1. Selection and Implementation of an ERP System

2. Section I: Introduction and Selection of an ERP System

3. Introduction
It is a major business decision for a manufacturing company to make the decision to select and implement an ERP system within their organization.
If done properly it will be a profitable and enjoyable experience.
However, if it is implemented poorly all concerned will be disappointed with the results.

4. Step 1: Project Organization

5. Project Organization
To be successful the effort of selecting and implementing
an ERP system must have high priority and visibility within an organization.
It is advisable to give the effort
the status of a major project and
require regular progress reviews at the appropriate levels of management.
ERP implementation truly is a company-wide effort and is doomed to failure if treated as anything less.

6. Selecting a Project Manager
Key user of the new ERP system who has a good deal of experience and high level of credibility within your company.
Should be trained in the techniques of project management.

7. Common Hiring Mistakes
Mistakes made when hiring ERP project managers:
Hiring an ERP "expert" from outside the company
It's easier to teach an internal person about ERP than it is to teach an ERP expert about your company, products, and culture.
Hiring a new person just out of college (e.g., a person with a computer science degree)
Although they may have enormous potential, they may not yet have creditability.
This mistake is usually made when management sees ERP as only another system and not as a company-wide system.

8. The Project Team Project Team
Responsible for the day to day management of the ERP selection and implementation.
Team members represent their different functional areas.
Team members manage selection and implementation tasks and may also do work on these tasks.

9. Budget/Funding
Management should establish budget guidelines for the project prior to beginning the project
Project team needs a budget that they can use for planning and executing the project
Many companies have no idea what to pay for an ERP system
Many decision-makers turn to vendors A better way is to ask, "Why are we doing this and how will we benefit?" By answering these questions, an organization can begin establishing an ERP budget-a valuable tool for negotiation.

10. Budget/Funding, cont.
Before issuing a Request for Proposal (RFP) to vendors, apply a standard for estimating the ERP implementation budget.
Find a reasonable method for ERP implementation budgeting.
Example: This method uses a calculation based on the company's annual sales. Experience has shown that companies will spend 1 to 3 percent of annual sales on the total acquisition costs of a new ERP system. This includes the cost of software, hardware, implementation, first year maintenance, licensing fees, tailoring reports, providing interfaces for other software applications, and other miscellaneous costs. In other words, this estimate should cover the "total cost of ownership" for the new system.

11. Project Schedule
Must have enough detail so that it can be used as a primary tool for managing the project.
Tasks should include time frames for completion and responsibility assigned by position or name.
Using a project management program like Microsoft Project or equivalent is recommended

12. Step 2: Analyze and Document Functional Requirements

13. Functional Requirements
An important prerequisite to selecting an ERP software package is to document the functionality required to support business.
This effort should also include where possible, functionality to support business objectives in the future.
These requirements will be used as one of the criteria for evaluating and selecting the most appropriate software package.
For an organization that has never documented requirements this could be a daunting task; however, this section provides some suggestions and guidance to keep the task as simple as possible.

14. Gather Requirements
The project team can analyze and document the functional requirements.
The project manager can organize and conduct interviews with people in various departments throughout the company. From these interviews a formal requirements document is produced.
Alternatively, the project manger can request written requirements from each department and then organize the responses into a requirement document.
Often a combination of the two methods works well, but at any rate someone who is knowledgeable of the company and ERP functionality should document requirements.
If no one within the organization is qualified, it is not unusual for companies to enlist outside help.

15. Two Types of Requirements
To keep the requirements documentation process as simple as possible it can be classify into two types:
General or Standard requirements
Special Interest requirements

16. General or Standard Requirements
By definition these requirements include functionality that most systems provide and most companies require.
List the primary functions or departments which should be supported by the new system. These may include, but is certainly not limited to:
Receiving
Shipping
Marketing/Sales
Forecasting
Human Resources
Engineering
Accounting Sales order entry
Sales order scheduling
Material planning and scheduling
Production planning and scheduling
Capacity planning and control Purchasing
Inventory control

17. General or Standard Requirements, cont.
After determining the major functions , it can be expand to the next level of description.
Example 1:
Accounting is an area or department that is an integral part of the ERP system, however, it is not necessary for to describe every function that the accounting department requires from the system.
List the requirements in more general terms such as "must handle accounts payable, accounts receivable, general ledger, etc."
Example 2:
Another example might be purchasing. Requirements could be listed as: “must support contract purchases and blanket purchases, has Request For Quotation capability, etc.”

