Enterprise Resource Planning Newsletter

ERP benefits are many, far and wide

I recently interviewed a number of department managers to collect examples and illustrations of what ERP is and does for a department.

We could take up pages touting the improvements, cost savings and productivity value to be realized through a new ERP system within the State. Allow us to condense this volume into a few paragraphs (more examples will be published in the next issue):

General Services/E-Procurement

Benefits of an ERP system:

Can reach more vendors, producing more competitive bids and widening participation in government contracts, lowering the cost of products and services purchased

Potential of Rs.10-Rs.15 Laks in total yearly savings

Significant paper and postage cost reductions as part of the yearly savings

Faster product/service look-up and ordering, saving time and money

Automated ordering and payment, lowering payment processing and paper costs

Fast access to detailed account histories, providing more abundant information and improved planning and analysis

Ability to distribute, receive and award contracts out for bid much faster

Wider participation by city and county purchasing entities, multiplying cost savings and management improvements, and offsetting system operation costs

Management/Budget

An ERP system in the Department of Management would:

Save enormous time and effort in data entry and report production for budgets

Allow more innovative and extensive budget report content and analysis

Through Web access, allow lawmakers, directors, managers, even taxpayers to view real- time budget information.

Link the budget system to payroll, accounting, Legislative Fiscal Bureau, personnel and other departments, allowing nearly instant data exchange and ensuring such information is consistent and uniform across the board

Provide easy access to trend data— financial information from years past is quickly combined into an up-to-date long-term view

Empower departments to more closely measure program performance and results

WHAT IS ERP?

An ERP system is an integrated solution, sharing a centralized database, with all ‘users’…. Human Resources / Payroll / Benefits, E-procurement, Accounting, Budgets, etc …. being served by the same database through one point of entry. Data need only be entered or updated once, reducing errors, time and labor for reports, analysis, planning and program management. Ultimately, time and resources are shifted to innovating, problem solving and direct service to customers rather than inputting, processing, organizing, verifying and related “busy work” that burns through time and money

ERP: Lessons Learned

Spend some time reading up on ERP and guess what you find? Lots of mixed messages. Some experts say to customize your software to meet your process. Some say change your process to meet your software. Some advocates say to only use one vendor, others say partnership among vendors is the way to go. It gives government the option to pick the best software for each process.

So who is right and who is wrong? Let’s take a look at lessons learned, and see what the voice of experience has to say.

says Thomas Shirk, president of SAP Public Sector and Education.

Key to Success: It takes Leadership

When Federal Prison Industries Inc. implemented its transition to ERP, it set a drop-dead conversion date. On that date the old system

was unplugged and the new ERP system took over. No contingencies, no delays, no other options. That’s the type of decisiveness (government)

the life cycle of the project. Technology is not the issue. It’s the people

Does it work, listening to the experience of others? Here is an excerpt from Federal Week Computer (May 29, 2000 issue) regarding an ERP implementation for the Energy Department’s Strategic Reserve

(SRS)

“SPR officials decided to take a close look at other organizations’ failed ERP efforts and mold their work to bypass those mistakes. The

Common Ground: Focus on the Customer

What do stories of different ERP implementations have in common? Without a doubt, there is a focus on the customer. That means internal customers (that’s us folks) as well as citizens.

The focus is shifting from back-office applications to front-end services…Its is not just about replacing computer systems but also how information technology can be used to meet agencies’ missions and objectives, There is a shift in focus from the inside-out administrative business systems to the outside-in, where you pull in the customers, suppliers, citizens,"

agencies must exercise if they want ERP to work. We have to win people over from the beginning. We have to put someone in charge and give them authority to make the call.

Cost Control: People are Key

Industry figures are staggering, with reports of almost half of all ERP initiatives delivering 200 percent return on investment Most of the problems in implementing any IT project are management issues, which reviews IT projects at federal agencies. Good projects have engineering discipline used throughout move paid off. SPR’s enterprise wide ERP system — which tied together 16 separate systems — was completed 63 days ahead of schedule and 4 percent under budget. One year after going live, SPR reports a 47 percent return on its $10 million investment and is projecting $32 million in saved labor costs.”

Proxs ERP champions can put these lessons to work as new systems get planned and installed.

INDIRECT BENEFITS OF ERP SYSTEMS

Introduction:

It would be difficult to point to a technology that generates no indirect returns. In fact, the results from the sum of case studies that has been conducted over time reveal that, no average, indirect returns account for 50 percent of technology ROI.

What is an indirect Benefit?

An indirect benefit is a return that cannot be directly observed but is nonetheless realized – as opposed to direct benefits like reduced headcount or increased sales that are more easily quantified. Worker productivity is the best example of an indirect benefit from a technology; greater efficiency doesn’t always lead to the removal of an existing expense item but is realized in the sense that it enables employees to perform their jobs better and faster.

Direct Returns: Only part of the Equation

On average, only half of technology ROI in various case studies results from direct returns such as headcount, increased revenues, or similar gains that show up as line items on financial statements. The other half is attributable to indirect improvements that aren’t accounted for in the same way but that are still critical in driving business value. For example, there is clear business value in giving hundreds of employees the ability to perform their jobs in less time or avoiding the hire of additional employees through greater efficiency. Therefore, companies overlooking productivity gains when looking at the ROI from a potential solution could very well and up foregoing a competitive advantage.

Help reduce operating costs

ERP software attempts to integrate business processes across departments onto a single enterprise-wide information system. The major benefits of ERP are improved coordination across functinal departments and increased efficiencies of doing business. The immediate benefit from implementing ERP systems we can expect is reduced operating costs, such as lower inventory control cost, lower production costs, lower marketing costs and lower help desk support costs.

