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APPLICATION OF ENTERPRISE RESOURCE PLANNING IN CONSTRUCTION INDUSTRY (Pre Implementation Phase)

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Application of ERP in Construction Industry (Pre Implementation Phase)


INDEX INDEX ...................................................................................................................................................... 2 ACKNOWLEDGEMENT......................................................................................................................... 5 CERTIFICATE.......................................................................................................................................... 6 1.1 Introduction to ERP ...................................................................................................................................... 7

TABLE-1 EVOLUTION OF ERP........................................................................................................... 9 1.2 Need for study............................................................................................................................................... 9 1.3 Objective..................................................................................................................................................... 10 1.4 Methodology............................................................................................................................................... 11 1.4.1 Literature Review:...........................................................................................................................................11 1.4.2 Data collection: ...............................................................................................................................................11 1.4.3 Data analysis:..................................................................................................................................................11 1.4.4 Conclusion:......................................................................................................................................................11 1.4.5 Scope of work:.................................................................................................................................................11 2.1 Critical factors for successful ERP implementation.......................................................................................12 2.2 ERP system selection:.................................................................................................................................. 13 2.3 ERP implementation strategies:................................................................................................................... 14 2.3.1 Pre-Implementation (planning) strategies:.....................................................................................................14 2.3.2 Implementation strategies:.............................................................................................................................14 2.3.3 Post-implementation strategies: ....................................................................................................................15 2.4 Cost & Payback Period of ERP implementation:............................................................................................ 16 2.5 Benefits of ERP implementation:................................................................................................................. 17

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Application of ERP in Construction Industry (Pre Implementation Phase)


2.6 Research Gap............................................................................................................................................... 18

3.1 SAP AT JAI HIND PROJECTS, INDIA

........................................................................... 19

......................................................................................................................................................................... 19 3.1.1 What Was The Problem?.......................................................................................................................... 20 3.1.2 Solution & Implementation....................................................................................................................... 20 3.1.3 Pre-requisites study for ERP Implementation:........................................................................................... 21 3.1.3.1 Risk Identification ........................................................................................................................................21 3.1.3.2 Selection of Implementation Consultant:....................................................................................................21 3.1.3.3 Vendor selection Criteria:...........................................................................................................................22 3.1.3.4 Total Cost of Ownership:..............................................................................................................................23 3.1.4 Current Information System:..................................................................................................................... 24 3.1.5 Benefits:................................................................................................................................................... 24

3.2 JMC PROJECTS INDIA LTD......................................................................................................... 25 3.2.1 Company History:..................................................................................................................................... 25 3.2.2 Problem & Solution .................................................................................................................................. 26 3.2.3 Current Information System...................................................................................................................... 27 4.1 ERP Pre Implementation Parameters .......................................................................................................... 29 4.2 ERP Pre Implementation Process Charts....................................................................................................... 32 4.3 Various Types of Functional Modules of ERP Software:................................................................................34 4.3.1 ERP Production Planning Module ..................................................................................................................34 4.3.2 ERP Purchasing Module ..................................................................................................................................34 4.3.3 ERP Market in Module ....................................................................................................................................34 4.3.4 ERP Inventory Control Module .......................................................................................................................34 4.3.5 ERP Sales Module ...........................................................................................................................................35 4.3.6 ERP Financial Module .....................................................................................................................................35

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Application of ERP in Construction Industry (Pre Implementation Phase)


4.3.7 ERP HR Module ...............................................................................................................................................35 4.4 ERP implementation Methodologies:........................................................................................................... 36 4.4.1 The Big Bang ...................................................................................................................................................36 4.4.2 Modular Implementation ...............................................................................................................................36 4.4.3 Process-Oriented Implementation .................................................................................................................36 4.5 ERP Software Selection Criteria:................................................................................................................... 38 4.6 Total Cost of Ownership:............................................................................................................................. 38 4.6.1 Costs of Software ...........................................................................................................................................39 4.6.2 Costs of Hardware ..........................................................................................................................................39 4.6.3 Costs of Professional Services ........................................................................................................................39 4.7 Causes of ERP Failure:.................................................................................................................................. 42 4.7.1 Failure of ERP Software Implementation .......................................................................................................42 4.7.2 Failure of Accommodating Evolution of Business Processes .........................................................................42 4.7.3 Failure of User Acceptance ............................................................................................................................42 4.8 Most Common Ways of Successfully implementation of ERP:.......................................................................42 4.8.1 Critical stakeholders to accept or get involved with the implementation...................................................42 4.8.2. Adequate user input.......................................................................................................................................42 4.8.3. Specifications and change control procedures to be properly defined.........................................................42 4.8.4. Expectations to be realistic and defined........................................................................................................42 4.8.5. The presence of an outside consultant..........................................................................................................42 4.8.6. Good Communication....................................................................................................................................42 4.8.7 The implementation methodology should be clear and tested.....................................................................42

APPENDIX-A......................................................................................................................................... 44 REFERENCES:....................................................................................................................................... 45 Research Papers:............................................................................................................................................... 45 Books:............................................................................................................................................................... 45

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Application of ERP in Construction Industry (Pre Implementation Phase)


