ASSIGNMENT ON ERP ENABLED BPR

SUBMITTED TO: PROF. DAKSHINA MURTHY

SUBMITED BY: NIHAD ALI

(0920318)
WHAT IS BUSINESS PROCESS RE-ENGINEERING?

Business Process Reengineering means not only change -- but dramatic change.
What constitutes dramatic change is the overhaul of organizational structures,
management systems, employee responsibilities and the use of information
technology. It was introduced by Dr.Michael Hammer in 1990s. Business
Reengineering is the fundamental rethinking and radical redesign of business
processes to achieve dramatic improvements in critical, contemporary measures
of performance, such as cost, quality, service, and speed. Hammer illustrates
reengineering with the revolution that took place in Ford’s system of accounts
payable. In the early 1980’s, Ford’s auditors carefully studied accounts payable
activities and concluded that, by consolidating, by rationalizing processes, and
by installing new computer systems, staff could be cut twenty percent -- from
500 employees to 400.

“We should reengineer our [organizations]; use the power of modern

information processing technology to radically redesign our ... processes in
order achieves dramatic improvements in their performance.... We cannot
achieve breakthroughs in performance merely by cutting fat or automating
existing processes. Rather we must challenge the old assumptions and shed old
rules.” – Michael Hammer

Principles of Reengineering

Hammer (1990) has described some of the principles of reengineering

the business processes as follows:
 Organize around outcomes, not tasks.
 Have those who use the output of the process perform the process.
 Subsume information-processing work into the real work that produces
the information.
 Treat geographically dispersed resources as though they were
centralized.
 Link parallel activities instead of integrating their results.
  Put the decision point where the work is performed, and build control
into the process.
 Capture information once and at the source.

 Common Steps in BPR

 Project Phases Required For Successful BPR:

 Phase 1: Begin Organizational Change

 Phase 2: Build the Reengineering Organization

 Phase 3: Identify BPR Opportunities

 Phase 4: Understand the Existing Process

 Phase 5: Reengineer the Process

 Phase 6: Blueprint the New Business System

 Phase 7: Perform the Transformation

 Phase –I Begin Organizational Change

 Assess the current state of the organization

 - Explain the need for change(Consolidate the problems which can be

converted into opportunities-Creates potential for trying new
technologies)

 - Illustrate the desired state

 - Create a communications campaign for change

 Phase -2 Build the Re-engineering Organization

 Establish a BPR organizational structure

 Establish the roles for performing BPR

 Choose the personnel who will reengineer

 Phase3 –Identify BPR Opportunities

 - Identify the core/high-level processes

 - Recognize potential change enablers

 - Gather performance metrics within industry

 - Gather performance metrics outside industry

 - Select processes that should be reengineered

 - Prioritize selected processes

 - Evaluate pre-existing business strategies

 - Consult with customers for their desires --- quality .delivery

 - Determine customer's actual needs.

 - Formulate new process performance objectives

 - Establish key process characteristics

 Phase4 – Understand the existing process

 Understand why the current steps are performed

 - Model the current process

 - Understand how technology is currently used – COBOL – Unix based

system

 - Understand how information is currently used – batch system – non

interactive – text based terminals(NO GUI)

 - Understand the current organizational structure(slow to react to

customer needs)
  - Compare current process with the new objectives – cycle time reduction
– fast in reacting to customer needs – competitive in mark

 Phase5 – Re-engineer the process

 - Ensure the diversity of the reengineering team – (Top management,

User Group, Developers Group)

 - Question current operating assumptions

 - Brainstorm using change levers – Selecting the correct technology

within Budget

 - Brainstorm using BPR principles

 - Evaluate the impact of new technologies – Competitive Advantage,

Cycle time reduction, Work life enrichment

 - Consider the perspectives of stakeholders – Faith in the information

system

 - Use customer value as the focal point – Quality and Delivery

 Phase 6 Blueprint the new Business System

 Activities

 - Define the new flow of work

 - Model the new process steps

 - Model the new information requirements

 - Document the new organizational structure

 - Describe the new technology specifications

 - Record the new personnel management systems

 Phase 7 Perform the Transformation

 - Develop a migration strategy – A project plan

 - Create a migration action plan – PERT network with important

milestones

 - Develop metrics for measuring performance during implementation

 - Involve the impacted staff – Consult Users who are going to use the
system

 - Implement in an iterative fashion - Building proto types

 - Establish the new organizational structures

 - Assess current skills and capabilities of workforce

 - Map new tasks and skill requirements to staff

 - Re-allocate workforce

 - Develop a training curriculum

ERP and BPR- Inseparable twins(How ERP facilitates BPR?)

