LB/Vorsl/^3/olf IMPLEMENTING ENTERPRISE RESOURCE PLANNING AND ITS RELATION TO BUSINESS PROCESS REENGINEERING WITH SPECIAL REFERENCE TO SRI LANKA A Dissertation Submitted to The Department of Mathematics Faculty of Engineering University of Moratuwa Sri Lanka In Partial Fulfillment of the Requirements Of the Degree of Master of Science In Operational Research T^Orarn' of M O R A T i r w m o p a r u w * By M.N.V. Ferna: rnando 8 1 6 2 0 U M TAe5i Department of Mathematics University of Moratuwa June 2 0 04 S1620 DECLARATION I Hereby d e c l a r e t h a t t h i s d i s s e r t a t i o n i s my own work and t h a t , t o t h e b e s t of my k n o w l e d g e i t c o n t a i n s no m a t e r i a l p r e v i o u s l y p u b l i s h e d o r w r i t t e n by a n o t h e r p e r s o n nor m a t e r i a l w h i c h , t o s u b s t a n t i a l e x t e n t , has been a c c e p t e d f o r t h e award o f any o t h e r a c a d e m i c q u a l i f i c a t i o n o f a u n i v e r s i t y o r o t h e r i n s t i t u t e of h i g h e r l e a r n i n g e x c e p t where an acknowledgment i s made in t h e t e x t . C a n d i d a t e : -4rz.z:.. MlMl2.oo.l. M. k . V. Fernando Date ABSTRACT Implementation of Enterprise Resource Planning (ERP) systems is relatively new in Sri Lankan context and very few studies have been carried out on this topic. With the ever-increasing need to successfully implement ERP systems, such studies have become very important. The study was designed to analyze how organizations can lead successful ERP implementations, use of best practices and to signify the extent of Business Process Reengineering (BPR) required for project success. A questionnaire survey covering 40 organizations implemented ERP solutions and inputs from experts in the field were used in the study. A related literature review showed that, failure of any ERP implementation wastes colossal amount of money and time due to lack of top level support, poor change management, poor planning, inadequate communication, poor knowledge of best practices or BPR etc. The survey revealed that, in Sri Lankan context, Finance, Manufacturing and Distribution were the most popular areas used in ERP systems. Manufacturing organizations were more interested on implementing ERP. The use of consultants in the areas of change management and BPR, was less. In addition, the survey found Twenty Critical Success Factors for ERP projects, highlighting comprehensively that BPR must be done parallel for a successful implementation of an ERP system. Based on the conclusions, it is recommended that managers should not change the system to suit the local processes, but should use more help from external consultants for BPR and change management. They must make the employees familiar to computers before training and educating them about the ERP systems. i i ACKNOWLEDGEMENT Firstly, I wish to express my deepest gratitude to my supervisor, Dr. M. Indralingam, Senior Lecturer, Department of Mathematics and course coordinator of MSc. in Operational Research, University of Moratuwa, for his enthusiastic guidance throughout the course and during my research. I wish to express my heartiest gratitude to my co- supervisor, Mr. H. Mannapperuma, Senior Business Consultant, Advent International Limited (Subsidiary of Ceylon Tobacco Company), for his superior knowledge on the subject and for his ready assistance throughout the study. The valuable information and comments he made on the study enlightened me on the subject area to a greater extend. I would also like to express my gratitude to Prof. G.T.F. De Silva of the University of Moratuwa, for his guidance and unstinted support. His suggestions were invaluable and helpful in every way. I would also express my gratitude to all my lecturers for sharing their knowledge and the effort and initiative taken in transferring knowledge to the students. I wish to acknowledge all the contact staff