The New Buzzword
A crucial element of the exercise is the extensive use of information technology (IT). Over the next three years, Voltas will invest Rs 10 crore to set up state-of-the-art IT infrastructure, encompassing every division. Manufacturing processes will link seamlessly to production planning and marketing; and finance and purchase divisions will connect to sales and distribution.
Voltas will achieve this through a software package called Avalon, which it has begun deploying. We are implementing this enterprise wide solution in 20 locations first, says R P Shinde, chief of Voltass IT division. That includes five manufacturing sites and 15 branches. It will later be extended to 40 locations.
Avalon is a class of software, commonly known as enterprise resource planning (ERP), that is taking corporate India by storm. The ERP solutions market was worth just a few crores in 1994. But it took a quantum leap in the next two years. IDC (India), the IT market research group, estimates that in 1996-97, it was worth Rs 75.3 crores. It is expected to grow to Rs 114 crore this year though ERP firms peg it at Rs 200 crore.
That may not be far-fetched. For one, almost every multinational setting up shop in India does an ERP solution first. These companies think of IT as an investment, which will give them returns year after year, says Anshoom Jain, a senior professional at management consultancy Ernst & Young.
Take the case of LG Electronics India Ltd (LGEIL), a subsidiary of the $80 billion Korean giant, LG Electronics. In a market where other Korean companies were already operating, LGEIL needed to get its act together fast and start selling without delay.
Speed was the crucial factor for us. We needed something that would get our operations up and running quickly, says M M Singh, director, LG Software, which helped implement an ERP solution called MakESS developed by Delhi-based Eastern Software Systems (ESS).
LGEIL spent nearly Rs 10 crores on an ERP backbone connecting 17 sales and distribution centres to its head office. The returns? In less than six months of operations, LGEIL has notched up sales of Rs 100 crore and continues to grow.
ERP is the only way we can remain price competitive and deliver a quality product at the same time, says Singh. With MakESS, LGEIL keeps a just-in-time (JIT) inventory linked to the sales and distribution divisions, and keeps a precise track of incoming payments. Order processing and customer support are also linked up, adds Singh. Later, LGEIL will extend it to 51 locations.
Over the past two years, ERP has replaced business process re-engineering (BPR) to become the new corporate buzzword. BPR continues to happen. But a lot of todays BPR is becoming ERP or technology dependent, says Sid Khanna, head of Andersen Consulting in India. And though the technology focus had begun to seep in nearly five years ago, more companies are beginning to realise the advantages of a strong IT backbone, he adds.
From public sector undertakings like Oil and Natural Gas Corporation and Indian Oil Corporation to private enterprises like Mahindra & Mahindra, Larsen & Toubro, Cadbury's India, ACC Refractories and JCT Electronics, there are nearly 260 companies who have an ERP solution in various stages of implementation.
And for the ERP software majors of the world like SAP AG of Germany, BAAN of Netherlands, QAD and Peoplesoft of USA, this is clearly a lot of hay in the sunshine. As it is for a host of homegrown solution providers like Ramco, whose ERP product Marshall 3.0 was released by Bill Gates in March this year, and Eastern Software Systems (ESS).
Among international players, SAP is clearly ahead of the pack. Globally, the number one ERP vendor with a 65 per cent marketshare, SAP has nearly 60 clients in India. Its best-selling product called R/3 is either completely implemented or nearing completion in at least 50 sites. BAAN (whose software is also called Baan) is a close second with some 40 customers.
Both companies have solutions for almost every sector. R/3, for example, has nearly 700 business processes built into its software, culled from best practices in the worlds top companies in each sector.
At the same time, however, there are other ERP vendors who work in specially created niches of their own. Like MFG Pro, the ERP package from QAD, which is strongly tailored for the manufacturing environment. It targets the automotive, consumer products, electronics and medical sectors. Among QADs customers in India are Hindustan Lever, Allan Bradely India, Godrej, Boots Pharmaceuticals, Glaxo, Nicholas Piramal and Ford Motors.
Others like the J D Edwards ERP package -- being implemented by Mobil India -- deliver their best in handling supply chain mechanisms. Companies with multiple factories, hundreds of depots and thousands of retail outlets like Philips, benefit from it.
The Peoplesoft ERP from USA, on the other hand, is a strongly human resource (HR) oriented package that can be exploited by companies to streamline their existing HR processes. Avalon, being used by Escorts and Voltas, is strong in engineering industry processes and brings the best practices in that field with it.
There are an estimated 300 ERP sites that have gone live in the country. And the market is clipping along at a brisk 80 per cent a year. The benefits in most cases are obvious. The first thing this will achieve for us is a faster and more accurate flow of information between various divisions, says Shinde of Voltas. For a company trying to get back on its heels, that is crucial. Inaccurate data flow, after all, can be a big strain.
ACC Refractories, the Mumbai-based ceramics and speciality tiles manufacturer, which has nearly 100 products, had to battle such an inaccurate flow before opting for SAP. Till 1995, the company's manufacturing, sales, production planning and finance departments functioned as independent entities. As a result: The same orders would be booked in different parts of the country by different people leading to duplication and double delivery promises, says a senior company official. We had to integrate all the functions to get rid of this and SAP was the best way, he adds. The company has spent Rs 5 crore in implementing R/3.
But there is a flip side as well. Implementing ERP solutions is not only expensive but also takes a lot of time. This is especially true of packages like SAP, Oracle and Baan. And it is also true only in the case of Indian companies, adds Jain of Ernst & Young for good measure. Ernst & Young is currently implementing some eight different ERP solutions.
"Indian clients dont even seem to be aware of the benefits of this technology and are not clear exactly where to invest or how to harness it for their benefit," says Jain. This has not helped them get the best out of their ERP implementations, wherever complete. Agrees Andersens Khanna, We insist that our clients be completely involved in the implementation process to get the best out of an ERP package.
But this requires a change of mindset. Unlike an LGEIL or Samsung, most companies here are slow in going ahead with ERP solutions. For instance, Essar Steel took nearly 21 months to complete its ERP implementation, an R/3 solution at its Hazira plant in Gujarat. The initial modules on financial controls, asset accounting and production took nearly a year. Modules like materials management and inventory control are nearing completion after another six months. Or take JCT Electronics, which has been trying to implement a SAP solution for the past two-and-a-half years.
Domestic ERP players like ESS and Ramco are trying to exploit this situation. For one, solutions like MakESS (used by LGEIL) cost a fraction and are easier to implement. For another, software products from Oracle or QAD are not the best for small and medium-sized enterprises. ERP is not something that only big businesses need, says Sanjay Agarwal, director, ESS. For them, a Rs 3 crore budget is a big deal.
ESS is trying to plug this need with a product that has all the inbuilt processes of a firm along with balances and controls but also takes care of basic business practices like taxation and excise. SAP and Baan, on the other hand, require time-consuming customisation.
One of the first to use MakESS was Sterling Tools Ltd, a Rs 40 crore automotive components maker based in Faridabad. The entire MakESS suite, which has ten modules from sales and purchase to payroll and production planning and equipment maintenance, costs a maximum of Rs 8 lakh for an unlimited number of users for the first site and Rs 1 lakh for every additional site. For a similar package from SAP or even Ramco, which is positioning its product in the big league, the cost can easily be upto Rs 1 crore per site.
However, the ERP solution is inescapable if Indian companies want to remain competitive in a global playing field. As Sid Khanna points out, A lot of the implementors have done so due to market pressures. And more will follow.
Indian firms are looking at enterprise resource planning software to stay competitive.