Chapter*!!

ERP-A Reengineering tool

 <£^$P- j? $e-engineering rTooC

2.1 Introduction

Business Process Reengineering (BPR) is known by many names, such as

‘core process redesign’, ‘new industrial engineering’ or ‘working smarter’. All of
them imply the same concept that focuses on integrating both business process
redesign and deployment of information technologies (IT) to support the
reengineering work. Business process reengineering ideas are based on the premise
that every organization needs a sense of direction. Without that direction in the form
of strategic plans and business plans, the organization has no foundation upon which
to build process improvements. BPR is a method of improving the operation and
therefore the outputs of organizations. It generally involves discovering how business
processes currently operate, how to redesign these processes to eliminate the wasted
or redundant effort, improve efficiency, and how to implement the process changes in
order to gain competitiveness. The purpose of BPR is to find new ways to organize
tasks, organize people and redesign information technology so that the processes
support the organization’s goals. It means analyzing and altering the business
processes of the organization as a whole.
BPR was first introduced in a research program at MIT (Massachusetts Institute
of Technology) in the early nineties. [Davenport, 1993], one of the fathers of BPR
describes ‘business process redesign’ as:...... the analysis and design of workflows
and processes within and between organizations. Business activities should be viewed
as more than a collection of individual or even functional tasks; they should be broken
down into processes that can be designed for maximum effectiveness, in both
manufacturing and service environments.
There is a relationship between BPR and information technology (IT).
[Hammer, 1990] considers it to be the key implementation of BPR. [Davenport &
Short, 1990] argue that BPR requires taking a broader view of both IT and business
activity, and of the relationships between them. Information Technology (IT) should
be viewed as more than an automating or mechanizing force but rather as a way to
fundamentally reshape the way business is done.
IT has many roles to play in any organization. All organizations have certain
objectives and goals to achieve. For any organization-to succeed, all business units or
departments should work towards this common goal. But each department or business
function in an organization will have its own goals and procedures. The departmental

41
- -
 (ECB$- Ji (Re-engineering Too/*

objectives can sometimes be conflicting. For example, the finance department might
want to cut down the advertising budget, whereas the marketing department might
want more money. Similarly the production-planning people might want to reduce the
inventory level, but the production people might want to have more stocks. The
success of an organization rests in resolving the conflicts between the various
business functions and making them do what is good for the organization as a whole.
For this, information is critical. Everybody should know what is happening in other
parts of the organization. It is not enough that each department manages its activities
efficiently; it should also help other departments manage their functions efficiently.
For this to happen, the organization should cease to function as islands of information,
each working in isolation. Each and every employee should know what his / her
counter-parts are doing, how his / her actions and decisions will affect the other
departments. This kind of information sharing was difficult in the early days. Now
with the advancements in Information Technology this is possible.
Information Technology (IT) has a crucial role to play, both at the
organizational level and at the departmental level. At the organizational level, IT
should assist in specifying objectives and strategies of the organization. IT should also
aid in developing and supporting systems and procedures to achieve them. At the
departmental level, IT must ensure a smooth flow of information across the
departments, and should guide organizations to adopt the most viable business
practices. At this level, IT ensures seamless flow of information across the different
departments and develops and maintains an enterprise-wide database. This database
will eliminate the need of isolated data islands that existed in each department and
make the organization’s data accessible across the departmental boundaries. This
enterprise-wide data sharing has many benefits like automation of the procedures,
availability of high quality information for better decision making, faster response
times, and so on.

2.2 Evolution of ERP

When companies were small and all the different managerial functions managed by a
single person, the decisions were made keeping in mind the overall company
objectives. But as companies grew, managing the entire operation became impossible
for a single person. More and more people were brought in and the different business

-42 -
 (E(R$- ^e-engineering ‘Toot

functions were given to different individuals. When the organization became larger,
each person hired people to assist him/her and the various departments as we see now,
evolved. The size of the departments began to increase as more and more people were
required for the job. As the departments became large, they became closed and
watertight. Each had their own set of procedures and hierarchy. People at most levels
within a department, would just collect and pass information upwards. Thus
information was shared between departments only at the top level.
Prior to the concept of ERP systems, it was not unusual for each department
within an organization to have its own customized computer system. For example, the
human resources (HR) department, the payroll department, and the financial
department might all have their own computer systems. Typical difficulties involved
integration of data from potentially different computer manufacturers and systems.
For example, the HR computer system (often called HRMS or HRIS) would typically
manage employee information while the payroll department would typically calculate
and store paycheck information for each employee, and the financial department
would typically store financial transactions for the organization. Each system would
have to integrate using a predefined set of common data which would be transferred
between each computer system. Any deviation from the data format or the integration
schedule often resulted in problems.
Thus Information Technology (IT) implementations automated only the
existing applications and not the business functions. Most of this happened because IT
was not integrated into the corporate strategy. To draw real benefits from a
technology as powerful as IT, one has to devise a system with a holistic view of the
enterprise. Such a system has to work around the core activities of the organization,
and should facilitate seamless flow of information across departmental barriers. Such
systems can optimally plan and manage all the resources of the organization and
hence they can be called as Enterprise Resource Planning (ERP) systems.
An Enterprise is a group of people with a common goal, which has certain
resources at its disposal to achieve that goal. The group has some key functions to
perform in order to achieve its goal. Resources included are money, manpower,
materials, and all other things that are required to run the enterprise. Planning is done
to ensure that nothing goes wrong. Planning is putting necessary functions in place
and more importantly, putting them together. Therefore, Enterprise Resource
Planning or ERP is a method of effective planning of all the resources in an

