Review Of Erp Implementations In Indian Smes

Published Date: 02 Nov 2017

ABSTRACT

The study is based on the future of Enterprise Resource Planning, ERP in small and medium-sized enterprises. Various methods and techniques adopted by various firms and how ERP implementation has helped various Small and Medium Enterprises, SME’s to attain the success is been highlighted in the report. The main objective is to know the worthiness and utility of ERP. The study gathers attention of the readers about the various ERP tools adopted by various SME’s to attain success.

Keywords— Enterprise Resource Planning, ERP

Small and Medium-sized Enterprises, SMEs

Manufacturing Requirements Planning, MRP II

INTRODUCTION

Enterprise resource planning, ERP systems or enterprise systems are software systems for business management, encompassing modules supporting functional areas such as planning, manufacturing, sales, marketing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, transportation and e-business. The architecture of the software facilitates transparent integration of modules, providing flow of information between all functions within the enterprise in a consistently visible manner. Corporate computing with ERPs allows companies to implement a single integrated system by replacing or reengineering their mostly incompatible legacy information systems.

BACKGROUND

In the post liberalization and opening up of the economy business era, ease in international trade barriers, economic liberalization, globalization, privatization, disinvestments and deregulation have thrown several challenges to Small and Medium-Sized Enterprises (SMEs) in the fast developing economies like India. Compressed product development cycles, cut throat domestic and global competition, economic downturns, rapidly changing customer demands and volatile financial markets have all increased the pressure on SMEs to come up with effective and competitive capabilities to survive and succeed. Enterprise Resource Planning is often considered as one of the solutions for their survival. Up to mid-1990s, SMEs sector in India had operated under a much-protected economic regime characterized by limited competition and a highly regulated business environment. This business atmosphere had resulted in limited focus on process efficiencies, centralized control structures, highly formalized business settings and lack of professional business practices. However, following the economic liberalization and opening up of the economy to foreign Multi-National Companies (MNCs), Indian SMEs have been forced to adopt modern business practices and strategies, which in turn can provide SMEs a cutting edge over its competitors. The authors in this paper have presented the issues and challenges in front of Indian SMEs about the benefits perceived and barriers observed in implementation of ERP in one of the industrially advanced city of India.

Today, India is transforming into world IT hub and all major players in the field are working constantly towards promoting and expanding their market. In this scenario Enterprise Resource Planning (ERP) will be playing a major role in growth of small and medium size industries in India apart from contributing largely into the big business enterprises.

ERP solution, which will help streamline the functionality and technicality of a software solution in an organization, without any doubt will be an added advantage in generating return on investment on a pre-conceived notion. If the facts and figures are be believed, the ERP market could boom in India and give the necessary impetus to stakeholders.

ERP software solutions were initially used only for back office functions. They were not given the due importance and treated just like another supporting function. Reasons like lack of awareness formed one part while other reasons were costs and technical difficulties.

The gradual demand for ERP increased with a slump in the software market. Since this led companies to go in for ERP they automatically started to learn more about it either by force or felt need as they were left with no alternative. This indirectly created the awareness among companies. They learned more on ERP and realized its diverse applications.

Finally they resorted to use ERP for the whole of the company and stopped the idea of restricting it to mere back office functions. Financial burden is a major determinant of ERP market in India. Many companies are hesitates to invest in ERP due to the exorbitant costs involved in it.

The slump of the IT sector would add drudgery and smash the hopes of so many individuals and companies. This problem in itself helped to get another important solution. Firstly this paved way for more prospects in ERP market.

The demand and supply gradually transformed from general to enterprise resource market. Once this got stabilized there was no looking back. It was well evident that ERP market could boom and give the necessary impetus to stakeholders.

However this did not mean that mediocre could survive in the market. There was demand only for top notch services and professionals. This naturally led to improvement in the quality of services offered. Such an improvement increased the competition among various players.The end user was getting assured that he would be receiving the best services for the money invested. Case ERP in India got more and more competitive. The ERP implementation in India demanded more than the custom ERP India module.

