Before you Invest in ERP

by April 14, 2016 0 comments

– Sameer Mathur, Consulting Editor—PCQuest and MD-SM Consulting

The Indian MSME sector comprises of about 36 million units and employs over 80 million people according to 2015 figures reported by the Ministry of MSME. The sector produces more than 6,000 products, which contribute to about 8% of the GDP besides giving 45% to the total manufacturing output and 40% to the country’s exports.

The MSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth. According to research firm Zinnov, India will soon become the largest SME nation globally.

Ironically, while SMEs are an engine of job creation, they are also a significant contributor to job destruction, according to the findings of an EU research report, which state that as few as 50% of firms that started trading in 2011 survived beyond five years.

What’s Driving This Negative Growth in SMEs?

It is understandable that SMEs are particularly affected by market turbulences and their position is clearly unfavorable in the newly created world economic circumstances. SME problems are reflected in reduced demand, difficult access to markets in India and abroad, particularly capital markets, lack of availability of quality manpower and technology and sometimes lack of well-defined processes & systems within the entity.

On top of that, they’re all struggling with similar business challenges like retaining existing customers, acquiring new ones, expanding their reach to cover a wider spectrum of geographies, on time deliveries, keeping track of inventories, man management and cash management, to name a few.

So while tremendous growth opportunities exist in this segment, it’s also a big challenge for SMEs to grow, because they get competition not only from domestic companies but also global ones (especially in other growing global economies).

How ERP Can be a Catalyst to Growth?

Seeing this negative growth, SMEs are now looking at adopting technologies that will help them scale their business and give them a competitive edge. While a significant number of them are still at a basic technology adoption level, others are fast moving to more mature levels and are welcoming new age technologies.One of the key drivers of business growth in SMEs is the level of IT usage as an enabler of well-defined processes.

ERP comes to the forefront when it comes to resolving these SME challenges. Simply put, ERP is a business management system that provides an integrated solution to streamline all business activities by using a common pool of data. It provides the following benefits:

  1. Standardization across functions and processes
  2. Better management of remote/sales locations
  3. Centralized Support Facilitates (Integration)
  4. Cost Effectiveness
  5. Better ROI on existing investments
  6. Operational Efficiency
  7. Scalability
  8. Improved Reporting and Tracking system
  9. Improved Customer Relationship and Customer experience
  10. Business Analytics to plan and forecast better

Some Apprehensions About Using ERP

Implementing ERP is of course no bed of roses. According to a study, a majority of SMEs, especially in the manufacturing sector are still wary of using ERP as an enabler of their business. Its implementation is considered to be complicated and cumbersome, difficult to integrate in existing systems and, mostly exceeds the initial estimated cost. This also results in time overruns many times defeating the primary purpose.

Most SME owners bemoan lack of understanding of their internal processes by the ERP vendor, thus starting the ERP implementation with an adjustment of sorts. This often creates a feeling of distrust between the vendor and functional teams at the SME. ERP vendors, according to SMEs, are also sometimes accused of initially discussing a complete scope of work (covering the wish list of the customer) and later backing out of their commitments OR demanding more resources citing “complicated processes” at the customer end.

Many SMEs also complain of vendors initially involving senior and experienced resources for implementation but later allocating inexperienced and junior resources for this work. Some of our surveyed customer even complained of junior resources being allocated as Project Managers, a euphemism for a face at the customer site with little knowledge of the customer processes.

The ERP vendors on the other hand complain of cost and time constraints by the customer resulting in such shoddy work at times.

Crucial Success Factors

Having understood the challenges and apprehensions in deploying ERP, here are a few factors that can result in a successful deployment:

Top Management commitment: Like we mentioned earlier the leadership team has to be fully convinced of the usefulness of the exercise, generally keeping the teams motivated

Change Management: Too many decisions by the Management without active involvement of the functional heads and respective departments may result in disquiet and an uneasy environment. This issue needs careful handling by experts who understand the issue well and convince the functions of the benefits to all. It also involves training and retention techniques.

Expectation setting: We have not seen many ERP vendors talk of what ERP will NOT achieve. Expectations have to be clearly defined and well articulated.

Defining & handling all Stakeholder: Define and manage all Internal & external stakeholders. This should be in conformity to the Project Management plan.

Learning & Development (Coaching) and Employee Retention: Have a well-defined roadmap with clear goals

Data Collection processes (the four Vs of Data): The Volume/Velocity/Veracity and the Variety of data to be considered before designing the systems.

Parallel Systems: The existing application may be replaced totally or partially by the new ERP system. All implementation processes should be carried out without affecting the daily operations

Software design & processes defined: The process involves a thorough examination of the business processes in the SME; selection of the best available software solution that matches the requirements of the SME and proper configuration of the selected systems

Level of customization to be less than 15-20%: Perhaps one of the biggest reasons for the low success rate of ERP implementation. This normally leads to cost and time overruns.

Proper Project Management plan: Defining dependencies and likely impact on the final deliverables. Also having an effective monitor and control mechanism is crucial.

In India, SMEs are the backbone of the economy and are faced with global competition. It therefore becomes imperative for them to look for means of responding to the dynamic markets. ERP systems have become the most common IT strategy for most large companies. SMEs too are moving towards ERP systems. They need to adopt a proactive approach towards ERP and consider it as a business transformation solution rather than a mere IT solution.


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