43
- -
 Re-engineering Too/"

organization. Enterprise Resource planning system is a folly integrated business

management system covering all departments of the business like Finance,
Accounting, Human Resources, Production and Logistics. It attempts to cover all
basic functions of an enterprise, regardless of the organization's business or charter.
Non-manufacturing businesses, non-profit organizations and governments now all use
ERP systems. The ERP solutions seek to streamline and integrate operation processes
and information flows in the company to synergies the resources of an organization
namely men, material, money and machine through information.
Evolution of ERP software, among other things, combined the data of
formerly separate applications. This simplified keeping data in synchronization across
the enterprise, it simplified the computer infrastructure within a large organization and
it standardized and reduced the number of software specialties required within larger
organizations.

Fig 2. 1 Information integration through ERP systems

To be considered an ERP system, a software package must provide the function of at

least two systems. For example, a software package that provides both payroll and
accounting functions could technically be considered an ERP software package.
Examples of modules in an ERP which formerly would have been stand-alone

-44-
 (ERR- JL (Re-engineering (Toot

applications include: Manufacturing, Supply Chain, Financials, Customer

Relationship Management (CRM), Human Resources, Warehouse Management and
Decision Support System.

2.2.1 Necessity of ERP

Following are some of the necessity in ever-growing business environment which led
to the evolution of ERP:-
■ Aggressive Cost Control initiatives.
■ Need to analyze costs and revenues on a product or customer basis.
■ Flexibility to respond to changing business requirements.
■ More informed management decision making.
■ Changes in ways of doing business

Prior to the evolution of ERP in order to meet the above mentioned demands, some
difficulties were faced by the organizations as mentioned below:-

■ Inaccurate Data.
■ Untimely information.
■ Improper interface of complex business functions

To overcome the above difficulties, some applications were developed in past like:-
■ Management Information System (MIS)
■ Integrated Information System(IIS)
■ Executive Information System(EIS)
■ Corporate Information System(CIS)
■ Enterprise Wide System(EWS)
■ Material Requirement Planning(MRP)
■ Manufacturing Resource Planning (MRP II)

The latest development in the IT industry in this background in Enterprise

Resource Planning (ERP). Over the last decade, organizations have spent a lot
implementing ERP systems. Objectives of adopters of ERP systems have focused

45-
-
 (E(R(p -A (Re-engineering ‘Too/’

primarily on improving transaction handling through the standardization of business

process and integration of operations and data [Cooke et al., 1998], [Davenport,2000].

2.2.2 Features of ERP

Some of the major features of ERP and what ERP can do for the business system are
as follows:

* ERP facilitates company wide integrated Information System covering all

functional areas like Manufacturing, Sales and Distribution, Payables,
Receivables, Inventory, Accounts Human Resources etc.
* ERP performs core activities and increases customer service thereby
augmenting the corporate image.
■ ERP bridges the information gap across organization.
■ ERP provides complete integration of the system not only across the
departments but also across the companies under the same management.
■ ERP is the solution for better project management.
■ ERP allows automatic introduction of latest technology like Electronic Fund
Transfer (EFT), Electronic Data Interchange (EDI), Internet, Intranet, Video
Conferencing, E-Commerce etc.
■ ERP not only addresses the current requirements of the company but also
provides the opportunity of continually improving and refining business
processes.
■ ERP provides business intelligence tools like Decision Support Systems,
Executive Infonnation System, Reporting, Data Mining and Easy Warning
Systems for enabling people to make better decision and thus improve their
business processes.

