [high chances of retaining the islands as it is]

Less chances of Value addition

Not time tested

Chances of Prolonged project duration

The following traits should be considered while selecting the software vendor for building the ERP application

Technical expertise

Domain knowledge

Adequate manpower

Project management skills

Long existence in the field

Extra skills [e-biz & workflow]

Software Vendor Selection

The Critical Success Factors

• Clear Vision & support of the Management• Capabilities of the software development vendor• Scope & Expectations finalization towards meeting the ERP concepts• Strict implementation schedules & periodical monitoring• The involvement of the IT & functional teams

Section II: Section II: Implementation of an Implementation of an

ERP SystemERP System

Implementation PhaseImplementation Phase

It is assumed for the implementation phase of this course that the selection and acquisition of the system is complete.

The sections that follow deal primarily with the actual implementation of the system.

1: Typical Tasks1: Typical Tasks

Break the high level tasks into detailed steps complete with responsibilities and timeframes that fit company's specific project.

Microsoft Project, or similar project management software, can be used for this purpose.

2: Duration2: Duration

Experience has shown that selection and implementation of these types of systems takes 6 months or less depending on what is being installed and the condition of the company's data.

This depends on the system and the user's motivation. When the focus is lost the chances of a successful

implementation greatly diminish.

3: Information/Data Preparation3: Information/Data Preparation One of the most important tasks in implementing an ERP system is

getting the information or data that the system requires in a condition that will allow the system to function properly.

The following discussions cover some of the more important items.

1. Part Numbers In new system any item that company want to plan or

schedule will require a unique part number. This may or may not be a problem in one company but some

companies may currently be ordering and tracking parts or material with only a description, and never assigning a part number (i.e. 2 inch bar stock, sheet steel, lid, etc.).

it is important to assign unique part numbers to these items.

3: Information/Data Preparation, cont.3: Information/Data Preparation, cont.

2. Bills of MaterialAccuracy should be at 98% for the

Material Requirements Planning (MRP) function of the new system to perform properly.

Errors are usually significant in that the erroneous bill either calls out the wrong component or omits a component.

This results in MRP planning the wrong component or insufficient components.

3: Information/Data Preparation, cont.3: Information/Data Preparation, cont.

3. Inventory RecordsThe primary records we are concerned

with are the on hand balances of each item in inventory.

new system uses this information in calculating the recommendations for ordering material to meet the production schedule.

Inventory records must be at least 95% accurate for new system to produce satisfactory results.

3: Information/Data Preparation, cont.3: Information/Data Preparation, cont. 4. Shop Routings

Direct material through the shop to various departments to perform specific manufacturing operations.

At a minimum the routing should include the operations to be performed, their sequence, the various work centers involved, the standards for setup (if applicable), and run time.

Capacity planning uses this information to calculate the required capacity and resources to meet the production plan.

If the routings are inaccurate, capacity planning will be against the wrong work centers; and more importantly, the schedule that goes to the shop will have jobs scheduled to incorrect work centers.

Routing accuracy can be measured by counting the number of routings that are issued to the shop each week and the number of routing errors that are reported back from the shop each week.

Routing accuracy should be at least 95% to enable new system to work properly.

3: Information/Data Preparation, cont.3: Information/Data Preparation, cont. 5. Lead Times

Must be verified and updated. The system is dependent on these lead times when it

provides order release dates and required dates.

6. Vendor Information The new system will require that vendor information be

correct. This includes company names, addresses, pricing, and

contact information. The system will be generating purchase orders and

invoicing using this information and it will create considerable confusion if the information is incorrect.

3: Information/Data Preparation, cont.3: Information/Data Preparation, cont. 7. Customer Information

The new system will be generating and printing customer orders and if the customer information is incorrect it will generate considerable confusion.

8. Labor Standards If the new system will be used for collecting labor

from the shop floor and calculating efficiency, it is important that the labor standards be accurate.

If the standards do not represent reality the information will be useless and will create confusion in the work force.

4. Site Preparation4. Site Preparation

Another important area that needs specific attention is preparation of the physical site for acceptance of the new system. Here again the magnitude of this task is dependent on what is being

installed and the current condition of the facility. However, the following items usually will need attention as a result of the system implementation.

1. Network Since company is implementing a new system it is likely that there will

be need to upgrade network. The software vendor should supply the specifications, but it will be up

to company to purchase and install the proper equipment and operating system.

If company plan to have terminals on the shop floor and in the stockrooms then network cabling must be run to these areas.

Site Preparation, cont.Site Preparation, cont. 2. Hardware

The vendor may supply with the minimum specifications for the workstations and fileserver required to run system.