ACKNOWLEDGEMENT I would like to thank Mrs. XYZ, Faculty of Technology, XYZ University, for her valuable guidance and continual encouragement throughout the entire duration of seminar preparation. I am heartily thankful to her for her timely suggestions and the transparency of the concepts of the topic that helped me a lot in concluding this study. I would also like to thank Mr. XYZ, IT Head, JMC India Pvt Ltd. & Mr. XYZ, SR Manager,Jai Hind Projects for spending their precious time for guiding me and make aware of present scenario of ERP as well as giving me very effective guidance to my topic. XYZ

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Application of ERP in Construction Industry (Pre Implementation Phase)


CERTIFICATE

This is to certify that the Comprehensive Report on the “Application of ERP In Construction Industry (Pre Implementation Phase)�, carried out by XYZ (CP1908), towards the partial fulfillment of the requirements for the degree of M.Tech in Construction & Project Management of CEPT University, is the record of work carried out by him under my supervision and guidance during II-semester (Jan/April-09). In my opinion, the submitted work has reached a level required for being accepted for Seminar-1 Final Jury examination.

Mrs. XYZ

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Application of ERP in Construction Industry (Pre Implementation Phase)


CHAPTER-1 INTRODUCTION 1.1 Introduction to ERP ERP is the contraction of Enterprise Resource Planning. ERP utilizes ERP software applications to improve the performance of organizations' resource planning, management control and operational control. ERP software is multi-module application software that integrates activities across functional departments, from product planning, parts purchasing, inventory control, product distribution, to order tracking. ERP software may include application modules for the finance, accounting and human resources aspects of a business.

ERP (Enterprise Resource Planning) is the evolution of Manufacturing Requirements Planning (MRP) II. From business perspective, ERP has expanded from coordination of manufacturing processes to the integration of enterprise-wide backend processes. From technological aspect, ERP has evolved from legacy implementation to more flexible tiered client-server architecture. The following table-1 summarizes the evolution of ERP from 1960s to 1990s

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Application of ERP in Construction Industry (Pre Implementation Phase)


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Application of ERP in Construction Industry (Pre Implementation Phase)


Table-1 Evolution of ERP Timeline 1960s

1970s

1980s

1990s

System Description Inventory Inventory Management and control is the combination of Management & information technology and business processes of maintaining Control the appropriate level of stock in a warehouse. The activities of inventory management include identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Material Materials Requirement Planning (MRP) utilizes software Requirement applications for scheduling production processes. MRP generates Planning (MRP) schedules for the operations and raw material purchases based on the production requirements of finished goods, the structure of the production system, the current inventories levels and the lot sizing procedure for each operation. Manufacturing Manufacturing Requirements Planning or MRP utilizes software Requirements applications for coordinating manufacturing processes, from Planning (MRP product planning, parts purchasing, inventory control to product II) distribution. Enterprise Enterprise Resource Planning or ERP uses multi-module Resource application software for improving the performance of the Planning (ERP) internal business processes.ERP systems often integrates business activities across functional departments, from product planning, parts purchasing, inventory controlto product distribution.

1.2 Need for study As explained earlier ERP is tool for integrating whole information system through ERP software. Various ERP software vendors are available in market. This software’s consist of various 9

Application of ERP in Construction Industry (Pre Implementation Phase)


modules. Each of this module cost around 40 lacs per module. Also company spends lots of money over hardware as well as over consultant for operation & maintenance of this modules. In some company they use their in house IT experts as well as their employee for operating this modules. For training of employees also company have to spend lots of money as well as time. According to survey done by META group in US in year 2002, It states that average cost for implementing ERP in top fortune listed company was around 15 million dollars and average time for implementing this system company take on and average 24 months. So from above facts its clear that company have to invest huge amount of money as well as time for implementation of ERP and after all if it fails to meet companies requirements and goal than company can sunk in huge losses. So before implementing ERP in any company it’s better to check whether is it feasible for their company or not?

1.3 Objective 

To study the effectiveness of ERP in the feasibility phase for contracting organization.

To identify basic parameters for implementation of ERP in feasibility stage.

To propose a model for implementation of ERP in feasibility stage for contracting organization who are still to implement ERP.

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Application of ERP in Construction Industry (Pre Implementation Phase)


1.4 Methodology 1.4.1 Literature Review: As ERP comes in to existence since 1990 so lots of literature is available for past few years in the area of ERP implementation, so based on that literature reviewed from published paper of journals and standard books have been done.

1.4.2 Data collection: Data collection pertaining to subject has been done through discussion with industry experts from construction organization like: JMC India Pvt. Ltd. Jai Hind Project Ltd.

1.4.3 Data analysis: Based on the collected data, analysis have been done regarding Pre requisites for implementation of ERP in construction firm through framework.

1.4.4 Conclusion: Based on the analysis relevant conclusions have been made and scope for the future work have been suggested.

1.4.5 Scope of work: In this seminar scope of work will be limited up to obtaining basic knowledge regarding ERP and to identify prerequisites for implementing ERP in any construction organization.

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Application of ERP in Construction Industry (Pre Implementation Phase)


CHAPTER-2 LITERATURE REVIEW 2.1 Critical factors for successful ERP implementation Implementing an ERP system is not an inexpensive or risk-free venture. In fact, 65% of executives believe that ERP systems have at least a moderate chance of hurting their businesses because of the potential for implementation problems. It is therefore worthwhile to examine the factors that, to a great extent, determine whether the implementation will be successful. Numerous authors have identified a variety of factors that can be considered to be critical to the success of an ERP implementation. The most prominent of these are described below [1][4][5] [9]. a) Clear understanding of strategic goals. b) Commitment by top management. c) Excellent project management. d) Organizational change management. e) A great implementation team. f) Data accuracy g) Extensive education and training h) Focused performance measures. i) Multisite issues.