18. Special Interest Requirements
More detailed requirements that are very important to company
Requirements the vendor needs to understand in more detail, like how management needs the system to support business.
Examples:
The system must be able to assign and track product serial numbers by sales order.
The system must be able to track and cross reference engine serial numbers to product serial numbers.
The system must support accumulation of labor by person to a work order.
The system must support the calculation of labor efficiency by individual or work center.
The system should provide the ability to accumulate warranty labor and material cost by serial number.

19. Step 3: Conduct Search for Appropriate System

20. ERP – Options OPTION 1 – MAKE [Using Internal resources]
Developing a custom-built ERP package, specific to the
requirements of the organization, with the help of the
in-house IT department
OPTION 2 - BUY
Going for Tailor-made ERP packages available in the market like
SAP, Oracle applications, Baan, PeopleSoft etc.
OPTION 3 – MAKE [using External resources]
requirements of the organization, with the help of a
software solution provider

21. Building ERP solutions
using
Internal Sources

22. ERP – Building using Internal resources – The Facts
Lack of adequate & qualified manpower
Not driven with clear focus on expectations,
time & cost
Poor software project management
Lack of seriousness with the Management & the
IT Team
High employee turnover
Lot of schedule gaps during Project execution
Normally project life is more
Frequent change in the scope with the approval
of the Management

23. Tailor-made
ERP
Solutions

24. Tailor-made ERP solutions
About this option
Execution Phases
ERP product selection phase
Product selection - Parameters
Preparation Phase
ERP product acceptance - Options
Gap Analysis
Production Phase
Implementation Phase
Post-Implementation Phase
Pitfalls & Points of Concern
Critical Success factors

25. About Generalized off the shelf application s/w packages
Modules based on rich functionalities for all
business functions
User tested with lot of installations
No lead time requirement for software development
Tuned for more users/networks with adequate & in-
built security
Parameterized for flexibility
Can sit on latest hardware & software platforms
Upgradation of functionalities with version control

26. Execution phases ERP product selection Preparations Production
Implementation
Post-Implementation

27. ERP Product selection Phase
ERP Team formation for selection
Appointment of Consultants [if needed]
Scoping study
Product selection
Implementation partners selection
Hardware/Communication cost estimation

28. Product Selection - Parameters
Reputation of the ERP product
No.of installations in the geographical vicinity
% of the overall functional availability
Customization possibilities
After sales support
Your investment plan & budget
Implementation partner’s track record

29. ERP Product selection Criteria
Goal:
To select the
Most Suitable Software
Package Solution
Functionality
5 Strategic
Requirement
Levels
Technology
Vendor
Support
Costs

30. ERP product acceptance - options
Adapting directly, all the functions available in
the ERP Product [Applicable for startup companies]
2. Change the way the firm does the business to fit
the product [Compromising]
3. Customize the ERP product to suit the business
Processes. [Customization]

31. GAP Analysis This is the process to identity the gaps by mapping
the expectations of the company with the
capabilities of the ERP product
Results of Gap Analysis
Directly Supported
Workaround suggested
Extension required
Change in business process – suggested
Not full supported
Manual – not under the scope of ERP

32. Production Phase Installing the software & hardware
Tuning the software to meet the
customization needs
Master & Control data arrival as per
the Product data structures
Location & people specific roles & rights
allocation for module access & security

33. Implementation Phase Pilot run Resolving the Pilot run issues
Training the end users
Live run

34. Post-Implementation Phase
Regular monitoring
Tuning [hardware/software] for patching
the performance issues
Maintenance

35. Pitfalls & Points of concern
Costly comparing to custom-built options
Lot of hidden costs
Chances of cost & time overrun are high
The Level of customization/Indianization
Compulsion to pay for redundant modules/features
Vigorous involvement of all during implementation
Non-availability of special practices like Customer
Complaint, Logistics
Linking historical data – offline & painful
The requirement of Change Management is a must
Dependency on outsiders is high
IT department – Poor grip on the Implemented systems

