The critical success factors of ERP systems mainly include proper implementation and usage. Beside this there are several other factors that decide the regular functioning of ERP in organizations.
While many organizations have not incurred the necessary benefit in terms of money and other measures there are lots who have witnessed multiple profits. Studying them will help in understanding the critical success factors for ERP implementation. They will help in deciding ERP success
What is ERP?
ERP or Enterprise Resource Planning is IT software that integrates business activities across an enterprise—from product planning, parts purchasing, inventory control, and product distribution, to order tracking. ERP may also include application modules for the finance, accounting and human resources aspects of a business. SAP and Oracle are the two ERP leading vendors.
From a business perspective, ERP today has expanded from simply coordinating manufacturing processes to being the integrator of enterprise-wide backend processes. ERP has also evolved technologically from a monolithic legacy implementation into flexible, tiered, client-server architecture.
ERP Project Risks
In the late 1990s many ERP projects started, but more than a few failed. While ERP projects remain challenging even today, most can now be successful because the best practices have been identified and ERP professionals are more knowledgeable and more experienced with making the projects successful.
ERP Business Benefits
ERP is an enabler of business benefits, and should not be viewed as a standalone initiative with the requirement to pay back its implementation cost. The most immediate ERP benefits include
(1) Improved visibility of procurement spend and savings from improved sourcing policies,
(2) Decrease of work-in progress and days-of-sale-outstanding,
(3) Improved productivity through better sales order handling, better procurement operations and more efficient planning.
However, the most important business benefits will often be delivered after the ERP backbone is established, by other initiatives that use the ERP backbone:
- Integrated supply chain: from network planning through scheduling and Manufacturing Execution Systems (MES)
- Easier integration of business processes with business partners
- Shared services and outsourcing of support functions
- Increased information transparency to enable better decisions
- Agility in acquisitions and “carve-outs” or divestments
- Increased regulatory compliance
- Robust and future-proofed backbone systems
There are cost savings on the IT side, often around 10-15%, especially when different ERP implementations are being harmonized. These IT savings include:
- Reduced ERP implementation costs due to a common template
- Reduced application maintenance costs
- Lower integration cost due to standard interfaces
- Lower infrastructure costs
With an awareness of the best practices and a good understanding of ERP project complexities, the risks in an ERP implementation are usually outweighed by the benefits. The ERP discussion on investment return is one of mindset more than one of standalone business cases.
TISCO PROFILE
This company founded and established in the year 1907 is known to be one of the leading steel giants in the country offering multiple products and successfully running many subsidiary corporations. Being a large entity does not stop things from being subject to scrutiny and internal audit. They are regularly implemented with the help of committees who report to the selected members from the senior management. The company is dedicated to providing laudable services to the stakeholders improve on the quality and as thrive for innovations and improvements constantly.
BACKGROUND
TATA steel is India’s largest integrated private sector steel company that started its corporate journey in the year 1907. Backed by captive iron ore and coalmines, Tata Steel runs state-of-the-art Cold Rolling Mill complex at Jamshedpur, Eastern India. The enterprise has undergone a modernization programme costing $2.3 billion, resulting in production of steel at the lowest cost in the world. Being a large entity does not stop things from being subject to scrutiny and internal audit. They are regularly implemented with the help of committees who report to the selected members from the senior management. The company is dedicated to providing laudable services to the stakeholders improve on the quality and as thrive for innovations and improvements constantly. Tata Steel is a relentless pursuer of excellence. ASPIRE, Tata Steel’s quality initiative drive combining TPM, Six Sigma, Total Operational Performance, Suggestion Management and Quality Circles has reaped rich dividends for the company.
Tata Steel's Jamshedpur plant has a capacity of 4 mn tons per year, and produces flat as well as long products. Currently, to meet growing demands, the plant is being expanded to accommodate another million. Tata Steel has set up an ambitious target of 15 mn ton capacity per year by 2010. As part of its expansion plans the company recently made investments in NatSteel Singapore, which will expand its footprint in six countries in the Asia Pacific region and China.
