Enterprise Resource Planning - Business Process Reengineering - Essay Example

Enterprise Resource Planning- Business Process Reengineering Critically analyze why business process re-engineering (BPR) is a critical component ofthe successful implementation of ERP Conduct an appropriate research to find a suitable case in BPR, which demonstrates its importance in the implementation of ERP. You may do this by analyzing the impact of BPR on a local or MNC company's ERP implementation. Students must identify such a company and do a study on how BPR has an impact on the selected company's ERP process/outcome. What is business process reengineering In every organization, the current goals, targets and processes may not be the most optimum way to achieve the target. There will always be some redundancies and inefficiencies in these. Therefore, it becomes essential to revamp these to attain maximum output within the existing resources. Business Process Redesign is "the analysis and design of workflows and processes within and between organizations" (Davenport & Short 1990). The process of revisiting the existing performances, processes or parameters in order to revamp them and improve them to make goals and targets more achievable is called Business Process Re-engineering. They are also denoted by the terms, Business Process Re-design or Business Process Improvement. Business process reengineering is a management approach that examines aspects of a business and its interactions, and attempts to improve the efficiency of the underlying processes. Definition from website < http://en.wikipedia.org/wiki/Business_process_reengineering> Revisiting ERP ERP systems are a single interface integrated systems that enable data sharing and complete management control throughout the organization over multiple departments. It encompasses all aspects of the organization from planning to delivery. Although in theory these systems are supposed to be extraordinarily useful in concept but in reality there are a number of failed implementations of ERP, a very few documented but most of them not being recorded for fear of publicity. ERP systems are expensive and time consuming and therefore failure of the implementation often spells disaster for the company. The ability to utilize and expand on the existing system and put it to better use often demarcates success and failure for the organization Why is it done Enterprise resource planning is employed to plan and manage the available resources in a company. It is basically an integrated software system that manages the entire range of business processes inclusive of purchase, inventory control, personnel, shipping and financials among an exhaustive list. In essence, an ERP is typically a single database platform of complete information sharing allowing the comprehensive range of inputs and outputs from and to all the departments Challenges in the Implementation of ERP Systems It is clear that for an ERP system to be successfully implemented, they have to be integrated with all the processes and procedures in the enterprise. This is necessary since this integration helps them to function as an entity and enable it to work effectively. When implemented correctly they add enormous value to the company but when not properly implemented, they may poses risks to the company in the industry and business environment, user or management behavior, create bottlenecks in the processes and system functionalities, and jeopardize ongoing business continuity and maintenance time frames. Because the nature of ERP is such that it's a company wide concern, all the risks associated with it need to be looked at as a whole, with respect to organization vision. It cannot be controlled in isolation with respect to a single process alone but has to be considered in close alignment to business objectives and organization goals. Any process that is to be integrated into the enterprise must be evaluated for its capability to meet organizational goals. Once the process has been identified to be integrated, then it is prudent that the process is considered a " best" practice that is efficient and delivers on its expectations. When a process is already inefficient and is integrated into the ERP system as is, it takes its deficiencies along with it and integrates it in the enterprise. A cumulative effect of such redundant and deficient processes and tasks in a complex interrelated environment will render the whole system inefficient and defeat the purpose of the ERP benefits to be realized. Business Process Reengineering (BPR) is used to reengineer the processes so that it adds to the overall efficiency of the system and complements it. Reengineering processes may be executed in two ways. Streamlining is a milder form of reengineering exercise, where only incremental changes to the current process are made to improve performance. Re-inventing a process is more complex since the existing procedure is scrapped and a new one is created from scratch with a fresh look. While reengineering is done, it is prudent to receive and input ideas from various perspectives in the industry, in the company, and take into account the best practices from various inputs to arrive at a workable, realistic and efficient solution for each task or process. It is also vital that the person is ultimately responsible for its execution is informed, prepared and has sufficient knowledge and information to perform the task. Ambiguity and misunderstanding will only lead to chaos and poor performance. Therefore communication is key. Often, the questions to consider before reengineering is adopted are Whether the processes be reengineered first and then improved processes be automated Whether