In this age of Globalization and digitalization, it becomes impossible for the organizations to run their business without using IT systems due to the complexity of the business processes and pressure of automating the business processes and cost cutting. This report will discuss about one such organization called Emerson electric, which is using traditional legacy systems and now considering switching to modern ERP systems. ERP projects are often quite complex projects, which need lot of investments. Moreover, there are many case studies consisting of FoxMeyer Drug, Hershey’s and Nike that how their ERP implementation project proved to be a nightmare and make them on verge of bankruptcy (Hustad, & Olsen, 2014). Often, multiple stakeholders are involved and it is important to study the product before choosing the ERP vendor. Risk analysis and risk mitigation techniques are also quite important to ensure the success of the project. The purpose of this report is to discuss about the various steps that are required for selecting the ERP vendor and thus helped the Emerson electric to make the informed decision and also ensure its investments would reap the benefits and also throw the light on common challenges for selecting ERP systems. Emerson electric is a large organization and it has number of stakeholders. The final decision to implement the information system should be based on the deep study of various internal and external parameters.
Emerson electric is global manufacturing conglomerate with offices in more than 200 countries. It build products like pressure measurement equipments, valves, Water treatment systems, density measurement equipments and compete with the world’s major business giants like Honeywell, General electric, Schneider, Agilent, ABB to name a few. Let us discuss in detail about this organization’s business processes and other important aspects that will be helpful in making a correct decision about selection of appropriate ERP vendor.
Define Business Processes
Emerson electric is a manufacturing company that buys raw materials from numerous suppliers worldwide and converts them into finished goods after carrying out various manufacturing operations like drilling, cutting and assembling. Its final products are used in other industries and thus it operates in Business to business segment. Some of the common business processes of the company are as follows:
Procure to pay business process, which consists of floating requirements and request for quotations from suppliers. Once quotations are received, based on the cost and other parameters, like lead-time, quality and freight conditions, it can finalize the contract with the selected suppliers and then places order. Once the order is placed and accepted by the supplier, it receives the material which is then inspected by the quality department. Once accepted, invoice is processes and payment is made to the suppliers. During end of the period, this entire transaction is posted to general ledger (Esteves, 2014).
Figure 1: Emerson has huge network of supplier worldwide
- Make to Order and Make to Stock: Some of the products that it manufactures have standard specifications and thus are manufactured based on the forecast of the demand. They are then stored in the warehouse and customer orders are replenished from the warehouses. While some of the products are confirmed products which means each customer specifies their own requirements and specifications while placing order. Therefore, such orders will be manufactured only when the customer sales order is booked and processes. Various sub processes included in this process are issuing materials, creation of discrete jobs, scheduling of various jobs, detailed routing and BOM preparation and carrying out of sequence of operations.
- Order to Cash Process: This involves the processing of customer orders and booking the orders. Once booking date is confirmed and customer shipping date is promised, these orders will be manufactured or directly replenish from the available quantity. When material is shipped to the customers, account receivables are updated and when the final invoice is received, entire transaction is paid to the general ledger of the company.
- Quality Process: Quality processes are also very important. When material is received from the supplier, it is measured against the quality standards. Also, during the work order creation and processing, their qualities are measured after critical operation to ensure that quality is maintained throughout (Huang, Handfield, 2015).
- Warehouse Processes: When material is received from the supplier, it also has to be placed in the warehouse and also the finished goods that have been manufactured are placed in the warehouses. Various warehouses processes like put away, picking also needs to be performed (Moon & Reddi, 2011).
Develop Business Requirements
Based on the above business processes, Emerson electric has filtered its requirement lists, which are, must to be supported by the selected ERP products.
- ERP system must support e-procurement where purchase orders are places with suppliers in real time
- ERP systems must have supplier collaboration tool where forecasts can be shared with suppliers
- It also has the sales order processing system where appropriate sales order is booked, special instructions are captured and that can calculate the appropriate promising date by taking into account the various make and buy lead times of the product (Brown, Xu, & Stevenson, 2015).
