ERP’S BEST PRACTICES AND CHANGE IN PAKAGES

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(TO BE A MARKET LEADR THEN TAKE THE FIRST STEP TOWORDS CHANGE OTHER WISE YOUY CONT MAINTAIN YOUR POSITION IN MARKET) (ALI, 2010)

COMPANY BACKGROUND:
Packages Limited was established in 1957 as a joint venture between the Ali Group of Pakistan and Akerlund & Rausing of Sweden, to convert paper and paperboard into packaging for consumer industry. Over the years, the Company continued to enhance its facilities to meet the growing demand of packaging products. Additional capital was raised from sponsors, International Finance Corporation and from the public in 1965. Packages commissioned its own paper mill in 1968 having production capacity of 24,000 tones of paper and paperboard based on waste paper and agricultural by-products i.e. wheat straw and river grass. With growing demand the capacity was increased periodically and in January 2003 was nearly 100,000 tones’ per year. Since 1982, Packages Limited has a joint venture with Tetra Pak International in Tetra Pak Pakistan limited to manufacture paperboard for liquid food packaging and to market Tetra Pak packaging equipment. In 1993, a joint venture agreement was signed with Mitsubishi Corporation of Japan for the manufacture of Polypropylene films at the Industrial Estate in Hatter, NWFP. This project, Tri-Pack Films Limited, commenced production in June, 1995 with equity participation by Packages Limited, Mitsubishi Corporation, Altawfeek Company for Investment Funds, Saudi Arabia and general public. Packages Limited owns 33% of Tri-Pack Films Limited's equity. In July, 1994, Coates Lorilleux Pakistan Limited, in which Packages Limited has 55% ownership, commenced production and sale of printing inks. In 1996, A joint venture agreement was signed with Print care (Ceylon) Limited for the production of flexible packaging materials in Sri Lanka. This project Packages Lanka (Private) Limited commenced production in 1998. Packages Limited now owns 77% of this company. In 19992000 Packages Limited has successfully completed the expansion of the flexible packaging line by installation of new rotogravure printing machine and the expansion of the carton line by a new Lemanic rotogravure inline printing and cutting creasing machine. In addition a new 8 color flexo graphic printing machine was also installed in flexible packaging line in 2001. Packages Limited has also started producing corrugated boxes from its plant in Karachi from 2002.

Packaging Limited was born out of a dream to set up in Pakistan industries of excellence based on local raw material and talent. Packages Limited is a leading packaging manufacturing company of Pakistan. It is the sole largest industry in Pakistan serving about 35% needs of the country. Syed Baber Ali Shah, who was the first managing director of Packages Limited, went to Sweden in 1954 to negotiate the contract with AB Akerland & Rausing of Sweden. AB Akerland and Rausing had been the leading paper converters in Europe. Pakistanis needed technical collaboration with their Swedish partners. In the beginning, the first problem was the selection of the site. Finally, Lahore was selected due to the following reasons:

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Easy availability of workers. Easy availability of raw material. Easy transportation all over the country.

A B Akerlund & Rausing packaging company brought machinery and expert technicians while the Ali Family provided the necessary capital, land, labor, local expertise and management. Syed Baber Ali was the first Managing Director. Packages Limited started operating in May 1957 with a paid up capital of Rs. 4.94 million as a joint venture between the Ali group and Akerland & Rausing of Sweden. Initially, Packages produced cartons for the cigarette, tea, confectionery, soap, pharmaceutical products and other consumer products. These cartons were produced from paper and board supplied from mills in Chittacong, Khulna, Charsadda and Peshawar. However the quality and quantity of paper and board supplied was inadequate. Over the years, the company continued to enhance its facilities to meet the growing demand of packaging products. Additional capital was raised from sponsors, International Finance Corporation and from the public in making the total paid up capital to Rs. 31 million in 1965. As a first step, Packages commissioned its own paper mill in 1968 having production capacity of 24,000 tons of paper & paper board based on waste paper, agricultural waste, wheat straw and kahi grass. As the demand continued to grow, it led the company to expand and by the end of 1998 its annual capacity was increased to 50,000 tons of paper & board and corresponding converting ability.