the reengineering will be done after implementing ERP Whether the processes are efficient enough to skip the reengineering and complete the ERP implementation Theoretically, BPR and ERP Implementation are individual entities and can exist independent of each other. In real life situations they often coexist in an organization with dependencies on both sides. Sometimes once the ERP is selected based on key parameters specific to the company, to replace an existing system, and the execution of a BPR may be delayed until there is some stable operation. Sometimes a BPR might be started but shelved due to the complexity added on by it to the intricate ERP integration. Although BPR does offer great benefits to the organizations adding BPR to the ERP mix is not without risks. ERP is harbinger of change and resistance to change is inevitable. The changes brought about by the reengineering process may require changes in the method of working and mindset and the people primarily may resist or be hostile due to fear, lack of understanding or lack of competence. This deficiency will be transferred to the ERP implementation project. The BPR may stretch the organization budget and resources and even focus, and divert it away from the ERP implementation. The reengineered processes may not be accurately communicated to the employees, thereby reducing the optimal output expected from the project. Hammer and Champy estimate that 50-70 per cent of all BPR efforts fail (Hammer and Champy 1994: 200). This may be attributed to high expectations that are not achievable. Companies have also been criticized as using BPR as an excuse for massive layoffs. Case study - Nestl's Crunch As stated on its website, Nestl with headquarters in Vevey, Switzerland was founded in 1866 by Henri Nestl and is today the world's biggest food and beverage company. Sales at the end of 2004 were CHF 87 billion, with a net profit of CHF 6.7 billion. They employ about 247,000 people and have factories or operations in almost every country in the world. As stated on its website http://www.nestle.com/All_About/Glance/Introduction/Glance+Introduction.htm Until, 1991, Nestle was not unified and was mainly a collection of brands. In 1991, it was reorganized and unified into Nestle USA. The geographically dispersed divisions were used to autonomous functioning. Though they reported to corporate headquarters, due to the independent functioning there were no economies of scale in the operations. The company was filled with inefficiencies and the company found that to their dismay, that the various business units were paying 29 different prices for vanilla, to the same vendor! Crosschecking was impossible because every product division named the vanilla differently and there was no way to know that the products were one and the same. Dunn, the associate Vice-President was upset by the synergies and tried to put in a common technology platform for every Nestle company to follow. She became the CIO in 1995 and was disturbed by the fact that though standards were set, implementation did not happen due the independently operating business units not ready to fallow suit. Nestl's CEO, Joe Weller wanted an integrated Nestle where all the operations were unified under the image "One Nestle". Their business heads came up with a solution of implementing SAP in 3 to 5 yrs. Dunn warned that" "We made it very clear that this would be a business process reorganization and that you couldn't do it without changing the way you did business. There was going to be pain involved, it was going to be a slow process, and this was not a software project." No one heeded her warning. "They still thought that it was just about software," Dunn says. Quoted from website http://www.cio.com/archive/051502/nestle.html By March 1998, Nestl's plan was as follows." Nestl would implement five SAP modules-purchasing, financials, sales and distribution, accounts payable and accounts receivable-and the Manugistics' supply chain module. Each would be deployed across every Nestl division." The timeline was set from 1998 to the millennium. It was another major blunder. The current processes were very inefficient and therefore Dunn decided that business process reengineering was the way to go. The whole of the business processes across eight or nine autonomous divisions needed to be reengineered since that was the only way all data and information can be unified and integrated. Dunn thought that a usage of common processes, systems and organization structures will allow the benefit of scale to Nestle and offer undue advantages in procurement from the vendors. Another major mistake was that none of the groups that were going to be directly involved in moving to the new processes and systems were represented on the key stakeholders team. Any changes communicated to them were sudden and shocking, causing frustration and this caused a festering of hostility and rebellion. So when the rollout began, there was chaos. The workers did not understand the newly reengineered procedures or the systems. There was anger and hostility and failure to execute the reengineered processes to improve performances. There was confusion all around and employee morale was affected. Used to their own spreadsheets, the Manugistics spread sheets had no acceptance. Planning forecasts went haywire. In a time crunch to beat the Y2K deadlines, the ERP implementation team, had overlooked all the integration points between the modules. Although all the departments used common names and systems, they were not integrated into the other groups. To explain with an example, all the purchasing departments now used common names and systems, and followed a common process, but their system