Erp

Enterprise Resource Planning

Tamizhvanan -1421330 Shiny Philip 1421355

Padma Saundharya -1421359

REGISTER NO- 1421446

SECTION- M

KEDA SAP IMPLEMENTATION

Table of Contents

Executive summary: ............................................................................................................................. Situational analysis .............................................................................................................................

Introduction: ..................................................................................................................................... Problem Statement: .............................................................................................................................

Scope of the problem: ....................................................................................................................... Objectives: ........................................................................................................................................... Alternative courses of action: .............................................................................................................. Evaluation of Options: .........................................................................................................................

1)Developing In-House ......................................................................................................................

Pros: ..............................................................................................................................................

Cons: .............................................................................................................................................

2)Outsourcing to a 3rd Party Provider ...............................................................................................

Pros: ..............................................................................................................................................

Cons: ............................................................................................................................................. Decision: .............................................................................................................................................. Action Plan: ......................................................................................................................................... Future of ERP ....................................................................................................................................... EXHIBIT I ..............................................................................................................................................

Keda's history timeline ......................................................................................................................

Page 1 of 8

Executive summary: While Enterprise Resource Planning (ERP) system demand in China has been steadily increasing,

many of such implementation projects failed. Keda Industrial Co. Ltd (600986: Shanghai Stock

Exchange), a manufacturer of large scale machinery in China, however, was one of the few that

successfully deployed its ERP solution in 2005. In this case study, we document the ERP initiative

of Keda from its conception to its deployment, study the factors that contributed to its success, and

summarize Kedas practices that substantiated the identified success factors.

Page 2 of 8

CASE FACTS

Business Context/Key Business Drivers

Keda began as a small capacity manufacturer of ceramic machinery in 1992. Keda began by imitating business model of European ceramic machinery manufacturers, who were leading the market space at that time.

By early 2000s, Keda became the second biggest manufacturer of building machinery, second to SACMI of Italy (who had implemented SAP system for ERP)

Keda set up a post-doctoral workstation for research in 2003. Company also made an additional investment of $5.4M in ceramic engineering R&D facility. R&D, product and business innovation were of prominent importance. With these initiatives, Keda established itself as product and management innovation leader.

By 2010, with more than 2000 employees, Keda was a force to reckon with; offering a broad spectrum of services like stone processing, energy resource management, plant design & technical consulting etc.

Owing to the nature of its business, Keda received orders which were highly customized, had low volumes and hence had higher margins. This, coupled with de-centralized inventory, made it difficult for the company to keep track of and plan for its resources. Utilization of these was extremely poor compared to competitors.

Keda had a silo based model, which did not really work well for the company. The business units were not well connected with each other and did not share enough information, which led to duplicity, redundancy and thus higher costs. This resulted in company not having a clear idea about its costs and decisions were taken on a hunch rather than based on data and its analysis.

Main drivers for Keda to switch to a new and comprehensive ERP system increasing pressure faced from local and international competitors, Chinese governments policies to incentivize computerization and existing MRP-II systems vendors discontinuation of support.

Drivers for ERP

Silo-based model taking a toll on Kedas business performance

Disconnected business units equals duplicate tasks, redundancy and heightened costs

Little information flow and lack of integration prevented timely strategic decisions

To remain a leader Keda needed to continue innovating, but needed to provide

information to all departments along the way

Also the Chinese governments call computerization in corporations

Inventory management difficult because of the diverse product line

Low usage and production made it difficult to meet demand

The expended product offering caused Keda to build more factories, causing Keda to

outgrow it MRP II system.

Keda needed to rethink its IT.

Situational analysis The company first began its computerization in the year 2000. Dr. Zhu, Head of the IT department

developed a major 5 year plan leading to conducting a wide status quo analysis and also to have an

integrated organisation structure with streamlined data flows. After enquiring about several local and

global vendors, KEDA shortlisted nine such companies out of which SAP emerged as a winner. The

implementation team were formed that included key users, the consultants and the IT officers. With

some clashes between the suggestions and interests of the key users and the module owners, the

implementation went smoothly and speedily with the help of the senior management. The SAP was

successfully installed in the company in the August of 2005. To expedite the entire process, an

aggressive big bang approach and forced compliance by the users were adopted. It helped in

increasing the data accuracy from 85% to 98%. Within months ERP implementation effort was a great

success resulting in decrease in operation and management cost, and improved efficiency.

