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Challenges in ERP Implementation within the Indian Manufacturing Sector

Enterprise Resource Planning (ERP) is an IT based business management system the functions of which include the storing and management of information that is required within various stages of a business process. It incorporates information regarding product design, research and development, marketing, production, taking orders and billing, shipping as well as delivery and possibly customer feedback. The significance of this system is in the way it enables a company to keep track of its business processes and resources until the product is safely received and appreciated by the end consumers. Even being a company’s IT component, ERP is not the easiest to manage and run effectively. It requires consolidation of information provided by all parts of the company in order to ensure that products not only get to the end consumers in time, but that they are also of good quality and manufactured within the company’s set operational costs. The idea is to keep the business sustainably profitable without compromising the quality of products and services offered to the consumers. The Indian manufacturing industry is exceptionally large, strong and successful. With over 58 million employees, this sector has so far proven to be a great determinant of the country’s economy. Over 50% of the country’s export comes from their manufacturing sector and it contributes to about 15% of the nation’s GDP. This makes it a very important part of the country’s growth and development. It is thus important to consider how much more effective this sector can be if it overcomes the challenges in its ERP implementation as at present. This paper examines the challenges that the manufacturing sector in India is facing in adoption of EPR technologies. To do this effectively, the paper looks at the state of ERP implementation in India, factors affecting it as well as the prevailing challenges. Also, the paper analyses the implications that ERP implementation can have to practitioners. 

ERP Implementation in India

SMEs in India are subjected to a lot of competition from foreign companies within the economy. This is what has so far led most of them to seek global solutions like ERP as a way of gaining competitive advantage within their respective markets (Shtub & Karni 2010). It can be appreciated that while SMEs are the backbone of the Indian economy, they are greatly under threat from the foreign owned companies with larger capital and global experience at their disposal. It can also be noted that India is a high tech country with a comprehensive communications infrastructure owing to the country’s recent growth and development, and the growing globalisation. For some time now larger corporations in India have been operating with ERP but the SMEs are rather new to this management system. They are only trying to catch up with the concept of using IT as a creator of competitive advantage especially owing to the high costs of implementing a program like ERP within an organisation. Indian manufacturers are today in touch with the global manufacturing sector and thus need to be able to conduct their manufacturing processes seamlessly from start to finish. This has prompted more than 60% of the manufacturing companies in the country to implement ERP, mostly as a combination of MRP and MRP II (Shtub & Karni 2010). One might in this case expect a 100% implementation but this has been hindered by a number of factors, some of which are discussed below.

Factors Affecting the Implementation of ERP in India

Awareness

Indian population is well informed of information systems and technological developments in the management field. They are however limited in their understanding of the entire ERP concept including the vendors, available applications and how to effectively use them in a factory. These companies are often disillusioned to think that an ERP system is a ‘one time solution’ to all management challenges within the factory (Management Association 2013). This misconception has led to such serious disappointments when they find out the reality. This, in turn, keeps most companies from acquiring an ERP system since they do not see its value, having discovered that it will not necessarily solve their problems. They fail to grasp the ERP concept with respect to the clarity and efficiency that it provides, and the harmony that it creates between a company’s various activities and departments.

Perception

For so many years, only large corporations operating in India were able to afford and thus implement ERP (Monk & Wagner 2012). This mentality still prevails among some of the country’s SMEs that consider ERP unavailable to small businesses due to its high cost. With this perception, a number of Indian SMEs are staying away from ERPs despite the potential that these systems have in growing small businesses. Some of these SMEs simply feel too small to need a complex IT based system to run their operations.

Failed Implementations

ERPs have had a reputation in India for leading some SMEs to bankruptcy, and with this kind of information spreading within the country’s SME sector it can be expected that some companies will stay away from ERPs (Pushpangadan & Shanta 2006). The complexity of the acquisition, customisation, implementation and maintenance of ERPs is well understood and possibly accepted but the possibility of causing bankruptcy is rather discouraging for SMEs. Those who understand the system are likely to embrace it and the risks involved, seeking ways to ensure that it works for them rather than steering clear of a system that has the potential to improve a company’s profitability.