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Application of ERP in Construction Industry (Pre Implementation Phase)


2.2 ERP system selection: An estimated 50–75% of US firms experience some degree of failure in implementing advanced manufacturing technology. Since an ERP system, by its very nature, will impose its own logic on a company’s strategy, organization, and culture, it is imperative that the ERP selection decision be conducted with great care. Based on the available sources and our own experiences, the authors recommend the following thirteen-step selection process [1]. 1)

Create the vision.

2)

Create a feature/function list.

3)

Create a software candidate list.

4)

Narrow the field to four to six serious candidates.

5)

Create the request for proposal (RFP).

6)

Review the proposals.

7)

Select two or three finalists.

8)

Have the finalists demonstrate their packages.

9)

Select the winner.

10) Justify the investment. 11) Negotiate the contract. 12) Run a pre-implementation pilot. 13) Validate the justification.

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Application of ERP in Construction Industry (Pre Implementation Phase)


2.3 ERP implementation strategies: Based on success of implementing SAP at the Water Corporation, Australia, Purnendu Mandal, A. Gunasekaran has suggested following strategies to be considered while implementing similar type of projects. [2][8]

2.3.1 Pre-Implementation (planning) strategies:

Incorporate the risk and quality management plans in the change management plan.

Breakdown the project into natural phases or subsystems for modular planning and for development of cross-functional communications.

Consider a phase-based approach for gradual implementation rather than radical approach.

Use appropriate planning styles for different tasks, detailed task plans for tangible tasks, iterative plans for evolving tasks, and personal communications plans for change management.

Prepare plans for the recruitment, selection, and training of the necessary personnel for the project team.

2.3.2 Implementation strategies: • Formulate a network for collecting user requirements and user feedback.. • Prepare to handle expected or unexpected crises and deviations from plans. • Provide a strong leadership with concerns for the welfare of people and resource commitment. • Provide a professionally stimulating work environment. • Promote client consultation and user participation and obtain approval from parties for what is being undertaken throughout the project. • Use pro-active communications to establish more realistic expectations about the technology capabilities while communicating in tailored way to each division or unit. • Promote collaborative system development between users and developers. • Use multi-functional project teams to bring complementary capabilities together during the total life of the project. 14

Application of ERP in Construction Industry (Pre Implementation Phase)


• Use intra-project teams and intra- and inter industry networking for technology transfer. • Provide stakeholders with a detailed plan of the implementation process, explain how it achieves business objectives, and keep them informed about the system and progress of its implementation. • Propose possible ways for restructuring personnel and systems to accommodate the new technology including maximizing of system integration and interfacing.

2.3.3 Post-implementation strategies: Post project evaluation strategy could be followed in measuring the effectiveness of an ERP system, where questions such as listed below could be used for further improvement: • Whether the objectives of the ERP system were realized fully; • Whether the scheme options were considered adequately; • Whether the estimates and project information were accurate; • Whether or not the agreed practices and techniques were complied with any other factors which are considered appropriate.

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Application of ERP in Construction Industry (Pre Implementation Phase)


2.4 Cost & Payback Period of ERP implementation: Meta Group recently did a study looking at the Total Cost of Ownership (TCO) of ERP, including hardware, software, professional services, and internal staff costs. The TCO numbers include getting the software installed and the two years afterward, which is when the real costs of maintaining, upgrading and optimizing the system for your business are felt. Among the 63 companies surveyed—including small, medium and large companies in a range of industries— the average TCO was $15 million (the highest was $300 million and lowest was $400,000). While it’s hard to draw a solid number from that kind of a range of companies and ERP efforts, Meta came up with one statistic that proves that ERP is expensive no matter what kind of company is using it. The TCO for a “heads-down” user over that period was a staggering $53,320. Don’t expect to revolutionize your business with ERP. It is a navel gazing exercise that focuses on optimizing the way things are done internally rather than with customers, suppliers or partners. Yet the navel gazing has a pretty good payback if you’re willing to wait for it—a Meta group study of 63 companies found that it took eight months after the new system was in (31 months total) to see any benefits. But the median annual savings from the new ERP system was $1.6 million per year. Source: Darwin Publications.

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Application of ERP in Construction Industry (Pre Implementation Phase)


2.5 Benefits of ERP implementation: Deloitte Consulting (1998), and discussed in O’Leary (2000), that investigated the rationales and benefits for why firms choose to implement ERP. That study broke benefits into two broad categories: Tangible Benefits (Table 1) and Intangible Benefits (Table 2). Deloitte Consultant’s (1998) study was based on interviews with 62 client firms of the Fortune 500. As part of a largescale project, client firms were asked which tangible and intangible benefits had been realized. The results in Tables 1 and 2 present the percentage of the firms that indicated which benefits would be realized, allowing for multiple responses for each firm. [3] [6] Table_2: Tangible Benefits Realized

Integration

13

Standardization

12

Inventory Reduction

32

Flexibility

9

Personnel Reduction

27

Globalization

9

Productivity Improvements

26

Order Management Improvements

20

Financial Close Cycle Reduction

19

IT Cost Reduction

14

Procurement Cost Reduction

12

Cash Management Improvement

11

Revenue/Profit Increases

11

Transportation/Logistics Cost Reductions 9 Maintenance Reductions On-Time Delivery

7 6

Table_3: Intangible Benefits Realized Information/Visibility

55

New Improved Processes

24

Customer Responsiveness

22

Cost Reduction

14

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Application of ERP in Construction Industry (Pre Implementation Phase)


2.6 Research Gap As per the literature survey done for past 10 years, the research done by eminent researchers have been limited to identification of various factors responsible for success and failure of ERP system for manufacturing industries. But very nominal work has been done to study prerequisites for implementation of ERP in construction industry.