members of the organizations from which the research was carried out. This research would not have been possible if not for the willing support extended to me. I also wish to say grateful thank you to my friends and colleagues for the encouragement and assistance extended to me in completing my research study. I owe an appreciation to my parents and sister for the spiritual and emotional reinforcement. Finally, my special thanks are due to my husband for his valuable advice and encouragement in all endeavors of this research, especially in times of despair for assistance in the successful completion of this project. ABBREVIATION BP Best Practice BPR Business Process Reengineering CBA Cost Benefit Analysis CIM Computer Integrated Manufacturing CPI Continuous Process Improvement CS Current State DBMS Database Management System ERP Enterprise Resource Planning GIGO Garbage-in-Garbage-out GRN Goods Received Notes GUI Graphical User Interface IT Information Technology JIT Just in Time MPS Master Production Schedule MRP I - Material Requirement Planning MRP II - Manufacturing Resources Planning OM Operations Management PFA Process Flow Analysis PFC Process Flow Charts PO Purchase Order ROI Return on Investment SF Sales Forecast SMED Single Minute Exchange of Dies TQM Total Quality Management IV 4 TABLE OF CONTENTS Page DECLARATION I ABSTRACT II ACKNOWLEDGMENT Ill ABBREVIATIONS IV CHAPTER 1 t INTRODUCTION 1 . 1 Background 1 1 . 2 Reasons for Failures 4 1 . 3 Focus of the Research 6 1 . 4 Objectives of the Study 9 1 . 5 Significance of the Study 9 1 . 6 Methodology 1 1 1 . 7 Limitations 1 1 1 . 8 Organization of the Research 1 2 CHAPTER 2 LITERATURE REVIEW 2 . 1 Introduction 1 3 2 . 2 Enterprise Resource Planing 1 3 2 . 3 Importance of ERP for a Company 2 6 2 . 4 Failures of ERP Projects 2 8 2 . 5 Best Practices 3 0 2 . 6 Benefits of Best Practices 3 7 *~ 2 . 7 Business Process Reengineering 3 9 2 . 8 Importance of BPR 4 0 2 . 9 The Connection between ERP and BPR 4 1 2 . 1 0 Other Researches 4 5 v CHAPTER 3 BUSINESS PROCESS REENGINEERING METHODOLOGY 3.1 Introduction 47 3.2 Background 47 3.3 Difference between BPR and Continuous Improvement 48 3.4 Methodology Selection Guideline 51 3.5 Reengineering Success Factors 55 3.6 Avoiding the Top-Five Project Mistakes 61 3.7 Process Flow Analysis 69 3.8 Summary 75 CHAPTER 4 BEST PRACTICES 4.1 Introduction 76 4.2 Best Practices Implemented Through ERP Systems. 76 4.3 Best Practices for Operational Excellence 83 4.3.1 Overview of JIT manufacturing 83 4.3.2 Objectives of JIT manufacturing 89 * 4.3.3 Major tools and techniques of JIT manufacturing 90 4.4 The Oliver Wight ABCD Checklist for Operational Excellence 115 4 . 5 Summary 115 CHAPTER 5 METHODOLOGY • 5.1 Introduction 117 5.2 Literature Survey 117 5.3 BPR Methodology and Best Practices Documentation 117 5.4 Questionnaire Design and Data Collection 117 5.5 Techniques Used to Analyze Data 121 " s i V: CHAPTER 6 DATA PRESENTATION AND ANALYSIS 6.1 Introduction 123 6.2 General Information of the Companies that Implemented ERP Solutions in Sri Lanka.... 124 6.3 Impact of Various Factors to Project Success... 128 6.4 Difficulties when Implementing ERP Systems in Sri Lanka 13 4 6.5 Relationship between ERP and BPR and Issues during BPR 136 6.6 Real Life Lessons from the Experiences of Project Teams Involved in Projects 139 6.7 Summary 144 CHAPTER 7 DISCUSSION OF FINDINGS, CONCLUSIONS, RECOMMENDATIONS AND DIRECTIONS FOR FUTURE RESEARCH 7.1 Introduction 145 7.2 Discussion and Data Interpretation 145 * 7.2.1 General information identifying variables ... 145 7.2.2 Critical success factors for ERP projects ... 146 7.2.3 ERP implementation difficulties 148 7.2.4 Factors leading to ERP failures 149 7.2.5 Effect of BPR to ERP 149 7.3 Conclusion 150 7.4 Recommendations 152 7.5 Future Directions 153 * APPENDIX I 154 APPENDIX II 158 LIST OF TABLES 162 LIST OF FIGURES 163 REFERENCES 165 BIBLIOGRAPHY 167 « VII