Since 1982, Packages Limited has a joint venture in Tetra Pak Pakistan Limited with Tetra Pak International to manufacture paper for liquid food packaging and to sell Tetra Pak packaging equipment. After Tetra shape, it also introduced brick shape packing. Both shapes are very popular among liquid preservation industries. The main industries covered by Packages Limited are, Tea Industry, Tobacco Industry, Food Industry, Pharmaceutical Industry, Sweets & Confectioneries, Soap Industry, Shoe Industry, Tissue Industry… In tetra Pak Pakistan Limited Packages Limited has 45% shares, 6% shares owned by Syed Baber Ali Shah and 49% shares owned by Tetra Pak International. Since 1957, Packages has been producing inks for its own consumption. In 1993, the company agreed to form a joint venture with equity participation from Coates Lorilleux, world’s second largest printing ink manufacturer to produce inks for Packages Limited and the general market. Packages Limited own ink manufacturing facilities now transferred to new company, “ Coates Lorilleux Pakistan Limited”. In July 1994, Coates Lorilleux Pakistan Limited; in which Packages limited has 55% ownership, commenced production and sale of printing inks. Also in 1993, a joint venture agreement was signed with “Mitsubishi Corporation of Japan” for the manufacturing of polypropylene films at the industrial estate in Hattar, NWFP. This project, Tri-Pack Films Limited, commenced production in June 1995 with equity participation by Packages Limited33%, Mitsubishi Corporation, Altawfeek Company for Investment funds, Saudi Arabia and general Public. Another important service department of Packages Limited is its “Power Plant”. In 1967they set up 6 MW power plant, but to ensure a continuous and dependable supply of power for its production lines, Packages has also established its own 10 MW power plant in 1991, the cost of which was 180 million rupees. Packages Limited save a lot of money in this regard. For example, if they get power from WAPDA, thenWAPDA charge more than 6 rupees per unit but the expenses of its own production are almost 2 rupees per unit. In the field of consumer products, Packages Limited has shown tremendous potential and commendable talent. Consumer Product Division provides 12% share of the Packages total sales. The consumer products of the company are “Rose Petal Tissues”. The production of Rose Petal was first introduction of tissue paper industry in Pakistan. Though Packages has introduced so many brands of tissue. Rose Petal is now the market leader of tissue paper industry in Pakistan. Rose Petal has more than 80% share of tissue paper industry in Pakistan. Other

consumer products are paper Cups, paper Plates, Paper Napkins, Paper Hot Cups and Wet tissues of Rose Petal have been introduced in the market in 1992. Now Packages Limited is exporting its managerial skills & technical expertise to the third world countries like Indonesia, Tanzania, Kuwait, Saudi Arabia, Nigeria, Zambia, Somalia & Russia. It has also started the export of tissues to Iran, Bangladesh, Sri Lanka, Indonesia, United Arab Emirates and Maldives. Packages Limited has a large workshop. This workshop is capable of making, repairing and replacing the damaged parts. The RD & Control Department were also established to ensure the quality and standard of the products. Starting with a work force of 500 workers, now Packages Limited is having 2674 employees. In this regard, a separate Personnel Department is there, to look after the problems of the workers. Today Packages Limited is considered to be a leader in Packaging field in Asia. Packages Limited has established an Effluent Treatment Plant because it is concerned about the environment and wants to keep it clean. Packages have completed the balancing, modernization, replacement and expansion program, which began in 1994. This has enabled the company to minimize capacity constraints and improve quality to meet local and foreign competition as well as improve its environmental protection facilities. (Pakages.com, 2010)

