Enterprise Resource Planning Vendors Strategies to Small and Medium Scale Organisations - Essay Example

ERP vendors Strategies to SME Abstract: This assignment gives a small picture of Enterprise resource planning (ERP) and its vendors for both small and medium scale organisations (SME). Many key ERP vendors are now targeting SME’s as the growth in large businesses is now saturating with strategies which consist of developing a simple to execute, cost effective and simple to improve or upgrade ERP system’s for SME’s. The increasing demand in the SME’s for these system is due to high competition and these system can give them a distinct edge over the competitors. Although pricy systems, issues regarding consultancy and upgrade problems in the future are hindering the implementation of ERP system in these Small and Medium enterprises but ERP vendors are constantly focusing on coming up with a solution which overcomes these issues makes the systems specially designed for small and medium businesses. Introduction: Even as many new Small and Medium businesses (SME’s) come into existence every year, we have observed that about 50% of these companies come to an end and are closed within 3 years of their inception. Even as we know that all organisations weather small or medium desire to grow, but only about 40% of these companies survive beyond the first 10 years. A big bulk of these organisations doesn’t even plan for the long term they do not have any long-term business strategy and hence their focus is mostly on short term survival. These organisations consider changing only when the results of the business starts to go towards south and the company itself starts to falter as a consequence of not following the ever-altering market. The Organisations which continue to exist and prosper are mainly the ones who were committed towards changing and were keen on taking risks and take action towards the changing situation (Levy et al, 2005). In today's intensely competitive business setting there has to be much greater relations between the customers and the manufacturers. ERP (Enterprise Resource Planning) is a strategic tool, which not only equips the organisation with the necessary capabilities to integrate but orchestrate secluded functions into streamlined business Processes. It even optimizes the assets that are available or helps to gain a competitive edge in the chaotic business environment. The great progression in information technology and severe reduction in the prices of computers have made it possible even for the small organizations to consider the ERP systems. The innovative creation of computers, initiation of client server technology and scalable relational database systems, has greatly contributed for the easy deployment of ERP systems. Most of the ERP vendors are trying to attract the small and medium enterprise segment with a range of options. As per the IDC, even though responsiveness and current acceptance of ERP system is quite high in large businesses, it's the SME segment that has the potential to fuel the future growth. There is huge market for ERP system in Small and Medium businesses, as there are over 20,000 small and mid size companies. (Markus M.L. & Brehm, L. Heinzl, A., 2001) Small and medium enterprises (SME’s): Small and medium enterprises are those business entities whose total headcount or total turnover falls within certain limits set by the government. The limits vary from country to country for example the traditional limits in Germany were 250 employees, while, in Belgium it could have been 100 current limits set by EU are businesses with fewer than 50 employees are termed as "small", and those with fewer than 250 as "medium".( Markus M.L. & Brehm, L. Heinzl, A., 2001) In accordance with IBM conditions, both small and medium scale organisations are jointly known as Average Mid market and Mid Market business which are iin the business and dealing for about 17 years and it also mentions that these small and medium businesses in addition have about 6 to 10 branch offices. Also the IBM paper mentions that in terms of Information Technology (IT) average a business with 100 to 249 employees has five IT Staff. On the other hand we observe that organisations with total staff strength of about 500 to 999 employees usually have about 20 IT staff members working for them workers. (IBM, 2004) Enterprise Resource Planning (ERP): ERP system helps the organizations to achieve integration through entire the enterprise which results in much quicker way towards precise information that is necessary for decision making. ERP was first introduced through manufacturing and as we can infer from the name itself that the it is only an expansion of Manufacturing Resource Planning (MRP II) (Davenport, 2000). These days, an Enterprise Resource Planning structure is thought of as an essential fee that we pay for running the organisation and for being able to communicate with other business organisations, which allows for many benefits such as electronic commerce from one business to the other (Boykin, 2001). Many of the MNC’s limit their dealing with mostly those organisations which are on similar platform of ERP as these companies (Shehab et al., 2004). As most of the SME’s have Multinational companies as most of their patrons, they do not have a choice but to think about incorporating the ERP structure as a necessary obligation to agree to much better incorporation with their clients. Prior to the existence of the ERP systems, all subdivisions of a company had their own small systems that would help them to meet the requirements of that particular department. Because of this reason there was a lot of disintegration in sequence of, as much of the needed knowledge was captured and accumulated in independent capacities and on different systems, this was the case in each of the business units which as we have seen many times are present across the globe. This independent capturing of information resulted in various difficulties to acquire and use the right information at the right time it also resulted in increase in cost to acquire the information. Then In 1990s, globalization resulted in a massive rivalry amongst the companies and these organisations, which were particularly in the sectors such as manufacturing, grasped the mounting requirement for a much increased customer focus. Organisations had to move in the direction of responsive and agile manufacturing, development of business processes on a continuous basis and reengineering of business processes. This essentially needed the incorporation of manufacturing process with different functional areas of the business such as accounting, marketing and HR, etc. but also paved the way for the development of MRPII to ERP systems (Sadagopan, 1999). ERP tie’s the major functions of the organisation together into a one integrated system which has one database holding all the essential data. This system not only serves the information that is needed