INSTITUTE OF MANAGEMENT TECHNOLOGY

GHAZIABAD

Management Information
Systems

ISSUES RELATING TO IMPLEMETION OF ERP IN

MANUFACTURING SME’s

By:
09 HR-005 Ankita Bhargava
09HR-007 Avishek Dasgupta
09HR-011 Megha Latawa
09IT-017 Mhmd. Omer Saber
09IT-030 Yogesh Thakur
09IT-032 Komal Agarwal
 Table of Contents

Table of Contents....................................................................................................... 2

Summary.................................................................................................................... 4

Objectives............................................................................................................... 4

Results.................................................................................................................... 4

Conclusion............................................................................................................... 4

Introduction................................................................................................................ 5

Problem Identification................................................................................................ 7

Question.................................................................................................................. 7

Objectives............................................................................................................... 7

Theoretical Framework ..............................................................................................7

Hypothesis Formulation..............................................................................................8

Data Collection........................................................................................................... 9

Methodology............................................................................................................... 9

Identified Factors and Issues......................................................................................9

Data Interpretation and Analysis..............................................................................10

Chaudhary Hammers Works Ltd. ..........................................................................10

Issues faced ...................................................................................................... 10

Hindustan Pencils Ltd. ..........................................................................................10

Issues faced ...................................................................................................... 10

Paras Vanaspati (P) Ltd. .......................................................................................11

Issues faced ...................................................................................................... 11

 Comparison across organizations..........................................................................12

Managers Perspective...........................................................................................17

Technical Personnel Perspective...........................................................................17

Comparison between Managers and Techies perspective.....................................18

Grouping of Factors...............................................................................................18

Overall Analysis.....................................................................................................20

Key findings from interview..................................................................................21

Limitations............................................................................................................ 21

Conclusion and Recommendation........................................................................21

................................................................................................................................. 21

Questionnaire.......................................................................................................... 22
Summary

Objectives
 To find CRITICAL FACTORS taken into consideration by top management while
implementing ERP in manufacturing SMEs.
 To find the CRITICAL ISSUES FACED by managers and technical staff after
implementing ERP in manufacturing SMEs.

Results
 Cost factors hinder the decision of an organization to implement ERP. (Cost factor
includes cost of ERP package, Redesign and re-engineering, and time of implementation)
 Employee factors significantly affect the decision of an organization to implement ERP.
 Technological factors play an important role in decision to adopt ERP.