Stimulation for Adoption of ERP:
(Usage of enterprise applications is becoming widespread every day and Enterprise Resource Planning (ERP) systems are among these applications. ERPs are preferred because of their organization wide information sharing capability, component-based structure and capability to be integrated with other systems. Choosing which ERP to use is a complex decision that has significant economic consequences, thus it requires a multi-criterion approach)(Aslam, 2010)

Nowadays, some of the most pervasive and invasive information systems that are being implemented By and made use of in organizations are those referred to as Enterprise Resource Planning (ERP) Systems. The launch of ERP systems have spawned a multi-billion dollar global supplier and Consulting industry. By adopting a process orientation and consequently integrating business processes by means of pre-engineered packaged software applications, the stated goals of adopting ERP systems are to obtain organizational benefits such as lower inventory costs and shorter cycle times.

RISK ASSESSMENT:

ERP project risks:

Several research studies have investigated the ERP risks and have attempted to classify them in various ways. Six main dimensions of risk in ERP implementation have been identified by namely, 1) organizational, 2) business-related, 3) technological, 4) entrepreneurial, 5) contractual and 6) financial risks. Organizational risk derives from the environment in which the system is adopted .Business-related risk derives from the enterprise’s post-implementation models, artifacts, and processes with respect to their internal and external consistency. Technological risk is related to the information processing technologies required to operate the ERP system – for example the operating system, database management system, client/server technology and network. Entrepreneurial or managerial risk is related to the attitude of the owner-manager or management team, while contractual risk derives from relations with partners and financial risk from cash-flow difficulties, resulting in an inability to pay license fees or upgrading costs, for example. In the research of following six risk categories have been presented: 1) organizational fit, i.e. failure to redesign business processes, 2) skill mix, i.e. insufficient training and reskilling, 3) management structure and strategy, i.e. lack of top management support, 4) software systems design, i.e. lack of integration, 5) user involvement and training, i.e. ineffective communication, and 6) technology planning/integration, i.e. inability to avoid technological bottlenecks. The following ERP risk factors are summarized by 1) inadequate ERP selection, 2) poor project team skills, 3) low top management involvement, 4) ineffective communication system, 5) low key user involvement, 6) inadequate training and instruction, 7) complex architecture and high numbers of modules, 8) inadequate business processes, 9) bad managerial conduction, 10) ineffective project management techniques, 11) inadequate change management, 12) inadequate legacy system management, 13) ineffective consulting services experiences, 14) poor leadership, 15) inadequate ICT system issues, 16) inadequate ICT system manutenibility, 17) inadequate ICT supplier stability and performances, 18) ineffective strategic thinking and planning, 19) inadequate financial management. Instead of using abovementioned ready-made risk lists, a company might consider identifying their own, company-specific ERP implementation risk list. These risks could be complemented by common risk lists. To minimize the risk of the ERP project, have recommended the application of a risk management plan at different ERP implementation project stages; selection, implementation, and usage. A planned and systematically adopted risk management procedure throughout the ERP project reduces the possibility to risks occurring. Consequently, suggest that major mistakes are made in the early stages of the ERP project, even prior to the implementation process. however, emphasizes the

efficiency of risk management when it is introduced at the earliest possible opportunity in the life cycle of the system in question, when planning issues are most important and the criteria for system selection are determined. This research has been carried out as a case study of three manufacturing SMEs. The case SMEs are in different phases of the ERP project.

Selection of ERP:
Analytic hierarchy process (AHP) is a method widely used for this kind of complex decisionmaking problems. A multi-attribute ERP selection decision model is introduced based on the AHP methodology. The model is illustrated with an example and managerial implications are discussed. Based on the AHP, Expert Choice (EC) is decision support software that reduces complex decisions to a series of pair wise comparisons and then synthesizing the results. In this study, EC is used to perform the ERP selection procedure, provided the objectives and criteria. • Following parameters must keep in mind while selecting ERP. Computer-based information systems cover every sphere of management. They are pointers of a new 'Information Age', where information is a key organizational resource, and where management activities become more information-intensive. Enterprise applications are used widely in every sector and become more widespread every day. An enterprise resource planning (ERP) is one of these enterprise applications, which involves all departments of an organization and is the backbone of the enterprise. Since it has a long and problematic implementation process, and is a very expensive investment, it is important to make a healthy selection about which ERP fits the organization the most. ERP selection process involves identifying criteria and their relative weights, and evaluating the alternatives. AHP methodology overcomes such an evaluation process using a hierarchical structure for prioritizing objectives. This paper focuses on an ERP selection problem using AHP methodology with the use of Expert Choice Software. In the following section, the ERP selection criteria are discussed while introducing two alternatives used in our model, SAP and Axapta. After structuring the problem, it is solved with the Expert Choice software. Sensitivity analysis is included and three different user perspectives to the solution are presented in the conclusion. It is important to note that usage of this methodology is not restricted to software selection; it can be used for various multiattribute decision problems.

ERP Selection Criteria:
An ERP system is the information backbone of an organization and reaches into all areas of the business and value-chain. Thus, long-term business strategy of the organization will form the basis of the selection criteria of an ERP system. The selection of the most appropriate solution is a semi-structured decision problem because only a part of it can be handled by a definite or accepted procedure such as standard investment calculations and on the other hand the decision maker needs to judge and evaluate all relevant business impact aspects. There is no agreed-upon and formal procedure for this important task. The modules that an ERP offers, are the most important selection reasons; varying according to the needs of the organization. In this paper, it is assumed that the decision-maker has gone through the module selection process, has found very similar applications on modular design, and thus eliminated modules according to preference. And, there remain the following criteria, which are listed in order of priority; • Customization: Since different organizations need different software, they need to adapt the available software in the market for their own use. But, customizations shouldn’t cause difficulties in updating to future software releases. • Implementability: Different ERPs have different requirements, thus it is important to choose an implementable one. If the organization ventures infrastructural change, the feasibility problem this change may cause shouldn’t be disregarded. • Maintenance: The software should support multi-company, multi-division and multi-currency environments. There shouldn’t be any restrictions to this type of environment so that whenever an add-on procedure or a patch is available, it can be updated immediately. • Real Time Changes: The modules should work in real time with online and batch-processing capabilities, so that no errors would occur because of the system being not up-to-date and information available to a department wouldn’t be different than the other department’s. • Flexibility: Flexibility denotes the capability of the system to support the needs of the business over its lifetime.1 As the business requirements of the organization change, it should be able to add extra modules. The ERP should be flexible in order to suit the organizational culture and business strategy. • User Friendliness: Most of the time, the end-users of an ERP system are not computer experts, thus their opinions about the software are highly valuable. The product shouldn’t be too complex

or sophisticated for an average user since the efficiency of end users directly affects the efficiency or the organization. • Cost: Cost is an important issue since the implementing organization may be a small or medium sized enterprise (SME) that may not act as comfortable as a large, multi-national organization. ERPs are generally complex systems involving high cost, so the software should be among the edges of the foreseen budget. • Systems Requirements: Technology determines the longetivity of the product.2 It is important to choose an ERP that is independent of hardware, operating system and database systems. At least, the requirements of the software should worth changing into. The ERP system design should also not conflict with the organization’s business strategy. • After Sales Support & Training: The vendor should be providing the training as well as the after sales support, since ERPs are fairly complex applications for learning by oneself. Also it should be considered that every department within the organization would have its own piece of software to use, so a kind of specialized training will be needed for each department. • Back-up System: To obtain the security for highly complex systems with huge databases, providing a very well-formed network is not enough; the back-up unit of the system should be more than reliable. Users should be able to schedule routine and partly back-ups. Besides, the back-up unit should also offer a solution for restoring the system within the shortest time. • Reporting & Analysis Features: Besides standard reports, management team should be able to implement their own reporting and analysis tools and dump them into the system for alter use. • Vendor Credentials: Vendor’s market share, reputation, number of consultants, number of installations performed, support infrastructure and demonstration of previous implementations are critical factors showing the commitment of the vendor to the product. • Integration with Other Software/Applications: The modules should be integrated and provide seamless data flow among the other modules, increasing operational transparency. In case a third party application is needed, the ERP should be available to exchange data with the application, since data import/export is widely used techniques. • Internet Integration: The software should support e-business, e-commerce and EDI transactions. At least, even if it doesn’t have as built-in modules, Internet adaptation should be available as add-on modules. • Financing Options: ‘Financing options’ may not be a technical criterion, but it is very important for an organization how to pay for the investment and how long pay for it.