2.2.3 Core Sub-systems of ERP

Ideally, ERP delivers a single database that contains all data for the software modules,
which would include:
Manufacturing
Engineering, Bills of Material, Scheduling, Capacity, Workflow Management,
Quality Control, Cost Management, Manufacturing Process, Manufacturing
Projects, Manufacturing Flow

46
- -
 JL (Re-engineering (RooC

Supply Chain Management

Inventory, Order Entry, Purchasing, Product Configurator, Supply Chain
Planning, Supplier Scheduling, Inspection of goods, Claim Processing,
Commission Calculation

Financials
General Ledger, Cash Management, Accounts Payable, Accounts Receivable,
Fixed Assets

Projects
Costing, Billing, Time and Expense, Activity Management

Human Resources
Human Resources, Payroll, Training, Time & Attendance, Rostering, Benefits
Customer Relationship Management Sales and Marketing, Commissions,
Service, Customer Contact and Call Centre support

Customer Relationship Management

Sales and Marketing, Commissions, Service, Customer Contact and Call
Centre support.

Data Warehouse
and various Self-Service interfaces for Customers, Suppliers, and Employees.

2.2.4 Benefits of ERP

Organizations using ERP packages have both tangible and intangible benefits:

Tangible Benefits:

■ Reduction of Paper Work.

* Provides greater and effective control on accounts.
a Availability of timely information.
■ Greater accuracy of information with detailed content, better presentation.

47
- -
 <E<R<P- “
A- (Re-engineering (TooC

■ Improved cost control

■ Faster response and follow ups to customers.
■ Better monitoring and quicker resolution of queries.
■ Enables quick response to change in business operations and market
consumption.
* Improves supply demand linkage with remote locations and branches in
different countries.
■ Provides a unified customer database usable by all applications.
■ Provides solutions to problems like Y2K and Euro currency.

Intangible Benefits:

- Improved customer satisfaction

■ Improved vendor performance
■ Increased flexibility
■ Reduced Quality Cost
■ Improved Resource Utility
■ Improved information accuracy.

2.3 Reasons for using ERP Packages

There are many differences between conventional application packages and ERP
like:
« ERP packages cannot only handle individual business function such as
accounts and inventory, but also the entire range of business functions
necessary for the company’s operations.
• The second difference is that ERP packages are targeted at everything from
small business to the largest organizations, and that they can be composed of a
highly flexible decentralised database and an information system cluster
linked by a network.
• The third difference is global adaptation, represented by ERP packages’
multilingual and multi-currency capacity. In the present day, when companies,
irrespective of their size and market share, are manufacturing and selling in

-48-
 5E^P- JL (Re-engineering TooC

various areas of the world, the globalisation of management platforms is being

hastened, along with the global adaptation of enterprise information systems.

2.4 Reasons for the growth of ERP Market

There is no doubt that the market for Enterprise Resource Planning (ERP) systems is
in great demand. Industry Analysts are forecasting growth rates of more than 30% for
at least next five years.
There are several reasons for the growth of ERP market like:
• To enable improve business performance
■ Cycle time reduction
■ Increased business agility
■ Inventory Reduction
• Order fulfilment improvement
• To support business growth requirements
• New products /product lines, new customers
• Global requirements including multiple languages and currencies
• To provide flexible, integrated, real-time decision support
• Improve responsiveness across the organization
• To eliminate limitation in legacy systems
• Century dating issues
• Fragmentation of data and Processing
• Inflexibility to change
• Insupportable Technologies
• To take advantage of the untapped mid-market(medium size organizations)
• Increased functionality at a reasonable cost
• Client sever/open systems technology
• Vertical market solutions

These are some of the reasons for the explosive growth rate of ERP markets and the
ERP vendors. As more and more companies are joining the race, the ERP vendors are
shifting their focus from big-Fortune 1000-companies to different market segments
(medium size companies, small companies, etc.). The future will see fierce battle for
market share and mergers and acquisitions for strategic and competitive advantage.

49
- -
 <E<R(p- JL (Re-engineering (foot

The ultimate winner in this race will be the customer, who will get better products and
better sendee at affordable price.

2.5 ERP in Indian Organisation

ERP (Enterprise Resource Planning) is a successful technique of integrating business

processes to one computer system so that the information is easily available and
accessible to everybody in the system. India is a well known player in the ERP
market. India occupies a promising position in the whole of IT market .The
governments, educational institutions and companies are constantly working towards
promoting and expanding the IT market.
Some issues like Y2K problem and other diminishing opportunities of IT
professionals were seen as a big challenge to the IT market. This was not only the
case in India but also elsewhere in the globe. This proved to be a biggest challenge to
the nation who were banking (and are still) on IT skills for development aspects
(individual, economical and overall). The slump of the IT sector would add drudgery
and smash the hopes of so many individuals and companies. This problem in itself
helped to get another important solution. Firstly this paved way for more prospects in
ERP market. The demand and supply gradually transformed from general to
enterprise resource market. Once this got stabilized there was no looking back. It was
well evident that ERP market could boom and give the necessary impetus to
stakeholders. However this did not mean that mediocre could survive in the market.
There was demand only for top-notch services and professionals. This naturally lea to
improvement in the quality of services offered. Such an improvement increased the
competition among various players. The end user was getting assured that he would
be receiving the best sendees for the money invested. Case ERP in India got more
and more competitive. The ERP implementation in India demanded more than the
custom erp India module.
ERP software programs were initially used only for back office functions. They
were not given the due importance and treated just like another supporting function.
Reasons like lack- of awareness formed one part while other reasons were costs and
technical difficulties. As said before, the gradual demand for ERP increased with a
slump in the software market. Since this led companies to go in for ERP they
automatically started to learn more about it either by force or felt need as they were