36. Critical Success Factors
The firm & optimistic approach of the Management
on adapting the ERP product driven methodologies
on customization
on monetary commitments
The dedicated Team
Good Training
Strict adherence to the Project schedules
Right technical infra-structure
Change Management

37. Custom-built
ERP
Solutions
using external resources

38. Building ERP using Ext.sources
About this option
The Principle!
The Steps
Why?
Points of Concern
Software Vendor selection
Critical Success factors

39. About Here the whole package is designed & built
by keeping a specific enterprise & its business
Practices in mind
by incorporating the improvements/additions
with due integration
without compromising or changing the current way
of doing the business and
providing flexibility to accommodate your business
fluctuations

40. The Principle! The best as seen elsewhere, need not be the
the best for you.
What is your best is what
can be successfully implemented

41. The Steps Software vendor selection Detailed study by the vendor
Scope & platform finalization
Freezing the commercials
Development
Hardware addition/upgradation
Old master/transaction data migration
Parallel run with Integration & connectivity check
Implementation
Maintenance

42. Why? Very economical while comparing the cost of implementing
tailor-made ERP solutions
Less prone for hidden-cost hits
The company can opt for its choice of Hardware, Software &
communication platforms based on the skill availability
The company and the software vendor have the direct
relationship during the project execution. The proximity
would be high & convenient.
IT department has good control over the Project
What is required only would be considered under the scope –
No redundancy

43. Why? - Cont. The requisite flavor of E-Biz & work-flow components
can be embraced towards value edition
The existing practices & applications can be tuned and
linked with the proposed package
Maintenance & improvements are easy & less costlier.
Even IT team can maintain the setup after getting the
source code

44. Points of Concern Software development vendor selection
Requirement/scope finalization [high chances of
retaining the islands as it is]
Less chances of Value addition
Not time tested
Chances of Prolonged project duration

45. Software Vendor Selection
The following traits should be considered while selecting the software vendor for building the ERP application
Technical expertise
Domain knowledge
Adequate manpower
Project management skills
Long existence in the field
Extra skills [e-biz & workflow]

46. The Critical Success Factors
Clear Vision & support of the Management
Capabilities of the software development vendor
Scope & Expectations finalization towards
meeting the ERP concepts
Strict implementation schedules & periodical
monitoring
The involvement of the IT & functional teams

47. Section II: Implementation of an ERP System

48. Implementation Phase
It is assumed for the implementation phase of this course that the selection and acquisition of the system is complete.
The sections that follow deal primarily with the actual implementation of the system.

49. 1: Typical Tasks
Break the high level tasks into detailed steps complete with responsibilities and timeframes that fit company's specific project.
Microsoft Project, or similar project management software, can be used for this purpose.

50. 2: Duration
Experience has shown that selection and implementation of these types of systems takes 6 months or less depending on what is being installed and the condition of the company's data.
This depends on the system and the user's motivation.
When the focus is lost the chances of a successful implementation greatly diminish.

51. 3: Information/Data Preparation
One of the most important tasks in implementing an ERP system is getting the information or data that the system requires in a condition that will allow the system to function properly.
The following discussions cover some of the more important items.
1. Part Numbers
In new system any item that company want to plan or schedule will require a unique part number.
This may or may not be a problem in one company but some companies may currently be ordering and tracking parts or material with only a description, and never assigning a part number (i.e. 2 inch bar stock, sheet steel, lid, etc.).
it is important to assign unique part numbers to these items.

52. 3: Information/Data Preparation, cont.
2. Bills of Material
Accuracy should be at 98% for the Material Requirements Planning (MRP) function of the new system to perform properly.
Errors are usually significant in that the erroneous bill either calls out the wrong component or omits a component.
This results in MRP planning the wrong component or insufficient components.