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Application of ERP in Construction Industry (Pre Implementation Phase)


CHAPTER-3 DATA COLLECTION Data collection regarding Prerequisites for implementing EPR in any organization has been collected through questionnaire survey with experts of two organizations like JMC India Pvt. Ltd. and Jai Hind Projects Limited. In case of JMC questionnaire was conducted with Mr. Mahendra Patel, Head of IT Dept. While in case of Jay Hind Projects questionnaire was conducted with Mr. Keyur Shah, Sr Manager, SAP.

3.1 SAP AT JAI HIND PROJECTS, INDIA Jaihind Projects Ltd. is an engineering, procurement & construction (EPC) company focused on the hydrocarbons, water & infrastructure sectors. It provides EPC services ranging from:

Jaihind owns one of the largest task force of Pipeline equipment in south Asia. Jaihind is continuously investing in equipment to expand it project capabilities and increase the number of spreads & projects it can simultaneously work on. Jaihind Projects Limited is a Public Listed Company with its shares listed on the Bombay (Mumbai) Stock Exchange (BSE). As of March 31, 2008, it employs just under a 1,000 full time and contractual employees and it’s annual turnover is around 225 crores. Its head office is located in Ahmedabad (Gujarat), India. 19

Application of ERP in Construction Industry (Pre Implementation Phase)


3.1.1 What Was The Problem? Jai Hind group has several projects running at various locations throughout the country also they are planning for international market. Each project had its own database and information system, which was not connected to head office. One of the biggest challenges for a construction company like the Jai Hind is in estimating cost of construction. Since the projects are usually spread over many years, aligning the projected cost with the actual cost becomes difficult. At any given time there would be at least 20-25 construction projects running concurrently. The departments were maintaining different files in different excel charts. The accounts department was maintaining a separate software package but materials and purchase was not linked to those. Moreover much of this data was lying in site offices, which was not connected to the head office in Ahmedabad. The entire process of collecting information from various departments was being done manually. Whenever there was a quarry, each department would have to pull out information and consolidate it for report. This not only slowed down the decision making process but also created power centers within the company. This made it very difficult to do real time cost estimation of different projects.

3.1.2 Solution & Implementation To solve the above problem company decided to go for ERP implementation based on success of various organization successes. For that company first of all go for ERP need analysis review and found that Real time data and Data Transparency, this are the two main benefits for implementing ERP. Real time data means accurate & present data regarding any item can be obtained at any time about any of their construction site. The main value ERP systems provide is the opportunity to integrate an entire organization through common data base and the information flow is much more efficient & clear. 20

Application of ERP in Construction Industry (Pre Implementation Phase)


3.1.3 Pre-requisites study for ERP Implementation: 3.1.3.1 Risk Identification Before implementing ERP company first of all focused on three main parameters which are people, Process changes and Technology. 3.1.3.1.1 People: As employee are the ultimate users of new system and if they do not agreed upon the new system then whole investment can ruin the business, So company first gave them training in three various stages of implementation. •

During first Stage Company make aware their employee what is ERP and basics of ERP.

During second stage employee were given “On Hand Training”, in this employees were given demonstration about various modules according their departments and then assignments were given to solve.

During third stage employee were given “On job Training”, In this stage now employee were asked to phase real time situation and they use software on site and if they want help then consultant are there to help them.

3.1.3.1.2 Process & Technology Change: Due to implementation of new technology there is always resistance to new system as employee required to learn new things also it makes employee uncomfortable. Also there is myth about ERP that it will reduce man power requirement and employee will lose their jobs. Due to implementation of ERP role of the many employee may be changed and organization structure will change. So for that company ensures their employee that there won’t be any lay off due to new system.

3.1.3.2 Selection of Implementation Consultant: When asked about selection criteria about consultant they say, there are no special selection criteria for consultant but based on their experience and their market value organization should select consultant. Also organization should contact the companies who have dealt 21

Application of ERP in Construction Industry (Pre Implementation Phase)


with those consultants and based on their experience, consultant should be selected. Jai Hind had approached many consultant like IBM, ORACLE, WIPRO etc. for vendor selection as well as operation & maintenance of various modules and all were asked for their presentation, in the end management decided to go with WIPRO. Because WIPRO was the most economical while other two were charging ten times higher due to their market position, so company hired WIPRO as consultant on contract basis. Company can hire consultant as per requirement. Generally consultants are available on call basis as well as contract basis. Per call consultant generally charges around 10000-15000 per call while on contract basis they charge around 1-1.5 lacs per month per module.

3.1.3.3 Vendor selection Criteria: When asked how vendor selection process takes place they say, •

At the time of ERP vendor & software selection, first of all company should discuss the functionalities of organization with consultant as well as implementation stratergies and based on consultant view about particular player vendor selection is done. For example, For Real estate developer no of modules requirement will be less as compared to contracting or infrastructure firm. Because in real estate firm organization perform similar kind of work for their various projects also they give work on contracts so except supervision and billing most of all activities are performed by contractor. While contracting firm remains involved in all material purchase to construction activities so they definitely require more no & types of modules.