-50-
 (ERR- j? (Re-engineering ‘Too/'

left with no alternative. This indirectly created the awareness among companies. They
learned more on ERP and realized its diverse applications. Finally they resorted to
use ERP for the whole of the company and stopped the idea of restricting it to mere
back office functions.

2.5.1 Pressures mount on the Industry

The industry is facing three major challenges when it comes to dealing with ERP
in the current context:
(a)Sudden change
Firstly they are bound to increase the scope of ERP in enterprise operations.
Initially, ERP was restricted to back office functions and later spread its wings to all
the operations in the enterprise. This naturally meant that the ERP manufacturers and
vendors had to increase the functionalities and scope of the application. There are
practical difficulties when it comes to this issue. The ERP experts will definitely be
able to restructure the ERP systems with the help of resources and expertise available
with them. However doing it all on sudden is a difficult task. They must have been
working with different requirements till then. Compelling them to suddenly change
will land things in a mess because there will be lot of confusions for the vendors,
manufacturers and end-users. The unrealistic deadlines and time pressures further add
agony to this menace.

(b)Technicalfactors
Secondly ERP in the nation calls for a restructuring in the technical aspects. This
is definitely appreciable. The fate of the businesses that have already implemented
and deployed ERP remains a big question mark. No doubt change is inevitable and an
element for growth. However it would be next only to impossible to change even
before the current change has stabilized in the market. This is advantageous for the
companies that go for ERP at the first instance. But when it comes to companies that
already run successful ERP systems they have to stick on to the technical changes or
ship out from the market. They can decide to stick on to change but it will cost them
heavily. They can work on to find some replacement technology rather than going for
an all round change. The effectiveness of the replacement is an important issue.

-51-
 £5^P - Ji ^Re-engineering dooC

(c) Finance
This is another important determinant of ERP market in India. Some bigger
companies still hesitate to invest in ERP due to the exorbitant costs. It is indeed
encouraging to find that a vast majority of them have realized its benefits and have
determined to go for it. However some of them are keeping quiet due to the risks
involved besides the unforeseen expenses and losses.
Many organizations in India have implemented ERP packages solution
[Rajendran, 1998]. There are organizations that have not yet experienced significant
improvements. At the same time few have reported benefits that can be directly
accrued to ERP and some have been failed to deliver the anticipated benefits [Bingi et
al., 1999][Gable et ah, 1998], [Holland et.,al 1998]

2.5.2 ERP for the Small and Medium Segments

A few years back, ERP was a distant concept, perceived as applicable for the
most elite of companies, with deep pockets, who are ready to experiment with new
ideas. Today, the scene has significantly changed and ERP is considered as a
desirable tool for most organizations, in the medium and small sectors.
Entrepreneurs now seriously consider ERP as panacea for all their present day ills and
as an imperative to retain their competitive edge. Some of the factors that have
catalyzed this process are globalization, competition, need for faster response to the
market place and the pressure to contain costs and improve efficiencies. While ERP
implementation can be undertaken by a well-run organization as a proactive measure
to be ahead in the race, the normal symptoms that would suggest the need for ERP
would be high levels of inventory, mismatched stock, lack of coordinated activity,
excessive need for reconciliation, flouting of controls, poor customer response levels
and operations falling short of industry benchmarks in terms of cost controls, and
general efficiency.
ERP is often considered synonymous with enterprise computerization, which
significantly dilutes the concept. It is really a business tool, which seamlessly
integrates the strategic initiatives and policies of the organization with the operations,
thus providing an effective means of translating strategic business goals to real time
planning and control.

-52-
 <E<R(p~ y? (lie-engineering ‘TooC

ERP, hence, means much more than computerizing the existing operations
and is really an integrated change process, which encompasses all levels and elevates
the total organization to a higher level of information, expertise and intelligence. ERP
is a necessary tool for any organization that wishes to align its business systems
around its strategies. However it has to be understood that, while ERP would
definitely position an organization to take the first steps toward this desired state,
there would be no other initiatives, like Supply Chain Management (SCM),Customer
Relation Management(CRM) or e-integration, which will take it to even higher
levels.[Al-Mashari et al.,2000].

