Enterprise Application Software

Growing with ERP in the driver’s seat

Having put their transactional systems in place, medium businesses are hungry for growth and are investing in ERP as a strategic differentiator in the market place and to manage growth. By Akhtar Pasha

In the enterprise application software ERP continues to rule the roost and account for over 70 percent of the EAS market. Of 95 respondents 78 percent are already done with an ERP deployment. CRM is slowly kicking in for managing service requests, contract management, responding to proposals and tracking quotations. Supply chain and BI are also gaining momentum. ERP penetration was highest in the FMCG/consumer durables, auto & auto components and manufacturing/engineering. However there are large numbers of medium business that are still struggling with the legacy applications that they use to manage transactions and operations across their supply chain. ERP is on priority list of most of the industry verticals such as auto/auto components, FMCG/consumer durables, manufacturing/engineering and chemical. Of 167 respondents, 42 percent of medium businesses are keen on investing in ERP. CRM is next with 24 percent.

Transactional systems are not enough

Having transactional systems in place does not mean that there are no pain areas. Of the four critical Ms—manpower, money, materials and methods—the only thing that small, medium and large businesses have in common is methods or processes. Additionally, as growth and customer acquisition are rapid in the case of medium businesses, there is greater focus on how to sustain profit margins while keeping costs low and increasing customer satisfaction. Interestingly some of the larger medium businesses—especially that are into auto/auto components, manufacturing/engineering and FMCG/consumer goods—have already invested in transactional systems, either developed in-house or a third-party ERP solution. Having done that, they are now looking at strategic solutions, often referred to as extended ERP, to execute strategies and maintain business growth. Take the case of Tilaknagar Industries Ltd. (TIL) that shifted its focus from manufacturing sugar to manufacturing spirits. Its core competency is in alcoholic beverages and it has established a distinct identity in the liquor industry. Today its brand portfolio consists of unique brands which enjoy an excellent reputation with consumers solely due to quality and a competitive price structure. Over the years TIL has expanded its operations. The company’s manufacturing facilities located at Tilaknagar, in Shrirampur Taluka, Ahmednagar District, in the State of Maharashtra. Says Gerald Rodigues, IT head, TIL, “We have been using a mix of manual and legacy application software for manufacturing and we are now finding out that we need to automate and integrate our business processes. We have evaluated ERP solutions from HCL Infonet and Syscon Infotech, the lesser known ERP vendors in the market.”

He adds that the company has to reply heavily on its staff to compile MIS reports. Additionally production is done in batches in various manufacturing units and the data from these units is not integrated, and the company does not get the exact count of inventory, materials and status of pending orders. “We still rely on the telephone system to get an update. Since data entry was done lot-by-lot and batch-by-batch, it was a time-consuming task and the process was prone to errors. Because of the manual paper-based entry system, a lot of paper bills used to land up in the finance department where they were consolidated. Having a standard ERP system will help in exact production planning.”

Adopting vertical-specific enterprise apps

Moolchand Medcity is soon going to expand into a 800-bed super specialty hospital. Its IT manager, Sunil Kak says, “We are using a Hospital Information Systems (HIS) [equivalent of ERP in manufacturing] from Akhil Systems Pvt Ltd and have migrated from manual paper-based operations to an integrated HIS. We have integrated the HIS with all functional areas of OPD, pathological labs, Radiology/imagining, OT, cardiology, neurology, orthopaedics, ENT with accounts and finance so that nobody uses paper for any kind of transactions or reports. This has eliminated the errors which we used to face in manual systems. Billing of patient records is very quick. The HIS has helped improve customer service. It has removed the inefficiencies in various departments.”

Hotel Janpath, an ITDC hotel in Delhi has seen a similar advantage. Raman Kumar, IT & EDP in-charge of Hotel Janpath says, “Most medium businesses are demanding vertical-specific enterprise application solution so that they can deploy the solutions quickly with less customisation to reduce cost of deployment. We are using a preconfigured hotel information system with industry best practices and have done away the manual paper based reservation systems completely. It has helped us in removing in-efficiencies. Now no staff can manipulate data in favour of particular customers and it requires less manpower. Bill settlement is fast and customers do not have to wait for the same.”

Anand Sengupta, Head IT, Daikin Airconditioning India Pvt. Ltd says, “We started our operations in India with SAP R/3 ERP as our parent company Japan-based Diakin Industries was already using it. We wanted to use IT as a key enabler to optimise business processes and manage growth. We have been able to integrate discrete information and there is smooth flow of information across functional areas. There has been tighter control on sales and workflow. The deployment has resulted in a smoother and quicker workflow between our inventory, sales, and logistics processes. Electronic approvals of payments/bills and quotations has reduced paper work and now all the approvals happens through SAP.” Daikin Airconditioning India’s SAP implementation was also complementary to Daikin’s corporate goals, as its Japan headquarters had implemented SAP’s Advanced Planner and Optimizer to integrate supply chain data across all its subsidiaries.

Accurate demand planning

Abbas Raja, chief information officer, National Clothing Company says, “If we are not able to honour a customer’s delivery date the entire consignment is sent back by the customer. In this way we used to incur losses to the extent of Rs 10 lakh to Rs 15 lakh per order. Hence a proper planning process has to be in place to take care of order tracking, procurement, capacity planning and material availability at the factory. Accordingly, we had to plan our inventory.” He cites an example: assuming a delivery date of January 30, the company needs to make the order by the 25th; if there is any delay in material procurement, the company loses out. Even if it reaches well before time, the company’s working capital is still locked up. Once an enterprise application is in place, textile and apparel requirements can be clearly planned, and the order tracking system helps capacity planning, bill of materials generation and inventory control. All these help the company stay a lean manufacturing concern and get the right material at the right time. Adds Raja, “Before investing in SAP we had to follow ISO standards. SAP offers neat documentation processes which need to be followed strictly, thus leading to better quality standards.”