was not integrated with the financial, planning or sales groups. Therefore a salesperson may have given a valuable customer a discount rate and entered it into the new system, but the accounts receivable department had no knowledge of the discount. When the customer paid up, the accounts receivable considered it as part payment and created a partial invoice." In its haste to unify the company's separate brands, the project team had essentially replaced divisional silos with process silos." In June 2000, the project was halted midway. Dunn was given the full responsibility to revamp the project from the loss. The first thing that the team did was to do away with the timeline crunches. Rather than pressure the project to fit timelines, the whole project was analyzed and timelines that were realistic and tailored to cater to the completion of project milestones were set. They had also learnt that the involvement of the workers who were actually adopting the new processes was required so they made sure that all the changes occurring were carried through to the divisional heads. By April 2001, the end-state design was complete. The detailed project timetable keeps continuous tabs on the employees and their ability and comfort factor with the new design and processes. The last rollout was in 2003. In spite of all the difficulties, Nestle is happy with the final outcome. The demand forecasts have been way better, and this has resulted in reduced inventories to be carried. Supply chain improvements accounted for a major chunk of the $325 million Nestl says it has saved from SAP. (Data from website ) Nestl learned the hard way that an enterprise wide rollout involves much more than simply installing software. "When you move to SAP, you are changing the way people work," Dunn says. "You are challenging their principles, their beliefs and the way they have done things for many, many years." If Dunn were to do it over again, she'd focus first on changing business processes and achieving universal buy-in, and then and only then on installing the software. "If you try to do it with a system first, you will have an installation, not an implementation," she says. "And there is a big difference between installing software and implementing a solution. Quoted from website () Complete case study at http://www.cio.com/archive/051502/nestle.html Conclusion It is a tough call to decide whether we have to change the business processes to suit the system or retain business processes and change the system. As time and cost are factored in, often the system is unable to be changed and usually the way the tasks are done end up being changed. Therefore reengineering is dynamic in any organization that wishes to grow and remain competitive. A successful implementation of ERP will depend a large extent on the efficiencies of the processes that are integrated into it. Hence BPR forms a crucial part in implementing ERP. It is logical that BPR is one of the critical components of successful ERP implementation. Business process reengineering analyses the processes and suitably changes it to meet the goals of the company. Since the ERP is aligned to the company goals as well, BPR is a complement to the ERP. In any organization, change is unavoidable. The best way to manage change is through proper communication. Sudden communication of change builds resistance and creates bottlenecks. Since BPR is a change process as well, and each process is customized, BPR can be used as a pilot procedure to convey and estimate how change affects the organizations. This will also help to gauge how ERP will impact the organization. Business Process Reengineering also allows the redundancies to be done away before they impact the organization. Whether BPR initiates ERP implementation or the demands of the ERP system triggers a need to do a BPR of the processes depends on the specifications of each individual company and its targets. ERP by itself is an enormous undertaking and adding BPR in to the mix increases the complexity many fold. However, extremely diligent planning followed by strict adherence to schedule will ensure a smooth transition. The most important aspect is that while the ERP vendor is responsible for the software implementation, the onus is on the organization as a whole to plan, involve, and communicate from the highest to the lowest level to ensure the success of the endeavor. Sources Business process reengineering [Online] http://en.wikipedia.org/wiki/Business_process_reengineering 6 Jan 2006 Nestle's ERP Odyssey 2 May 2002 [Online] http://www.cio.com/archive/051502/nestle.html 6 Jan 2006 Davenport, T. H. and J. E. Short (1990). "The new industrial engineering: information technology and business process redesign." Sloan Management Review Hammer, M. and J. Champy (1994). Reengineering the Corporation. A Manifesto for Business Revolution. New York, HarperCollins. BPR Vs ERP What comes first Cool Avenues.com [Online] http://www.coolavenues.com/know/ops/vivek_erp_3.php3 6 Jan 2006 Ramprasad, K.S. ERP+BPR=BR [Online] http://ramsap.tripod.com/erp.html 6 Jan 2006 Enterprise Resource Planning Systems Review ISACA.org [Online] http://www.isaca.org/Template.cfmSection=Standards&Template=/ContentManagement/ContentDisplay.cfm&ContentID=18674 6 Jan 2006 Web, Allen What is Reengineering June 1998 [Online] http://members.aol.com/AllenWeb/bpr.html 6 Jan 2006 Business Process Reengineering [Online] http://www.learndatamodeling.com/b_reengin.htm 6 Jan 2006 Business process reengineering [Online] http://www.erpwire.com/erp-articles/business-process-reengineering.htm 6 Jan 2006 At a Glance Nestle [Online] http://www.nestle.com/All_About/Glance/Introduction/Glance+Introduction.htm 6 Jan 2006 Read More