Also based on degree of customization provided by any vendor with their software, selection is done. For Example: If all IS of organization are working smoothly and company does good business with that system than these system’s can also integrated with new ERP system.

Various ERP vendors are available in market at domestic as well as international level. Based on company budget and requirement vendor should be selected. 22

Application of ERP in Construction Industry (Pre Implementation Phase)


Domestic ERP vendors: In-house Software etc. International: SAP, People Soft, JD Edwards, Oracle. These are the major players in the ERP market. In this case, main requirement was to integrate various departments like Operations, Accounting and Finance, Asset Management (equipment), Procurement and HR. So we had decided to go for phase wise implementation. So after discussion with consultant various vendors like SAP, People Soft, JD Edwards, Oracle were contacted and asked for their presentation of their software. In the end management decided to go with SAP, i.

Because of its acceptability and popularity in market.

ii.

Due to its functionality & flexibility, SAP allows integration of PRIMAVERA with new system also its functions provides huge amount data and reduces processing time.

3.1.3.4 Total Cost of Ownership: When asked about cost & time required for ERP implementation they say, Most common factors contributing to TCO are i.

Software licensing fee,

ii.

No of end users,

iii.

Software customization,

iv.

Cost of hardware,

v.

Consultant fees,

vi.

Employee training.

ERP cost can vary from few lacs to crores, it totally depends upon organization need (no of modules) and end users. And about time for implementation of ERP, there is no fix time duration that ensures that within this ERP will be implemented in organization but from experience it has been seen that approximately time for implementation takes around 2-2.5 years for full ERP implementation. For implementing SAP at Jay Hind Projects we had started our planning in

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Application of ERP in Construction Industry (Pre Implementation Phase)


2002 and by the end of year 2004 we were ready for testing for new system and it cost goes in to crores, approximately 7-8 crores.

3.1.4 Current Information System: Today Jai-hind has the best of breed Management Information Systems for its Operations, Accounting and Finance, Asset Management, Procurement and HR. For its core operations and accounts such as FICO, Materials Management, Sales & Distribution, Tendering, Accounts, Document Management Systems, Jaihind runs SAP. It uses other segment specific software and systems for Human Resources, Procurement Portal, Employee Self Service, etc. and doing wonders!

3.1.5 Benefits: (1)

The first and most important benefit of this solution is that information has now become transparent and seamless.

(2)

With a smooth information flow, decision making has also become much quicker.

(3)

All departments and site offices are now connected on a single platform.

(4)

The management team gets a complete overview of the projects and instant availability of data and reports.

(5)

Information flows freely between departments.

(6)

Tremendous improvements have been made in fund management .

(7)

Also process like purchasing materials have been automated and have seen immense benefit from the solution.

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Application of ERP in Construction Industry (Pre Implementation Phase)


3.2 JMC Projects India Ltd. 3.2.1 Company History: JMC Projects(India) limited(JMC) was incorporated on 5th June,1986 as Civen Construction Private Limited, subsequently the name was changed to Joshi & Modi Construction Private Limited on 10th December ,1989 and to JMC Projects (India)Private Limited on 21st January, 1994, thereafter converted into Public Private Limited on 4th February, 1994 under the name JMC Projects (India) Ltd. The company was popularly known as JMCPL among the corporate clients. In order to capitalize on the same, the company changed its name to JMC Projects (India)Ltd. The company entered the field of Industrial construction with the prime motive of servicing reputed clients with very high quality of construction work. The company has achieved substantial growth during the last 3 years and is one of the leading construction companies in Gujarat. It has registered as class `A ' Contractors with Government of Gujarat. The list of prestigious clients includes Tata telcom Ltd, Videocan International Ltd, Videocan Narmada Electronics Ltd.The company tends to enter real estate business as part of its diversification programme.

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Application of ERP in Construction Industry (Pre Implementation Phase)


3.2.2 Problem & Solution Main problem for company was also same as Jay Hind Projects Ltd., to integrate information (database) of all various sites running throughout the India. The departments were maintaining different files in different excel charts. The accounts department was maintaining a separate software package but materials and purchase was not linked to those. Moreover much of this data was lying in site offices, which was not connected to the head office in Ahmedabad.The entire process of collecting information from various departments was being done manually. Whenever there was a quarry, each department would have to pull out information and consolidate it for report. This not only slowed down the decision making process but also created power centers within the company. This made it very difficult to do real time cost estimation of different 26

Application of ERP in Construction Industry (Pre Implementation Phase)


projects. Thus need arises for integration of various functional departments by one common platform. To solve the above problem company decided to go for ERP implementation based on success of various organization successes. For that company first of all go for ERP need analysis review and found that Real time data and Data Transparency, this are the two main benefits for implementing ERP. Real time data means accurate & present data regarding any item can be obtained at any time about any of their construction site. The main value ERP systems provide is the opportunity to integrate an entire organization through common data base and the information flow is much more efficient & clear.

3.2.3 Current Information System Based on organization need as well as risk identification & cost of ERP implementation; management decided to develop their own in-house software for ERP implementation. Approximately time for implementation for ERP was around two years and cost for implementing ERP is approximately 70 lakhs. The cost for implementing in this case was far less then Jay Hind Projects Ltd. Main reason for this is due to reasons described bellow.

