Apr 26, 2007

7 Flows to be considered in an ERP implementation

Introduction
A functional consultant going to implement an ERP solution need to have a clear and structured idea of the various aspects of the business. An ERP implementation can be successful only if it is done top down. This means that the consultant has to identify the business issues and constraint before he gets down to the task of designing the solution. One way to do this is to start with the key reports that the organization is presently using and analyse as to the kind of information that is key to this organization.
To understand the business in a structured way, one of the methods is to divide the business into various flows. There are 7 important flows that a consultant need to understand thoroughly and integrate the same in the ERP to ensure a successful ERP implementation.
1. Business Flow:
Logically business flow encompasses all the processes being presently followed by the organization. However, from the perspective of ERP implementation, the consultant has to focus on certain key questions to understand the business thoroughly. Some the questions which should be used in this analysis are;
Where does organization procures materials? What are the key specs. What are the top three raw materials? How many supplier per item on an average? What is the relationship dynamics between supplier and organization? who is more powerful ? What are the three key issues in procurement where you can add value.
What is the organizations conversion process? How efficient is internal processes? How is the production planning done? How is inventory management done? What is the inventory turnover ratio? What is the level of obsolete inventory in the organization? How is the quality measured? How is the material being managed? what is the costing method used? Why are they using that costing method? How complex is the routing? Do they use sub-assemblies in manufacturing? Are their local taxes? how is excise handled?
How does organization get the customer orders? How are the customer entering the organization? Are there many one time customers? How does order gets registered? How does Organization handle available to promise issues? how is the material movement handled? What is the cost of items? How general are the items? can we divide the items into distinct categories? How is the material issue taking place? How does the costing gets done? How does the organization measure the profitability? Is it on a per order basis or a per customer basis? Do they follow significant customer approach? Do they have separate priority for category 1 customers and another for the other types of customers? What is the criteria for deciding a customer as a category 1 customer? How frequent is the review? What is the size of inventory master? How are items coded? How is costing done? What is the costing method used? Why?What is the nature of the organization? Is it distribution intensive? Does it have many depots? Franchises? Is it operations intensive? Is it purchase intensive?
What is the power structure in the organization? Who is the project champion? Who could be a potential risk? what is the age profile? What is the change culture of the organization? Are they comfortable with technology? Are they going to ERP for clearly identified business benefits or are they going because competitors have moved into ERP? Is business leading the ERP implementation or is it considered as just another IT project in the organization?
At the end of business flow understanding, you should have a clear idea of top 3 business reasons why the organization is going for and ERP and the key reasons for choosing this particular ERP package. This would give you a clear idea of what is expected out of this implementation. Answer to the last question could give you a clear idea of the risks involved in this implementation.
2. Process Flow:
Here we are talking of various business cycles. You need to know the P2P, Production and O2C cycles with some level of detail with the accounting impact. This will decide some of the key setups

3. Material Flow:
How does the material come into the organization? How is it accepted into inventory? What is the role of inspection? What is the matching process? How is the material moving in to production? Is it in bulk or based on each production order? How does the material come back into Raw material warehouse? How does it come into FG stores? How is it picked for shipping? How it it packed? Shipped?This will give you a clear picture of the complexity in inventory handling process.

4. Document Flow:
For each of the flows discussed in step 2 and 3, you need to know the associated document flows. Some of these documents are internal to the organization (inspection report, GRN etc) where data accuracy is of primary importance, while others are external to organization (PO, AR Invoice etc) where data accuracy as well as formatting are equally important. The consultant should focus more on external reports without spending too much time on the look and feel of internal reports.
For example, in a P2P (Procure to Pay) process, the document flow could be indent (requisition) --> Quotation --> PO --> Inspection report -->GRN (Goods Received Note) --> Delivery Challan --> Invoice --> Payment Voucher

5. Accounting Flow:
For each of the processes discussed in point 2, you need to know how the Accounting entries are generated and how they impact the profit / profitability of the organization. Please note that for every inventory transaction ERP creates an accounting entry (Perpetual inventory valuation). you need to be clear of the accounting steps. The inventory accounting has a tendency of getting out of hand. One of the key constraints in ERP is the understanding of local tax accounting flows and mapping the same. The consultant need to allocate some time for this activity.

6. Report Flow:
You need to know the key reports in the ERP package which shows that all the above flows are functioning correctly. Some of the reports key reports are Inventory valuation report, Open invoices report in both AR and AP, Supplier advances in AP, Customer Advances in AR, Assets Register, Depreciation / Accumulated Depreciation report, Supplier listing, Customer listing, Open POs, Open SOs, Trial Balance etc.

The above 6 Flows are what is defined as 'Above the Surface' Flows. A functional consultant need to be clear of the above flows.

7. Data Flow:
How the data flows through the database based on your transactions. What are the key tables? What are their linkages? How does the data flows from one process to another?

A consultant should at the beginning of the project strive to attain a clear understanding of the above flows. This will help him to talk the language of the organization which is very important from the perspective of the end user, to tailor his implementation to the business requirements of the organization and have a clear assessment of the implementation risks.

3 comments:

Anonymous said...

nice & useful info

Anonymous said...

very nice information about new technology (ERP) using in industries very eficiently.

radha said...

hi sir,
Its good one.