by all the departments across the organisation but also allows them to correspond with each other. A classic ERP system contains various modules for modern, Quality Management, Production Planning, Human Resource, Financial Management, Manufacturing and Logistics and Sales and Distribution. Once we see that an ERP is implemented through the whole organisation, the managers operating on the floors are then comforted from the small everyday problems and solutions and hence they provide much more time to both prepare and execute long term activities that drive the business and are essential for the growth of an organization. This results in a noteworthy savings in terms of cost as the organization’s wellbeing is continuously under the watch. Even as the initial investment in the ERP system is a little high, it becomes immaterial when we compare it with the payback that a accurate execution provides in the long run (Sadagopan, 1999). Strategy focus of ERP vendors Some of the times enterprises resource planning systems become tremendously difficult, the execution process is very lengthy and complicated, many of the ERP vendors are now focusing on the small and medium scale businesses with number of offerings which helps the SME’s to take most advantage out of these Systems without spending much efforts, time and manpower. Application Service Providers: (ASP) can be defined as “A company that offers organisations or individuals access to applications and related services over the Internet that would otherwise have to be located in their own personal or enterprise computers” (Telus, 2005) A huge number of ASP providers are now turning towards small and medium enterprises (SME’s) so as to manage their enterprise resource planning systems with many implemented modules such as supply chain, e-commerce, and distribution. A few major advantages of ASP include the following:- 1. Valuable technique in terms of cost of applying ERP resolutions as asset is not essential in case of buying all other things such as software, hardware infrastructure and future up gradation. 2. It delivers better and improved flexibility and security. 3. It has been observed that many of the small and medium scale organisations (SME’s) have much less number of staff in the IT department, and as we see that ASP involves much lower need for IT knowledge in business. 4. It also takes cares of the other issues which are generally very expensive for the company to take up these include issues in house training and maintenance of the system.(iStart, 2004) Outsource ERP systems: In the recent times we have been seeing that there has been a shift from in house processes towards Outsourcing which as we have seen is the most latest fashion of the businesses which fall under small and medium scale category and the biggest advantage that has been brought in due to outsourcing ERP is that the company can now focus on its core competencies or the part of the business which they are good at rather than worrying for solving petty issues. Usually, a company that has taken up the outsourcing assignment charges a fee which might be monthly or quarterly depending upon the contract and this fee depends upon constitution of system that is required, reputation of the service provider which may host ERP server. The benefit of outsource ERP systems for SME’s are: 1. No major issues associated in hiring knowledgeable and talented IT professionals. 2. No difficulty in carrying out the implementation of the ERP system. 3. No issues in terms of maintenance (DePompa Barbara, 2003) ERP Applications which are preconfigured for SME’S: Many of the foremost ERP traders now are providing a very focused vertical ERP system which are specifically important in the case of industry specific verticals examples of these can be pharmaceuticals, utility, financial institutions, service, and educational institutions for small and medium scale businesses (SME’s) and in-fact most of SME’s are now coming up and implementing these new solutions for their businesses. Pre-configured ERP systems fundamentally use the knowledge of the business which they have acquired and implemented in a present system. Many of the ERP vendors have now started providing the solutions in various industries where they have gained a lot of knowledge (ERP New Insights, 2004). ERP Solution for SME’s: Due to the cut-throat competition that is prevalent in today’s business environment, there is huge market pressure on the organisations this pressure leads these small and medium organisations to demand for extra features and functionalities instead of the very basic functions, these SME’s have been showing a considerable interest in buying a modern ERP suite that offers extra features and function such as customer relationship management (CRM), supply chain and human resources. To fully utilise the advantages of the systems SME’s requires a powerful, integrated business solution that helps them develop every aspect of their own business and these systems should have the following features:- • A full Accounting solution integrated with the system.. • Low cost, easy and fast implementation • Easy to install • Low on cost for both the ownership and maintenance • Accessibility to internet and wireless device (Mid Market ERP, 2003) In response to the requirements, many major ERP vendors are now taking a different approach towards initial systems development for SME’s, instead of focusing into many functionalities which might be similar to comprehensive ERP software, most of the vendors are trying to keep it simple and easy to use. (Christine Murphy, 2005) Barriers to implementation of ERP systems in SME’s (Issues & Challenges) Even as the market for ERP systems seems to be growing, there are quite a few issues and challenges one has to face when implementing an ERP system in the SME segment. Some of these are: Awareness: There is not much awareness amongst SME’s for ERP vendors, applications etc. in fact we see that many times they do not even know what an Enterprise Resource Planning structures are and what they can do. They believe ERP systems to be some kind of a magic wand, which will help them to solve all of their business problems, whatever it might be, be it in terms of quality, or process defects. We can say that ERP brings in a more disciplined execution of business process which gives more transparency and visibility towards the working of the organization. Perception: Some of the SME’s carry the perception that an ERP system is only meant for large organisations which is occurs mainly due to the high costs of acquisition, implementation and maintenance as also the complexity. Many of the SME’s even feel they do not need an ERP system for their organisation. Earlier Implementations: SME organisations have seen failures in ERP implementation in either their own company or any other SME this leads them to believe that ERP implementations are a waste of time and effort and can even lead to the demise of