Challenger ERP vs. Defender ERP:
Applying the AHP methodology onto an ERP selection process means evaluating alternative software with respect to previously determined criteria. In this project, it is assumed that the decision maker has studied many ERPs and eliminated them until two left; SAP and Microsoft Axapta. Another assumption is that the selecting organization is not a small or medium-sized, but a large enterprise with the end users greater than or equal to 250. SAP is chosen as the defender, since it is the most popular ERP among all, and the most experienced one. Founded in 1972, SAP is the world's largest inter-enterprise software company, and third-largest independent software supplier.3 The most competitive solution that SAP offers as a whole is named “mySAP Business Suite”. It includes modules for Customer Relationship Management, Supply Chain Management, Supplier Relationship Management, Product Lifecycle Management and my SAP ERP, which includes the core business functions grouped under sub-modules financials, corporate services, operations, human capital management and analytics. Axapta is chosen as the challenger because of its fast development during last few years and effective entry into the markets. In December 2000, Navision Software merged with its Danish rival Damgaard. Then, Microsoft bought the whole and put forward Axapta as the business solution for large enterprises. Axapta’s main power is its integration capability with widely used Microsoft products, reducing the training costs. Its main modules are Analytics, Customization, Distribution, E-commerce, Foundation, Human Resources Management, Manufacturing, Supply Chain Management, Project Management and Sales & Marketing.

Grouping & Grading:
For the sake of ordering, it is useful to group the previously stated selection criteria under 3 titles; technology-related, user-related and vendor-related. These three main objectives with their related sub objectives can be seen in figure 3.1. In fact, the user-related criteria can also be listed under the technology-related title since technology related criteria can affect the user friendliness of the system. But It is better to make a distinction between these two titles; for example system requirements or real-time changes criteria are not directly user related but have serious technological background, or, although the flexibility or integration with third party applications features have technological requirements, their aim is to easy the use of the whole system for the users, thus they have a direct effect as user-related criteria. A second point is that the cost-related title also includes the vendor-related criteria. It is needless to form a fourth group since any

factor of the vendor influences the total cost of the system; so there is no misleading in taking cost-related criteria as vendor-related. During the rest of the paper, these three groups and their related sub-criteria will be used. Please note that these criteria are grouped according to personal opinions improved by the previous studies, and are subject to change from person to person, according to the point of view.

Figure # 1:

After AXAP Customization related Flexibilityrelated & related Sales Selection Vendor User Technology SA ERP Support Training User Friendliness Implement ability TA P Maintenance Reporting & Analysis System Requirements Cost Features Real-time Changes Vendor System Integration with Other Back-upCredentials Financing Options Applications Internet Integration

In order to solve the “ERP Selection” problem with Expert Choice (EC) software, we need to structure the hierarchy first. While building the hierarchy tree, including more than nine elements in any objective group is not considered since it is cognitively challenging for humans to evaluate more than nine factors at a time. Once the model is built, the next step is to evaluate the elements by making pair wise comparisons.

