Branch and Process Solutions in ERP Systems

Petr Sodomka, Hana Klčová, Jiří Kříž Center for investigations into Information Systems (CVIS) Department of Informatics Faculty of Business and Management Brno University of Technology Kolejní 2906/4, 612 00 Brno petr.sodomka@cvis.cz; hana.klcova@cvis.cz; kriz@fbm.vutbr.cz Abstract: Branch and process solutions in ERP systems have recently asserted themselves ever more strongly, especially in implementation projects abroad. Applications of these solutions also begin to appear on the Czech market. However, there are many suppliers, especially domestic, who use them in the competition environment as a marketing tool not always supported by a high-standard product worth the name. The following article focuses on definitions of both categories, specification of the basic differences between them and presentation of a few typical examples from the Czech market environment. Key words: ERP system, branch solutions, process solutions, business processes, best practices, lean implementation Abstrakt: Oborová a procesní řešení v ERP systémech jsou stále silněji se prosazujícím fenoménem, zejména při implementačních projektech v zahraničí. Na českém trhu se jejich aplikace objevuje rovněž. Existuje však nemálo dodavatelů, především tuzemských, kteří je používají v rámci konkurenčního boje jako marketingový nástroj, za nímž ale velmi často nestojí kvalitní produkt hodný tohoto označení. Následující článek je zaměřen na charakteristiku obou kategorií, vysvětlení základních rozdílů a představení několika typických příkladů z prostředí českého trhu. Klíčová slova: ERP systém, oborové řešení, procesní řešení, podnikové procesy, nejlepší praktiky, štíhlá implementace 1. Introduction The Center for investigations into Information Systems has long focused on research into the Czech ERP application market, including research into and reviews of selected products and the respective branch or process solutions that may be incorporated in them. This research has been running since 2007 in the form of presentations and projective talks with developers, analysts, implementation project managers, product managers and professional advisors. The presentations and interviews have resulted in each case in a detailed product study. More of 20 of them have already been published. The following part of this research has been case studies of users of particular ERP solutions, also implemented in the form of projective talks. In the period 2005 2011 we have implemented more than 120 case studies in manufacturing plants, commercial establishments and service providers in the Czech Republic and Slovakia. Theoretical background for application of our research methodology was represented by monographs by Gill, Johnson [1] and Pavlica [2]. Theoretical starting points for SYSTÉMOVÁ INTEGRACE 1/2012 15

Petr Sodomka, Hana Klčová, Jiří Kříž assessment of ERP products and their applications by selected user organisations included extensive practical experience of the Center for investigations into Information Systems as well as long-term study of monographs by Professors Jiří Voříšek [3], Zdeněk Molnár [4] and Josef Basl [5] and foreign publications by T. H. Davenport [6], T. Stevens [7] and D. L. Olson [8,9]. Further root documents for assessment of critical factors of success and risks of implementation projects assessed in the context of the case studies included writings by K. Schwalbe [10], B. J. Carroll [11], F. A. Cummins [12], Vladimír Smejkal and Karel Rais [13]. 2. How to Correctly Define Branch and Process Solutions Typical branch or vertical solutions are usually prepared by manufacturers and their development partners on the basis of branch-specific requirements (such as requirements of the paper industry) or sub-branch requirements (such as requirements of cardboard manufacturing). They include predefined operations and functionalities of the system relating to the given activity area, further precised on the basis of client requirements. Such branch-specific solutions include extensive know-how gathered in the course of projects implemented in the past within the given branch and that is why they are very beneficial for the user organisation. They offer standard procedures of the given branch, best practices of implementation of plant-specific agendas (such as packaging management in food processing plants or technical preparation of production in basic mechanical engineering production and assembly), and easier and cheaper adaptations pursuant to client requirements. Process solution is a less frequent notion. A process solution usually focuses on details of a functionality of a particular process, or process set, such as discrete manufacturing, process manufacturing, asset management and critical asset management, controlled storage etc. such process solutions can be used in different branches of industry where the process in question is typical and its characteristics require specific procedures of automation and integration in the framework of the ERP system. Not every branch or process solution is developed on the basis of broad knowledge with the aim to prepare a predefined framework of standard procedures for further processing. Some producers of ERP systems make a branch solution on the basis of a single implementation and adaptation to order in a plant and then offer the same to other companies within the same branch of industry. Without long-term experience gathered by implementation of several projects for more different organisations or first-class entities in the branch thus a specific solution is born solely based on requirements of a particular client with a number of unresolved hidden pitfalls preventing its multiple successful implementations at other customers. Although such a solution can transfer certain knowledge of processes and procedures at a similar organisation it rarely represents a predefined standard on the basis of which the needed user-specific adaptations can be made easily and economically. Such a solution also hardly ever provides all relevant best practices: On the contrary it more often than not includes specific practices and procedures unfitting for other organisations, which the client sooner or later eliminates or inconveniently adapts to. Such solutions are too expensive and ineffective for other clients different from the one for whom the solution was originally developed. Serious suppliers call these solutions customer-specific, rather than branch-specific. 16 SYSTÉMOVÁ INTEGRACE 1/2012

3. Condition of the Czech ERP Market and Some Typical Examples Branch or process solutions incorrectly classified (created on the basis of a single client requirements) can mainly be expected from suppliers with lack of quality staff and knowledge base for development of standardised branch-specific functionalities. These suppliers often include local producers of ERP systems using branch-specific solutions as a marketing tool rather than as a real product carrier of standardisation, quick and non-expensive implementation. Problems are also encountered by global ERP producers. These producers can offer to their clients standards and best practices developed for the individual branches on the basis of projects and experience gathered by cooperation with many global enterprises. Obviously this need not be true for all suppliers, some struggling with very long vertical solution transfer times and others leaving too much freedom to their partners who then develop a customer-specific solution pretending to have developed a branch-wide solution. Certain small IT companies have however asserted themselves on the Czech market, finding a suitable market segment and preparing a branch solution for it on the basis of a global ERP system. These companies now spend most of their efforts by development and servicing of the selected branch. These specialists have conveniently diversified their services to the saturated Czech market thus becoming highly competitive not only in relation to suppliers of cheap universal systems but also in relation to producers giving preference to development of more branch solutions for a wider market segment. Other specialists, on the other hand, have developed a branch standard by long-term innovations of an originally singular product to order, but their standard is too specific to find a more universal application on the Czech market. What only makes sense then is to develop this product further for the particular customer and apply its selected best practices in other implementation projects. As follows from the above classification the Czech branch and process solution market is quite diversified. A couple of the most interesting solutions and their applications at particular user organisations are show below. 3.1 Specific Processes in Energy Distribution The few local ERP producers devoted to serious development of multiple branch solutions for a wide customer segment include the company Asseco Solutions, a Czech market leader in the class of organisations with 10 to 1,000 employees. A good example may be the Helios Green Energy, a branch solution for users of the most advanced ERP system offered by this company. The solution Helios Green Energy is designed for companies dealing in energy generation and distribution, including electricity, gas, heat and hot water. These organisations serve hundreds to thousands of customers, contracts or consumption points. That is why great emphasis is laid in the area of their management and operation on effectiveness of production, quality of supply and cost saving by increased effectiveness within the company. SYSTÉMOVÁ INTEGRACE 1/2012 17

Petr Sodomka, Hana Klčová, Jiří Kříž The branch solution Helios Green Energy was launched following 12 months development in 2010 as a product to be provided in the Czech Republic as well as in Slovakia. The product has developed and advanced since to accommodate new technologies, changing customer needs, market demand and legislative changes. Helios Green Energy offers branch standards in specialised modules for control of generation, distribution and sales of energies including related agendas such as contracts, requests for consumption, billing, consumption point passports etc. They also include tools for logging of meters, their locations, sources, consumption objects or points. An important part of the solution includes functions for the meter readings, measurement assessment, consumption planning for further periods, hardware administration including maintenance management and some other specialties. It is a branch solution supporting value-adding chains and support processes, mainly focusing on their streamlining, and integration to ERP, able to cover both legislative and operational areas. That is why the solution is currently used by some of the leading Czech and Slovak energy providers such as STEFE SK Group, Tepelné hospodářství Hradec Králové (Heat Management Company) or Humenská energetická spoločnosť (energy Management Company of Humenné). 3.2 Speed of Data Processing and Simple Control for Travel Bureaux Branch solutions are also used by smaller companies focused on provision of specific services for broad clientele (B2C). One of the most frequently used solutions applied by 29 organisations is ABRA Travel Bureaux. The branch solution mentioned above is designed for all companies selling travelrelated services. The system has been developed since 2009 on the basis of practical requirements including speed of demand processing, offer preparation and flexible reaction to client requirements. The application was therefore prepared with the aim to accelerate everyday activities of travel bureaux by their maximum automation within the applied information system. The principal functionalities of the solution include client record keeping, documentation of destinations and individual trips, data connections to various booking systems such as Amadeus or Swiss, online communication with remote branch offices, EDI and XML communication between subcontractors, meeting planning, processing of bank advices of card payments and group reminder issues. The system must also include managerial tools for economic data assessment, sales monitoring on the basis of various criteria, or automated reporting focused on receivables and liabilities, cash income and expenditures. ABRA Travel Bureaux is adapted for work from any place with internet connection. Security is guaranteed by a sophisticated system of definitions of rights of access to individual functionalities and documents. The branch solution described here has been used by travel bureaux of different sizes and specialisations including major market players such as Exim Tours or Asiana. 18 SYSTÉMOVÁ INTEGRACE 1/2012

3.3 Branch Solution for Professional Fire Brigades and Rescue Teams For more than eleven years all professional fire brigades and rescue organisations have worked with an information system by Vema. Successful cooperation of the two organisations started at the end of the year 2000, in the context of preparation of Czech firemen for complex reorganisation requiring unification of the existing systems in the area of human resource management, economy and logistics. The original intention of the Directorate General was to deploy SAP system in all fourteen regional fire corps. However, transition to this robust and large product within a couple of months was not realistic and so the Vema system was selected for temporary deployment of one year in all fourteen organisations. The Vema system had been found effective by most of the fire brigades in the past. Positive experience with variability and flexibility of the solution, precise processing of specific adaptations and favourable price caused that the Czech Fire Brigades and Rescue Teams decided to make the Vema system their permanent solution. All fourteen regional organisations have used the Wages module and accessory parts for communication with the Czech Social Security Administration. Thirteen of the organisations have also used the HR module for HR agenda management, Protective Means module for employee equipment control and Travel Orders for business trip planning. The only exception is represented by the Fire Brigade of the Capital City of Prague using another system for HR management. In the area of economic management and logistics all of the thirteen organisations have used virtually all applications supplied by Vema. Both in the HR area and in economy and logistics the fire brigades require implementation of multiple specifics in comparison to the other standard organisations. The HR system must follow the decision-making process, always beginning with the commander s order (for example in the case of recruiting, rank appointment, salary rise, sending to a recovery stay or transfer to another department). It is further necessary to distinguish between civil employees and officers. The system must be able to count on special salary components such as risk bonuses, rights to veteran or severance pay. Also summer leaves and sick leaves are treated differently. Vema has developed a specific application called HRH for the Directorate General. The HRH application keeps survey of all paid out wages and the necessary statistics (recruitment, employment terminations, training etc.). There is a unique application in the economic area for Outfit Parts for demand evidence and outfit part collections. The branch solution is used by 30 or more active users per region. Wages and HR matters are processed centrally by up to ten accountants depending on the corps size. Each region manages its own database with lean client access from every district or station. The individual databases keep record of 600 to 1,200 persons. The sophisticated solution by Vema with many specifics is difficult to adapt to other organisations. Despite that suitable further applications might include prison service or Police of the Czech Republic. SYSTÉMOVÁ INTEGRACE 1/2012 19

Petr Sodomka, Hana Klčová, Jiří Kříž 3.4 Global Standards with Lean Implementation The following system represents the opposite to the abovementioned local solutions. It is a global standard adapted to the conditions of companies doing business in the Czech Republic. This system can be deployed at more companies and in addition the solution makes use of the lean implementation methodology. The solution is question is SappyCar, designed for manufacturers and suppliers in automotive industry. SappyCar includes preset functions for typical processes of the industry and the so called lean implementation allowing for quick deployment with minimum adaptations. The company Aimtec prepared the solution on the basis of the SAP Business All-in- One product, making use of its extensive experience gathered within the branch and from many implementations of ERP SAP systems [14]. When deploying the SappyCar system Aimtec makes use of in-house implementation methodology (modified ASAP). Some parts of the methodology have been modified for minimisation of customer involvement during deployment and its limitation to mere checking of results where the client s own activity is not required. At the beginning of the implementation objectives and performance indicators are defined for the main areas such as procurement, manufacturing etc. with measurable real performance. A typical example of change of a standard procedure by Aimtec for the purpose of simplification and shortening of the implementation process is data preparation shift to the beginning of the project. A data preparation specialist (an experienced consultant with logistic and accounting experience) coordinates the individual specialists since the very beginning of the project implementation, arranging preparation of dials and data migration. The specialist is able to adapt the processes of product and material identification to client requirements with the help of standard procedures included in the product templates. A package created directly is SAP and guarding the individual steps is available for the whole process management. SappyCar can be deployed for a fixed price and within a fixed deadline not only for support processes but as a full value-creating chain including a bar code management system. Such projects are usually implemented within 6 months from the analytical work commencement. In the Czech Republic the SappyCar system has been successfully used for example by Plastkov Automotive or Lukov Plast. 3.5 Process Solution of Production to Order with Variant Configuration SAP Business All-in-One contains dozens of preset processes for cross-branch use. These process solutions can already be used within the basic product version. The following example describes a process scenario as a standard available to companies producing products in more variants representing a single configurable material. The system then performs gross planning of production and sales of predefined variants of the material. The system covers all workflows of the process, including client order processing for configurable material, manufacturing, delivery, billing, plant balance sheet and company valance sheet. 20 SYSTÉMOVÁ INTEGRACE 1/2012

Fig. 1: Standardized process of manufacturing to order with variant configuration in a process solution included in ERP SAP Business All-in-One [15] The abovementioned present standardised process solution includes client order processing using materials with preselected attribute values (material variants) and components manufactured pursuant to the sales volumes planned for these variants. If the client order configuration as material variant is not available, then the customer service can configure the ordered material for the client by selection of the required attribute values. After the order saving the client order calculation is performed and subsequently used for pricing of complete in-house costs. The process is initiated when the manufacturer receives an order for configured material from the client. The client s order is recognized in the algorithm run of the Manufacturing Resource Planning and a scheduled order for manufacturing of the material is placed. In the case of insufficient stock a requirement for procurement of the required raw materials is created. As soon as the manufacturing order is created target costs are calculated for the order batch size (tentative calculation). The actual costs are updated in the course of the order implementation which allows for comparison of actual and target costs any time in the process. Balance sheet activities are applied to the order, including work in progress and deviation calculations. Then the work in progress is recognised in the financial accounts and the manufacturing deviations are recognised in the controlling and in the financial accounts. The manufacturing deviations are recognised in the profit analysis with the client s order as one of the attributes [15]. The preset process solution SAP Business All-in-One can be configured before acquisition in an internet application. The user can select functional modules and their parts and specify the expected scope of the solution and estimated costs of it. In the SYSTÉMOVÁ INTEGRACE 1/2012 21

Petr Sodomka, Hana Klčová, Jiří Kříž course of further steps the solution is précised in consultations with the respective implementation partner. The partner recommends supply of the relevant hardware and eventually installs the required solution over the database platform SAP MaxDB and the operation system of the server SUSE Linux. In the final stage the application parameters are defined by standardised procedures and an optimised graphic interface [16]. 3.6 Process Solution for Process Manufacturing Minerva Czech Republic has been one of the leading ERP suppliers founding their long-term policies on branch solution building in the environment of a system ranging among the top ten in the world - QAD Enterprise Applications. Minerva has served to a broad range of manufacturing plants from several industry branches including automotive, electro-technology, consumer goods, mechanical engineering, pharmacy, chemical industry, food processing and beverage industry. For the last four listed branches the company has prepared a solution supporting process manufacture, which is therefore more of a process solution suitable for the processes implemented by more different industries than a branch solution. Typical features of process manufacturing include the fact that this manufacturing cannot be traced by piece at the input, between the individual operations and at the output. This manufacturing is usually implemented by a technology for a particular batch size or by a continuous line. The resulting product made of bulk or liquid materials on the basis of a recipe is then placed in a tank. Shipment is implemented in cisterns or other containers, the product may be used as half-product for discrete manufacturing changing the material into tablets, food, bottled beverages, detergents etc. An information system for process manufacturing management must assure a range of specific functions, including material consumption, production planning, tracing and testing of product composition, classification, qualitative indicator assessment and material flows for retrospective identification. In the area of technological preparation of manufacturing this process cannot be confined to standard BOM. The system must be prepared for definitions of processes entered by the raw material and resulting in multiple output products core products and by-products. Cost distribution among the end products must be defined independently of the quantity. The planned calculation is then controlled by the defined ratios and must also calculate with energy inputs and times of preparation. It is the preparatory costs (setting, cleaning) that make a considerable amount and therefore the system must be capable of their simulation for different batch sizes and of batch manufacturing control and planning into campaigns. Modern process manufacturing cannot do without by-product control and waste control, as well product life management at the customer (such as drug expiration dates), graphic support for recipe preparation, automatic compilation of documentation of hazardous material handling and many other functions. The solution for process manufacturing running over the QAD system platform is currently used by several prestigious customers such as the companies Hamé, Madeta Group, or United Bakeries. 22 SYSTÉMOVÁ INTEGRACE 1/2012

3.7 Process Solution for Maintenance Control Process solutions have also been offered on the Czech market by one of the biggest competitors of Minerva, the alliance IFS Czech and Altec. The solutions are prepared for process, discrete and line manufacturing as well as for specific processes such as asset management, maintenance and critical asset administration. Maintenance control was the origin of development of the global ERP system of IFS Applications supplied by the alliance to the Czech market. The reason is that the origin of its producer, the Swedish company IFS, was closely connected to its first customer, the Barsebäck nuclear power plant. The NPP decided for automatic control of its processes by IFS software Maintenance, predecessor of other IFS Applications, as early as in 1980s. The purpose of the software was organisation of demanding maintenance in this institution. Interestingly enough, the application has still been used in the NPP today. The module IFS Maintenance is able to cover all areas of warranty and post-warranty repairs, preventive inspections and maintenance as well as complaints. This component also includes functionality for Enterprise Asset Management complex management of life cycle control and maintenance of assets, machinery, equipment, buildings etc. The component IFS Maintenance also covers servicing of sold products as well as complex critical asset management. The application is also used by service companies. IFS Applications are also able to respond to customer requirements received through the contact centre. The customer need not be defined in the system, which is a typical phenomenon in companies servicing their in-house products sold through their business partners. What is important is quick response and requirement evidence and settlement, customer data, repair data and billing are resolved later. IFS Maintenance also includes periodic activity planning on the basis of a calendar (weekly, monthly etc.) or event planning, or measurement (such as in the case of a press where inspections of individual parts are scheduled after a specified number of operation hours). Major users of the process solution IFS Maintenance in the Czech Republic include the filling station supplier ADAST-Systems or the manufacturing of railway chassis, the company Bonatrans. 4. Conclusion Branch and process solutions offer considerable benefits both to user organisations and for their producers. The companies can benefit from the so much needed standardisation and best practices of the industry not only from the Czech Republic but also from all over the world. In combination with lean implementation they can save considerable costs and work time of employees whose priority is to deal with the company agenda rather than with large-scale implementation projects and endless discussions on orders for software adaptations. Implementation of these solutions interferes with the company operation much less than deployment of applications requiring demanding customisation. On the supplier side branch and process solutions mean increased repeatability within the industry or across industries. Thus more similar projects can be implemented within the same time and higher income can be generated than in a situation with the relevant solution is not ready. In the same way precious man-hours of development SYSTÉMOVÁ INTEGRACE 1/2012 23

Petr Sodomka, Hana Klčová, Jiří Kříž and implementation teams can be saved for priority management of large projects where branch solutions cannot be applied for various reasons, for own education and other activities for which there is no time in the everyday practice of IT Companies. The Czech market is still in the stage of education and moderate growth as for application of branch and process solutions. There is a big potential in this area, especially in the SME segment. As shown by the current survey of the Czech Statistical Office [17], there are still thousands of companies that cannot afford demanding and expensive implementations. That is why instead of acquiring a suitable modern ERP then still use unfitting solutions or only use IS/ICT in the minimum necessary scope for coverage of legislation-dependent agendas. 5. Literature References [1] GILL, J., JOHNSON, P.: Research Methods for Managers. London: P. Chapman Publishing, 1991. ISBN 1-85396-119-1 [2] PAVLICA, K. a kol.: Sociální výzkum, podnik a management. Praha: Ekopress, 2000. ISBN 80-86119-25-4 [3] VOŘÍŠEK, J.: Strategické řízení informačního systému a systémová integrace. Praha: Management Press, 1997. ISBN 80-85943-40-9 [4] MOLNÁR, Z.: Efektivnost informačních systémů. Praha: Grada Publishing, 2000. ISBN 80-7169-410-X [5] BASL, J.: Podnikové informační systémy. Praha: Grada Publishing, 2002. ISBN 80-247-0214-2 [6] DAVENPORT, T. H.: Putting the Enterprise into the Enterprise System. Harvard Business Review, 1998, vol. 76, pp. 121-131. ISSN 0017-8012 [7] STEVENS, T.: All Fair in Integration. Industry Week, 2001, vol. 250, no. 6, pp. 24-29. ISSN 0039-0895 [8] OLSON, D. L.: Managerial issues of ERP systems. New York: McGraw-Hill/Irwin, 2003. ISBN 0-07-286112-6 [9] OLSON, D. L.; CHAE, B; SHEU, C.: Issues in multinational ERP implementation. Int. J. of Services and Operations Management, 2005, vol. 1, no. 1, pp. 7-21. ISSN 1744-2370 [10] SCHWALBE, K.: Řízení projektů v IT. Brno: Computer Press, 2007. ISBN 978-80-251-1526-8 [11] CARROLL, B. J.: Lean Performance ERP Project Management. St. Lucie Press, CRC Press Company, 2002. ISBN 1-57444-309-7 [12] CUMMINS, F. A.: Enterprise Integration. John Wiley & Sons, 2002. ISBN 0-471-40010-6 [13] SMEJKAL, V.; RAIS, K.: Řízení rizik ve firmách a jiných organizacích. 2 nd updated and extended release. Praha: Grada Publishing, 2006. ISBN 978-80-247-1667-4 [14] SODOMKA, P.; KLČOVÁ, H.: Informační systémy v podnikové praxi. 2. aktualizované a rozšířené vydání. Brno: Computer Press, 2010. ISBN 978-80-251-2878-7 24 SYSTÉMOVÁ INTEGRACE 1/2012

[15] SAP Best Practices. [online]. Výroba na zakázku s konfigurací variant, 2009, [cit. 2012-12-12]. Available on: <https://www.cia.gov/library/publications/the-worldfactbook/geos/ez.html>. [16] SAP Business All-in-One. [online]. Program Fast-Start, 2008, [cit. 2011-12-12]. Available on: <http://www.sap.com/cz/pdf/25259_sb_50090119_cscz.pdf>. [17] Czech Statistical Office. Informační a komunikační technologie v podnikatelském sektoru za rok 2011. Czech Statistical Office. Information Society, ICT 5-01, 9702-11, 2011. ISBN 978-80-250-2137-8. JEL: M15 SYSTÉMOVÁ INTEGRACE 1/2012 25