company. Approach to implementation: ERP vendors’ advice SME companies to style the business to ERP’s way of working so as to obtain the best results this is considering that ERP systems bring with it best business practices. This is the simplest approach that was mentioned earlier and this would bring down the cost of implementation, but many of these SME’s have processes that they have evolved over time and hold very dear to their hearts. As a result of this SME’s get their entire ERP system customized to meet the requirements, this increases the overall cost of implementation. A good and simple approach is to keep the customization to a minimum so as to avail the best practices and yet save some cost on customization. Cost: SME’s have much less capital than their large business organisations. Change management: One of the most important reason as to why ERP system implementations worldwide have been known to fail is due to the implementation phase being considered as an automation project instead of one that involves change in management style, this results in the system being put in place but not being used effectively due to people not ready to accept the change. Restricted resources: Most SME’s do not have an IT team in the organisation due to this they have no other option but to rely on external agencies to help them and this adds to the implementation costs. User Resistance and Training: In fact most of the people in the world are afraid of changing the ways of doing things. Businesses execute ERP systems to develop the complex business environment to make the processes efficient and to enhance profitability, but many projects fail to deal in intensity with the scale of the organisation wide changes and user interests that is necessary to implement ERP systems successfully IT Skills: Large businesses have their Information Technology departments, which is responsible for proper functioning of all IT related activities in organisation. In contrast, Small and medium organisations have much less number of employees and generally face shortage of IT skills to maintain such systems. So, these businesses can not manage to pay for hiring people with proper IT skills. Up gradation Issues: Generally, ERP vendors come up new versions of their latest software after one or two years which adds new features and latest technology available in the market. For small and medium scale businesses, it is very difficult and expensive to upgrade to new system with the change in trend and technology. So, most of the smaller organisations find it really difficult to change the system with time. Case Study: AstraZeneca Pharma AstraZeneca Pharma India, which was formerly known as Astra-IDL is a part of AstraZeneca Plc UK. AstraZeneca Pharma India manufactures and markets bulk drugs and formulations. Issues faced while implementation The company had conceived the idea to go in for an ERP implementation in 1999 but there were some unforeseen difficulties in connecting the network from AstraZeneca’s corporate headquarters in Bangalore to its factory in Yelahanka. Mr.Rao says , “If there Had been no networking problems we could have implemented the package in a matter of six to eight months. But the whole process took more than one-and-a-half years due to the networking problem.”(AstraZeneca official webpage, 2009) Key Benefits The biggest benefit that the organisation had reaped was that it has successfully solved the problem of integrating different company processes and functions. This has resulted in no platform related Issues. By integrating all the processes, the ERP execution has helped to avoid any data duplication thus saving precious time and cost to store that data and has ensured that data is reliable and accurate, with the chances of discrepancies being almost nil. Besides this, now a smaller number of people are able to handle large business transactions which have again resulted in cost savings and with a zero failure rate in system transactions the transactions have become more secure. It has become much easier for the organisation to monitor labour productivity and in visibly observing working processes at different stages of manufacturing. Case Study: Viper Motors Viper Motorcycle is an American company and their business includes designing and manufacturing Super Cruisers motorbikes, Motorbikes engines and selling spare parts for their bikes. Viper Motors chiefly targets in the direction of wealthy motorcyclists who’s seeking uncompromising performance and latest cutting edge technology in their bikes. (Company Info, 2005) Key Challenges for Viper Motors: Viper motors have number of challenges for the proper functioning of their businesses and IT. The Key test was to incorporate company’s accounting with other business processes such as manufacturing and order processing. 1. Improve visibility into key business function and processes. 2. To build and arrange system and applications that comply with Sarbanes-Oxley requirements by Government. 3. Focus to develop cost-effective IT system but it should be scalable. Solution Implemented: After conducting research and getting information about all the products and solutions available in the market, and to overcome all the issues and challenges, company decided to implement SAP Business one which is specially designed for small and medium scale businesses. Key Benefits: As the result of SAP Business One implementation, Viper Motors got the following key benefits in their processes and functions. • In Depth and excellent business information very quick and available with no trouble. • Very simple to produce business reports which helps in superior decision making. • It helps to achieve substantial growth in future term • The new system fulfils the Government Sarbanes-Oxley requirements Conclusion: ERP systems put in place a much more well-organized and efficient way of working and provide better visibility to the working of the organization. SME’s are the strength of the economy and these are the companies that fuel the growth of any economy they are today faced with global competition. Therefore it becomes extremely important for them to look for means of responding to the dynamic markets. As we see that even SME’s are now moving towards ERP systems. They need to adopt a more practical approach towards ERP systems carefully weighing both costs and benefits and consider it as a business solution rather than a mere IT solution. Many popular of ERP vendors notice the future potential and growing market in small and medium scale enterprises, to sell their systems. In fact all big organisations are coming up with new solutions which are cost effective, easy to implement and require less human skills. However, small and medium businesses want to automate their workflow, enhance the business and process efficiency, and more importantly, increase their customer satisfaction by the use of information systems. 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