Conclusion
 Vendors of ERP should come up with more customized version of ERP to suit the
specific needs of SME’s.
 Affordability is not a major concern with organizations having turnover more than 100
Crore. But Paras Vanaspati(P) Ltd. is having some affordability issues.
 Training of Employees and Resistance to change showing different trends as no. of
employees in an organization rises.
Introduction
Business houses always find great difficulty in quickly making out the required
information because of the voluminous data, improper segregation, departmental arrangements
and unprecedented delays. The inconvenience was not only eating out the monetary profits but
also antagonized customers who were made to wait for a long time for a small piece of data.
Enterprise Resource Planning or ERP as it is shortly referred has come to overcome this menace.
ERP helps to integrate the data in an organization under one common platform. The purpose
behind this is not only to ensure transparency but also to facilitate tracking down information
regarding the status of a particular order or its dispatch and so on. An organization has to do
meticulous planning, devise strategies before going ahead with ERP. ERP can cut down costs;
improve the quality of working time by and large. In short it helps in making the maximum use
of technological advancements. These are crucial factors deserving attention when it comes to
ERP. Meticulous planning will definitely help to achieve ERP benefit. Companies have to be
vigilant enough more so when it comes to the question of choosing the appropriate platforms and
ERP soft wares. This issue becomes crucial when it comes to the point of corporate
amalgamation.
Small and medium enterprises (also SMEs, small and medium businesses, SMBs, and
variations thereof) are companies whose headcount or turnover falls below certain limits. The
small scale sector in India contributes directly to 35% of the total exports from the country. It is
estimated that another 15% of the exports are indirectly contributed by this sector. Some of the
major items of exports, e.g., 'Hosiery and Garments', 'Leather and leather products', Textiles,
’Diamonds, Gems and Jewelry'. it is conservatively estimated that the SMEs contribute to
approximately 60 % of the Indian manufacturing exports The high potential items would mean
better international market prospects and where the Indian firms are likely to enjoy comparative
advantages due to skills, raw material resources or low labor costs etc. The impression gained
during discussions with experts is that productivity in Indian SMEs leaves a high scope for
improvement especially when compared to international standards. Some of the reasons that
have been attributed to low productivity are the use of traditional tools, old techniques and
outdated technology, poor labor productivity and bottlenecks of infrastructure in some of the
product lines. Enterprise Resource Planning is the answer to all these difficulties faced by the
SMEs.
The main problem faced by S.M.E.'S when it comes to ERP is that their requirement is
limited while the product offered exceeds their specifications in all ways. The gap between these
two needs to be analyzed by the companies and S.M.E.'s. The company and the vendor should sit
together and analyze the pros and cons of every possibility to match their requirements. Both of
them should make compromises as and where possible. These adjustments even though may
seem to be smaller will have greater impact when it comes to the structuring of software
programs. This paper is an attempt to find out the various issues faced by small and medium
organizations in present day or in future when they implement ERP systems.
Literature Review
The manufacturing sector is in the surge around the globe. SMEs are growing at a very
fast pace. Core competency, innovation, adaptation are the core essence of success for them.
With the advent of IT & IS, information and data processing and analyzing has attained a new
dimension. With the growing popularity & necessity of IT & IS in industries, ERP systems are
now being implemented in manufacturing SMEs at an increasing rate.
Forecasts indicated that this trend will continue for a long time (Everdingen et al, 2000).
The information system costs are falling (Gable and Stewart, 1999) due to which more SMEs are
attracted towards the ERP system adoption. The potential benefits of ERP system have been
found to be significant (Shang and Seddon, 2000).The adoption of ERP has received less
attention from researchers (Premkumar, 2003). Mostly the researches on ERP have been based
on big businesses but these research findings cannot be employed for SMEs due to their different
nature and characteristics ( Blili and Raymond, 1993).
In this paper we present practical and analytical framework of implementation issues of
ERP system in manufacturing SMEs in India. Our findings are based on generalizations and real
life scenarios from the industry.
Problem Identification
Question
 What are the important factors considered by top management while taking the decision
to implement ERP and what are the issues faced by managers and technical staff after
implementation of ERP in manufacturing SMEs.

Objectives
 To find CRITICAL FACTORS taken into consideration by top management while
implementing ERP in manufacturing SMEs.
 To find the CRITICAL ISSUES FACED by managers and technical staff after
implementing ERP in manufacturing SMEs.

Theoretical Framework
The decision to adopt an ERP system is taken by the top management of any
organization. The most important area is the implementation of ERP systems in any
organization. It is important for an organization to ascertain whether the ERP system fits the
company’s processes. In some cases the business processes are changed to fit the software with
minimal changes. This is generally the case with the SMEs. In case of larger organizations, they
rather prefer to modify the software to fit their complex business processes. The number of
manufacturing units adds to the number of problems faced during the implementation of the
project. A major roadblock in implementing ERP system is the people of an organization. It is
generally observed that people are reluctant to change and ERP leads to complete makeover of a
company in many cases. So the more the people are willing to learn new technologies, adapt to
new automated processes, the easier is the implementation of the ERP system. The production
module depends on the different types of products being made by a company. The more the
number, more are the raw materials required and accordingly the scheduler, the supply chain
module gets complex. Based on these factors a diagrammatical representation of our problem at
hand can be depicted as follows:
 TURNOVER OF THE COMPANY

PRESENT INFRASTRUCTURE

CHANGE IN PROCESSES
EXPECTED

TOP MANAGEMENT

PRESENCE IN DIFFERERNT IMPLEMENTATION

GEOGRAPHIES
OF ERP

PRESENCE IN DIFFERENT CITIES

CLARITY IN ORGANISATIONAL DEPENDENT

REQUIREMENT VARIABLE

WILLINGNESS TO
EMPLOYEES
CHANGE

INTERVENING
INDEPENDENT VARIABLE
VARIABLES
TRAINING

MODERATING
VARIABLE

Hypothesis Formulation
The above discussed variables lead to the formulation of the following hypothesis:

 Cost factors hinder the decision of an organization to implement ERP. (Cost factor
includes cost of ERP package, redesign and re-engineering and time of implementation)
 Employee factors significantly affect the decision of an organization to implement ERP.
 Technological factors play an important role in decision to adopt ERP.
Data Collection
We chose to do Convenience & Snowball Sampling with two visits to Chaudhary
hammers works Ltd. The survey was conducted through questionnaire. We mailed the
questionnaires to HPL and Paras Vanaspati (P) Ltd. We had some questionnaires filled by
telephonic interview. Respondents were asked to fill their position in the organization and rate
the issues while ERP implementation on a scale of 1-7.