Michael Hammer in his path breaking article “ Reengineering Work: Don’t

automate, Obliterate “ published in Harvard Business Review, defined BPR as-
“use the power of modern information technology to radically redesign
business processes in order to achieve dramatic improvements in their
performance “.

For BPR to succeed or achieve the intended benefits information technology has

a critical role to play as the key enabler of business processes

Organisations have following options:

1. Reengineer business processes before implementing ERP

2. Directly implement ERP and avoid reengineering

In the first option of reengineering business processes, before implementing

ERP, the organisation need to analyse current processes, identify non value
adding activities, redesign the process to create value for the customer and then
develop an in-house applications or modify an ERP system package to suit the
organisations requirements. In this option employees will develop a good sense
of process orientation and ownership. This would be a customized solution
considering the organisations structure, culture, existing IT resources, employee
needs and promises relatively less disruption to routine work during the change
program. It is likely to have a high probability of implementation. But there
engineered process may not be the best in the class, as organisation may not
have access to the world-class research and best practices. Moreover, this
maybe the only chance to radically improve in near future and going for less
than the best may be a costly mistake. Plus developing an in-house
application/implementing a modified ERP can take lot of time.

In the second option of implementing ERP package with minimum deviation

from the standard settings i.e. “one size fits all”. All the processes in a company
should conform to the ERP model and the organisation has to amend its current
work practices and switch over to what the ERP system options offers. This
option offers a world-class efficient and effective process with built in measures
and controls and is likely to be quickly installed (need not necessarily be
quickly implemented fully). But if the employees do not have clarity of existing
processes and good understanding of their internal customer needs or current
processes are not well defined and documented, it is quite possible that while
selecting the standard process from the ERP package, employees may not be
able to perceive the difficulties likely to be encountered during implementation
stage. Employees would lack process ownership and orientation. Other than
technical issues like organisation structure, culture, lack of involvement of
people can lead to major implementation difficulties and full benefits of
standard ERP package may not be achieved. Situation may arise that after
implementing ERP, organisation may have to reengineer its processes. This
could be a very costly mistake.

Theoretically the third option of reengineering business processes during

implementation of ERP also exists. It may sound to be the best option but being
an ideal situation it does not seem to be practical option and is likely to cause
maximum disruption to existing working. It should not be forgotten that during
BPR & ERP initiatives, routine work is still to be carried out and customers
served.
 AN EXAMPLE FOR SUCCESSFUL APPLICATION OF BPR- FORD
MOTORS’ NEW ACCOUNTS PAYABLE MANAGEMENT SYSTEM

Case 1: Ford Motor Co. reengineering its accounts payable processes

In the early 1980s, when American automotive industry was in a depression,

Ford’s top management put accounts payable –along with many other
departments- under the microscope in search of ways to cut costs.

At that time, Ford’s North American accounts payable department employed

500 people. By using computers to automate such processes, Ford thought it
could cut head count by 20%. Pretty good, thought Ford’s executives, until they
visited Mazda.

The Ford managers noted that the admittedly smaller company took care of its
accounts payable chores with only five people. The contrast –Ford’s 500 people
to Mazda’s 5- was too great to attribute just to the smaller company’s size.
Finally, to match Mazda’s efficiency, Ford realized that it would have to rethink
the entire process in which the accounts payable department took part.
Under the old system, a number of paper documents was processed sequentially
by 3 functions who participate in the process indirectly with a work force of 500
clerks to perform many intermediate steps:

(1) The purchasing function issues a purchase order to the supplier and
sends a copy to the accounts payable function.
 (2) Upon arrival of purchased goods, the inventory function sends a copy
of the receiving document to the payable function.

(3) When the invoice from the supplier arrives in the mail, the payable
function matches it against the purchase order and the receiving document
before issuing payment to the supplier.

(4) Much of efforts are needed to resolve frequent discrepancies between

the documents, and a total of 14 data items must be checked in the process.

Ford’s new accounts payable process looks radically different. Accounts

payable clerks no longer match purchase order with receiving document,
primarily because the new process eliminates the invoice entirely. With a work
force of only 125, the 3 functions participate in the process directly by accessing
a shared database, eliminating many intermediate steps and sequential flow of
paper documents. The new process looks like this:

(1) The purchase order is entered into the shared database by the
purchasing function.

(2) Upon receiving goods, the inventory function accesses the database. If
a match is found, the goods are shipped and the status of the order in the
database is updated. Otherwise, the goods are returned to the sender.

(3) The payable function routinely accesses the database to prepare

payment checks for orders that have changed status, and invoices from suppliers
are eliminated.

(4) Matching and discrepancy resolution of paper documents are no

longer needed, and only 3 data items need to be checked in the process.

The basic concept of the change at Ford is simple. Payment authorization,

which used to be performed by accounts payable, is now accomplished at the
receiving dock. And the result is a 75% improvement in head count