As a city gas distribution (CGD) utility progresses through its life cycle and is affected by several internal and external environmental factors, its business complexity increases. In an environment where competitors are constantly upgrading capabilities, organisations must adopt practices to enhance their efficiency. This includes the effective generation and communication of accurate information within their various departments. Enterprise resource planning (ERP) plays a crucial role in improving overall efficiency and helps integrate external and internal information flow across an entire organisation. An efficient ERP system can help CGD utilities commence early operations, minimise costs, achieve high utilisation rates, carry out predictive maintenance and optimise overall performance.
Processes involved in an ERP system
An ERP system integrates information and processes related to all functional divisions in an organisation. It effectively uses one application to run an entire business, not only increasing efficiency but also decreasing overall costs and improving 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 ideally integrates all processes with a central database repository and a fused computing platform. The processes include the following:
- Manufacturing: Engineering, resource plan-ning, capacity planning, material planning, workflow management, quality control, bills of material, manufacturing, 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.
The success of an ERP solution is contingent upon the kind of strategy that is adopted for its implementation. The focus of an implementation strategy (also known as transition strategy) is on the process of transition from a legacy system to the ERP system, and it is critical to select the right kind of strategy. It is imperative to understand the relationship of an ERP transition strategy with processes, people and technologies for its successful operationalisation. The different types of implementation strategies include:
- Big bang strategy: This calls for the installation of the ERP system in all business modules across an entire organisation in a single phase, with the transition from the legacy system taking place on a specific date. The advantages of this strategy are low overall costs, faster returns on investment, and avoidance of complex integration issues. However, it also involves a lot of time and effort in pre-implementation planning and has a high failure rate.
- Phased implementation strategy: Contrary to the big bang strategy, this involves implementing one functional module at a time in a sequential order. It is also known as the modular, functional and sequential approach, requiring 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 is burdened with high overall costs as it requires a large amount of technical resources for creating interface programs.
- Parallel approach: This method allows the legacy system and the new ERP system to co-exist for a specific period of time, giving a recovery option in case of any failure. However, it also consumes more resources than other approaches in the transition phase.
- Process line approach: This strategy is divided into managing 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 strategy generally has a high success rate and low resource commitment but involves higher overall costs and extensive implementation requirements.
- Hybrid approach: This is a combination of all the above-listed approaches. Organisations with optimal interdepartmental communication and strong managerial leadership can make optimum use of this strategy.
It is important to consider the return on investment value of an ERP investment beyond the ideology of doing well for the business. A strategic and differentiated approach towards selecting the right ERP solution is critical.
ERP implementation includes the following phases:
- Pre-evaluation screening: This involves screening out business processes that are not aligned with the company’s objectives
- Package evaluation: This involves selecting the most suitable ERP package as per the organisation’s requirements
- Project planning: In this phase, implementation strategies are decided, including time schedules and deadlines
- Gap analysis: Via this process, firms create a model illustrating their current and desired positions
- Re-engineering: Human factors like changing job responsibilities of employees are taken into consideration in this phase
- Customisation: The ERP package is tailored to suit business processes
- Training the implementation team: The company trains its employees in system implementation and operations
- Testing: In this phase, tests are conducted to check for problems or errors
- Operation: This is the final stage where the ERP system is made available to the entire organisation
- End-user training: Training is provided to end-users
- Post-implementation: This is the maintenance phase where trained employees tackle post-implementation challenges.
The implementation of ERP solutions by CGD operators is bound to facilitate business process integration and streamline information for speeding up the decision-making process. In addition, these solutions can be implemented at predictable costs and times. They improve inventory management, reduce transportation expenditures, increase sales and reduce days sales outstanding. CGD operators who have taken up ERP solutions include GAIL Gas Limited, Gujarat State Petroleum Corporation Limited, Gujarat Gas Company Limited and Assam Gas Limited.
Central UP Gas Limited: It has implemented SAP B1 in its CGD operations, which is compatible with SAP R3. This has resulted in benefits like easy billing, the establishment of a management information system, effective inventory management and smoother query resolution.
Adani Group: This is another firm that has been able to effectively utilise SAP. The benefits it has managed to accrue include the provision of a single-window solution to customers, shared services for common processes like procurement and human resource management, easy transfer and reallocation of resources, and reduced process durations for billing and invoicing.
Key benefits and challenges
A host of benefits can be availed of by implementing an ERP system, including reduced manufacturing cycles, production costs, inventory overheads and manpower requirements; enhanced transparency in procurement; reduced delays in the supply chain; better utilisation of resources; and increased customer satisfaction. ERP systems enable CGD companies to automate and streamline key business processes: from sales and customer service to logistics, financing and reporting. They integrate business processes and streamline information flow for faster decision-making for the benefit of customers.
However, a number of issues can hinder an ERP system’s implementation. Single points of failure, insufficient training of end-users, lack of employee training, use of the wrong ERP tools, conflicts among user departments and ERP software failure are some of the key hurdles.
It has become essential for CGD companies to adopt ERP systems in an increasingly competitive environment. However, they need to implement them in a phased manner from an early stage. Even though a CGD firm could initially find it easier to operate without an ERP system, it will feel the need for it later on. ERP investments are huge and risky, and the rate of failure is estimated to be as high as 60 per cent. Nevertheless, realising its significance, many CGD operators in India have begun implementing these solutions.