Tata Steel's products include hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction re-bars, rings and bearings. The company has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Pipes, Tata Bearings, Tata Agrico (hand tools and implements) and Tata Wiron (galvanized wire products). The Construction Solution Group explores new avenues for steel utilization by techniques that are economical. Tata Steel has also developed 'galvannealed' cold rolled steel with technical assistance from Nippon steel for high-end auto applications.
ERP IMPLEMENTATION
TISCO deserves lot of credit for implementing ERP because of the fact that many organizations in the global level have given up the very idea of ERP due to the fact that there are lots of failures associated with it even in the implementation stage. ERP implementation did in wrong manner have caused havoc to organizations more than bringing profits. This being the case it is natural to expect a large company (in terms of Size and volume of operations) like TISCO to discourage the idea of Enterprise resource planning. However TISCO proved to be different from the others by choosing ERP in the right time and implementing it in a proper manner. They have also reported a whooping profit and reduction of costs in the whole process. Another amazing fact is that they implemented it into the whole systems in one single spree. The method of implementing it in one spree carries a lot of risks especially for a bigger company. Infact the success rate of this method itself is low in general and very low as far as bigger companies are concerned. Incase of the rare success organizations will experience effective results in their enterprise operations. TISCO has achieved that by way of meticulous handling and professionalism. The net results of their ERP software have been described to be pathbreaking and a trendsetting one.
WHY ERP IN TISCO
TISCO faced two major problems from the systems that existed for a long time. Firstly they were not customer friendly. The whole system was tuned to the process and very little attention was paid to the customer demands. Secondly the systems were outdates and the modalities of operation were too complex and not error free. In order to rectify these issues which would otherwise prove to be major setbacks to the company the organization resolved to take up ERP. This was instigated by the concerned departments. Leading consultants were hired and the business structure was studied and suitable plans were drafted accordingly.
What Should They Do?
Let’s say you’re the CEO of a large multi-national steel company, and you’re running a global operation with plants on four continents. You need to make good business decisions, and you rely on your IT systems to provide the data to make those good decisions.
But your IT systems are not well integrated. There are too many different systems, and too many gaps between them, a legacy of the company’s history of mergers, acquisitions, and improvement initiatives. You need a common information backbone. You’ve heard that ERP systems can do that, but you’ve also heard about ERP project failures from years ago.
Can ERP handle the challenges of a steel company today? And will that lead to business benefits for the company? answer are yes, and yes.
Information Systems For A Quickly Changing Steel Industry
In a quickly changing industry like steel, one need information systems which quickly provide them the data they need. We believe that ERP, especially in its mature implementations today, is the crucial component for a company’s IT data backbone. ERP can play an essential role in:
- Driving accurate and fast decisions (product profitability, procurement spend) with consistently defined data
- Running broadly known and supported applications
- Harmonizing and optimizing back-office processes across the enterprise that comply with finance requirements such as SOX and IFRS
- Enabling best-practice demand planning for supply-chain processes
- Future-proofing global applications that support global enterprises
Six ERP Design Challenges for Steel Companies
A steel company presents six industry-specific design challenges for implementing ERP, as described below. A successful ERP project will start by analyzing these challenges in detail across all of the company’s integrated processes. This analysis will result in the basic decisions that will be the foundation of the ERP project.
Challenge 1: More than one planning strategy
Steelmakers often use a combination of production planning strategies. Typically the flat or strip products are make-to-order, whereas the long products are make to- stock. Depending on the existence of a “de-couple point”, finish-to-order could be a relevant planning strategy as well. Such a combination of planning strategies affects the design of most ERP processes, including supply chain processes as well as the financial/cost control processes. Cost control in make-to-stock tends to go for standard price approaches, but in a make-to-order environment costing happens on an individual order cost collection and forecast basis. ERP systems today can handle this kind of complexity.
Challenge 2: Complex product variations
A steel product is made up of a large number of characteristics, making the product difficult to configure when entering it in the ERP system. Configuration in the make-to-order entries is typically done while entering the order, whereas for the make-to-stock entries, configuration is done in the product definition, that is, on the “material master”.
