Seminar-1 2009 SEMINAR-I APPLICATION OF ENTERPRISE RESOURCE PLANNING IN CONSTRUCTION INDUSTRY (Pre Implementation Phase) Submitted By: HEMAL SHAH, CP1908 Guided By: Mrs. JYOTI TRIVEDI 1 Application of ERP in Construction Industry (Pre Implementation Phase)
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Seminar-1 2009
SEMINAR-I
APPLICATION OF
ENTERPRISE RESOURCE PLANNING
IN CONSTRUCTION INDUSTRY
(Pre Implementation Phase)
Submitted By:
HEMAL SHAH, CP1908
Guided By:
Mrs. JYOTI TRIVEDI
M.Tech. Programme in Construction & Project Management
CEPT University
Ahmedabad-380009
1 Application of ERP in Construction Industry (Pre Implementation Phase)
1.1 Introduction to ERP....................................................................................................................................... 7
1.2 Need for study.............................................................................................................................................. 9
1.4.1 Literature Review:........................................................................................................................................10
1.4.2 Data collection:............................................................................................................................................10
1.4.3 Data analysis:...............................................................................................................................................10
1.4.5 Scope of work:..............................................................................................................................................10
CHAPTER-2 LITERATURE REVIEW............................................................................................... 11
2.1 Critical factors for successful ERP implementation.......................................................................................11
2.2 ERP system selection:.................................................................................................................................. 12
2.4 Cost & Payback Period of ERP implementation:...........................................................................................15
2.5 Benefits of ERP implementation:................................................................................................................. 16
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2.6 Research Gap.............................................................................................................................................. 16
CHAPTER-3 DATA COLLECTION.................................................................................................... 17
3.1 SAP AT JAI HIND PROJECTS, INDIA........................................................................................ 17
3.1.1 What Was The Problem?.......................................................................................................................... 18
3.1.3.4 Total Cost of Ownership:...........................................................................................................................21
3.1.4 Current Information System:.................................................................................................................... 22
3.2 JMC PROJECTS INDIA LTD........................................................................................................ 23
3.2.1 Company History:..................................................................................................................................... 23
3.2.2 Problem & Solution.................................................................................................................................. 24
3.2.3 Current Information System..................................................................................................................... 24
CHAPTER-4 DATA ANALYSIS.......................................................................................................... 26
4.1 ERP Pre Implementation Parameters........................................................................................................... 26
4.2 ERP Pre Implementation Process Charts.......................................................................................................29
4.3 Various Types of Functional Modules of ERP Software:................................................................................31
4.3.1 ERP Production Planning Module.................................................................................................................31
4.3.3 ERP Market in Module..................................................................................................................................31
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4.3.4 ERP Inventory Control Module.....................................................................................................................31
4.4.1 The Big Bang.................................................................................................................................................33
4.6 Total Cost of Ownership:............................................................................................................................. 35
4.6.1 Costs of Software.........................................................................................................................................35
4.6.2 Costs of Hardware........................................................................................................................................35
4.6.3 Costs of Professional Services......................................................................................................................35
4.7 Causes of ERP Failure:.................................................................................................................................. 37
4.7.1 Failure of ERP Software Implementation......................................................................................................37
4.7.2 Failure of Accommodating Evolution of Business Processes........................................................................37
4.7.3 Failure of User Acceptance...........................................................................................................................38
4.8 Most Common Ways of Successfully implementation of ERP:.......................................................................38
4.8.1 Critical stakeholders to accept or get involved with the implementation...................................................38
4.8.2. Adequate user input....................................................................................................................................38
4.8.3. Specifications and change control procedures to be properly defined.......................................................39
4.8.4. Expectations to be realistic and defined......................................................................................................39
4.8.5. The presence of an outside consultant........................................................................................................40
4.8.6. Good Communication.................................................................................................................................40
4.8.7 The implementation methodology should be clear and tested....................................................................40
Research Papers:............................................................................................................................................... 43
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ACKNOWLEDGEMENT
I would like to thank Mrs. Jyoti Trivedi, Faculty of Technology, CEPT University, Ahmedabad
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. Mahendra Patel, IT Head, JMC India Pvt Ltd. & Mr. Keyur
Shah, 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.
Hemal S Shah
CP1908
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CERTIFICATE
This is to certify that the Comprehensive Report on the “Application of ERP In Construction
Industry (Pre Implementation Phase)”, carried out by Hemal Shah (CP1908), towards the partial
fulfillment of the requirements for the degree of M.Tech in Construction & Project Management
of CEPT University, Ahmedabad, 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. Jyoti Trivedi
Lecturer,
CEPT University,
Ahmedabad.
_________________________________
_____________________________
Report Examined By
` Examiner
Examiner
Date of Examination
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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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Table-1 Evolution of ERP
Timeline System Description
1960s Inventory Management & Control
Inventory Management and control is the combination of information technology and business processes of maintaining 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.
1970s Material Requirement Planning (MRP)
Materials Requirement Planning (MRP) utilizes software applications for scheduling production processes. MRP generates 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 Requirements Planning or MRP utilizes software applications for coordinating manufacturing processes, from product planning, parts purchasing, inventory control to product distribution.
1990s Enterprise Resource Planning (ERP)
Enterprise Resource Planning or ERP uses multi-module application software for improving the performance of the internal business processes.ERP systems often integrates business activities across functional departments, from product planning, parts purchasing, inventory controlto product distribution.
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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
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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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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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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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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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.
• Use intra-project teams and intra- and inter industry networking for technology transfer.
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• 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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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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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