- It has finance capability, accounts reconciliation features
- It also have lot/serial tracking, ABC analysis of inventory, Cycle counting
- It should have BOM and routing capturing information, ability to track which material is issued for which job and used in which finished good assembly.
- Ability to rollup costs for calculating the cost of the goods.
- Reporting and dashboard features that could capture the key performance indicators and also helps management in decision making
- Ability to enter quality results
- Software should also have the ability to scale in case the company wishes to apply it for other sites.
Determine the Systems Requirements
There are various system requirements. Most important thing is that customizations are not advisable in ERP systems as they are quite expensive to maintain and also lost during upgrades. Thus, standard business requirements should be directly fit into the system without customizing any aspect of it. Also, there should be functional security in the systems so that appropriate role should access only the appropriate functions (Shukla, MIshra, Jain, & Yadav, 2016). Another important thing is that system should be secure and also supports data backup functions. Also, system should be easy to use, easy to maintain, cost effective and user friendly. Apart from it, there are 2 important things, on the premise and cloud. This is the age of cloud computing. As on the premise version is quite expensive and took time to implement, ERP vendor must have its product confirm to the latest standards, which is also available on the cloud. This means Emerson does not have to buy the server, storage or perform backup activities, it just wants subscription based system on cloud which is easy to scale up as well as scale down (Ahmad, & Cuenca, 2013). System should also have the cross functional view of the business processes and supports integrative approach in the processes.
Software and Vendor Selection
There are numerous ERP/AIS systems. Lets discuss some of the most popular and seasoned product:
- MYOB: MYOB is one of the oldest accounting software in Australia which is having a largest markets share but with the advent of the cloud, it began to lose its leadership status to Xero. Not only this, its approach is quite confused in Cloud. Apart from it, it is primarily accounting system which provides taxation features, account reconciliation; e-procurement features but lacks features in manufacturing operation like ability to maintain Bills of material and routing operation (Chng & Kuo, 2015). Though it’s good software, it does not entirely fulfill the business requirement of Emerson Electric and thus is not recommended.
- Oracle ERP: Oracle ERP is very famous ERP and it acquired world’s best product like Siebel, People soft, Demantra and include all the functionalities of these products in its ERP program. It has Account payables, account receivables, general ledger, manufacturing, Procurement, customer services and many other modules. Emerson can buy any number of modules based on its business requirements. It also has a cloud based subscription and thus easy to scale up. It will be easy to implement and easy to maintain however its licensing is quite expensive. Though it fulfills all the business requirements, its expensive pricing is the only downside.
- XERO: Xero is another popular software and s it has the largest cloud provider company in Australia, it is also the biggest beneficiary of advent of cloud computing and thus challenging the leadership position of MYOB. It is growing very fast and has the inventory, procurement and finance features but it is also mainly an accounting systems and not complete ERP systems. It requires to be integrated to other tools and third party bolt on systems for achieving the complete equivalent ERP functionality. In this sense, it may be expensive and also required dealing with multiple vendors and finalizing deals. This, it is also not preferable because Emerson is looking for single ERP package to fulfills its requirements.
- SAP Systems: SAP systems are very popular ERP packages and it has been used by the competitors of Emerson like Honeywell, Agilent, GE systems and thus it makes sense for the company to shortlist the SAP and invite vendor to showcase its features. Moreover, SAP like oracle have all the supply chain, services, manufacturing and finance modules and company can buy any based on its requirements. It also has subscription based billing on the cloud. It is cheaper than oracle and its global currency support make it very useful for the global company like Emerson that have plants in different locations as well as buy materials from suppliers located in different geographies.
As a conclusion, SAP is the best software that is aligned to the needs of the Emerson electric and thus recommended.
Determine at least three (3) ways which companies or organizations utilize such technologies to improve business efficiency
- Currently, business processes are operating in silos and each department is looking to satisfy his own department performance indicators without worrying about the overall performance indicators. But with ERP, cross-functional have their indicators which mean each department has to contribute its bests so that the overall process is efficient. This will reduce redundancy and ability to handle multiple times in multiple systems (Haddara, 2014). Currently the sales team as well as account receivables team maintain customer data. With ERP implementation, there will be only 1 instance of customer data that will be maintained.