Cost

SMEs are generally small or medium sized companies that have limited capital and perate within a limited range of revenue (Kurbel 2013). In India, most SMEs consider themselves as small companies with very little income to invest in the operations. It is thus understandable when these companies are unable to invest huge sums of money required to acquire, customise, implement, and maintain an effective ERP system.

Management of Expectations

The general assumption in India with respect to ERP is that it is an automation project that will simply transform an organisation and make it easier to run and manage it. The companies thus often end up failing to appreciate hard work that comes with maintaining an ERP effectively after its acquisition. With such unfavourable experiences, one may find that after acquisition of an ERP program, a company`s owner may not find it effective for their other businesses since it does not make their work nearly as easy as they expected (Terziovski 2010). The ERP simply streamlines the operations and allows management to be able to synchronise information and operate seamlessly across all the departments.

Limited Resources

Most Indian SMEs lack a comprehensive IT department that could help out with the ERP issue. They are thus forced to depend on external experts, and this translates steeply into a company’s operational costs (Terziovski 2010). At this point, one must appreciate that the Indian SMEs are looking at ERPs as their chance to save operational costs. The need to pay more for the system on a regular basis implies that the program is not serving their interests. With their limited resources, most of them end up opting not to implement an ERP and instead to employ their conventional management structures.

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Challenges Facing ERP Implementation in India’s Manufacturing Industry

There may be a brewing consensus in the international business world that an ERP is an enabler of credible and efficient business processes within the manufacturing sector, and for companies that operate within the context of the supply chain, like most manufacturers, the need for a seamless coordination is even more pronounced. One may thus be puzzled as to why an Indian manufacturer still faces a number of limitations despite knowing the significance of an ERP system. The global business environment is consistently pressuring these companies to acquire and implement ERPs, and most of them have already succumbed to these pressures. However, their challenges do not disappear upon implementation. When considering ERP deployment, Indian manufacturers are forced to come to terms with many challenges, some of which are discussed below.

Selecting a Vendor

Despite the popularization of the ERP concept in India, the process of finding and engaging a qualified and experienced vendor still troubles most companies. International vendors with a lot of global experience are rather too expensive and in most cases do not seem to fully understand the implications of running a manufacturing company in India (Karimi, Somers & Bhattacherjee 2007). These companies, like SAP, fail to listen to manufacturers and provide them with basic applications that would work for their specific circumstances. Rather, they try to use this position to get more money from the companies. They only offer very basic packages unless a manufacturing company is willing to pay more for customisation. Local service providers, on the other hand, may not have as much experience in designing and installing ERPs that would work effectively for a company. They may be much cheaper but they too have their risks. It is this situation that makes the first step for manufacturers rather difficult. They may be willing to implement ERPs but without relevant information regarding which vendor they can trust, the whole idea becomes rather impractical and keeps being carried forward. Vendor selection, in itself, is a part of the ERP acquisition and implementation process as a vendor preferred by a company will determine the kind of an ERP that the company will get in terms of efficiency, cost and maintenance requirements.

Management Team’s Commitment

Without commitment of a company’s top management, it is rather difficult to implement this system successfully. Owing to the limited knowledge on the real implications of an ERP system, the Indian work force often feels threatened by the turn to technology within their organisations (Mariappan 2011). As such, it is very likely that a department manager would feel uncomfortable and even resentful towards the idea of implementing a system that is set to make management more efficient. They may feel that by making their work load lighter, they are being groomed for exit. Without their commitment, it is thus very possible for the implementation to fail, thus creating even more problems for a company as just acquisition of the system is very expensive. When the management team is committed to the implementation of the ERP, it is very likely that they will be able to persuade the rest of the employees to cooperate, by assuring them of the benefits of the system. Commitment in this case must be noted to come from a thorough understanding of the ERP, how it works, and whom it benefits. The idea is for the management team to not only offer guidance and show strong leadership, but also to motivate and inspire the rest of the work force for a smooth implementation of the system.