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Application of ERP in Construction Industry (Pre Implementation Phase)


JMC has developed the best Management Information Systems modules for its Operations, Accounting and Finance, Asset Management, Procurement and HR also for its core operations and accounts such as FICO, Materials Management, Sales & Distribution, Tendering, Accounts, Document Management Systems, JMC decided to run in-house software. By end of July ’09 Company targeted to implement ERP at their all over sites in India. It uses other segment specific software and systems for Human Resources, Procurement Portal, Employee Self Service, etc. and doing wonders!

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Application of ERP in Construction Industry (Pre Implementation Phase)


CHAPTER-4 DATA ANALYSIS 4.1 ERP Pre Implementation Parameters For successful implementation of ERP first do need analysis review, then based on requirement select appropriate consultant based on their experience, then follow the selection criteria for vendor selection and based critical success factor try to implement those factor and based on critical failure factor try eliminate those factors also find out total cost of owner ship so it becomes clear for organization that how much they will have to spend. Based on this criterion ERP implementation should be done to reach organization goal through ERP.Bellow is the model provided to make one understand how various people are associated at various stages and how they perform their role in to organization and which are the parameters they consider at pre implementation stage.

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Application of ERP in Construction Industry (Pre Implementation Phase)


STAGE

ISSUE

1

ERP NEED

PARICIPANTS

ANALYSIS

Implementation teams.

  

PARAMETERS

Determine 

Organization and

How new system can increase organization value?

methods specialist.

What are the benefits of ERP?

Head of each

What are the needs for implementing

department.

ERP instead of existing information

IT division.

system? 

What are the risks associated with ERP implementation?

2

IMPLEMENTATION  CONSULTANT

What is the total cost of ownership?

Which are the critical success factors? Determine

Head of each

Major consultant in the market.

department.

Select based on Experience and

Top management

Performance.  3

Also determine the organization where they have served. Determine

VENDOR

Top management.

SELECTION

Consultants.

Major players in the market.

Method specialist.

What are the specialties in them?

Head of particular

How flexible & user friendly software

department.

is? 

Degree of integration of other IS.

Total cost of license and end users.

Select based on functionality and Performance.

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Application of ERP in Construction Industry (Pre Implementation Phase)


STAGE

ISSUE

3

PARTICIPANTS

VENDOR

Top management.

SELECTION

Consultants.

Method specialist.

Head of particular

PARAMETERS 

Also determine the organization where they have served.

department. TRAINING IN

4

PROCESS RE-ENGINEERING

Implementation

System overview- what’s ERP?

Consultant.

Demonstration of versions and

Implementation Team.

31

IT division.

handbooks 

Training to implementation team leaders.

Application of ERP in Construction Industry (Pre Implementation Phase)


4.2 ERP Pre Implementation Process Charts Based on identified parameters here is the proposed ERP (Pre) Implementation Process Chart for any organization who wants to implement ERP. Assemble Project Teams & End Users Assemble

Analysis Analysis Software Software Life LifeCycle CycleCost Cost

Determine Determine Organization OrganizationNeeds Needs &&Budget Budget

Is ERP Feasibl e?

ERP ERP Implementation Implementation Risk Risk

NO NO STOP STOP

YES YES

ERP ERPSoftware Software Vendor Vendor

A A

Softwa re Type

In-house In-house Software Software

Design Design Software Software

B B 32

Application of ERP in Construction Industry (Pre Implementation Phase)


A

Draft Criteria for Draft DraftCriteria CriteriaFor for Draft Criteria For Software SoftwareSelection Selection Consultant Consultant

Hire Hire Software SoftwareSelection Selection Consultant Consultant

Consultant Advice Vendors

Vendors

Organization

Customization

Performance

Market Value

Budget

Need

Vendor Vendor Selected Selected Implementation Implementation Consultant Consultant

Implementation Implementation Methodology Methodology

Management Management Decision Decision

B Customization Customization Testing Testing

End EndUser User Training Training

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4.3 Various Types of Functional Modules of ERP Software: ERP software is made up of many software modules. Each ERP software module covers a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible.

4.3.1 ERP Production Planning Module In the process of evolution of manufacturing requirements planning (MRP) II into ERP, while vendors have developed more robust software for production planning, consulting firms have accumulated vast knowledge of implementing production planning module. Production planning optimizes the utilization of manufacturing capacity, parts, components and material resources using historical production data and sales forecasting.

4.3.2 ERP Purchasing Module Purchase modules streamline procurement of required raw materials. It automates the processes of identifying potential suppliers, negotiating price, awarding purchase order to the supplier, and billing processes. Purchase module is tightly integrated with the inventory control and production planning modules. Purchasing module is often integrated with supply chain management software.

4.3.3 ERP Market in Module ERP marketing module supports lead generation, direct mailing campaign and more.

4.3.4 ERP Inventory Control Module Inventory module facilitates processes of maintaining the appropriate level of stock in a warehouse. The activities of inventory control involves in identifying inventory requirements, setting targets, providing replenishment techniques and options, monitoring item usages, reconciling the inventory balances, and reporting inventory status. Integration of inventory 34

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control module with sales, purchase, finance modules allows ERP systems to generate vigilant executive level reports.

