Reasons for ERP failures

ERP in India: Reasons for ERP failures

ONE of the major culprits in (http://www.erppandit.com/reasons-for-ERP-failure.html) ERP malfunction is the taxation system prevailing in India.The tax structure itself is complex and terms used by planners make it more complex. In fact many leading ERP vendors have included a Country India Module to address this situation.

Following is the case of a manufacturing company that suffered heavy losses because of the whims and fancies of tax authorities. The company used to buy certain goods from different state and normal sequence of calculation of tax incidents was Basic cost, Excise Tax, Sales Tax, Octroi, Loading/Unloading, Freight. The last two were independent components. The sales tax authorities, however, warned the company to add Excise and Octroi first and then calculate sales tax on the total value. On the other hand, the octroi authorities asked to pay octroi on the total value wherein sales tax is included.

This is a typical cyclic loop problem which the organization cannot control. To come out of this crisis, the organization started assuming standard rate of sales tax, added it to excise and determined the basic value of octroi calculation. Then the calculated octroi (on actual) is added back to the excise duty to determine the base for sales tax.

Standard ERP cannot support all these, and hence the company decided to exclude the tax incidents for inventory valuation and lost its real benefit of ERP. Consultants suggested some jugglery to overcome the problem, but the company stuck to its decision. The concept of ERP recommends some of the best practices of linking single item, single purchase requisition, single buyer, single line of purchase order and single supplier. When any company implement ERP this practice suggested by ERP is normally taken as irrelevant in India. Companies have a list of items attached to one requisition (indent number is the industrial parlance); companies may have in certain cases more than one purchaser for the same or similar items.

Also companies have multiple suppliers for one item. (About the multiple supplier phenomenons in India see what the project GM of a construction company says: "We never pay to our suppliers; when he refuses to supply further, we find another person to continue the supply, and hence our list of suppliers for an item goes up. In fact, to find out the outstanding accounts payables, one should only count the number of suppliers dealing with the organization.")

Another manufacturing company implemented ERP and the stores manager was demanding multiple lines for one purchase requisition. His views were typically nurtured in legacy system and he was looking at ERP as an advanced legacy system. Consultants somehow convinced him to adopt one item - one requisition policy, but the problem cropped up in another module. Stores started using multiple requisitions for different items.

The purchaser had to select one line for each individual item and hence his PO was becoming as lengthy as 35 to 40 lines per order. In one it was seen raising 80 lines of PO which when printed, took more than 20 pages. The real problem came when the stores department took the material receipt entries of these items. The items were similar with only a slight difference in the description, also because of the multiple lines; the user was selecting the wrong PO line for a particular item. If once such transaction took place, its effects could be realized only at the time of bill passing. Consultants were insisting on correct entries whereas users were shouting against ERP's incapacity to address such things automatically.

ERP persists on inbuilt quality than inspection. In India we hardly find these practices being followed, especially with non-BoM items. To address these requirements, a common idea used is to create a warehouse in ERP as "under inspection" and "rejected" etc. The parameter settings in such warehouses are tuned to restrict any issue transaction from these warehouses except transfer to accepted warehouses.

In reality, after setting these parameters the user later asks for immediate and urgent materials issue from these warehouses. ERP does not allow such transaction and hence physically the material is issued without entry. The problem aggravates when material is issued in part from inspection stock. The organization keeps separate tracing of these issue notes and later entered whenever time permits. In the whole process a wrong picture of inventory availability is shown in the system.

Some Indian companies follow the hierarchical organization structure. It basically supports the division of power and authority. Hence typical policies exists, such as one cannot sign PO having cost more than Rs, 50,000 or only a particular department can receive packing materials, and so on. The decision control flows from lower hierarchy to upper, and hence approval has to be taken to decide on any issue. ERP expects empowered and knowledgeable employees and hence found to be an unsuccessful in some of the Indian requirements.

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