Facilitate Day-to-Day Management

The other benefit from implementing ERP systems is facilitation of day-to-day management. The implementations of ERP systems nurture the establishment of backbone data warehouses. ERP systems offer better accessibility to data so that management can have up-to-the-minute access to information for decision making and managerial control. ERP software helps track actual costs of activities and perform activity based costing.

Support Strategic Planning

Strategic Planning is "a deliberate set of steps that assess needs and resources; define a target audience and a set of goals and objectives; plan and design coordinated strategies with evidence of success; logically connect these strategies to needs, assets, and desired outcomes; and measure and evaluate the process and outcomes." (source) Part of ERP software systems is designed to support resource planning portion of strategic planning. In reality, resource planning has been the weakest link in ERP practice due to the complexity of strategic planning and lack of adequate integration with Decision Support Systems (DSS).

Top 5 reasons to implement an Intuitive ERP software system

1. Enhance productivity, flexibility and customer responsiveness

From quote to cash, an integrated business system helps you get product out the door faster. Intuitive gives you the tools to maximize the efficiency of business processes across the entire enterprise. Forecast demand to suppliers. Increase on-time delivery. Automate the shop floor. Decrease lead times. Increase order capacity. Make commitments you know you can keep.

2. Enable new business and growth strategies

Undertaking new business strategies requires an infrastructure that can handle the demands of an industry that is increasingly dependent on technology. Updating and integrating your business processes with an enterprise system enables you to take on more business and grow in new directions. Connect multiple plants. Take advantage of the Internet and wireless technology to connect to customers and partners. Introduce new product lines. Mobilize your sales force.

3. Eliminate costs and inefficiencies

Using an enterprise system to standardize your business processes can dramatically improve your company’s bottom line. Better resource management results in more inventory turns. Management of your vendor relationships reduces costs for purchased items. More efficient scheduling on the shop floor reduces downtime and overtime. Improved customer service leads to repeat business.

4. Expand your knowledge of key business data

An ERP system integrates all business management functions, eliminating contradictory information from disparate systems. Reports, graphs and charts on key business data can be automatically generated to provide a higher level of business performance visibility, with the drill-down capability into details behind the data that you’ve always dreamed of.

5. Extend your business using the Internet

Taking your business onto the Internet can give your company a competitive edge. Web-enabled technology allows you to access information, sell product, run business processes, and communicate with your customers and partners at any time and from anywhere in the world.

The Bottom Line

Nucleus case studies reveal that, on average, indirect benefits account for half of technology ROI. Clearly, every organization attempting to calculate ROI from a proposed IT investment should recognize indirect returns like productivity. Taking a structured approach to measurement and employing concepts like productivity correction factors are the first steps to accurately measuring indirect returns.

A groupware application enabling better communication between attorneys and clients at a law firm may not lead to fewer attorneys, but it can significantly improve the quality of service to clients while letting attorneys focus on value-added tasks. A firm that ignores these indirect returns and chooses not buy a collaboration system will ultimately deny itself the ability to stay at par with competitors with similar technology.

What Drives Indirect Benefits

If you are trying to estimate the proportion of indirect benefits from a proposed implementation, you should consider three key factors: the kind of technology in question, the areas to which you plan to apply the technology, and your current IT environment and assets.

Companies should consider three key factors when estimating the proportion of indirect benefits from a deployment: the technology itself, the way it is being applied, and the organization’s existing IT environment.

The Technology

While all technologies deliver indirect value, some solutions tend to generate more indirect returns. The following are a few examples:

Supply Chain

Collaboration and portals

Content management

A technology for collaboration is likelier to bring a higher percentage of indirect returns than, say, a supply chain system. The difference lies in the way the technology impacts operations; groupware will impact employee efficiency first, whereas supply chain will likely generate directly measurable results, such as reduced inventory costs.

How the Technology is Being Applied

The technology is not a sole factor dictating the extent of indirect returns a company can expect. The specific way in which the company chooses to deploy the technology and the areas of operations the company targets will also influence the impact on the individual company’s bottom line.

The IT Environments

Often, the magnitude of indirect benefits will depend on how much of a delta, or change, is triggered by the implementation of the new technology on the existing IT environment and assets. A company that has relied largely on manual collection of time for hourly employees will see significant direct benefits if it moves to an automated time and attendance application by reducing the number of timekeepers. But if the company already has an automated process for time and attendance and is upgrading to a new version of the timekeeping system with new auditing and reporting features, the ROI that upgrade will be driven largely by indirect efficiencies through time saving.

Conclusion

Many companies will find that direct returns from technology could pale in comparison with indirect returns once they start quantifying the impact of other returns that are indirect but equally impressive in the terms of the business value generated. In fact, more than 82 percent of the case studies Nucleus has published over time have included some form of measurable indirect returns, with 50 percent of the technology ROI being attributed to indirect returns.

Certainly, user disappointment with customer relationship management knowledge management and other solutions that leaned on “soft” benefits has made many CFOs wary of counting indirect benefits when estimating ROI. But a benefit that isn’t directly observed could still be generating significant business value because the problem lies not in the benefits but in the way they are counted. To estimate the extent of indirect returns, companies should take a structured approach to measurement, employing such concept as productivity correction factors and taking into consideration the technology in question, its application, and the firm’s IT environment.

SUBHANKAR RUJ

#405, Pawmana Layout, Kembathalli Main Road, Bannerughatta Main Road, Gottegere,

Bangalore – 560082, Karnataka, India

Ph: 9986424464 / 9916591684 e-mail: subhankarruj@rediffmail.com

Enterprise Resource Planning Newsletter

Subhankar

2009-11-16