This helps them keep the overall cost estimate of their system lower, but it may not be the best option for the company to take.

Make sure that the hardware and operating systems installed will provide company’people with sufficient performance.

Education and TrainingEducation and Training Education and Training are important keys to success with your new

system.

1. Conceptual Training Depending on the users’ experience you may want to offer

conceptual training in conjunction with implementing your new system.

This education could include instruction on the principles and logic behind material requirements planning (MRP), capacity requirements planning (CRP), bills of material structuring (BOM), inventory management and others.

Different systems manipulate these functions in various ways through screen presentations, but the principles and logic upon which they are based is usually very similar.

It could be very beneficial for the new users to understand the principles and logic prior to actually using the new system.

MTAPP has courses available in these areas and APICS is also a source for educational material on these topics.

Education and Training, cont.Education and Training, cont.

2. System Training Users will require training on the new system

prior to start up. Typically this training is provided on a formal

basis directly by the software vendor or through certified subcontractors.

It can usually be accomplished by traveling to their training site or having them come to yours.

The method for completing this training should have been part of your evaluation process in selecting your system.

Converting and Loading DataConverting and Loading Data Converting and loading all required data into the new system is a

formidable task. Before you begin it is advisable to understand the magnitude of the entire task.

The following list indicates the types of data that must be loaded into the new database. This list will not be totally inclusive for your business, but will give you a baseline for planning the largest portions of data. Inventory Balances Inventory Locations Bills of Material Routings Customer file Vendor file Lead times Purchase orders Customer orders All Accounting Information Part Numbers Part Descriptions

Converting and Loading Data, Converting and Loading Data, cont.cont. As part of your system search be sure to understand from the vendor

what assistance they can offer your particular conversion effort. If you are converting from a computerized system, find out if they

have conversion programs that can format and move the data from your old system to the new.

If not, ask what other options are available. It is important to understand the total logistics of this task.

If you are converting from a totally manual system the task is greater because every record will require manual intervention.

In this case it may be advisable to manually load your data into some intermediate files (i.e., Excel) as time permits prior to receiving your system, and then upload to the new system when it is installed.

This will save time when loading the new system, but these details should be worked out closely with the software vendor to come up with the best plan for your situation.

Operating ProceduresOperating Procedures

In many companies implementation of the new system is not only a commitment to a formal method of managing the business, but also a means of replacing a structure of informal procedures and methods.

Therefore, it is necessary to document how things will be done with the new system. This will be an evolving process, but some areas need to be addressed prior to system start up.

One of these areas is selecting individuals who will be responsible for the accuracy of inventory records, bills of material, and routings.

Not only should these individuals be selected, but prior to system start up they should develop the working procedures for how the accuracy will be maintained.

Section III: Tips for Section III: Tips for SuccessSuccess

Proven SuccessProven Success

Through experience it has become evident that there are certain suggestions that if followed, greatly enhance the chances of your system selection and implementation project being successful.

Tip #1- Project ManagerCompanies often pick an information system person as

the project leader. This ignores the issue of accountability; only a user can really be accountable for making the tools produce results.

Choose a key user as the project manager. Provide the individual with training in project management fundamentals.

Proven Success, cont.Proven Success, cont.Tip #2- Data Accuracy

It is important that all the data in the new system be accurate; however, some data, if inaccurate, is more unforgiving than others. This includes inventory records, bills of material and routings.

Bringing the system on line before this data meets the required accuracy standards is a serious mistake. The system relies on this data to be accurate immediately.

Tip #3- Top Management SupportUpper management should be part of the decision to

implement the new system as a way of managing the business.

Without this level of support the discipline required to make the new system successful will not be possible and the old way of doing business will again prevail.

Proven Success, cont.Proven Success, cont.Tip #4- Converting and Loading Data

Make sure that you have adequately planned the conversion and loading of data for the new system. This item can cause unexpected and extended delays at start up if not planned properly.

Remember to involve your software vendor in this planning.

Tip #5- Start-Up Using the Pilot Approach This approach allows you to find problems as they appear

before it impacts your business. After about a month of pilot, most of the problems will have been identified.

Once they are fixed, you can discuss additional products if you feel comfortable, or run another pilot if that is appropriate.

This is the least risky and most orderly approach, and the one most likely to lead to a successful implementation.

Proven Success, cont.Proven Success, cont.Tip #6- System Administrator

Be sure you have someone available who is qualified to function as a system administrator for your new system.

This person is responsible for keeping your system running and performing upgrades.

Depending on the size of your company this position could be part-time, full-time, or you might elect to use an outside consultant as needed.