AN EFFECTIVE IMPLEMENTATION OF AN ERP SYSTEM WITH AN ASSESMENT IN A TURKISH FIRM

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1 AN EFFECTIVE IMPLEMENTATION OF AN ERP SYSTEM WITH AN ASSESMENT IN A TURKISH FIRM Zeki Ayag 1, Rifat Gürcan Özdemir 2 and Bahar Yelken 3 Abstract In the light of both fast-growing achievements and advantages of ERP systems in the world, most firms in TURKEY have been forced to implement it to stay competitive in the national and international markets. But, at the implementation stage of these systems, they have met many critical problems (i.e. lacking of a capable implementation strategy and knowledge of implementation issues and so on). Therefore, this paper presents a research on how an effective implementation of an ERP system can be realized under the above-mentioned problems together with an assessment done in a Turkish firm, BEKO A.S. In this study, firstly, we present a review of implementation applications that have been previously done in literature. Secondly, we make an assessment for the SAP R/3 implementation study in BEKO A.S., and analyze its relevant activities in detail to capture a strategy for an effective implementation of ERP systems, which will be then referenced to other firms in TURKEY. Keywords Electronic device manufacturing, ERP, implementation issues, SAP, supply chain management. 1. INTRODUCTION ERP is the acronym for Enterprise Resource Planning. It is a new information system that was developed in the 1990s as a result of the various business decision support systems incorporated in to the Manufacturing Resource Planning (MRP II) system [1]. Enterprise Resource Planning is defined as: An enterprise-wide set of management tools that balances demand and supply, containing the ability to link customers and suppliers into a complete supply chain, employing proven business processes for decision-making, and providing high degrees of cross-functional integration among sales, marketing, manufacturing, operations, logistics, purchasing, finance, new product development, and human resources, thereby enabling people to run their business with high levels of customer service and productivity, and simultaneously lower costs and inventories; and providing the foundation for effective e-commerce [2]. In similar fashion, in [1], the authors defined ERP as a system of integrated procedure, rules and algorithms designed to function consistently time and time again. However, different people may interpret ERP differently, but the key point in an ERP system is integration. The purpose of ERP is to create a single computer system that can perform all of the functions of every department within an organization by linking all of the departments into one single database. With the integration of a single database, it enables everyone within different functional areas to share the same information as well as communicate with one another. To further explore the topic of ERP, it would be wise to look at the evolution of ERP. According to the authors [2], the evolution of ERP dates back to the 1960s, when the Material Requirements Planning (MRP) was first developed. The MRP covered what is called the universal manufacturing equation. The equation included the following four questions; (i) what are we going to make? (ii) What does it take to make it? (iii) What do we have? (iv) What do we have to get? After the development of the MRP was the development of the Closed-Loop MRP. The closed-loop MRP was a series of functions supporting both planning and execution as well as providing tools for addressing priority and capacity. Manufacturing Resource Planning (MRP II) was the next development, which was an extension of 1 Zeki Ayag, Kadir Has University, Faculty of Engineering, Industrial Engineering Department, Cibali campus, Cibali, Istanbul, Turkiye, ayag@khas.edu.tr 2 Rifat Gürcan Özdemir, Istanbul Kültür University, Faculty of Engineering and Architecture, Industrial Engineering Department, Bakirköy, Istanbul, Turkiye, rg.ozdemir@iku.edu.tr 2 Bahar Yelken, Istanbul Kültür University, Faculty of Engineering and Architecture, Industrial Engineering Department, Bakirköy, Istanbul, Turkiye, baharyelken@yahoo.com 1

2 the closed-loop MRP. The MRP II provided three new functions including Sales and Operations Planning, Financial Interface, and Simulation. Finally, Enterprise Resource Planning (ERP) emerged from MRP II, which out performs MRP II capabilities and much more (table 1). Table 1.Historical evolution of ERP systems Types of Systems Time Purpose Systems Reorder point systems 1960s Used historical data to forecast future inventory demand; when an item falls below a predetermined level, additional inventory is ordered. Material requirement planning (MRP) systems Manufacturing resource planning (MRP II) systems MRP II with manufacturing execution (MES) systems ERP systems 1970s 1980s 1990s Late 1990s and onward Offered a demand-based approach for planning manufacture of products and ordering inventory. Added capacity planning; could schedule and the monitor the execution of production plans. Provide ability to adapt production schedules to meet customer needs; provide additional feedback with respect to shop floor activities Integrate manufacturing with supply chain processes across the firm; designed to integrate the firm s business processes to create a seamless information flow from suppliers, through manufacturing, to distribution to the customer. Designed to manage high-volume production of a few products, with constant demand; focus on cost. Focus on marketing; emphasis on greater production integration and planning. Focus on quality; manufacturing strategy focused on process control, reduced overhead costs, and detailed cost reporting. Focus on the ability to create and adapt new products and services on a timely basis to meet customers specific needs. Integrates supplier, manufacturing, and customer data throughout the supply chain. The reasons for acquiring an ERP system are; 1) to integrate financial information, 2) to integrate customer order information, 3) to standardize and speed up manufacturing processes, 4) to reduce inventory level, and 5) to standardize Human Resource information [3]. According to the authors [2], operating the business in a rapidly changing and highly competitive environment is the primary purpose of implementing an ERP system. There are five major benefits of ERP; 1. On-line/real time information throughout all the functional areas of an organization. 2. Data standardization and accuracy across the enterprise. 3. Best-practices or optimized solutions are included in the applications. 4. Creates efficiencies that organizations would not otherwise have. 5. The analysis and reporting that can be used for long-term planning Although implementing an ERP system may be costly and time-consuming, the benefits are worthwhile. With careful planning and selection of the right ERP system, a company may expect to gain significant benefits including dramatic increases in responsiveness, productivity, on-time shipments and sales, as well as decreases in lead times, purchase costs, quality problems, and inventories. In this study, we interest in the issue of implementation of ERP systems in an enterprise, because the ERP implementation has gained in popularity in recent years. Nowadays, the winds of globalization affected many companies to implement an ERP system in order to make their business activities faster, reliable thanks to integration of individual systems, previously separated. Furthermore, at the implementation stage of these systems, most companies have met many critical problems (i.e. lacking of a capable implementation strategy and knowledge of implementation issues and so on). Therefore, this paper aims to reveal some suggestions of how an effective ERP system should be implemented by presenting a case study realized in a Turkish firm, BEKO A.S. 2

3 2. CRITICAL ISSUES IN A SUCCESSFUL ERP IMPLEMENTATION In their study of firms that have implemented ERP systems, in [4], the authors described the firms implementation experiences, determined the business return from ERP and determined what factors influenced these experiences and returns. Their sample included firms ranging from large-sized firms with annual revenues of more than $5 billions with more than 20,000 employees to smaller firms with revenues with less than $ 500 millions annually and fewer than 20,000 employees. The overall data suggest that the firms felt they achieved more than 65% of the expected business case targets. The firms which were able to implement ERP either under budget or on-budget attained a greater proportion by 11% of the planned business case than the overbudget firms. Although the response data showed that 70% of the firms felt their ERP system was a successful project, the majority of firms, 55.5% indicated that the actual ERP system implementation cost exceeded the original estimated budget by an average of 60.6%. The range of experiences included a low of 10% to a high of 200%. Certain factors influence whether firms are under/on budget or overbudget for implementation. First, underbudget or on-budget firms make fewer modifications than the overbudget firms. According to their survey data, these modifications contribute to a 50% increase in project duration. In addition, under-budget or onbudget firms establish greater authority for project implementation and implement more effective communications. Finally, the under-budget and on-budget firms manage their ERP implementations better, and they manage their businesses better. This enables them to generate additional revenues to cover the cost of ERP implementation [4]. Generally, ERP projects bring about a set of the questions, some of which are summarized as follows; 1. What technology changes (i.e. hardware, software and networking) are encountered in implementing an enterprise-wide information management system? 2. What organizational changes (impact on business processes) are addressed? 3. What people changes (i.e. recruitment, training, retraining and retaining) are encountered? 4. What challenges are associated with project size and scope? 5. What are the strategies for minimizing the risks associated with the technology, organization, people and size/scope? Given the high number of ERP systems that are described as unsuccessful, it is important to examine the reasons for this lack of success. Explanations for ERP projects which have less successful outcomes than expected have been drawn from a number of disciplines including project management, information systems, software development and risk management. In particular, widely documented techniques for improving ERP implementation include the use of critical success factors, risk factors and project management issues. There is much overlap in the discussions in these three areas, with critical success factors being documented as positive influences on success whereas risk factors are seen as the negative influences on success or as influences on failure. Overcoming risks at each stage of the project is a key focus of project management. Next, they are explained in detail Critical success factors (CSFs) Critical success factors were initially devised as a tool for identifying what organizations must do well in order to succeed and determining the information needs of top executives. In the 1970s and 80s, CSFs were defined as those key business activities which, if achieved, would ensure competitive marketplace performance for an organization. Because they are simple to understand, document and monitor, CSFs have become a useful tool is information systems analysis and research. Critical success factors have been identified and the benefits of their use have been documented in project management and software development and implementation [5-6] Risk factors Risk factors refer to the negative indicators which will presage ERP system implementation failure. Often the negative re-statement of a critical success factor (for example: a well-documented CSF is top management 3

4 support, and a well-recognized risk is viewed as lack of top management support), a risk is a potential problem which could threaten the success of a project or a negative outcome that has a known or estimated probability of occurrence, based on experience or some theory Project management A key issue for IS project management is tightening up project level control including an emphasis on clear project objectives and milestones, proper project planning, firm project requirements, well-documented processes, clear project roles and responsibilities, use of sound methodologies and tools. In summary, critical success factors, risk factors and project management issues, restated in terms of the CSFs, are detailed below; 1. Balanced team and best people full time. This includes an experienced project manager, a competent, full time team including sufficient business analysts, who are seconded from their normal duties for the period of the project and who have the correct skill mix to support the implementation. 2. Empowered decision makers refer to the ability of project team members to make quick decisions which will be supported by the organization. 3. Minimal customization or vanilla implementation refers to severely limiting the amount of customization to the vendor s off the shelf ERP product. Limiting customization ensures that vendor upgrades can be implemented with reduced organizational resource allocation and that the benefits of tried and tested best practice vendor programmed modules can be gained. 4. Sound project management principles including an approved project plan, known specifications and level of complexity clearly defined and understood goals and definition of smaller scope. 5. User involvement and change management. In an ERP system implementation the focus is very much on people, and in particular users, as well as on processes and technologies. Training with a focus on the new business processes, technical aspects of the system and end user needs is a key part of successful ERP system implementation. 6. Good fit of system to organizational environment. This refers to an organization s structural (centralized, decentralized, federal), cultural and political environment and its compatibility with the basic premises on which an ERP system is built (centralized data, consistent practice, shared procedures, established software user roles and authorities). These factors and risks are important at different phases of project development, from planning through to implementation stabilization and improvement and will vary in importance depending on the scope of the ERP system implementation including the number and complexity of the business modules to be implemented. Implementing a new ERP system does not always guarantee successful results. Very few ERP implementation projects will result in success the first time, while others will be total failures. According to the authors [1], the real reason ERP implementations fail is because employees resist the new ERP software rather than embrace it. Also, the success and failure of implementing a new ERP system does not depend on the quality of hardware and software of an ERP system, but rather in education and training. Success is achieved when organizations take the time to develop a training and education plan prior to beginning the ERP implementation. 3. IMPLEMENTATION STRATEGIES A quick review of ERP research revealed different strategies for implementing ERP successfully. One can classify these strategies into organizational, technical, and people strategies; Organizational strategies for promoting ERP implementation success include change strategy development and deployment, change management techniques, project management, organizational structure and resources, managerial style and ideology, communication and coordination, and IS function. Some of the technical strategies that have been proposed to determine ERP success include technical aspects of ERP installation, ERP complexity, adequacy of in-house technical expertise, and time and cost of implementation. Examples of people strategies include staff and management attitudes, involvement, and training. 4

5 Furthermore, in another point of view, there are some strategies that can be classified as follows; Pre-Implementation (planning) strategies; Incorporate the risk and quality management plans in the change management plan (table 2 shows the implementation strategies for ERP implementation). 1. Breakdown the project into natural phases or subsystems for modular planning and for development of cross-functional communications. 2. Consider a phase-based approach for gradual implementation rather than radical approach. 3. 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. 4. Prepare plans for the recruitment, selection, and training of the necessary personnel for the project team. Table 2 shows the implementation strategies for different kinds of enterprises Implementation strategies; Formulate a network for collecting user requirements and user feedback. 1. Set-up monitoring and feedback network for collecting control information at each stage of the implementation process. 2. Prepare to handle expected or unexpected crises and deviations from plans. 3. Provide a strong leadership with concerns for the welfare of people and resource commitment. 4. Provide a professionally stimulating work environment. 5. Obtain top management support for the project and plan for an adequately resourced and proficiently executed launch. 6. Promote client consultation and user participation and obtain approval from parties for what is being undertaken throughout the project. 7. Use pro-active communications to establish more realistic expectations about the technologies capabilities while communicating in tailored way to each division or unit. 8. Promote collaborative system development between users and developers. 9. Use multi-functional project teams to bring complementary capabilities together during the total life of the project. 10. Familiarize the staff about the incoming technology and train the people involve with the system. 11. Use intra-project teams and intra- and interindustry networking for technology transfer. 12. 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. 13. Propose possible ways for restructuring personnel and systems to accommodate the new technology including maximizing of system integration and interfacing. Post-implementation strategies; Post-implementation activities are critical for the acceptance (adoption) of ERP systems. Requirements of IT systems and structures tend to change continuously even after the completion of a project. Postproject evaluation strategy could be followed in measuring the effectiveness of an ERP system, where questions such as listed below could be used for further improvemen (table 3 shows the summary of responses for performance measures for ERP implementation); 1. whether the objectives of the ERP system were realized fully; 2. whether the scheme options were considered adequately; 3. whether the estimates and project information were accurate; 5

6 4. whether or not the agreed practices and techniques were complied with; 5. any other factors which are considered appropriate. Table 3 shows the summary of responses for performance measures for ERP implementations 3. AN ASSESMENT FOR EFFECTIVE ERP IMPLEMENTATION: A CASE STUDY IN BEKO A.S History BEKO A.S. was founded in As one of the largest electronics producers in Turkey, it covers a large area of 125,000 m2 in Istanbul. It serves to both the domestic and international markets and produces various types of television sets, cash registers, satellite receivers and personal computers and so on ERP software selection and pre-implementation In previous system, BEKO A.S. used some non-integrated software programs to satisfy the needs of departments separately. In other words, it had a distributed IT structure without sharing data via a common database. These systems were A-11 KOÇ Unisys, ORACLE based on Windows operating system, which include only material management and financial management database (DMS-2). For this purpose, they used COBOL programming language. Why SAP? The company management noticed that the previous system could not respond to present and future requirements of BEKO A.S., because the company has fast-growing national and international markets and wide range of product variations. Non-integrated software programs (every department has different kinds of programs), distributed IT structure, closed system architecture were not suitable anymore. A powerful tool was required to satisfy the needs and expectations of this fast-growing company. The advantages of SAP R/3 system especially developed for mid and large-sized companies had encouraged the management to use it. This ERP software developed by a German company, SAP AG is the best known and selling software in the world. In addition, the world competitors of the company in the same field had applied to this ERP package recently. Finally, BEKO A.S. decided to implement SAP R/3 4.6 C in the frame of its future developing and growth plans. The company has focused on increasing effectiveness of business processes and used a commonly shared single database and data controlling capability. They also aimed to achieve e-commerce capability of SAP R/3 system. Determine requirement of SAP implementation 1. Technology requirements: SAP R/ Hardware requirements: Client/Server structure, database size (the size of previous system has equal to twice size of SAP R/3 database). 6

7 3. Implementation requirements: BEKO A.S. made some interviews with many consultant firms. And they decided to work with; KOC System, Mebis, Lsys, Matrix for SAP implementation. 4. Data requirement and functionality: BEKO A.S. was analysed roughly. Special requirement and general requirements were determined to transfer to the consultants. First, a cross-functional team was set up from the employees working in each department of the company. The all works and activities were realized step-by-step by using a project plan, which especially prepared for BEKO A.S. SAP implementation using MicroSoft Project. The cost and risk analyses were made and offered to the company s top managers. Then, the SAP project was approved and supported by the top management. The inspection regularly done by the management has been very important for SAP implementation to finish the project on-time at the planned budget in BEKO A.S. The core modules were selected by depending on the current and future requirements of the company. Then, consultants were determined for each module to be firstly implemented. Key-user and end-user training were planned and realized. Implementation strategy As an implementation strategy, BEKO A.S. selected phase-in by module and size, because the company was running and meeting customer orders, as the implementation goes for each module respectively. General risks and solution advises (selected those) Risk: BEKO A.S. sound like typical information system project. And also, SAP is business process style. If, BEKO A.S. perceives this project like a typical software package implementation, this condition creates risk. Solution: Management support and inspection Risk: Sales department doesn t provide enough contribution, which is a trigger for the implementation study. Solution: Management support and inspection Risk: All processes are transmitted to the consultants exactly at the right time. Solution: Management support and inspection Risk: Users don t make process rightly at the right time in SAP R/3. Solution: Intensive training is given. The suggestions of key-users are taken into consideration. Risk: Parallel use of the systems during the transition period and later Solution: SAP R/3 is a base system, others are control systems. Risk: Maintenance of main data is done in-site. Solution: Controlling reports are prepared for lacking and faulty database Risk: Project team must be present during the transition period. Solution: Management support and inspection 3.3. SAP R/3 implementation steps Figure 1 shows the implementation steps of SAP R/3 in BEKO A.S. Next these steps are defined in detail. STEP-1 Project Preparation: Scoping and estimating, reviews of project plans and risk mitigation, rapid prototyping, a proven change management program, and overall project management were done by BEKO A.S. and consultant firms. Consultants were analyzed the previous system. Important issues were to be addressed at the beginning of the project as follows; Defining project goals and objectives Clarifying implementation scope Defining the implementation strategy Defining the overall project schedule and implementation sequence Establishing the project organization and steering committees Assigning resources to the project 7

8 Developing project management policies and procedures Microsoft Excel was used to manage the project instead of ASAP tool. Project administration/project definition: BEKO A.S. initially determined the project with consultant firms at the project preparation stage. And also, major administrative tasks such as the definition of project standards to be used during the entire project were defined. System landscape which allows the interaction and navigation into a related system landscape was defined for SAP implementation by the consultant firms. In addition, key-users, are member of cross-functional team were trained for SAP R/3. STEP-2 Business Blueprint; Figure 1.SAP R/3 implementation steps Process plan: Business processes, the steps of each process, business scenarios were analyzed. All specifications, conversions, interfaces, reports required were also analyzed and documented for a successful implementation. Other activities performed in this phase as follows; Refine the original project goals and objectives Define the baseline scope Refine the overall project schedule and implementation sequence Begin creation of development specifications Install the development system The scope of project was defined and core modules were selected based on the company s needs and expectations. One or more consultant visited to BEKO A.S based on the project plan for each module. Then, conceptual and detail design were constituted. So, business blueprint was constituted, which is documented in detail the scope of business scenarios, business processes and process steps of implementation project from a business and technical perspective. Content of business blueprint is a detailed model of business process that 8

9 describes process needs and points to appropriate solution. Detail design which is step-by-step process was constituted for the system architecture in BEKO A.S. Detail design comprises of GAP analysis as an encouragement module and foreign country bill, and document that identifies the gaps between how the business operates and its needs against what the package can/can't do. So, required report, crossing plan, customizing (SPRO+ additional new software) plan were prepared and designated. Business process design, a roboust system arthitecture, complete interface design and thorought feasibilty check were completed. STEP-3 Realization: System setup, implementation and solution reviews, implementation of interfaces, specific development, operations preparation, test scoping and procedures, and other technical consulting were provided in realization phase. Detail design was previously implemented on the system. Intensive adaptation was realized based on each module by consultants. Intensive adaptation process comprises configuration and customizing