This burdens the early discussions during the design phase of an ERP implementation. Fundamental decisions need to be made very early in the project about how many (finished product) materials should be defined: one extreme is to define by material group which needs to be configured completely in the order, or the other end of the spectrum is to define all possible/feasible characteristic combinations which can possibly explode into an extremely large number of finished product definitions.
A steel product tend to explode towards the end of production processing; in other words, the bill of material “stands on its head” or is “v-shaped,” as shown in Figure 1. This means that the later in the process you define a product, the higher the number of products to be defined becomes. ERP solutions today can readily handle the complexities this of the V-shaped bill of material. They allow “characteristics based product configuration” with automatic deduction of characteristics, characteristic value inheritance from sales order header to item level, entry of multiple order units such as pieces, tons, dimensions, and so on. Characteristics then drive production, shipping and purchasing processes across the supply chain
Challenge 3: Flexible planning
Planning for steelmaking often needs to happen on short notice, with unstable production processes and unplanned outputs. This requires continuous re-assignment of products to processes and orders dependent on the Characteristics described above. ERP systems today allow re-assigning flexibly to handle these situations.
Challenge 4: Specific Customer Service Requirements
To cope with high-demanding customer segments such as automotive and construction, tight integration with business partners on forecasts, electronic customer orders (EDI, internet etc.) are typically needed. ERP systems today support electronic integration with partners.
Challenge 5: Complex production scheduling combining both continuous and batch production
Figure 2 below illustrates the flow in a typical steel mill. While the blast furnace and converter work in batches, the caster works continuously and the finishing lines work in batches again.
The batches need to be selected based on characteristics during production, preparation and shipment planning. This means that the planning process needs to be able to derive batches with characteristics inheritance and history tracing. Finally, the scheduling part of the planning system needs to be able to work with multiple and dynamic bottlenecks – that is, bottlenecks which can change based on incidents such as production problems in certain process steps. ERP systems today can handle all of these situations.
Challenge 6: Detailed margin analysis
In today’s steel industry when prices are high and capacity short, margin analysis becomes the essential method to tell what money is being made on which customer/product segments. On top of segment analysis, it is also essential to differentiate between “strategic materials” (cokes and ore, Ni and Cr for stainless) and the other cost elements that may be easier to control. ERP systems provide the tools to support these decisions.
The ERP system will also need to work closely with the company’s Business Information Systems (BIS) to optimize the business benefits. Working together, the ERP and BIS systems can, for example, improve inventory allocation to late orders.
Integrated IT Model for Steel
An integrated IT model as in Figure 3 is important because it lets you see the systems involved in planning and production. A typical flow would be:
- The Supply Chain Management (SCM) application provides the rough-cut planning in “Demand Planning.” The result is planning blocks of similar products which are then handed over to production planning.
- When orders are being entered, availability checks assign the order to a block (unless inventory already exists that meets the order) and feeds back a promise date (at the end of the block to allow for the flexibility of possibly moving to an earlier date).
- The mill optimizer then typically would re-shuffle orders in between the blocks, and feed results back into the SCM application in order to optimize the load balancing.
- Right before production starts, planned orders from the SCM application are converted into production orders and, via the ERP system, are transferred into the MES layer. It is at that time when quantities are being translated into pieces (slabs, coils etc.).
- Detailed scheduling then takes place, sequencing and combining pieces from various orders throughout the mill into lots for optimization.
- Production completion then posts an updated status of the orders into the ERP system, including stock receipts of finished products, and so forth.
Figure 3 is also important because it lets you identify gaps among a company’s different IT systems. A typical gap occurs between the ERP and MES (process control and machine control) systems, where the “system” is actually combination of custom-built applications and manual spreadsheets. “Bridging this gap” properly is essential forrealizing the business benefits of the IT investments.
If the applications in Figure 3 are to provide true value, they need to be robust, integrated and cost efficient. A recent IBM survey indicates that steel clients process control and MES systems are custom-built applications 66% of the time, and that these custom-built applications usually differ from mill to mill. Clearly, this risks creating sub-optimal processes and leaves the company open to all the problems of maintaining custom-built, legacy applications.
Implementation Approaches for ERP
The key element for ERP success is to know how to implement an ERP project. Past experiences recommends best practices such as: