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ERP System Implementation in Retail Business

(Majalah Ritel Indonesia – Ed September 2014)
Andy Djojo Budiman
Co-founder & Partner STEM – SAP Partner (www.sterling-team.com)

A friend in the community told me that he was upset with one of the provider of the application/software. He believed that the application he bought at high prices was unusable.

We often hear the parable above. There’s a lot of entrepreneur that were disappointed with the software provider and likewise, the provider feels that the requirement from the entrepreneur would often change.

I feel the need to educate the reader in order not to experience the same problem when making system software for your company.

All companies, especially retail companies in Indonesia, require integrated software to help expedite all its business activities. Even now, not all companies realize the need for an integrated system supported by software. With integrated software, the company will be able to run its goal operation correctly.

Currently, there are quite a number of retail companies choosing the wrong software. This is all due to a misinterpretation of the system and software. They assume that system equals to software. In the end, the purchased software is unusable, even deemed cumbersome. With buying software, they assume the company could automatically utilize it while in actuality using software involves the software itself, a standard operating procedure and the user. A combination of the three aspects will bring the maximum result from buying software.

Talking about software system, you would have heard the term ‘ERP’ system. ERP stands for Enterprise Resource Planning. It is used to be perceived that ERP was only accounting software. Nowadays, ERP has gone through tremendous evolution with the inclusion of other aspect than accounting such as production, purchasing, sales, human resource, payroll, taxation and others. In principal, ERP enables companies to integrate all processes of the company in a single container. Databases for each aspect that were separated are incorporated into one due to integrated system.

ERP answers one of the many needs in retail businesses. By understanding the advantages in ERP system, the expectation is for the ERP to be implemented properly in accordance with the company’s needs.

For that reason, ERP system implementation requires careful planning in each phase. Each phase demands thoughtful consideration, therefore each detailed step should be strictly observed.

Here are the steps necessary in the ERP project implementation :

1. Understand the needs of the company for a system.
Before deciding to purchase a system, it is important for companies to understand what exactly are the difficulties / challenges that drive a company to require a system or to replace the old system. The main thing to think about is: What are the targets in this system changes from the company and the user?
a. Current Challenges
For example: the difficulty of knowing the status of the stock, accounts receivable and thus require systems that can provide up to date report. The company would require an integrated system to speed up reporting.
b. Future Challenges
In addition to the difficulties faced today, it is important to think about the operational challenges of the future in line with company strategy, in the hope that it can be facilitated by the new system.

Without clear reasons, companies would often face difficulties in choosing a vendor or software and that would lead to disappointment from failing to meet initial expectation in the chosen software. One of the tips is to determine the company’s requirement, focus on the essential needs (must have) and separate those from the desires of the users (nice to have). Failing to prioritize those needs will results in a long list of requests that any software would have difficulties to provide.

2. Selection of ERP systems (Software Selection)
Before starting the project, the company should decide which ERP system to use. Some considerations in this phase are:
(a)Are you going to make (custom made) or buy an ERP system that is available on the market? The advantage of custom making a system is that it will be in line with the needs of companies and users, but the disadvantage is that it will be difficult to fulfill all the wishes of each user resulting in the never ending development phase. While advantages in buying an ERP system that is available would save time as they do not require time to develop and the functions available are often best practices that the company can learn and adopt. However, the disadvantage is that readily available system sometimes cannot be modified to suit the company needs.
(b)If the company decides to purchase an available ERP system, would you acquire it from local or international vendor? Determining local or international vendor should focus on how the application could meet the requirement of local regulation especially government regulation. One example would be in Human Resource where regulation and tax calculation would often change; in this aspect local vendor would be more familiar with the practice and should provide a better solution. While international vendor have more experiences in implementing in various countries so they may provide a more comprehensive function. The question is not easy; searching for answers has its own set of challenges. We often see the failure to use ERP occur this step. This is often because the potential user does not understand clearly what they want from ERP system. On the other hand, the consultant could also incorrectly encapsulate the needs of the user, giving a false impression that every challenges and needs in the company will be solved with the new ERP. Think carefully about the needs of the company and it will make decision making in choosing the ERP system easier.

3. Selection of Vendor / Partner
In general, companies need a third party (consultants) in implementing an ERP system. The question that often arises is: Is it possible to implement ERP by using internal resources or using a consultant from outside the company? In selecting a partner, make sure that the consultant is an expert in the ERP system they represents. This is usually achieved by interviewing the team or researching the previous company the team implemented on. Other than that, make sure the consultant understands the industry the company is in, for example an experienced consultant in banking industries wouldn’t be familiar with the retail industries. It would be unwise to choose a consultant unaccustomed to your industry as they usually do not understand the challenge that may only be particular to your industry, which would often

lead to difficulties in giving the correct recommendation. In addition to experiences in the same industry, it is also important to understand the needs of local Indonesian business needs, e.g. in retail industry, Indonesian way of dealing with consignment may differ somewhat from other countries practices. By selecting a consultant who understands the needs of local industry, it would allow a smoother discussion and implementation process and the consultant might offer insightful practices from other companies (industry standard).

4. Implementation Project
After the steps above, next step is to implement the ERP we have decided with the assistance of the vendor to achieve the goal we set.

Following the three steps above, it is still not guaranteed that the system implementation will be successful because the process of implementation may take 3-6 months. Of course, this also depends on the number of users and the complexity of the business processes.

Steps performed are:
(a) Preparation of the Project which includes scheduling, resource allocation and organization preparation.
(b) Discussion to establish the scope, determining the current processes and the improvement of these processes with the ERP.
(c) Development or realization phase, consist of system configuration for readymade system or development for the custom made system and report development
(d) Preparation before system can go live, consist of the preparation of user manuals, testing, training the preparation of data.
(e) System go live and support process after the system is up and running.

Tips in making the implementation process run smoothly:
1. Commitment from the management to support this project. In having so, the company will allocate the best resources to support the implementation process.
2. Commitment from the user to take the time and effort. Because the implementation process is dependent upon the user, such as what is required in the new system and during the training & testing. Often an implementation process is perceived only as an Information Technology team’s task, so other departments are less involved, this would result in a system that is purchased / prepared not in line with the conditions of each of the relevant departments.
3. Preparation of the data. Data preparation is often the things that go unnoticed, whereas in the retail world, the data is something that should be of particular concern. In addition to a large amount of data, for example the fashion industry could have hundreds of thousands of items and selling prices that often changes. Therefore, the preparation of data requires a dedicated team to ensure the quality and accuracy of the data.

By doing the steps above, we hope you could build a suitable ERP system that answers your needs. It also means investing to build the ERP system will not be in vain and your company will grow in the future.

Good luck and success to you.

There is no definite formula in determining / deciding the purchase of a system. Some general tips.

1. Not all retailers require integrated systems, for example if your company only has 1 or 2 stores, you may have a POS system that’s separate from the accounting system. Of course, we also must consider at the number of transactions that occur each day. If every store has more than 50 or 100 transactions per day, you might want to consider choosing a POS system that is integrated with accounting system.
2. The use of integrated systems that is used by all departments would require more maintenance than the non-integrated systems. For example, if the system is in trouble, the entire company’s operations could be disrupted. Therefore, most companies have the information technology department to perform system maintenance such as regular data backup and system access arrangements.
3. Given the higher operational challenges in the world of retail, small retailers would generally be better off using an available system rather than create its own system. That way retailer can focus on the retail business rather than be distracted in making the system. Moreover, purchasing a system that is already available, we can learn firsthand of other retailers operation. For large companies operating in national or global scale, it is usually more difficult to get a system that could meet their needs, so the combination of purchasing and making system is often a good option. For example, using a readymade system for the accounting system but custom develop a POS systems made by information technology team to be easily adapted to the user request.
4. Preparation of infrastructure and hardware considering Indonesia’s network situation (bandwidth) especially for retailer with numerous store and distributed throughout Indonesia. Preparation of network infrastructure should also take into account the amount of data traffic that is usually higher in retail industry.

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