phase. During the configuration, the business requirements specified were configured in the business blueprint phase in the related system landscape. And also, software program and special application were written in ABAP, which was determined by GAP analysis. Integration of the other systems as TOTAL, MHR, YABIS, Kortek, and Bilin were also realized to develop SAP R/3 implementation. Integration programs were written for BEKO A.S. Test cases plans prepared were realized to make sure that the system works as expected. The developed system was tested with testing function which includes process, user, and sequence and integration tests. STEP-4 Final preparation: In this phase, integration testing, mass-rollout testing, data conversion, documentation and preparation were realized. In addition, end-users were trained based on a training schedule by consultant firms. STEP-5 Go-live and support: During the entire project, go-live was postponed twice due to the fact that sales group indicated some resistance. In spite of this resistance, BEKO A.S was passed to the phase, go-live by top management approval. The consultants have visited to the company for next 6 months since the date go-live started. The selected BEKO A.S. employees were trained for the required knowledge of the system to run without any problem Suggestions and advises rising from SAP R/3 implementation of BEKO A.S. 1. Top level management support and stability is important 2. Scope and border of the project are determined by the project team. 3. Although the project is finished, requirement of qualified personnel is considered. 4. Personnel are examined which introduce the required data to the system. 5. SAP are perceived as business project 6. Project provides many information to management for performance targets in each process 7. Team is especially set up for the project. Their daily works are purified. 8. Team claims to be responsible for financial side. 9. Key-user gets training for each module and supports to other personnel after go-live. 10. As is documentation is prepared perfectly. A well-prepared law agreement is done for the budget and so on. 11. Project are strived to be inside of standard SAP software. 12. Large part of company processes are taken into the scope (BEKO A.S.: 80%). 13. Strong IT team as SAP consultants is needed. 14. Strong BASIS staff is needed, which can be enabled outsource 15. SAP consultants are needed, which have has at least 2 project experiences in similar companies. 16. Consultant project manager is needed, which is strong, and has leadership soul. 9

10 17. Project manager must have power of making a decision when needed. 18. Top level management sponsor must be leader for success of the project. 19. Go-live tests are realized with high joining at expected time and quality. 20. Integration of side system is tested one more time. And user approval is taken. 21. Center of redundant server and disaster recovery are constituted at short time, which can be enabled outsource 22. Safe operating system and database are provided. 23. Access possibility is provided to only the project team from far points. 24. Separate project rooms are provided for both consultants and company project team, which are fully equipped. 25. Information meeting and documentations are prepared regularly. 26. Team is informed of a process change at once. 27. Passing process and possible problems are shared with company personnel at any level. 28. Entrance master data to the system is well-tested with user approval. 29. Key-users give any documented information to all users before go-live. 4. CONCLUSION The implementation of ERP systems have been important issue for companies for years. Because an ERP implementation is not ordinary software application, it requires high level of support of all personnel in a company. Because it changes the way of doing business using the state of art applications from ERP packages like SAP R/3. So, the ERP implementation also includes business re-engineering activities which enhance the way of doing work at any level of organization. Shortly, this is very critical issue, therefore, in this study; we present a review of implementation applications that have been previously done in literature. Secondly, we make an assessment for the SAP R/3 implementation study in BEKO A.S., and analyze its relevant activities in detail to capture a strategy for an effective implementation of ERP systems, which will be then referenced to other firms in TURKEY. REFERENCES [1] Kapp, K. M., Latham, W. F. and Ford-Latham, H. N., Integrated Learning for ERP Success: A Learning Requirements Planning Approach. The St. Lucie Press. New York. [2] Kremzar, M. H. and Wallace, T. F., ERP: Making It Happen: The Implementers Guide to Success With Enterprise Resource Planning. John Wiley & Sons, Inc. New York: [3] Koch, C., 2002, The ABCs of ERP, [4] Mabert, V.A., Soni A. and Venkataramanan, M.A., 2001., Enterprise resource planning: Common myths versus evolving reality, Business Horizons (May-June), [5] Parr, A.N., Shanks, G. and Darke, P., The Identification of Necessary Factors for Successful Implementation of ERP Systems in IT in Organizational Processes: Field Studies and Theoretical Reflections on the Future of Work, O.Ngwenyama, L. Introna, M. Myers and J. I. degross (eds.). IFIP. Kluwer Academic Publishers. [6] Holland, P., Light, B. and Gibson, N., 1999, A critical success factors model for enterprise resource planning implementation, Proceedings of the 7th European Conference on Information Systems, 1,