Not yet ready for CRM

The CRM market is driven by auto & auto components, services and ITES firms. If we look at most ERP packages they come with SCM and CRM capabilities. Since a large section of medium businesses are done with ERP they are looking at activating their CRM module. Analysts believes that medium businesses currently do not require a complete CRM solution, and most of their requirements are available in their ERP systems in the form of SFA, marketing and configuration management. Additionally, medium businesses do not have products that need to be cross-sold or up-sold as is true in the case of large businesses and therefore Express Computer does not see wider adoption of CRM software. However there are a section of verticals that are looking at experimenting in select areas such as contract/quotation management and responding to proposals. Of the six verticals surveyed by IMRB, FMCG/consumer durables, manufacturing and IT/ITES are very keen on investing CRM application.

Some mid-sized businesses are using SFA to manage business leads, and as sales cycles are longer in the case of manufacturing, these organisations need to track their sales cycle and marketing campaigns. These businesses have been relying on historical data for decision-making, but that is changing fast. Triveni Engineering and Industries, manufacturers of steam turbines and its Spares Sales division are profitable. The business of many of its large customers was dependent on spare parts and the shelf life of machines high, between 25 to 30 years. These needed to be supported by new spares and more importantly maintained on a regular basis (every three months).

All critical information such as the case history of spares at customer premises were maintained manually and the systems were paper-based. Occasionally, spares changed were not recorded. Other areas such as the number of complaints closed, number of open complaints and preventive maintenance schedule (similar to an AMC contract), were all paper-based. In the absence of an engineer who attended the last problem, a follow-up action could not be planned in advance nor could the root cause of the problem be traced. Company officials say that because of data being unavailable the company ended up overstocking spares. Additionally, PMC would not be prepared for follow-up action. As data was unavailable online it was not possible to analyse the root cause of the problem. The company needed to manage quotations, prices and warranty terms throughout the shelf life of printing equipment, which is long. If a customer called and asked for a replacement during the warranty period, it needed to look into customer data (historical data) and then respond—a process that used to take two to three days. Adopting a CRM solution, Sales Force Automation helped it streamline this process and reduce response time to a few hours. SFA has directly impacted the company’s revenues.

Elements of BI

We see demand for BI tools such as Corporate Performance Management and the Balanced Score Card in slightly matured verticals within medium business such as manufacturing/engineering and IT/ITES. If a medium business wants to increase its profitability by 10 percent, it would require intelligent tools that need to be monitored to get the results. It will also need to study the consumption patterns of customers and plan capacity accordingly while keeping its inventory low. Again these BI tools are part of the ERP package we do not see medium business investing separately in it.

Supply chain software gains popularity

Medium businesses recognise that automating the supply chain is a must. As these businesses have seen the benefits of transactional systems, they want to use supply chain systems to manage the distribution of products beyond primary sales points. They want to capture transactions and experiences that take place between customers and retailers so that they can plan better. According to most of the auto/auto components and manufacturing companies they want some visibility into their secondary sales data. They want to know the consumption pattern of particular products so that they can capture the taste of the customer and incorporate the same in their manufacturing plans.

MTR Foods manufactures 200 different products for which it sources about 600 raw materials. The company was relying on historical data to forecast demand for the raw materials before it went for a SAP solution. According to B G Shenoy, Head of Finance the problem with the old approach was that inter-category product profitability could not be determined. (For example, to maintain good product margins, product profitability should be at least 60 percent. If it gives you only 55 percent, then you need to analyse why the remaining five percent is not coming through.) Additionally, there was no mechanism to check profitability on a regional basis. MTR is using SAP R/3 to control costs across categories and regions. Shenoy adds that complexity comes from many areas—sourcing of raw materials across the supply chain was just one. According to him the company cannot buy raw materials that are required in bulk in advance. In the pre-SAP period it used to buy 65 percent of its annual raw material in the agricultural season to get the best of the yield, which would lead to its working capital getting locked up. Some percentage of this raw material used to spoil, and had to be discounted leading to a clear input cost loss. Similarly, for its vermicelli production, it sourced 12,000 tonnes of chiroti suji from 40 different suppliers. The challenge was to ensure a steady and transparent supply chain since inefficiencies and delays in supplies are common and natural in agricultural commodity markets, leading to spiralling costs.

IT deployments are very strategic

Verticals such as chemical & Pharma, manufacturing/ engineering and FMCG/consumer durable describe ERP as their most significant IT deployment in the past year. Most medium businesses we quizzed agree that they decision to invest in ERP was strategic in nature and wanted to automate business process so that they can solve the business complexities.

We explore the meaning of strategic solutions in an extended enterprise and why they are important for medium businesses. To get beneath the skin of a strategic solution, we should look at how a medium business’ pain points differ from those of small and large businesses. Rodigues explains “Many medium businesses are catering to the export market, while some are also supplier to large OEMs. This calls for a high level of automation of operations to compete globally.” He continues most in-housed developed transactional systems have become a business constraint, and they realise that these systems and processes are not aligned with our business goals and strategy for growth. Hence we are looking at optimising and automating demand forecasting, streamlining supply chain and customer relationships and a bit of BI components.”

Raja of NCC says that IT investments particularly ERP and SCM are very strategic in nature. “We have done it as there was organisational-wide requirement as well to compete in the market place.”

Kumar of Hotel Janpath says, “Clearly the investment we have made in hotel information systems is justified. We have reduced the billing cycle time and sourcing time which has directly added to our bottom lines.” Moolchand Medcity also agrees that they are do business without their IT systems. “It has a direct impact on our revenues,” says Kak.