2.6 ERP for IT

Enterprise Resource Planning for Information Technology (ERP for IT,

ERP4IT) describes the automation of information technology (IT). Therefore ERP4IT
focuses on the automated IT itself and not on the automation of business processes by
IT.ERP software comprehensively manages the needs of a major enterprise resource
area: money, productive capital people, stock of goods, or information. Vendors such
as Oracle, PeopleSoft, and SAP build sophisticated, process-centric solutions on
complex information structures implemented in relational databases for the business
Organizations that manage the enterprise resource. Of the major resource areas, only
information (i.e., IT) lacks such comprehensively integrated Vendor solutions.
Reasons for this include:

• The concept of information as a resource is relatively new. ERP systems in other

areas are founded on decades-old business processes such as dual-entry
accounting.
• Infrastructure budgets in IT emphasize hardware and often aren’t directly tied to
high-visibility, business-sponsored projects. So the potential IT ERP software
market is seen as limited.
• The process discipline imposed by a true IT ERP solution would generate
friction in most IT shops, especially if it involved short-term pain for high
visibility, business-sponsored projects. Such projects have low tolerance for
overhead imposed in the interest of longer-term IT efficiencies.
• Finally, there are formidable technical challenges, such as establishing workable
information models for the problem domain.

-53-
 ERR - A (Re-engineering AboC

2.6.1 IT Problem Domain

Nevertheless, a convergence into ERP for IT is inevitable and necessary for

such emerging areas as business activity monitoring (BAM), business process
modeling (BPM), IT service management, increased outsourcing effectiveness, and
other goals. Figure 2.2 depicts one representation of major process and data areas
converging into the ERP for IT space. This model is narrowly focused on the modem
IT organization as it’s typically structured.

Fig2.2 The ERP For IT Grand Convergence

-54-
 (ERf-fL (Re-engineering Tool

> Enterprise architecture includes high-level functional and process modeling,

software portfolio management and program management, data management
at the higher levels, and platform strategy (e.g., technologies, vendors,
standards). The IT finance capability also arguably belongs here. Without a
firm footing in enterprise architecture, the IT ERP effort will prove rudderless.
> Software and systems development is what most people think of when they
hear IT, although operations and maintenance take most of the actual IT
budget. This domain includes both custom-built and package solutions, and as
related to ERP for IT would cover all the tools used to deliver software,
including project management packages. Without integration between the
software development life cycle and the IT ERP capability:
• Effective portfolio and program management will remain elusive.
• Development will continue in fragmented and non-standard ways (hindering
the rationalization of outsourcing).
• Deployment and software inventory processes will continue to be haphazard.
• Traceability between software projects and their delivered run-time code will
remain weak, perpetuating poor quality software.
> Technical element management is general category for all the IT
infrastructure areas requiring specialized tooling and skills, including:
• Network and systems administration
• Database administration
• Messaging administration
• Extraction, transformation, and loading (ETL) administration.
> IT audit / discovery: Many times, IT systems are built or altered without prior
documentation. This is where scanning / discovery / reverse engineering
comes in. This includes all the tools and techniques by which computerized
systems can be understood. Examples include data profiling, application
mining, program understanding / reverse engineering, system finger printing,
automated technology relationship mapping, and more.
> Operations, support, and maintenance: are the primary “heads-down”
capabilities in the IT world itself, requiring call centers, continuous staffing,
and the like. These more functionally oriented capabilities are distinct from the
deep, specialized technical element management teams that support them. The

55-
-
 CE<E<B—JL (Re-engineering ‘Toof

software solutions here tend to be fairly mature, but silos. For example, it isn’t
generally possible to correlate operational exceptions back to the software
development process that created the defective software. Were inspections and
testing fully carried out?
> Supporting IT process includes those executed by smaller IT workgroups
outside the data centre and help desk. These various processes help integrate
the software development life cycle into the enterprise (i.e., change
management), as well as providing configuration management, asset
management, systems deployment, capacity planning, and other services.

Respectively, ERP4IT focuses on a broader sense as well as on the

comprehensive integration of different modules like the ERP system do. ERP4IT
provides a process centric solution in complex information structures,
implemented in relational databases for the IT organization to manage the IT
itself. Due to the given complexity of the domains involved, IT services should
become transparent and enables the IT to manage organizational and technical
dependencies. ERP4IT shows the cost but also the benefit of the provided
services. They should be measurable and contribute as single parts to the overall
business vision and strategy.

2.6.2 Web Management System

A Web management system (WMS) is an ERP (Enterprise resource planning)

which is managed solely via the Internet. It gives organizations or businesses the
ability to centralize a company at multiple locations. The system allows
management the ability to allocate work to employees, check customer details,
and issue accounts to customers, while viewing the performance of employees in
real-time.