Introduction: KEDA Industrial Company Ltd. (KEDA) founded in the year of 1992 is a Chinese ceramic machinery

manufacturer company. Due to the nature of the primary products, all the departments of the company

functioned independently and the problems were solved in ad-hoc manner. This helped the company to

achieve efficiency in its operations. But things were not all rosy for KEDA as the disconnected business

units often duplicated resulting in redundancy and heightened costs. This lack of integration also

resulted in increased competition. Some of the other challenges that forced KEDA to go for ERP were

governmental pressure and the issues related to inventory management.

ERP Implementation Process

5 Stages-

1. Identify Need for System- Drivers for ERP system were identified so that Keda could define

clear goals that were in line with its overall business strategies

2. Vendor Selection- A suitable provider of an off-the-shelf solution was selected on the

basis of the needs identified above. This selection process involved receiving responses

to the request for proposal (RFP), short-listing vendors for presentation and visiting

vendors existing client

3. Process Redesign- Existing business processes and operations needed to be modified to fit the

chosen system. Responsibility for this stage was placed on key users.

4. System Implementation- The ERP modules were configured and customized for Kedas

business processes and data needs. This process involved converting and loading data and

making changes to process flows

5. System testing & User training- The system was tested to see whether it was ready for

deployment. Users of the system familiarized themselves with system operations

6. System Rollout- The system went online

Problem Statement:

The problem is that disconnected business units were leading to redundancy and

heightened costs (very little information flow between departments). Current MRPII

system does not support multi-plant mode. Because of this there was lack of

knowledge thus unable to assess costs and pricing policies.

Initiative challenges

Key Challenges Issue Resolution

Resistance from personnel to use the new system, fearing that it would lessen their authority.

Changes demanded by users

Delays in production

Training of users/system malfunction

Senior management lent its support to the implementation process, as it would set a strong example of support for the new system. Those who still wouldnt comply, were promptly replaced, i.e. forced-compliance

Users involved in setting process parameters during implementation. This ensured their compliance.

Implementation took place during non-peak period. Director was informed in advance and supported the project by allowing ERP related delays in first year.

Training of key users and identification of potential issues with system was carried out simultaneously and early on. Key users then trained others.

Scope of the problem:

There were challenges related to managing a large inventory. It was struggling through to meet

demand due to production delays and resources and facilities not optimally utilized. There was

Pressures from Chinese government agencies to catch up with foreign firms.

Objectives:

Improvement management control

Improvement in Information quality

Initiative Objectives/Benefits

Key Business Objectives Planned Benefits Of The Initiative

Efficient data flow and integrated business processes

Improved inventory management

Appropriate costing and pricing

Improved production efficiency, reduced product lead time

Support multi-plant operations

Decrease in redundancy and duplication of efforts better information sharing among different business units. Improved control and information quality (availability, accuracy of cost and qty. etc.)

Optimized inventory due to centralization and better coordination between different entities.

Clearer idea of cost, enabling company to identify and get rid of non-profitable orders. Accuracy of data improved from 85% to 98%.

With same manufacturing capacity monthly output increased from 6 presses to 30 presses.

Older MRP-II system did not support multi-plant operations which were critical in achieving operational efficiency.

SOLUTION Alternative courses of action:

Developing In-House or

Outsourcing to a 3rd Party Provider

Evaluation of Options:

1)Developing In-House system

Pros:

1) System developed would most likely take into account cultural contexts and practices

and would potentially be easier for the key-users to adopt.

2) System would be developed according to the needs and functions of the company.

3) System would fit the business processes.

Cons: 1) Likely to be too time consuming

2) Not feasible considering the pressing need for a better system

3) Would be expensive and difficult as Keda does not have a strong IT team proficient in

developing systems.

2)Outsourcing to a 3rd Party Provider

Pros:

1) A vendor would have more experience and expertise in developing and deploying ERP systems.

2) System bought could be more effective and bug-free.

3) Off-the-shelf system would be customized and deployed quicker than developing one

from scratch.

4) System could be deployed in shorter time to address the pressing issue of lack of

integration and maintenance support.

5) The ERP system (SAP) is precisely what Keda's strongest competitor, SACMI, is using.

So, Switching over to the same system erodes an edge that SACMI had over Kedaand

better information management

Cons: 1) Vendor long-range support was questionable.

2) The vendor may not provide as comprehensive as support as purported since the vendor

was located in another country.

