The Hindu Business Line : Big issues in ERP for small units

SMEs need rapid transformation in their thinking for ERP implementation. Promoters need to lay more emphasis on data transparency, distributed knowledge repository from proprietor-centric operations and regulatory agency reporting.

The common perception among small and medium enterprises (SMEs) is that an Enterprise Resource Planning (ERP) software can provide total solution to their strategic and operational concerns. ERP is an application for optimal management of organisational resources, encompassing men, materials (from raw to finished goods), plant and finance.

No quick-fix solution

ERP is not a quick-fix solution for business problems. It is an application for effective resource planning and efficiency monitoring. It is not a consulting methodology such as Business Process Reengineering, Total Productive Maintenance, Total Quality Maintenance, Six Sigma, Balance Scorecard, a 360 degree appraisal, Kaizen, 5s or Market Research Reporting.

Implementing ERP is not also the end to all business problems such as customer satisfaction, product quality and process defects. ERP facilitates a disciplined execution of the business process, thereby leaving a footprint of all details relating to every transaction. ERP application forms the basis for implementing other advanced solutions such as Supply Chain Management (SCM), Customer Relationship Management (CRM) and Product Lifecycle Management (PLM).

Transformation in thinking

SMEs implementing ERP need a rapid transformation in their thinking. Promoters need to lay more emphasis on data transparency, distributed knowledge repository from proprietor-centric operations, and regulatory agency reporting. Any side-stepping of these issues can render the ERP redundant.

At some stage, SMEs should be willing to share their process and data with their principals and joint venture partners. Such transparency demands attitudinal change among the promoters of SMEs as the ERP aims to eliminate supply chain bottlenecks. SMEs that fail to accept this reality fail in ERP implementation. However, running an SME business without an enterprise wide application is definitely impossible, considering the pace and nature of global partnerships. Proprietors of SMEs and their functional teams must spend sufficient time in knowing about ERP.

A number of firms also change from one ERP solution to another due to internal and extraneous factors. This the SMEs must avoid, for two reasons. One, is the quantum of investments involved in software and hardware. Two, the SMEs may not be able to afford exclusive teams to implement ERP. The ERP implementation also involves such costs as yearly licence fee on the solution, one-time consulting fess for implementing the product, recurring costs on maintenance of hardware and software, and the fees for upgradation (new versions) of the software.

One should be also able to differentiate between the role played by an ERP product developer and the implementation partner. The implementation partner is often a software-consulting firm and may have alliances with more than one ERP developer. It is for the SME to prudently evaluate the right fit between the ERP product and the implementation partner.

Critical desirables

Critical issues unique to the industry need to be looked at before finalising an ERP solution. These issues could be either firm related or involve mandatory compliances. A critical evaluation of the ERP solution should address these key issues:

Can the ERP address your manufacturing process needs involving phased input or output of materials at various stages of production?

If the manufacturing process involves subcontracting at any stage, can the ERP address production planning, material input-output accounting and regulatory compliances such as excise and sales tax?

If the business is governed by stipulated shelf-life, as for medicines or food products, can the ERP address such inventory concepts as FIFO or LIFO?

If the business demands constant relocation of resources such as machinery or manpower and related materials, can the ERP address resource tracking, product testing and delivery?

If the business demands Indian GAAP accounting standards and/or US/UK GAAP standards, can the ERP address multi-accounting standards?

(The author is a Chennai-based Management Consultant.)

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