A WMS aids in the running of a business, from warehouse stock control right
through to accounts and POS (Point of Sale) and typically includes a CRM
component (customer relationship management). Management can watch a
business with real-time demographics sales, stock control and accounts within an
organization.

-56-
 CE<S$ — JL <Rg-engineering ‘Tool

2.7 Reengineering and ERP

The concept of reengineering traces its origins back to management theories
developed as early as the nineteenth century. The purpose of reengineering is to
"make all your processes the best-in-class." The main proponents of re-engineering
were Michael Hammer and James A. Champy. [Hammer and Champy, 1993] define
business process reengineering (BPR) as “Reengineering is the fundamental
rethinking and radical redesign of business processes to achieve dramatic
improvements in critical, contemporary measures of performance such as cost,
quality, service and speed”.

2.7.1 Factors contributing to Process Reengineering

Reengineering can be called as an essential precursor to ERP implementation.

Since, ERP gets the best out of the available resources, it is very important to
reengineer the business processes before going for an ERP implementation. If the
business processes are not streamlined, the resource allocation will always be sub-
optimal. Reengineering also makes it smooth to drive the ERP implementation
programme, because the former builds the spirit of competitiveness and adaptation of
best practices.
The main drivers of Re-engineering are:
• New services or business opportunities
• Business Process Reengineering
• Gaining and maintaining competitive edge
• Aligning inflexible legacy systems with contemporary business needs
• Difficult in maintaining old systems on account of lack of vendor
support.
It may appear that process reengineering could be the solution to many of the
performance issues, the businesses are facing today; however, it’s time for a reality
check. In the early 90s more than half of the reengineering projects failed to be
completed or did not achieve dramatic improvement results. The Prosci’s 1998-1999
Reengineering Best practices indicates the following points for successful
implementation of Reengineering projects:

-57 -
 <E5^P- Jl ^e-engineering {TooC

• Proven Methodology
• Compelling business case for change
• Effective change management
• Strategic alignment
• Line ownership
• Top management sponsorship
• Reengineering team composition
The following other points are important for implementation of BPR projects.
• A study of Business Process Reengineering start BPR by
setting up one task force to select and structure all processes, to
conduct the first high level process review and to eliminate structural
inefficiencies
• Each process has to cover the entire sequence of activities from
source to customer and produce measurable results which are relevant
to the customer
• Set the objectives from the customer’s view points and measure
results as relevant to them; always measure costs, response time,
quality and variance
• Measure the result of existing processes first before setting
targets and compare them with competition and customer’s feedback.
Set the baseline for improvement.
» Appoint one person to be responsible for the re-engineering
process and implementation management and success tracking of one
complete process.
• Develop the “should be” process from the customer backwards
and never forward from resource level. “Engineer from scratch” rather
than “re-engineer”.
• Involve every function, which takes part in the whole process.
Train, motivate and support the teams in every possible way.-
Recognize and reward success. Cascade experience down the
organization.
It also wants some innovative computer-aided business analysis
tools, which make business process improvement and system analysis much easier

-58 -
 RRR-Ji Re-engineering Ibof

to do [Information Economic Press, 1995].Successful re-engineering projects are

considered to be those whose target core-business processes have undergone radical
change, and whose implementation efforts have led to radical organization-wide
improvements in quality and productivity. This situation is far removed from
localized process improvement, such as the highly desirable results obtained
through quality management approaches [Ishikawa, 1986],

2.7.2 BPR and its relevance to ERP

ERP systems serve an important function by integrating separate business

functions-materials management, product planning, sales, distribution, finance and
accounting and others -into a single application. However ERP systems have
three significant limitations:
1. Managers cannot generate custom reports or queries without help from a
programmer and this inhibits them from obtaining information quickly, which
is essential for maintaining a competitive advantage.
2. ERP systems provide current status only, such as open doors. Managers often
need to look past the current status to find trends and patterns that aid better
decision-making.
3. The data in the ERP application is not integrated with other enterprise or
division systems and does not include external intelligence.
There are many technologies that help to overcome these limitations. These
technologies, when used in conjunction with the ERP packages, help in overcoming
the limitations of a standalone ERP system and thus, help the employees to make
better decisions. Out of many such technologies available, BPR is one of them.
Business Process Reengineering is a pre-requisite for going ahead with a
powerful planning tool, ERP.BPR brings out deficiencies of the existing system and
attempts to maximize productivity through restructuring and re-organizing the human
resources as well as divisions and departments in the organisation
Business Process Engineering evolves the following Steps:

• Study the current system

• Design and develop new systems
• Define Process, organisation structure and procedure