Methodology
We conducted the survey in three organizations namely Chaudhary hammers works Ltd,
HPL and Paras Vanaspati (P) Ltd. First we studied the three organizations individually. We
applied factor analysis and found out the important factors. Then we segregated the data into two
parts:
 Questionnaires from managers
 Questionnaires from technical staff
Then we applied factor analysis and found out the different opinions hold by managers and
technical staff. We also applied factor analysis on overall questionnaires to find out the
important factors considered by the industry as a whole.

Identified Factors and Issues

 Time of implementation
 Affordability
 Competitive Advantage
 Resistance to Change
 Customized Package
 Re-engineering
 IT Infrastructure
 Training
 Data Conversion
 Maintenance
 Updating the ERP
 Timely Expert Advice
 Attrition Rate
 Complexity
 Company Policies
Data Interpretation and Analysis
Chaudhary Hammers Works Ltd.
It’s a manufacturing industry located in Ghaziabad producing flanges having employee strength
is more than 500. Their turnover for the financial year 2007 -2008 was Rs 104 Crore. ERP was
implemented in the year 1999 but they could fully integrate all departments in the year 2005
only.
Issues faced
 Software related issue that includes Customized Package, IT Infrastructure, Maintenance
of the software and updating the ERP modules. Most organizations discover how
compatible the new ERP is with their existing systems and processes when the turn on
the new system. When it is discovered that the ERP differs from the system it is replacing
the organization is faced with possibility of customization or tailoring the ERP. There are
three basic choices to
o Modify the ERP to match the organizational processes and/or data structures;
o Modify the organizational processes and/or data structures to match the ERP
o Perform some of choice 1 and choice 2; or
o Most organizations approach the customization/tailoring decision without proper
Information required reaching a good decision.

 Employee related issues that include resistance to change and training of Employees.
Training is the most underestimated budget item because knowledge workers almost
invariably have to learn a new set of processes, not just a new software interface. Staffing
the project with the best and brightest is required because the software is complex and the
business changes dramatic. Huddle with HR early on to develop a retention bonus
program and create new salary strata for ERP veterans.

Hindustan Pencils Ltd.

It’s a manufacturing industry located in Mumbai producing stationary products having employee
strength greater than 500. Their turnover for the financial year 2007 -2008 was Rs 300 Crore
approximately. ERP is fully implemented in the organization.

Issues faced
 Software related issue that includes Customized Package, IT Infrastructure, Maintenance
of the software and updating the ERP modules. Most organizations discover how
compatible the new ERP is with their existing systems and processes when the turn on
the new system. When it is discovered that the ERP differs from the system it is replacing
the organization is faced with possibility of customization or tailoring the ERP. There are
three basic choices to
o Modify the ERP to match the organizational processes and/or data structures;
o Modify the organizational processes and/or data structures to match the ERP
o Perform some of choice 1 and choice 2; or
o Most organizations approach the customization/tailoring decision without proper
 Information required reaching a good decision.

 Competitive edge is one of the most important factors why the managers of HPL went for
ERP. As the size of the organization grows, it becomes more difficult to manage the
process and to get an advantage organization has to integrate each of its department so
that flow of information is smooth all across the organization.

Paras Vanaspati (P) Ltd.

It’s an oil manufacturing industry located in Raipur producing having employee strength
between 50 than 100. Their turnover for the financial year 2007 -2008 was between Rs 50 Crore
to Rs 100 Crore. ERP is not implemented in the organization.

Issues faced
 Cost of the software package and the cost of maintaining the software is the main
concern for Paras Vanaspati (P) Ltd. This can be justified by the scale of the industry.

 Software related issue that includes Customized Package, IT Infrastructure, Maintenance

of the software and updating the ERP modules. Most organizations discover how
compatible the new ERP is with their existing systems and processes when the turn on
the new system. When it is discovered that the ERP differs from the system it is replacing
the organization is faced with possibility of customization or tailoring the ERP. There are
three basic choices to
o Modify the ERP to match the organizational processes and/or data structures;
o Modify the organizational processes and/or data structures to match the ERP
o Perform some of choice 1 and choice 2; or
o Most organizations approach the customization/tailoring decision without proper
Information required reaching a good decision.

 Resistance to change is a lone factor which consist almost 10% importance. There are
only 50 to 100 employees in the organization who are overlooking the benefits of the
software and are reluctant to use the new technology.
Comparison across organizations

 Organization with lowest Headcount is showing more resistance to change.

 Need for training rises as the Headcount of an organization rises.
 Affordability issues are fiercer in case of Paras Vanaspati (P) Ltd.
 People with more experience consider competitive advantage an important factor to
implement ERP
 People tend to exit more with more experience. Paras Vanaspati (P) Ltd. being an
exception, because no ERP has been implemented there as yet.
Managers Perspective
The factors considered important by Managers:

 Managers give more importance to the cost factor that is related with ERP. Cost that
includes Initial package cost, Re-engineering & Re-designing cost. Managers are more
concern about return on investment while taking the decision to implement ERP.

 Managers are concerned about the competitive advantage; software will bring to their
organization. They are also worried about the attrition rate after ERP as the implementers
are too valuable. Because they have worked intimately with ERP, organizations can't
afford to send their project people back into the business because there's so much to do
after the ERP software is installed.

 One more concern of the managers is the time software takes to get implemented across
the organization integrating all the departments. The return-on-investment for most
organizations runs to almost three years. A recent Meta Group study indicated the
median annual savings from the new ERP average $1.6 million/annually on (roughly)
$30 million dollar investment one year after implementation is completed. And a Deloitte
survey of Fortune 500 companies found one in four suffering a drop in performance
when their ERP system went live and ERP data must be combined with external data for
analysis purposes and organizations are likely to underestimate the size and cost of the
conversion process.

Technical Personnel Perspective

 Software related issue that includes Customized Package, IT Infrastructure, Maintenance
of the software and updating the ERP modules. Most organizations discover how
compatible the new ERP is with their existing systems and processes when the turn on
the new system. When it is discovered that the ERP differs from the system it is replacing
the organization is faced with possibility of customization or tailoring the ERP. There are
three basic choices to
o Modify the ERP to match the organizational processes and/or data structures;
o Modify the organizational processes and/or data structures to match the ERP
o Perform some of choice 1 and choice 2; or
o Most organizations approach the customization/tailoring decision without proper
Information required reaching a good decision.
Comparison between Managers and Techies perspective

 Techies are more concerned about the software being customized according to their
needs where as Managers gives more weightage to the affordability of the software
package.

Grouping of Factors
From the result of Factor analysis, we find that there are five components into which we can
divide the various factors under consideration. The components are listed below:

1. Company Dynamics: It consists of factors which are company-specific, and differ from
company to company, both within and across industry. They include:

a. Competitive advantage: How much the company perceives itself as having an

edge over its competitors by implementing ERP.
 b. Customized package: The amount by which the ERP package needs to be
customized depends upon the processes followed by each company.

c. IT infrastructure: The extent to which IT is employed within a company depends

upon the company requirements, and also on the amount by which its various
processes are automated.

d. Training: The extent to which the employees need to be trained depends upon the
intellect and understanding level of the employees that are recruited by a
company, which in turn depends on company’s requirements.

e. Maintenance: The amount of maintenance required by an ERP installed in a

company depends on the company usage of the ERP.

f. Updating of ERP: This depends on the better versions of modules developed by

the vendor on the basis of problems reported by the company on its previous
versions.

g. Timely expert advice: This depends on the availability of good consultants, both
internal as well as external.

h. Attrition rate: This happens when the employees start leaving the company in
search of other lucrative offers after they have gained good knowledge in the ERP
domain, after training and subsequent working on the ERP modules within the
company.

i. Company policies: These are indeed company specific, as the name suggests.

2. Affordability: As stated earlier, it depends on a company’s revenue as well as the

disruption in normal activities while ERP gets implemented and the time employees take
to adapt to the ERP implementation.

3. Complexity: Different organizations have different business processes, which have

various sub-processes. Generally, the organizations don’t follow standardized
procedures, as it may be costly in most of the cases. Hence, their processes become quite
complex, and it becomes difficult for them to adapt to the ERP modules, which follow
very standard business processes.

4. Re-engineering: It represents the process of modifying the business processes to adapt to

the ERP modules implemented in the organization.