4.3.5 ERP Sales Module Revenues from sales are live blood for commercial organizations. Sales module implements functions of order placement, order scheduling, shipping and invoicing. Sales module is closely integrated with organizations' ecommerce websites. Many ERP vendors offer online storefront as part of the sales module.

4.3.6 ERP Financial Module Both for-profit organizations and non-profit organizations benefit from the implementation of ERP financial module. The financial module is the core of many ERP software systems. It can gather financial data from various functional departments, and generates valuable financial reports such balance sheet, general ledger, trail balance, and quarterly financial statements.

4.3.7 ERP HR Module HR (Human Resources) is another widely implemented ERP module. HR module streamlines the management of human resources and human capitals. HR modules routinely maintain a complete employee database including contact information, salary details, attendance, performance evaluation and promotion of all employees.

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4.4 ERP implementation Methodologies: Different companies may install the same ERP software in totally different processes. The same company may implement different ERP software in the same approach. There are three commonly used methodologies for implementing ERP systems.

4.4.1 The Big Bang In this Companies layout a grand plan for their ERP implementation. The installation of ERP systems of all modules happens across the entire organization at once. The big bang approach promised to reduce the integration cost in the condition of thorough and careful execution. This method dominated early ERP implementations, it partially contributed the higher rate of failure in ERP implementation. Today, not many companies dare to attempt it anymore. The premise of this implementation method is treating ERP implementation as the implementation of a large-scale information system, which typically follows SDLC (Systems Development Life Cycle). But an ERP system is much more than a traditional information system in the fact that the implementation of ERP continuously calls for the realignment of business processes. Many parties involved in ERP software systems are not IT professionals. ERP more than automates existing business processes. ERP transforms the business processes.

4.4.2 Modular Implementation The method of modular implementation goes after one ERP module at a time. This limits the scope of implementation usually to one functional department. This approach suits companies that do not share many common processes across departments or business units. Independent modules of ERP systems are installed in each unit, while integration of ERP modules is taken place at the later stage of the project. This has been the most commonly used methodology of ERP implementation. Each business unit may have their own "instances" of ERP and databases. Modular implementation reduces the risk of installation, customization and operation of ERP systems by reducing the scope of the implementation. The successful implementation of one module can benefit the overall success of an ERP project.

4.4.3 Process-Oriented Implementation The process-oriented implementation focuses on the support of one or a few critical business processes

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which involves a few business units. The initial customization of the ERP system is limited to functionality closely related to the intended business processes. The process-oriented implementation may eventually grow into a full-blown implementation of the ERP system. This approach is utilized by many small to mid-sized companies which tend to have less complex internal business processes.

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4.5 ERP Software Selection Criteria: Certain packages are regarded as having an exceptional functionality in some of their modules, for example in the case with PeopleSoft’s Human Resources module. Other vendors are regarded as specializing in certain industries, supporting industry-specific best practices, as for example SAP in Chemicals and Pharmaceuticals, Oracle in Energy and Telecommunications and Baan in Aerospace and Defense industries (Aberdeen Group, 1997). Criteria for evaluating ERP software: 1) Should be compatible with the Company’s business processes. 2) Should have enough degree of integration with the various components of the organizations existing system. Example: It should be able provide integration with software like MSP, Primavera, Tally etc. 3) It should be flexible. Means according to organization needs it should be modified. 4) It should not be Complex means it should be user friendly. 5) Quick implementation; shortened ROI period, 6) Ability to support multi-site planning and control, 7) Technology; client/server capabilities, database independence, and security, 8) Availability of regular upgrade, means it should be able to customize as company expand their operation and business function. 9) Amount of customization required.

4.6 Total Cost of Ownership: The total cost of ERP ownership includes the costs of packaged software, hardware, professional services (for ongoing maintenance, upgrades and optimization) and internal costs. Based on the ERP survey conducted by Meta Group in 2002, the average cost of ERP ownership was $15 million ranging from half millions to $300 millions. The average cost per user per year could be as high as $20,000.

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4.6.1 Costs of Software The cost of packaged ERP software depends on the scope of implementation (the license of ERP modules and the number of end users), complexity of software and ERP vendors. ERP software that involves the integration with external business entities generally costs more. ERP vendors offer discount for organizations who invest in a suite of ERP software systems. Mid-sized organizations typically commit a few million dollars to packaged ERP software.

4.6.2 Costs of Hardware Implementation of ERP systems routinely requires purchase of new computer hardware, systems software, network equipment and security software. The costs of hardware vary in a wide range dependent on the scope of implementation and platforms. The hardware typically costs about half million dollars for mid-sized organizations that implements ERP systems.

4.6.3 Costs of Professional Services Customization The big chunk of costs of Professional Services is customization. The cost of customization can easily out-run the cost of packaged ERP software, but it is the customization of ERP software that makes an ERP a success or a failure.

Integration ERP systems won't demonstrate its full potentials unless they are properly integrated with other enterprise software application: 1. The integration of various functional ERP modules, 2. The integration of ERP with other e-business software applications, and 3. The integration of ERP with legacy systems.

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Data Conversion The cost of data conversion depends on the format and the media that store the historical data. Data conversion from legacy systems to RDBMS is a time-consuming process. Data conversion may lead to further data gathering to fill the missing links in data requirements. Testing ERP systems are thoroughly tested before they go into production. ERP testing includes unit testing, component testing, regression testing, performance testing and user acceptance testing. Training ERP training is expensive because workers almost invariably have to learn a new set of processes of doing their daily tasks besides learning how to use the ERP software. To reduce the cost of ERP training and to ease the transitions from old processes to new, organizations often seek the help from training companies which are specialized in coaching workers on using ERP software from particular vendors.

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4.7 Causes of ERP Failure: In ERP Definition - A Systems Perspective, we have identified the four components of an ERP System: 1. ERP software, 2. Business Processes that ERP software supports, 3. Users of ERP systems, and 4. Hardware and Operating Systems that run ERP applications. The failures in one or more of those four components could cause the failure of an ERP project. The failures in hardware are more easier to identify and to fix, we'll examine the failures in software implementation, business process and user acceptance.

4.7.1 Failure of ERP Software Implementation Module-based ERP software is the core of ERP systems. Most ERP projects involve significant amount of customizations. Packaged ERP software modules have built-in functionality that work in a standard and simplified enterprise environment. However, every organization is unique in data requirements and business processes. It is the customizations that transform packaged ERP software into ERP software that meets organizations' individual business processes and operations. Long and expensive customization efforts often result the pass of release deadline and budget overrun. Customizations make the software more fragile and harder to maintain when it finally goes to production. Major changes may be required in the later stage of the implementation as a result of incomplete requirements and power struggles within organizations

4.7.2 Failure of Accommodating Evolution of Business Processes Business processes fall into three levels - strategic planning, management control and operational control. Organizations continuously realign their business processes of all levels in response to the ever-changing market environment. Many ERP systems aren't flexible enough to accommodate evolution of business processes.

4.7.3 Failure of User Acceptance The users of ERP systems are employees of the organizations at all levels. ERP projects usually modify the company's business processes which create extra workload for employees who use them initially. They may not think that the workflows embedded in the software are better than the ones they currently use. Ongoing end-user involvement and training may ease the difficult in organization's adaptation of new systems and new processes.

Application of ERP in Construction Industry (Pre Implementation Phase) 4.842Most Common Ways of Successfully implementation of ERP: The seven most uncommonly common reasons have been identified which would ensure that the project does not miss its budget, timeline and performance improvement goals.


CHAPTER-5 CONCLUSION Not all of ERP implementations are entirely successful. In fact, about half of ERP implementations fail to meet expectations. Most of them suffered from over-budget, over-time, user dissatisfaction, failed to introduce all planned modules, or the big and horizontal ERP systems pulling back into beta testing. So it’s essential for any company before going for ERP implementation they should do feasibility study. Also company should follow the proposed basic pre implementation parameters as well as process chart described in data analysis.

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APPENDIX-A 1. What’s the reason for implementing ERP? 2. Which are the major tasks that are required to take care before going live? 3. Which are the probable risks associated with ERP implementation? 4. Which are the strategies required/formed before implementation? 5. What are the criteria for ERP vendor and software selection? 6. Who are the major ERP vendors in market? 7. Which are the various ERP modules used in construction industry? 8. Which existing information systems can be integrated with ERP? 9. How the functions of new ERP system can be handled? 10. What are the selection criteria for consultant? 11. What are the responsibilities of consultant? 12. Who is the consultant for your company? 13. What’s the approximately time required for implementing ERP? 14. Which are the main components contributes to Total cost of ownership?

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15.

References: Research Papers: 1) Elisabeth J. Umble a, Ronald R. Haft b, M. Michael Umble (2003) “Enterprise resource planning: Implementation procedures and critical success factors” European Journal of Operational Research Vol 146 , pp.241–257 2) Purnendu Mandal , A. Gunasekaran (2003) “Issues in implementing ERP: A case study”, European Journal of Operational Research 146 , pp.274–283 3) O’Leary, Daniel E. (2004), “Enterprise Resource Planning (ERP) Systems: An Empirical Analysis of Benefits”, Journal of Emerging Technologies in Accounting, Vol. 1, pp. 63–72 4) S.M. Jafari, M.R. Osman, R.M. Yusuff and S.H. Tang (2006), “ERP systems implementation in Malasiya : The importance of Critical success factor.” International Journal of Engineering and Technology, Vol. 3, No.1, 2006, pp. 125-131 5) H Akkermans, and K van Helden (2002), “Vicious and virtuous cycles in ERP implementation: a case study of interrelations between critical success factors” European Journal of Information Systems. 6) Ashim Raj Singla (2002), “Impact of ERP systems on small and midsized public sector enterprises.”, Journal of Theoretical and Applied Information Technology 7) Young B. Moon (2007), “Enterprise Resource Planning (ERP): a review of the literature”, Int. J. Management and Enterprise Development, Vol. 4, No. 3 8) Rebstock, M., Selig, J. (2000). "Development and Implementation Strategies for International ERP Software Projects", ECIS, Vol. 2, Vienna, pp-932-936. 9) Nah, F. F-H., Lau, J., L-S., Kuang, J,( 2001): “Critical factors for successful implementation of enterprise systems”, Business Process Management Journal, vol 7, no 3, pp 285-296.

Books: 1) Alexix Leon, “ERP DEMYSTIFIED”, Second Edition, Tata McGraw-Hill, New Delhi

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2) Jagan Nathan Vaman, “ERP in Practice-ERP Strategies for Steering Organizational Competence and Copetitive Advantage.� Tata McGraw-Hill, New Delhi

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APPLICATION OF ENTERPRISE RESOURCE PLANNING IN CONSTRUCTION INDUSTRY