-59 -
 (E3^P - JL ^-engineering TooC

• Develop customize the software

• Train people
• Implement new system

The principle followed for BPR may be defined as USA principle (Understand,
Simplify Automate) i.e., Understanding the existing practices, Simplifying the
Processes and Automate the Process.
Various tools used for this principle are charted below:
• Understand Simplify Automate
• Diagramming Eliminating Electronic Data Interchange(EDI)
• Story-boarding Combining Enterprise Resource Planning(ERP)
• Brain storming Rearranging
BPR does not necessarily stop with the process of identifying the possibility. It
also suggests a series of steps that needs to be executed, for ERP to find a place in the
organization. BPR is the first step that comes prior to ERP implementation. The
reason is simple. Many parameters are taken while preparing ERP. This includes the
assumption of Predefined functions. Hence ERP software will be preconceived to
perform those set of functions. On the other hand companies expect ERP to function
in such a way that it coincides with the regular business process. BPR ERP can be the
biggest challenge for the vendor and the company as such. BPR ERP forms an
important part of ERP study.

2.7.3 Change and BPR

BPR is inevitable not only for ERP but as far as any business process is
concerned. BPR becomes the first step in the process of ERP implementation.
Business process reengineering is taken to conduct feasibility study and other
restructuring exercises. Nothing can be done to prevent change. The best way to
manage change is to adopt it.

Time and again it has been proved that imposing change of any magnitude all
on a sudden is not the proper way. There needs to be a proper method to bring about
it. Business process reengineering is one scientific study that helps organizations

-60 -
 (E(R(p- Jl ^-engineering ‘TooC

largely to analyse the viability of not only ERP but any other dynamic change. BPR
ERP is interrelated.

2.8 Oracle and ERP

To facilitate big businesses, companies like Oracle Corporation have created

huge software known in the category of ERP (Enterprise Resource Planning) as
Oracle Applications. Oracle Applications comprise the applications software or
business software of Oracle Corporation. Oracle Corporation markets its home-grown
software applications, including Oracle Financials, Oracle HRMS, Oracle CRM, etc.
as parts of the "Oracle E-Business Suite".
Oracle Apps is not one huge software, instead it is a collection of software
known as modules that are integrated and talk to each other. The Oracle Purchasing
modules handies all the requisitions and purchase orders to the vendors whereas
Oracle Accounts Payables handles all the payments to the vendors. Similarly Oracle
Inventory deals with the items we maintain in stock, warehouse etc. Dealing with
customers is handled collectively with the help of Oracle Receivables and Oracle
Order Management. Order Management helps one to collect all the information that
your customer is ordering over the phone or webstore etc whereas Receivables help
you collect the money for the orders that are delivered to the customers. Oracle
Human Resources, maintains the pay checks, benefits of the 1000 employees. Thus
we see that for each logical function there is a separate module that helps to execute
and maintain that function. There is another module known as Oracle General Ledger.
This module receives information from all the different transaction modules and
summarizes them in order to help you create profit and loss statements, reports for
paying Taxes etc.

2.8.1 Oracle Inventory

Oracle Inventory is core module of entire Oracle E-Business Suite. This module
shares the information with almost every other module. Oracle Inventory is used to
define the Items and it is backbone of all inventory transactions.

-61-
 <E<$,JL ^-engineering rfooC

2.8.1.1 Functionality provided by Oracle Inventory:

Item Master:

Item set up is critical part of Oracle ERP implementation. Item setup is required to
place purchase orders, receive & transact inventory, to enter sales orders, ship
goods/services to customer. Items are first setup in master inventory organization and
same can enabled in every other inventory organization where it needs to transact.
Item attributes are different flags that determine the characteristics of items. Item
attributes determine whether item is procured item, saleable item, service item etc.

Inventory transactions’.

Inventory holds the onhand' quantities and transactions that can cause onhand
changes. Transactions originated from other modules (Shipping - customer shipments,
Purchasing - Receiving goods into stock etc) are finally transferred to Inventory.
Every transaction is associated with a transaction type, source, Item, quantity, unit of
measure and additional attributes. Oracle provides many seeded transaction types and
one can add custom transaction types as needed for accurate reporting.
Examples ofInventory transactions:
Sub inventory transfers
Miscellaneous issue/receive
Account Alias issue/receive
Move order issue ..................
Sales order shipment

Serial and Lot control:

Its provides detail tracking of onhand and related inventory transactions. Lot
number and serial number are critical requirements in a regulated environment like
pharmaceutical, food processing industries. In case of any recalls lot/serial control
provides tracing the current location of goods.

Inventory Planning’.