53. Planning the Wrong or Insufficient Components
Fixing Bills of Material:
To fix the bills of material, take someone from engineering and someone from manufacturing and have them review the bills of material and correct them.
This assumes that engineering has the responsibility for the accuracy of the bills of material.
Checking Accuracy:
Accuracy can be checked at the stockroom door.
Add a place on current form for unplanned inventory withdrawals to note whether the unplanned withdrawal was because of a bill of material error or some other reason.
The number of bills of material that are pulled during the week should be counted, and the number of errors should be noted, with 98% accuracy considered a minimum objective. Bill of material errors should be reported immediately and fixed; however, more importantly the problem causing the error should be determined and fixed.

54. 3: Information/Data Preparation, cont.
3. Inventory Records
The primary records we are concerned with are the on hand balances of each item in inventory.
new system uses this information in calculating the recommendations for ordering material to meet the production schedule.
Inventory records must be at least 95% accurate for new system to produce satisfactory results.

55. 3: Information/Data Preparation, cont.
4. Shop Routings
Direct material through the shop to various departments to perform specific manufacturing operations.
At a minimum the routing should include the operations to be performed, their sequence, the various work centers involved, the standards for setup (if applicable), and run time.
Capacity planning uses this information to calculate the required capacity and resources to meet the production plan.
If the routings are inaccurate, capacity planning will be against the wrong work centers; and more importantly, the schedule that goes to the shop will have jobs scheduled to incorrect work centers.
Routing accuracy can be measured by counting the number of routings that are issued to the shop each week and the number of routing errors that are reported back from the shop each week.
Routing accuracy should be at least 95% to enable new system to work properly.

56. 3: Information/Data Preparation, cont.
5. Lead Times
Must be verified and updated.
The system is dependent on these lead times when it provides order release dates and required dates.
6. Vendor Information
The new system will require that vendor information be correct.
This includes company names, addresses, pricing, and contact information.
The system will be generating purchase orders and invoicing using this information and it will create considerable confusion if the information is incorrect.

57. 3: Information/Data Preparation, cont.
7. Customer Information
The new system will be generating and printing customer orders and if the customer information is incorrect it will generate considerable confusion.
8. Labor Standards
If the new system will be used for collecting labor from the shop floor and calculating efficiency, it is important that the labor standards be accurate.
If the standards do not represent reality the information will be useless and will create confusion in the work force.

58. 4. Site Preparation
Another important area that needs specific attention is preparation of the physical site for acceptance of the new system.
Here again the magnitude of this task is dependent on what is being installed and the current condition of the facility. However, the following items usually will need attention as a result of the system implementation.
1. Network
Since company is implementing a new system it is likely that there will be need to upgrade network.
The software vendor should supply the specifications, but it will be up to company to purchase and install the proper equipment and operating system.
If company plan to have terminals on the shop floor and in the stockrooms then network cabling must be run to these areas.

59. Site Preparation, cont. 2. Hardware
The vendor may supply with the minimum specifications for the workstations and fileserver required to run system.
This helps them keep the overall cost estimate of their system lower, but it may not be the best option for the company to take.
Make sure that the hardware and operating systems installed will provide company’people with sufficient performance.

60. Education and Training
Education and Training are important keys to success with your new system.
1. Conceptual Training
Depending on the users’ experience you may want to offer conceptual training in conjunction with implementing your new system.
This education could include instruction on the principles and logic behind material requirements planning (MRP), capacity requirements planning (CRP), bills of material structuring (BOM), inventory management and others.
Different systems manipulate these functions in various ways through screen presentations, but the principles and logic upon which they are based is usually very similar.
It could be very beneficial for the new users to understand the principles and logic prior to actually using the new system.
MTAPP has courses available in these areas and APICS is also a source for educational material on these topics.

61. Education and Training, cont.
2. System Training
Users will require training on the new system prior to start up.
Typically this training is provided on a formal basis directly by the software vendor or through certified subcontractors.
It can usually be accomplished by traveling to their training site or having them come to yours.
The method for completing this training should have been part of your evaluation process in selecting your system.

62. Some Suggestions to Consider
A. Informal Training
If possible, have the new system loaded and available for practice at your site prior to attending formal training.
This will allow the user to become familiar with the system and formulate some good questions before formal training.
This will make the formal sessions more productive.
Generally the training is conducted at a very rapid pace and covers a lot of material, so previous exposure is a definite advantage.