- With e-procurement, lead-time of procurement to pay cycle will reduce which means company can also reduce the inventory that it keeps. Less quantity y if inventory means less shrinkage costs, less obsolescence costs, less storage costs.
- With proper inventory quantity in place, organization will able to fulfill more customer order on time which will improve on time order fulfillment rate
- Manufacturing processes like cost rollup helps the company to understand the cost it is incurring on various products and thus helps in better pricing strategies.
- News systems will improve the velocity, adaptability and visibility of the entire supply chain of the company.
Evaluate the level of Efficiency of the Technology Implementation
Once the software is finalized, organization also needs to evaluate the implementation partner. There are many organizations like Deloitte, Accenture that implements the ERP software for organizations. Thus, the proposals should be invited from both of them with clear-cut mention of goals; requirements, expectations and the better proposal should be evaluated. Implementation partner is very important for the efficient technology implementation, as they are actually the product experts who know the intricacies of the product. Accenture has huge experience and has served numerous manufacturing clients in SAP worldwide and also has respectable reviews. There has been failure of SAP implementation project at FoxMeyer, which completely blames its implementation partner. Efficiency of implementation can be measure if various milestones are on time, budget is under controlled and users are satisfied with the performance (Nwankpa, 2015). During the implementation phase, the organization can also take the assistance of specialized consultants like KPMG. It is always difficult to roll back from any ERP implementation. Therefore, it is important that implementation should be effective. Typically, there are two ways of implementation, the big bang implementation of the phased manner ERP implementation. It is suggested that Emerson should use phased manner ERP implementation. With the phased manner ERP implementation, the organization has the chance to learn from its mistakes.
Examine Potential Security Risks, Data Breaches
Data theft and data leakage are the key potential risks. These ERPs contain huge set of data comprising of personnel, confidential information of suppliers, customers and employees. Also, there is payment information; various contracts information is stored which makes ERPs systems quite susceptible for the data theft and data attack. Also, there are certain rules related to law that the confidential data in few of the countries should not be stored in the server which is not in the physical location of the country i.e. in a server situated in a foreign country. With cloud, data is often stored in servers, which have multiple backups in various geographies so as to handle any calamity and emergency. Thus, such cases need to be evaluated so as to save from a penalty.
Ability to make changes in the key data by super users is also a big threat and must be taken care by the company.
Provide guidelines on how these risks could be mitigated.
There are various ways to handle these risks and most of them are inbuilt in the ERP systems and nothing extra is required (Olson & Staley, 2012). For example, biggest risk is the risk of exposing confidential information to someone who is not supposed to do so. This can be protected by the functional security. For instance, person who is a receiver will able to see only that information in the systems, i.e. open purchase orders and quantity that is due for receiving. Thus, appropriate rights will help the company to protect such risks.
Also, ERP systems have proper workflows built in so as to take care of various approvals. For example, purchase orders often flows through various steps before it is approved and placed with suppliers. Workflows will take care of any unauthorized approval and thus provide the added benefit (Wagner & Monk, 2012). Also, company needs to mention the important business laws and conditions with the cloud provider and ensure that key terms that will be responsible for what to protect itself from any miscarriage of data.
This case discusses the various aspects of the selection of ERP or Accounting systems. Emerson electric is a manufacturing conglomerate that is planning to replace its existing systems by modern IT systems. Thus, company has treaded itself on the path of exploring the correct software aligns with its business processes. This case discusses the very first thing which is feasibility study of the business processes and then also what are the important things and attribute that should be looked into the EPR vendor and its product. Once these decisions are made, risk analysis should be required along with clear milestones and timelines to achieve the same.
In this case, Emerson electric has been advised to use the SAP ERP to automate its business processes as this ERP is a proven software and has used by the business giants in the world of manufacturing like Honeywell, GE, ABB. It also fulfills all the business requirements of the Emerson.
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