THE ERP IMPLEMENTATION PLAN:
The flowchart in Figure 1 depicts several activities that must be performed before implementing an ERP system. First, managers must conduct a feasibility study of the current situation to assess the organization’s needs by analyzing the availability of hardware, software, databases, and inhouse computer expertise, and make the decision to implement ERP where integration is essential (2). They must also set goals for improvement and establish objectives for the implementation, and calculate the break-even points and benefits to be received from this expensive IT investment. The second major activity involves educating and recruiting end users to be involved throughout the implementation process. Third, managers will form a project team or steering committee that consists of experts from all functional areas to lead the project. After a decision is made, a team of system consultants will be hired to evaluate the appropriateness of implementing an ERP system, and to help select the best enterprise software provider and the best approach to implementing ERP. In most situations, the consultant team will also recommend the modules that are best suited to the company’s operations (manufacturing, financials, human resources, logistics, forecasting, etc.), system configurations, and Business-to-Business applications such as supply-chain management, customer relationship management, eprocurement, and e-marketplace. The importance of adequate employee and manager training can never be overestimated. IT analysts usually recommend that managers reserve 11% of the project’s budget for training. Different kinds and different levels of training must be provided to all business stakeholders, including managers, end users, customers, and vendors, before the system is implemented. Such training is usually customized and can be provided by either internal or outside trainers. The system installation process will address issues such as software configuration, hardware acquisition, and software testing. Data and information in the databases must be converted to the format used in the new ERP system and servers and networks need to be upgraded. System maintenance will address issues and problems that arise during operations.

A post implementation review is recommended to ensure that all business objectives established during the planning phase are achieved. Needed modifications are tackled during this phase too. An ERP implementation is a huge commitment from the organization, causing millions of dollars and can take up to several years to complete. However, when it is integrated successfully, the benefits can be enormous. A well-designed and properly integrated ERP system allows the most updated information to be shared among various business functions, thereby resulting in tremendous cost savings and increased efficiency. When making the implementation decision, management must considered fundamental issues such as the organization’s readiness for a dramatic change, the degree of integration, key business processes to be implemented, e-business applications to be included, and whether or not new hardware need to be acquired. In order to increase the chance of user acceptance, employees must be consulted and be involved in all stages of the implementation process. Providing proper education and appropriate training are also two important strategies to increase the end user acceptance rate.

The ERP Implementation Plan
Figure # 2

ERP & IT strategies
Enterprise resource planning (ERP) is a complete integrated computer software based program which combines all departments through a central integrity. All department save their data in SAP, an ERP software. Packages spent RS 20 million on this system. This department maintains all system of SAP. ERP (enterprise resource planning) system ERP system is a combined module of software which integrates all departments of the organization. Packages Ltd. Uses ERP system named as SAP. Figure # 2:

Supply and Accounting Production SaleCusto administr chain Huma ERPDistributand System management finance marketing ation mer ion, n Wareho Resou use rce

SAP and Packages SAP is software company in Germany which produce ERP software. SAP is also an ERP program which was designed and customized by Siemens Electronics Company for packages. Packages has been licenced for the use of SAP. SAP is a computer software which combine all departments of packages Ltd. With a central integrity to inter-link with each other Detailed Function Of SAP Material Management • • • • • • • • Purchasing Inventory management Invoice verification Physical inventory Valuation Material planning Service entry sheet Foreign trade

Financial Accounting • • General ledger Account receivable

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Account payable Banking Fixed assets Reconciliation Special purpose ledger Fund management Travel management

Sale & distribution • Master data • Billing • Sale support • Shipping • Foreign trade • Sale information system • Transportation • Inbound delivery • Ware house management Production • • • • • • • • • • • Production control Capacity planning Cost control Material forecasting Demand management Bill of material Work center Routing Production resource tools Engineering change management Master data (which cannot change with out authorization)

Production process • • • • • • • • • • • Master data Process order Production campaign Process planning Process management Product cost planning Plant maintenance Technical objective work center maintenance planning and process information system

Service management

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Technical objective Work center Warranty Contract and planning Customer interaction center Service process

Quality management • • • • • Quality planning Quality inspection Quality certificates Quality notification Test equipment management

Project management • • • • • