City gas distribution (CGD) operators across the globe have been adopting new technologies to ensure a safe, convenient and reliable natural gas supply to customers in both the domestic and commercial sectors. Of late, the focus on integrating different functional domains of a CGD utility has increased.
Features of an ERP system
An enterprise resource planning (ERP) system integrates the information and processes of all functional divisions of an organisation, thereby providing easy access and facilitating a structured workflow. This level of integration can be achieved through the creation of a single database repository that can communicate with various software applications, thus providing different divisions of an organisation with business statistics and information simultaneously. Overall, an ERP system integrates the external and internal information flows across the entire organisation. The chain of processes involved in an ERP system includes manufacturing, finance, human capital, supply chain management (SCM), project management and customer relationship management (CRM).
Need for ERP systems in CGD entities
The business complexity of CGD operators increases due to various internal and external factors affecting the operations of utilities. The key ones include a limited period of market exclusivity, regulated margins, the capital-intensive nature of the business, and the high uptime of pipeline infrastructure needed for uninterrupted gas supply. As margins depend on overall operational efficiency, the challenges translate into the ERP needs of a CGD firm. An efficient ERP system can help a CGD utility in early commencement of operations, cost minimisation, high utilisation rates, predictive maintenance and overall performance optimisation.
An integrated technology system helps firms achieve their objectives of high profitability and operational efficiency. It also has the provision of supporting future growth of the system, centralisation of the entire operation of the CGD network operator leading to easy data acquisition and evaluation, enhanced productivity of employees due to greater user-friendliness and automation of operations, standardisation of vital data elements, easier information flow, improved reporting of data with increased accuracy and timeliness, and easier regulatory compliance with various components of the operational system.
Implementation of ERP systems
The implementation of ERP solutions by CGD operators is bound to facilitate business process integration and streamlining of information for hastening the decision-making process. These solutions are implementable at a given cost and within a specified time frame. They help in improved inventory management, reduced transportation expenditure, increased sales and reduced day sales outstanding. CGD operators that have implemented ERP solutions include GAIL Gas Limited, GSPC Gas Limited, Gujarat Gas Company Limited and Assam Gas Limited.
The implementation of an ERP system comprises the following phases:
- Pre-evaluation screening: This involves screening those business processes in the firm that are not aligned with business objectives.
- Package evaluation: This stage involves the selection of an ERP package that is best suited to the organisation’s requirements.
- Project planning: In this phase, the implementation strategies are decided, including the time schedules and deadlines.
- Gap analysis: In this, the firm creates a model outlining its current and desired positions.
- Re-engineering: Human factors such as the changing job responsibilities of employees are taken into consideration in this phase.
- Customisation: The ERP package is tailored to suit the organisation’s business processes.
- Training the implementation team: The company trains its employees in system implementation and operations.
- Testing: During this phase, tests are conducted to check for any problems, errors, etc.
- Operation: In this final stage, the ERP system is made available to the entire organisation.
Strategies for the implementation of ERP solutions
The successful implementation of an ERP solution is contingent on the implementation strategy adopted. The implementation strategy (also known as the transition strategy) includes the process of shifting from a legacy system to the new ERP system. The selection of the right transition strategy is critical for the organisation. The successful operationalisation of ERP systems demands an understanding of the relationship between ERP transition strategies and processes, people and technologies. This helps in analysing what would be the best ERP transition strategy for a particular firm. There are different types of ERP implementation strategies. These include:
- Big bang strategy: This calls for the implementation of ERP systems of all business modules across the entire organisation in a single phase. The transition from the existing or legacy system takes place on a specific date. The advantages of this strategy include low overall implementation costs, faster returns on investments, and the avoidance of complex integration issues. However, the implementation of this method involves a large amount of time and effort for pre-implementation and planning, as well as high failure rates.
- Phased implementation strategy: In contrast with the big bang strategy, this involves the implementation of one functional module at a time, in a sequential order. It is also known as the modular, functional and sequential approach. This requires the presence of interface programs to bridge the gap between the legacy system and the new ERP system until it is fully operational. The advantages of this approach include lower risk exposure, a step-wise approach, and low resource commitment. However, it comes with the burden of high overall costs, since it requires a large amount of technical resources for creating interface programs.
- Parallel approach: This system allows both the legacy and the new ERP system to coexist for a specific period by letting both operate simultaneously for a certain span of time. The approach offers good recovery options in case of failures, but also consumes more resources than other approaches in the transition phase.
- Process line approach: This implementation strategy is divided to manage parallel business process flows or product lines. The transition from the legacy system to the new ERP system takes place in terms of one product line at a given time. Once the transition of the first product line is complete, the process continues sequentially with other product lines. This process generally has a high rate of success and low resource commitment. High overall costs, extensive implementation, etc. are the shortcomings of this strategy.
- Hybrid approach: This approach is a combination of all the above approaches. Organisations that have optimal interdepartmental communication and strong managerial leadership can make the most of this approach.
The optimal approach for the implementation of an ERP system in a CGD company would be to follow a phased investment process, depending on which stage the company is operating at. The ERP requirements of a firm that has just entered the market would differ from those of a player that has been operating in the market for a long time. The following is a list of the type of ERP systems that should be employed by a firm, depending on its level of operations:
- Beginner: Firms at this stage have been in the market for up to three years and are involved in awarding CGD contracts, alongside infrastructure development. In this phase, the company needs to invest only in a base ERP system, to help it move to the next level.
- Intermediate: Firms that are at this stage have been in operation for two to five years and are involved in the commencement and expansion of operations. This stage requires CGD firms to implement software such as SAP Utilities (IS-U) along with the base ERP system.
- Established: Firms that are at this stage have been in operation for over five years and are involved in sustaining their business operations. After entering this stage, firms require a comprehensive system comprising ERP, SAP utiliies, business intelligence, and CRM solutions.
Overall, it is imperative for CGD players to know that ERP implementation needs to be undertaken in a phased manner from the initial stage itself. Even though a CGD firm may find it easier to operate without an ERP system at an initial stage, it becomes necessary at a later stage.