Scope for ERP

Integrating information and processes in the CGD segment

In the current business environment where competitors are constantly upgrading their capabilities, organisations must strive for operational visibility, control and effectiveness. These objectives apply to city gas distribution (CGD) companies as well. In order to achieve these goals, effective generation and communication of accurate information must be ensured within various departments of an organisation. In this regard, enterprise resource planning (ERP) plays a crucial role in improving the overall efficiency of a company’s operations.

ERP system

An ERP system integrates information and processes of all functional divisions of an organisation. It effectively uses an application to run an entire business. This not only increases efficiency but also decreases overall costs, thereby improving an organisation’s profitability. In India, three software firms dominate the ERP market – SAP AG, the world’s biggest business software firm (through its Indian unit, SAP India Private Limited), Oracle India Private Limited and Microsoft India Private Limited.

An ERP system integrates all the processes of an organisation with a central database and a fused computing platform. These processes include:

  • Manufacturing: Engineering, resource planning, capacity planning, material planning, workflow management, quality control, material bills, the actual manufacturing process, etc.
  • Finance: Accounts payable, accounts receivable, fixed assets, general ledger, cash management, billing, etc.
  • Human capital: Recruitment, benefits, compensations, training, payroll, time and attendance, labour laws, people management, etc.
  • Supply chain management: Inventory management, supply chain planning, supplier scheduling, sales order administration, procurement planning, transportation and distribution, etc.
  • Project management: Task management, schedules, costs, etc.
  • Customer relationship management: Sales, marketing, commissions, customer contacts, after-sales service, etc.

ERP implementation

ERP implementation has several phases. These include the following:

  • Pre-evaluation screening: In this phase, packages that are not suitable for the company’s business processes are removed.
  • Package evaluation: Under this process, the ERP package best suited for an organisation’s requirement is selected.
  • Project planning: Implementation strategies are decided, including time schedules and project deadlines.
  • Gap analysis: Through this process, companies create a model illustrating their current and desired positions.
  • Re-engineering: In this phase, human factors such as changing the job responsibilities of employees are taken into consideration.
  • Customisation: In this phase, the ERP package is tailored to suit the organisation’s business processes.
  • Training of the implementation team: The company trains its employees in system implementation and operations.
  • Testing: In this phase, tests are conducted to check for any problems, errors, etc.
  • Operation: The ERP system is made available to the entire organisation.
  • End-user training: In this phase, training is provided to end-users.
  • Post implementation: This is the maintenance phase where the trained employees tackle post-implementation challenges.

Implementation strategies

The successful installation of ERP depends on the implementation strategy. The focus of an implementation strategy (also known as transition strategy) is on the process of shifting from a legacy system to the new ERP system. Selecting the right transition strategy is critical for any organisation as there are several issues in ERP implementation. It is imperative to understand the relationship of ERP transition strategies with the processes, people and technologies. This will help in prudent selection of the ERP module type or a combination of modules. There are various ERP implementation strategies. These include:

  • Big Bang: Under this, the ERP systems of all business processes (modules) are installed across the organisation in a single phase. The transition from the existing or legacy system to the new ERP system takes place on a specific date. Some of the advantages of this strategy include low overall implementation costs, faster returns on investments and avoidance of complex integration issues. However, this method has its disadvantages, which include the dedication of significant time and efforts towards pre-implementation planning, high failure rates, etc.
  • Parallel: Under this, both the legacy and new ERP systems are kept operational simultaneously for a specific period of time. This approach provides good recovery options in the case of failure. On the other hand, it consumes more resources than other techniques in the transition phase.
  • Phased: This strategy calls for the implementation of one functional module at a time in a sequential order, and is also known as the modular, functional and sequential approach. The presence of interface programs is one of the main requirements of this approach. The gap between the legacy and the new ERP systems (until the latter is fully operational) is bridged by the interface programs. This approach has several advantages including lower risk exposure, a step-wise approach and low resource commitment. Its main disadvantages are the requirement for a large technical resource base for developing interface programs, high overall costs, etc.
  • Process line: In this case, the implementation strategy is divided to manage parallel business process flows/product lines. The transition from the legacy system to the new ERP system takes place in terms of one product line (and related resources) at a given time. Once the transition of the first product line is complete, the process continues sequentially with other product lines. The benefits of this approach include high success rates and low resource commitment. High overall costs, extensive implementation, etc. are the major shortcomings of this strategy.
  • Hybrid: This approach is a combination of all the above-mentioned-strategies. Organisations with optimal interdepartmental communication and strong managerial leadership can utilise the hybrid method.

ERP in CGD companies

A CGD company’s business complexity increases as several internal and external environmental factors affect its operations. Of these, the major ones pertain to the limited period of market exclusivity, regulated margins (due to regulated gas prices), the capex-intensive nature of the business, and high uptime of the pipeline infrastructure required for uninterrupted gas supply. Therefore, CGD companies must implement ERP solutions to achieve overall operational efficiency.

With the adoption of ERP systems, CGD companies can automate and streamline key business processes – from sales and customer service to logistics, financing and reporting. The solution delivers fast, measurable results like improved inventory management, lower transportation expenses, increased sales and reduced day sales outstanding. ERP integrates business processes and streamlines information flow for faster decision-making for the benefit of customers.

Conclusion

The adoption of ERP systems for CGD companies in an increasingly competitive environment has become essential. However, an ERP project is a large and risky investment. Some experts have estimated the rate of failure in ERP implementation to be as high as 60 per cent. Therefore, it is imperative for a CGD company to understand that ERP implementation must be undertaken as a phased investment from the initial stage. Nevertheless, realising the significance of ERP, many CGD operators in India have implemented the solution.

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