ERP software programs were initially used only for back office functions. They were not given the due importance and treated just like another supporting function.

Reasons like lack of awareness formed one part while other reasons were costs and technical difficulties. As explained earlier the gradual demand for ERP increased with a slump in the software market.

Since this led companies to go in for ERP they automatically started to learn more about it either by force or felt need as they were left with no alternative. This indirectly created the awareness among companies.

They learned more on ERP and realized its diverse applications. Finally they resorted to use ERP for the whole of the company and stopped the idea of restricting it to mere back office functions.

LITERATURE REVIEW

ERP systems affect both the internal and external operations of an organization. Hence successful implementation and use are critical to organizational performance and survival. ERP implementation brings with it tremendous organizational change, both cultural and structural. This is on account of the best practice business processes that ERP systems are based on. This calls for ERP implementations to be looked at from strategic, organizational and technical dimensions. The implementation thus involves a mix of business process change and software configuration to align the software and the business processes. There are two strategic approaches to ERP system implementation. The first approach is where a company goes for the plain vanilla version of ERP. Here the organization has to reengineer the business process to fit the functionality of the ERP system which brings with it major changes in the working of the organization. This approach will take advantage of future upgrades, and allow organizations to benefit from best business processes. The second approach is where the ERP system is customized to fit the business processes of the organization. This will not only slow down the implementation but also will introduce new bugs into the system and make upgrades difficult and costly. ERP vendors’ advice organizations to take the first approach and focus on process changes. One third of ERP implementations worldwide fail owing to various factors. One major factor for failure is considering ERP implementation to be a mere automation project instead of a project involving change management. It is a business solution rather than an IT solution, as is perceived by most organizations. Yet another reason for failure is over customization of the ERP system. Therefore, organizations need to very carefully go about their ERP implementations, if they are to be successful. Most large companies have either implemented ERP or are in the process of doing so. Several large companies in India, both in the public and private sectors, have successfully implemented ERP and are reaping the benefits. Some of them are Godrej, HLL, Mahindra & Mahindra and IOC. With the near saturation in the large enterprise market, ERP vendors are looking to tap the potential in the SME segment. The spending on ERP systems worldwide is increasing and is poised for growth in the next decade. Some of the reasons for this are :

Vendors are continuously increasing the capabilities of their ERP system by adding additional functionality like Business Intelligence, Supply Chain, and CRM, etc.

Vendors have shifted to web-based ERP

The demand for web-based ERP will increase due to the perceived benefits of e-commerce

There are several markets that are yet unexplored.

While many new SMEs start each year, nearly 50% cease to exist in the first 3 years of business itself. Though it is assumed that all SMEs desire growth, only 40% survive beyond 10 years. Majority of the firms do not think of long-term business strategy but focus only on survival. They think of change only when the business begins to fail as a result of not keeping track of the changing market scenario. The firms who survive and grow are the ones who have the ability to take risks and respond to the changing circumstances. Though SMEs are risk averse, they are keen on adopting ERP systems for several reasons. Some of them are:

Pressure from larger counterparts: Due to globalization, SMEs today operate in a wider arena. Majority of them have MNCs as their clients. These MNCs require SMEs to implement the same ERP system as them to allow for tighter integration in their supply chain, which permits them to design and plan the production and delivery so as to reduce the turnaround time.

Peer pressure: Considering the growth in ERP implementation in the SME segment, several SMEs are adopting ERP systems as their peers have done so.

