India is a flourishing market where a large number of SMEs start every year, but nearly 50% cease to exist in the first 3 years of business itself; primarily due to lack of long term business strategy trying to make a mark in a cut throat domestic and global competitive market. Though SMEs are risk averse, they are keen on adopting ERP systems for several reasons.
- Pressure from larger counterparts: SMEs today operate in a wide arena and majority of them have MNCs as their clients. These MNCs’ require SMEs’ to implement the same ERP system as theirs, to allow closer integration in their supply chain and reduce the turnaround time.
- Peer pressure: Considering the growth in ERP implementation in the SME segment, several SMEs are adopting ERP systems as their peers have done so.
- To gain competitive advantage and respond quickly to the dynamic market scenario.
- Integrate their business functions and processes.
- Reduced Planning cycle time
- Reduced manufacturing cycle time.
- Reduced inventory.
- Reduced error in ordering.
- Reduced requirement of manpower.
- Enables faster response to changing market situations.
- Better utilization of resources.
- Increased customer satisfaction.
- Enables global outreach.
Although SMEs are keen to implement ERP but the implementation for them is neither easy nor straight forward. Some of the key challenges that any SME faces are:
1) Awareness: There is a low level of awareness amongst SMEs regarding ERP vendors, applications etc. They consider ERP systems to be a magic wand, which will help solve all their business problems
2) Perception: SMEs have a perception that ERP is meant only for large firms, mainly owing to the high costs of acquisition, implementation and maintenance.
3) Earlier Implementations: SMEs have heard of the much-publicized failures in ERP.
4) Cost: SMEs have less capital than their larger counterparts.
5) Customization: The bigger players have trouble when it comes to offering solutions for SME’s. The level of customization and the work demanded by the SME’s sometimes appear to be too much for a bigger player.
6) Choice: Companies have to exercise adequate care in choosing their ERP vendor. There is a big dilemma for companies as they are unsure of choosing software offered by a branded player or a small player.
7) Change management: One of the major reasons why ERP implementations nationwide have been known to fail is due to the fact that implementation is considered as an automation project instead of one that involves change management.
8) Limited resources: Most SMEs do not have an in-house IT team. Due to this they have to rely on external agencies to help them and this adds to the implementation costs.
9) Manpower: There is a shortage of manpower trained in ERP.
10) Approach to implementation: ERP vendors’ advice SMEs to mould the business to ERP’s way of working. Considering that ERP systems will bring it best business practices. This plain vanilla approach would bring down the cost of implementation. But most SMEs have processes that they have evolved over time and hold very dear to their hearts. As a result, SMEs are having the entire ERP system customized to meet their requirements. This would increase the overall cost of implementation. A good approach would be to keep the customization to a minimum.
Before embarking on an ERP system journey, organizations have to ask themselves whether they are ERP ready. Some of the factors to be considered before starting an ERP system implementation are:
- Infrastructure resource planning.
- Education about ERP.
- Human resource planning.
- Top management commitment and leadership.
- Training facilities.
- Commitment to engage the right people for the implementation.
- Planning customization which should be typically less that 30%.
- Financial planning and selecting a cloud based ERP which will bring down the implementation cost and time required to go live with the system.
- A balance should be struck between the vendor and the company. The company and the vendor should sit together and analyze the pros and cons of every possibility to match their requirements. Both of them should make compromises as and where possible. These adjustments even though may seem to be insignificant but will have greater impact when it comes to the structuring of software programs.
- The vendor needs to carefully review the software competencies in the company. This study will help him to assess what the company requires more in terms of software
ERP implementation Success is guaranteed if SMEs and Vendors stick to the basics.