Designing to Deploying Customisable ERP Cost Effectively

Designing to Deploying Customisable ERP Cost Effectively

S. Padmanaban (Mysore, India)
Copyright: © 2009 |Pages: 15
DOI: 10.4018/978-1-59904-859-8.ch021
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Abstract

ERP systems have become key enablers of businesses today. While many organizations wish to adopt ERP for competitive advantage, they find choosing, using, and realizing expected benefits from, appropriate ERP extremely daunting, given the multitude of factors and options along technologies, vendors, people, and customisation cost and time. It is in this context that the experience presented in this chapter from two Indian projects on designing to deploying ERP systems—for two different organizations engaged in education and construction—becomes very relevant. Reporting on the various processes, practices, techniques, and methods employed through the projects, and the lessons learnt therefrom, the paper argues that time has come for designing and deploying industry-neutral generic ERP systems cost effectively. It proposes that through a combination of appropriate technologies, innovative tools, techniques and strategies, highly adoptive and customisable ERP systems can be designed and deployed at affordable costs and within reasonable timeframes.
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Introduction

Enterprise systems [ES] in general and Enterprise Resource Planning systems [ERP] 1 in particular have become the most important enablers of business today. The emerging trend is that a number of business enterprises as well as not-for-profit organisations like universities and hospitals--regardless of their size, market, products, services, industry, location--have now started looking at ERP as an effective facilitator of, and a powerful tool for, managing the organisation better. Most of them believe that they can create and sustain cost and competitive advantages by adopting ERP. We must note here that even for universities, hospitals, NGO’s, and charitable institutions running a variety of socially relevant programs, cost is a major concern and, with globalisation and opening of up of economies, competition real and important. Even small and medium size enterprises opt for [or would like to adopt] ERP more as a strategic initiative to combat competition than merely as part of information system. Consider, for example, the case of a small textile firm in Tiruppur, Tamil Nadu, India which had to go for on-line hook-up with the supply chain management system of Wall Mart, USA, in order to win and execute supply contract. (Surajeet Gupta, 2004)1

However, when it comes to choosing and adopting an ERP most appropriate for the enterprise, the exercise is neither easy nor straight forward. A number of key questions and challenges arise when an enterprise considers adopting ES/ERP. Ranging from relevance, cost-benefit justification, appropriateness, to choice of source [licensing, renting, owning], architecture, designing, developing, and finally deploying the very system ‘successfully’, these questions and challenges are big and complex, and encompass a number of considerations and options in terms of ‘economics’, ‘technology’, ‘human resource’, ‘organisational culture’, and ‘environmental issues’. Going by example is not feasible either, as published real life cases are limited in number and inconclusive on key issues, presenting more of successes and understandably less of failures. Even fewer are reported in detail about the experiences through--and more importantly the lessons learnt from--the Software/System Development Life Cycle [SDLC] phases and processes.

Given this scenario, it is no wonder that while the number of enterprises wishing to adopt ERP is growing, the rate of such adoption is not phenomenal. Major restraints appear to be in terms of high cost, long time, and uncertain benefits. More specifically, enterprises hesitate to adopt ES/ERP because:

  • of high total cost of ownership [TCO] and total cost of operations [TCOP]; let us call these and underlying factors collectively, the COST;

  • of unduly long time to reach ‘full adoption’ stage; let us call these and related factors collectively, the TIME; and

  • the anticipated benefits are not cognizable and realizable; let us call these and related factors collectively, the QUALITY.

In other words, concerns around three dimensions, viz., COST, TIME, and QUALITY [CTQ] seem to act as ‘barriers’ for enterprises adopting ERP. Of course, there are a number of other indirect factors as well, like ‘people being not ready’, ‘business process re-engineering [BPR] not properly done’ and so on. While ‘people’ and ‘processes’ are certainly important, we note that their impact gets reflected in CTQ [people not being ready delays adoption; delay costs time and money; bad processes cause delay and damage which in turn affect cost, time and quality]. Obviously, COST and TIME are more easily quantifiable than QUALITY.