63. Some Suggestions to Consider, cont.
B. Formal Training
Typically the training courses on these types of manufacturing systems will be separated between the financial functions and the operational or manufacturing functions.
Classes for these functions will probably be scheduled at different times and may be in different locations.
This will effect your people and needs to be considered when developing your implementation schedule.
It is not necessary to send all of the users to formal training with the vendor. Typically some of the users are trained formally and they then train the rest of the users.
to produce satisfactory results it generally requires that 70-80% of the people in the company receive some level of education and training.
If your company has a very large number of users it may be beneficial to contract the formal training to be done in your facility to save expenses.
This is an option that can be discussed with the vendor during negotiations.

64. Converting and Loading Data
Converting and loading all required data into the new system is a formidable task. Before you begin it is advisable to understand the magnitude of the entire task.
The following list indicates the types of data that must be loaded into the new database. This list will not be totally inclusive for your business, but will give you a baseline for planning the largest portions of data.
Inventory Balances
Inventory Locations
Bills of Material
Routings
Customer file
Vendor file
Lead times
Purchase orders
Customer orders
All Accounting Information
Part Numbers
Part Descriptions

65. Converting and Loading Data, cont.
As part of your system search be sure to understand from the vendor what assistance they can offer your particular conversion effort.
If you are converting from a computerized system, find out if they have conversion programs that can format and move the data from your old system to the new.
If not, ask what other options are available. It is important to understand the total logistics of this task.

66. If you are converting from a totally manual system the task is greater because every record will require manual intervention.
In this case it may be advisable to manually load your data into some intermediate files (i.e., Excel) as time permits prior to receiving your system, and then upload to the new system when it is installed.
This will save time when loading the new system, but these details should be worked out closely with the software vendor to come up with the best plan for your situation.

67. Operating Procedures
In many companies implementation of the new system is not only a commitment to a formal method of managing the business, but also a means of replacing a structure of informal procedures and methods.
Therefore, it is necessary to document how things will be done with the new system. This will be an evolving process, but some areas need to be addressed prior to system start up.

68. One of these areas is selecting individuals who will be responsible for the accuracy of inventory records, bills of material, and routings.
Not only should these individuals be selected, but prior to system start up they should develop the working procedures for how the accuracy will be maintained.

69. Section III: Tips for Success

70. Proven Success
Through experience it has become evident that there are certain suggestions that if followed, greatly enhance the chances of your system selection and implementation project being successful.

71. Tip #1- Project Manager
Companies often pick an information system person as the project leader. This ignores the issue of accountability; only a user can really be accountable for making the tools produce results.
Choose a key user as the project manager. Provide the individual with training in project management fundamentals.

72. Proven Success, cont. Tip #2- Data Accuracy
It is important that all the data in the new system be accurate; however, some data, if inaccurate, is more unforgiving than others. This includes inventory records, bills of material and routings.
Bringing the system on line before this data meets the required accuracy standards is a serious mistake. The system relies on this data to be accurate immediately.

73. Tip #3- Top Management Support
Upper management should be part of the decision to implement the new system as a way of managing the business.
Without this level of support the discipline required to make the new system successful will not be possible and the old way of doing business will again prevail.

74. Proven Success, cont. Tip #4- Converting and Loading Data
Make sure that you have adequately planned the conversion and loading of data for the new system. This item can cause unexpected and extended delays at start up if not planned properly.
Remember to involve your software vendor in this planning.

75. Tip #5- Start-Up Using the Pilot Approach
This approach allows you to find problems as they appear before it impacts your business. After about a month of pilot, most of the problems will have been identified.
Once they are fixed, you can discuss additional products if you feel comfortable, or run another pilot if that is appropriate.
This is the least risky and most orderly approach, and the one most likely to lead to a successful implementation.

76. Proven Success, cont. Tip #6- System Administrator
Be sure you have someone available who is qualified to function as a system administrator for your new system.
This person is responsible for keeping your system running and performing upgrades.
Depending on the size of your company this position could be part-time, full-time, or you might elect to use an outside consultant as needed.