Oracle Inventory planning provides good planning methodologies for indirect item
purchases, MRO ( Maintenance and Repair Organisation) kinds of items while MRP
 cE(R(p- JL ‘Re-engineering ‘loot

(Materials Requirements Planning) as planning method is still preferred for direct

material. MRP functionality is delivered through Oracle MRP/SCP module.

Widely known inventory planning methods are Reorder planning & Min-max
planning.

Reorder Point Planning (ROP):

ROP uses Supply (onhand + expected receipts) and safety stock information to plan
the re-order quantity. When supply falls below safe stock a replenishment order is
created considering the lead time and economic order quantity.
Min-Max Planning:

This planning method is bit different from ROP, The replenishment order is created
when onhands falls below the minimum level set at the item.

Periodic Inventory verification methods’.

It is very important to have systematic onhand match with actual physical onhands for
data accuracy and efficient planning purpose. Oracle Inventory provides two onhands
verification and reconciliation methods called Physical Inventory and Cycle counting.

Physical Inventory:
It is an activity where 100% of onhand is physically verified and reconciled with
system onhand. Typically this is done once a year or twice based on business needs.
When physical inventory is in progress typically all other operations will be on hold.
Any differences in physical and systematic on hands are adjusted and approved in
system and matched with physical on-hand quantity.

Cycle counting:
It is a periodic counting process instead of onetime process like physical inventory. In
cycle counting items are classified into ABC classes (high, medium, low value items).
High value items are verified more frequent than low value items. System generates
the schedule of items that need to be counted and verified.

- 63 -
 (£<^P~ JL ^e-engineering ‘Tool

2.9 Conclusion

The growing information needs of an enterprise make it imperative to improve or

replace old systems. Especially under the present Indian business environment, where
the globalisation has been initiated, full convertibility is coined, Infrastructure
Projects are nearing completion, and it is expected that the whole business system will
undergo a major shift. The ERP market in India is definitely promising. However
India has got a long way to go when it comes to Improving ERP in terms of
technology, scope and applicability in terms of opportunities and venues, penetration
in terms of sectors like education, employment and the state run offices
In this chapter we have discussed that Business Process Reengineering can
be achieved by the gigantic packages like ERP.
The success of ERP depends on how the company comes over BPRERP
issues. ERP implementation can go further only when these controversies are
cleared. Hence BPR forms a crucial part in implementing ERP.

-64 -
 (ERR - Ji (Re-engineering Toof

References
[Al-Mashari et al., 2000]: A1 - Mashari., and Zairi, M., “Supply-chain re­
engineering using enterprise resource planning(ERP) systems : an analysis of
SAP R/3 implementation case”, International Journal of Physical Distribution &
Logistics Management^ 0(3/4), pp 296-313,2000.

[Bingi et al., 1999]: Bingi, P., Sharma, M., Godla, J., “Critical factors affecting
an ERP implementation”, information Systems Management, 16(3), summer,
pp7-15, 1999.

[Cooke et al., 1998]: Cooke, D., Peterson, W., SAP Implementation : Strategies
and Results, The Conference Board, New- York,1998.

[Davenport, 2000] :Davenport, T., Mission Critical: Realizing the Promise of

Enterprise Systems, Harvard Business School Press, Cambridge, MA, 2000.

[Davenport, 1993]: Davenport, T.H., Process Innovation:Reengineering Work

through Information Technology, Harvard Business School Press, Boston,
MA,1993.

[Davenport & Short ,1990 ]: Davenport, T.H. & Short, J.E. , The New
Industrial Engineering: Information Technology and Business Process Redesign,
Slogan Management Review,pp. 11 -27,1990.

[Gable et al., 1998] :Gable, G., “Large package software: a neglected

technology?”, journal of global information management,6, pp.3-4,1998.

[Hammer, 1990]: Hammer, M., Reengineering Work: Don't Automate,

Obliterate, Harvard Business Review,V. 68,No.(4), pp. 104-12,1990.

[Hammer and Champy,1993]: Hammer, Michael., and Champy, James.,

Reengineering the Corporation: A Manifesto for Business. New York, NY:
HarperCollins Publishers, Inc., 1993.

- 65 -
 cE(Rg>- JL engineering <TooC

[Holland et al, 1998]: Holland, C.P., Light, B., and Gibson, N. “Global ERP
implementation”, in proceedings of the Americas conference of information
systems (AMCIS’98) Baltimore, 1998.

[Information Economics Press, 1995] :The Politics of Information Management,

The Information Economics Press, Chapter 20, 1995.

[Ishikawa, 1986] :Ishikawa, K., Guide to Quality Control, Asian Productivity

Organisation, Tokyo, 1986.

[Rajendran, 1998]: Rajendran, D., “ERP-A dynamic IT management tool”:,

Indian Management, pp.59-62,November,1998.

-66 -