Considerations for Proper Implementation

Depending on specific needs of a company, the type of an ERP implemented must be relevant and effective. Companies that do not have many special needs can opt for the cheaper standard versions of Vanilla while those whose processes do not feature in standardised versions will require customised implementations (Patel & Vij 2013). The company in question must know what iit needs, or the implementation will fail to work effectively. In India, manufacturing companies seem to be trying to skip the basic work in the implementation phase. Most businesses do not consider the challenges that can be mitigated with the ERP implementation before deploying the system. As a result, companies that do not have standard processes end up buying the vanilla versions of ERPs. These often fail to meet their requirements, thus limiting the scope of benefits that they could have reaped from the system. In some cases, this oversight ends up inhibiting the whole system from being fully implemented and a company ends up losing a lot of time and money.

Training the Employees

Implementing an ERP is a big step for any organisation. This means that while planning to acquire an ERP system, a company must ensure that it also plans to provide training and education to its personnel, while also making it a policy of the recruitment and selection processes to only hire skilled employees who have some knowledge of the ERP system (Grabot, Mayere & Bazet 2008). The training aspect ensures that each employee can access the information available on the company’s database from his/her office and even while outside the company’s premises. The idea is to ensure that the employees are able to use the system for better business processes within the company. If they are not trained, the company will have the ERP system in place but the employees will be unable to use it as intended. The end result here is a system that is expensive to acquire and implement but offers no returns on investment in terms of improvements in the company’s business processes and outcomes. Training is often considered as another expense for a company and skipping it only creates further problems (Mariappan 2011).

Change Management

An ERP system is not a magic concept that once implemented takes shape on its own and starts changing a company’s fortunes. With the implementation of an ERP, an organisation can be anticipated to change in many ways including its corporate culture and business processes as well as human resource management and customer relationships management. This means that the company must have prepared for the change, especially through communication, training, and cooperation. In order to successfully implement an ERP, management of an organisation must work to provide guidance especially with the company policies (Shtub & Karni 2010). They could start with incremental change management or simply undertake a radical change to turn things around all at once. The choice here should depend on the management’s understanding of their company as opposed to what other companies are doing.

Implications for Practitioners

Despite its enormous size, India is still considered as an emerging market for technological business solutions like ERPs. This means that there still is a great potential for practitioners to improve not only the operations of the SMEs but also their understanding of the ERP system and especially its implementation requirements for success (Niehaves & Klose & Becker 2006). Practitioners in this field thus need to pay attention to some of the crosscutting challenges that inhibit the SMEs from implementing this program successfully within their organisations.

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ERPs cannot be implemented without adequate infrastructure in place (Ganesh et el 2014). This means that before signing up as a service provider in implementing an ERP for a manufacturing company in India, one must be able to study the organisation and fully understand what it needs, and what it does not have. The idea is to ensure that the company has the ground set for a comprehensive management system that will be effective and relevant to its specific business needs. Infrastructure resource analysis and planning should thus be the fundamental step in India’s manufacturing industry since without this information one may not be able to give the company an accurate cost or time line for the design and implementation of an ERP (Ahn & Choi 2008). 

Before committing to install an ERP, a practitioner in India needs to inform a company’s management on the significance of training its employees. As part of the marketing exercise, it may be wise to consider offering all manufacturing companies that are yet to acquire an ERP system all the information that they may need in order to fully understand an ERP as a positive addition to their organisations (Leon 2008). Educating the market on the product is a basic and very productive concept in creating demand for the offered products or services. ERP vendors should thus be willing to educate their business clients on the product, while allowing them to explore the possible outcomes of a successful implementation within their respective organisations. The negative outlook on this software is mostly generated by ignorance.

Having appreciated the significance of a company`s top management’s support when implementing this program, the practitioners need to come up with comprehensive ideas to lure the top management and ensure that they get their support all through the process (Mukherjee & Ray 2005). The common option is to offer an explanation before the implementation begins, to manage their expectations and be as truthful as possible on what the system will do for their organisations. The management in this case will appreciate knowing in detail operations of practitioners and their schedules, timelines and expectations in advance so as to plan their end of the implementation as well. A misunderstanding in this case may stall or simply stop the whole exercise thus there is a need for effective communication and full cooperation. Practitioners can even take on the training of the management on ERP systems at a discounted price or for free just to win their support.

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