3) As the customization of an off-the-shelf system is limited, certain business processes would

have to be tweaked to "fit" the system

Decision: The decision comes out to be implementing SAP rather than inhouse system. The reason being that the

SAP itself is a reknowned name in the industry and the products are of optimum quality. Due to this

reason the company need not have to worry about the type of system and concentrate on its

core competency rather than developing new system that might not work as well as SAP.

Moreover as the SAP corporation is consistently working towards improvement of the system ,

the firm can take advantage of it, on other hand the company would have to consistently devlope

its inhouse system in order to compete with its competior who is using SAP.

Action Plan: The action plan is to implement the SAP as soon as possible so that the company can take

advantage of it in properly managing the inventory and competitions with the competitor.

Results

The initiative was successful. This can be seen from the results achieved after implementing these strategies:

Data accuracy improved from 85% to 98%. Better pricing and costing as decisions were taken on the basis of analysis of the real data that was now available.

Capacity of press manufacturing increased from 6 a month to 30 a month, within same manufacturing facility.

Reduced costs.

Optimized inventory also reduced inventory holding costs.

Improved response to fluctuating market conditions and market demands.

Improved decisions non-profitable orders avoided, better control over pricing.

SAP ERP implemented across organization.

Future of ERP Despite the success of the ERP implementation project, the initiative is part of a bigger

computerization plan that would continue to satisfy the companys information needs and

improve thecompanys productivity through better information management and dissemination

for decision making. To fully capitalize on the centralized data and processes made possible by

ERP, Keda remained committed to the computerization plan originally set out. Values were

continuously created via disciplined new system additions and extensions. For instance, the

Manufacturing Execution System, seamlessly integrated with ERP, tracked all manufacturing

activities and provided real-time access to production progress and information. ERP is an enabling technology. With ERP, Keda is strategically positioned to reap the benefits of

computerization. ERP serves as the core on which systems, such as Customer Relationship

Management, Business Intelligence, and Supply Chain Management, are built to enhance customer

management, optimize decision making, and coordinate vendors respectively. To Keda, ERP is a beginning, rather than an end.

Relevance and analysis

Even though Keda had achieved great success and had an exponential growth, its margins were hurt by inefficient and decentralized inventory management, improper pricing due to inadequate information about costs and underutilized resources. MRP-II did not support multi-plant operations and having a streamlined, organization wide flow of information was impossible.

Hence Keda was in dire need of a comprehensive ERP system to put up with the pressure exerted by local and global competitors and living up to the expectations of the market.

Taking the Chinese business culture into consideration, it wasnt expected that the ERP implementation would occur smoothly, as personnel would have looked at it as a challenge to their authority. But management was firm about their decision of implementing this system and top management supported the vision with a great commitment. Management also chose to exercise local tools such as forced compliance to make sure that everyone complied with the change and those who didnt were promptly replaced. (Case specific question 1)

I believe that Keda had a stroke of luck with their big-bang approach of implementation working out fine. A cascaded approach during implementation would have made more sense, since, had the system not worked out, Kedas losses would have been minimized. Another different approach that Kedas management could have taken is clearly communicating the benefits of the new ERP system down the hierarchy and ensuring that users authority will not be compromised by implementation of ERP, which was concern for some of the personnel, who had to be replaced. (Case specific question 2)

The implementation was successful, although roughly 80% of such efforts fail in China. I believe this happened because:

Support and commitment of higher management towards the project.

Key employees worked along with external consultants to ensure data accuracy.

Business processes such as inventory management were completely overhauled and reengineered to fit perfectly in the new ERP system.

Third party vendor was chosen instead of developing the system internally. This ensured faster implementation as this vendor was better versed with implementing such complex system.

Training to key personnel was given early on to ensure their compatibility with the new system and early detection of malfunction.

Takeaways

Involvement of key users right from initial stages, commitment of higher management, seamless communication between different participants, efficient selection of proper option, defining and sticking to a timeline are some of the key factors which ensure success of implementation of an IT project.

Cultural context can be used to ensure success of a project.

Keeping senior management informed proactively can avoid bigger problems and also their involvement can be used to drive success of a project without facing resistance from key stakeholders.

Decision of whether to go with a third party vendor or develop system internally should be taken carefully considering the time at hand and speed with which system is required to be implemented.

EXHIBIT I

Keda's history timeline