While the foregoing illustrates issues from the enterprise perspective, there is an equally challenging and complex set of issues for the ‘designer, developer, vendor’ to consider and resolve. Some of the key questions and challenges here are:

Key Terms in this Chapter

Total Cost of Ownership (TCO): The sum of investments made up to the current time on ERP-assets [e.g., hardware, software licence/media, security and so on, all attributable to ERP and all of a long-lasting nature] acquired/developed/ replaced/upgraded over time by the enterprise, adjusted for accumulated depreciation and tax concessions on such assets up to that time. All expenses including costs of procurement, installation and commissioning of all ERP-assets of amortizable nature would be included in TCO, duly amortized. Invariably, TCO is treated as ‘cumulative investment net of depreciation’ and so shown in the books of accounts as ‘assets’ as on the time of ascertainment. Symbolically,t, TCOt = ? (TCOi - Depreciationi), i = 0, where, TCOt = Total Cost of Ownership [ERP-assets] at current time ‘t’, TCOi = Total Cost of Ownership [ERP-assets] at time ‘i’ preceding current time; [ i <= t ]. i.e., ERP assets = Cost of (hardware + software licence/media + security +...acquired/ replaced/ upgraded) at time ‘i’; Depreciationi = Depreciation applicable to time ‘i’. All expenses including costs of procurement, installation and commissioning of all ERP-assets of amortizable nature would be included in TCO, duly amortized. By rearranging the ‘time’ part, one can derive TCO values both as ‘projected’ to be part of initial evaluation of ERP- investment, and as ‘actual’ to be used for monitoring the ERP-usage.

Total Cost of Operations (TCOP): Defined as the sum of expenditure incurred periodically [usually per annum] and measured during any point in time in such period, on maintenance of ERP-assets and supportive resources/services. These include: hardware, software licence/media maintenance/upgrade fees, salaries to IT staff, ongoing training to staff, consultants fee, security drills and upkeep, and so forth, all of ‘recurring’ nature, non-amortizable, and attributable to ERP. Invariably, TCOP is treated as ‘recurring expenditure’ and written off in the books of accounts pertaining to the period to which it belongs by a charge on the surplus [or income] earned. If there is no surplus, then it would appear as ‘cash loss’ or ‘accumulated loss’ and effectively reduce the capital. In other words, TCOP would be 0 at the beginning and at its highest at the end of the period of ascertainment. Defined as follows, Symbolically, TCOPt = Total Cost of Operations [ERP-related] at current time ‘t’, Cost of (maintenance of hardware + software licence/media, salaries to IT staff + ongoing training to staff + consultants fee + security drills and upkeep...and so forth, all of ‘revenue’ nature, attributable to ERP)

Cost, Time, and Quality (CTQ): Stands for three key dimensions along which enterprises measure their competence and effectiveness in their environments by the impact they can create on customer, product, service, and other stake holders.

Open Source Standards (OSS): Inclusively refer to the large number of software ideas, programs, utilities, tools, systems, applications, packages, and so on, including standards, available mainly via Internet, almost for no or low cost on the terms and conditions of GPL [general public license] intended to guarantee freedom to share and change free software in its ‘source’ [human readable and understandable] format.

Object Oriented Analysis and Design (OOAD): refers to the approach and orientation employed in SDLC for analysis, design, and development of software, treating the software more as a collection of classes and objects [anything and everything] and the running of software as the manifestation of exchange of messages among objects and responses by objects in behavioral changes [methods]

System/Software Development Life Cycle (SDLC): Refers to the apparently cyclical phases of analysis, design, development, testing, and deployment of an information system and/or software thereof. There are some variations in literature in the nomenclature and also the very cyclic nature of these phases, referred to as models [waterfall, spiral] and approaches [rapid development, joint development] and so on.

Service Oriented Architecture (SOA): A reference to the emerging paradigm shift in the way software is available on/from the Internet, incorporating features of inter-operability among operating systems, data base management systems and browsers, treating and serving incoming demands as ‘request for service’ on some formats commercially viable to all the parties concerned.

Enterprise Resource Planning (ERP): A set of software [computer] programs, capable of running on and linking computers and computing devices [PCs, PDAs, mobile phones, bar code readers, POS machines, CNC machines], regardless of their make, model, and numbers; across offices, production floors, plants, warehouses, regardless of their location; in real time and on-line mode; integrating all ‘business processes’ [BPs] across functional areas like marketing, sales, logistics, production, quality assurance, materials, stores, maintenance, accounting and finance, human resource… automating as many ‘BPs’ as feasible; through a common data base; for the unified purposes of… optimised enterprise wide resource usage.

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