5. Resistance to change: It is a phenomenon displayed by the employees of a company

who are either very experienced or quite old. They get habituated to working in a
 particular way, and it becomes difficult for them to adapt with the changes that ERP
brings along. This is because ERP doesn’t allow for short-cuts, and everyone has to
follow a specific procedure without being able to take any short cuts.

Overall Analysis
Considering all three organizations we got the following important factors:

 Affordability is a major concern which consist almost 10% importance while taking the
decision to implement ERP.

 Time of implementation is another concern consisting 9% importance. The time period

in which ERP starts giving returns is very high.

 Software related issues like customization of the software, updating the ERP modules,
Maintenance is a major issue faced after implementation of ERP. Customization of the
ERP happens when it can't support one or more of your business processes and you
decide to make it do what you want. You'll have to do it all over again in the new
version.

 Resistance to change is contributing 7% as an issue faced after implementation of ERP.

People are reluctant to shift to a new technology and are afraid of being down sized.
Key findings from interview
 Flexibility (CHWL): Flexibility of the process is hampered because of ERP. For e.g. Let
suppose a payment is delayed from an esteemed customer but the organization don’t
want to put the status of the payment as default because of good relations with the
customer. This cannot be done with ERP.
 Modification (Hindustan Pencils): Permission needs to be taken before modifying any
sort of data. Data once entered and submitted cannot be changed without the permission
of system administrator. In case of any mistake by the users of ERP will result in waste
of quite a lot of time.

Limitations
Our study was limited to three organizations only. This might not present the overall
picture of the manufacturing SMEs. We had personal contacts in two out of three organizations.
These might give biased responses to our questionnaire.

Conclusion and Recommendation

 Understand your existing environment in terms of organizational strengths and
weaknesses.
 Objectively assess individual ERP solutions in terms of their fit with your organizational
practices.
 Assess various software versus procedural change options, as you try to respond to
identified gaps.
 Really understand the logical and physical data structures and their corresponding
accessibility.
 Cleanse and otherwise prepare your date for conversion to the ERP.
 Speed up interface development based on our knowledge of the system metadata.
 Lower costs associated with ERP planning, implementation, project management, and
conversion.
Questionnaire

1. Name……………………..

2. Sector in which the company is working..............................

3. Years spent in this organization................................

4. Years spent in this industry respectively................................

5. Position held in the current organization:

o Technical

o Managerial

6. Approximate head count in the organization:

o 100

o Less than 100

o 100-500

7. Turn-over of the organization

o Less than Rs. 10 crores

o Rs. 10-50 crores

o Rs. 50-100 crores

o More than Rs. 100 crores

8. Status of ERP in your current organization

o No ERP implemented

o Partially implemented

o Completely implemented

9. If, NO ERP IMPLEMENTED, have you ever considered implementing ERP

o Yes

o No.

10. If NOT CONSIDERED, the reasons are

o unaware

o unnecessary

11. If considered, the major challenges for implementation were

o Cost issue

o Administrative issue

o Employee issue

o Time period issue

o Infrastructural issue

o If others, please
specify ...................................................................................................................................
.......................................................................................................

12. If, partially implemented, what other modules do you intend to implement

o Manufacturing

o HR ( Human Resources)

o Finance

o SCM (Supply chain management)

o CRM ( Customer relationship management)

13. How much budget are you ready to set aside for ERP implementation?

o Less than Rs. 2.5 crores

o Rs. 2.5-7.5 crores

o Rs. 7.5-12.5 crores

o Rs. 12.5- 17.5 crores

o Rs. 17.5 – 25 crores

o More than Rs. 25 crores

14. How much time can you devote for training of employees?

o 1 hour per week

o 2 hour per week

o more than 2 hour per week

15. If ERP IMPLEMENTED, do you know any competitor who has implemented ERP?

o Yes

o No
 16. Please rate the following issues on a scale of 1-7, you think are more significant while
implementing ERP:

1: least important 7: most important

Time for implementation_______________

Cost (affordability) ___________________

Competitive advantage________________

Resistance to change of employee _______

Customized package __________________

Re-engineering & Re-designing costs _____

IT infrastructure ______________________

Training of employee __________________

Data Conversion ______________________

Maintenance and after-sale service ________

Updation of modules of ERP ____________

Timely expert advice ___________________

Attrition rate after training ______________

Complexity of system __________________

Company policies _____________________-