To gain competitive advantage and respond quickly to the dynamic market scenario

As observed by [1], SMEs cover a wide spectrum of industries and as such are important to developing economies. SMEs could create a competitive advantage by being more responsive to change through the use of ERP as a production planning and control tool and could improve responsiveness and agility to change, but not to uncertainty. ERP can create a competitive advantage in meeting delivery performance in SMEs by holistically managing the underlying causes of uncertainties that significantly affect product late delivery in their specific manufacturing environments [2]. Each SME reinvents the wheel since little attention is initially given to business processes and made sure they are followed [3]. ERP provides a repeatable, scalable framework where best business practices are made available to the business to work with. Far from having to modify the infrastructure, the SMEs will benefit greatly by adopting such business practices [4]. Accounting software like Tally is extensively used by most SMEs in India. It is an off the shelf package solely catering to the needs of the functions of accounting. It is very low on user customization, does not have planning or costing capabilities and is not integrated with other areas like sales and marketing, production, inventory management, etc..,

Reference [5] states the following categories to bring out the need for ERP by SMEs:

ENVIRONMENTAL CONTEXT

SMEs operating in a price-sensitive market

SMEs operating in a very dynamic sector or in a high growth market

Close logistical links between SMEs and their business partners (partnership-network) would necessitate the integration of information in the value chain

Membership or affiliation of SMEs in a network of Business Technological context

SMEs confronted with the inefficiency, inflexibility and disintegration of their "legacy" manufacturing information systems

SMEs that have implemented and assimilated more advanced and integrated manufacturing technologies and applications such as CAD/CAM, FMS, and MRP-II Organizational context

SMEs not having a very idiosyncratic production processes

SMEs in a situation of strong human, technical, and financial resources

Larger, more decentralized SMEs

Greater formalization ERPs are designed to help manage organizational resources in an integrated manner and this level of functional integration has the following benefits [6]: reduced planning cycle time, reduced manufacturing cycle time, reduced inventory, reduced error in ordering, reduced requirements of manpower, enables faster response to changing market situations, better utilization of resources, increased customer satisfaction, enables global outreach, etc.., On assessing the extent to which on a post-implementation basis, they had actually attained those benefits, it was evident that they were not able to improve profitability, lower personnel, inventories or system maintenance costs to a large extent but noted that such costs would take time.

An ERP system would allow SMEs to integrate their business functions. It would provide for a transactional system, which provides for a disciplined way of doing business. Thus SMEs would be able to increase their efficiency and productivity by implementing a suitable ERP system. As per source [15] ,over the next five years, the ERP market in India is expected to reach Rs. 1,550 crore ($341 million), according to International Data Corporation (IDC), a market research and analysis firm. Of this, the SME potential in India for the enterprise class is projected to be Rs. 728 crore ($160 million) 47% of the overall market .

ERP vendors like SAP, Oracle, Microsoft, QAD etc. are all trying to increase their customer base in the SME segment and have products specifically designed to cater to the needs of SMEs.

E-commerce benefits: This benefit will accrue from the close integration between large enterprises and SMEs.

Cheaper and faster Internet: Easier access to Internet reduces the costs further.

Cheaper hardware and software: With the advances in technology, the costs of both hardware in the form of servers, cables, switches etc. and software like databases have come down.

Enterprise Resource Planning: Global Opportunities & Challenges [14]- Liaquat Hossain, Jon David Patrick and M.A. Rashid

REVIEW OF ERP IMPLEMENTATIONS IN INDIAN SMEs

ERP systems affect both the internal and external operations of an organization. Hence successful implementation and use are critical to organizational performance and survival (Markus et al., 2000). ERP implementation brings with it tremendous organizational change, both cultural and structural. This is on account of the best practice business processes that ERP systems are based on. This calls for ERP implementations to be looked at from strategic, organizational and technical dimensions. The implementation thus involves a mix of business process change and software configuration to align the software and the business processes.[16]

CONCLUSION

Enterprise Resource Planning (ERP) is one of the essential solutions for an organization in order to face the global challenges and companies are also finding it as a big tool to increase productivity. It paves way for restructuring which would not have otherwise happened in organizations sticking to traditional and conventional values. Though systems, which evolved from Manufacturing Resource Planning (MRP II) systems, have many advantages, there are some failure stories also. The Indian firms and especially Small and Medium Enterprises (SME) are unable to decide upon proper implementation of these systems. This study deals with impact of ERP as well as present issues and challenges in front of Indian industry.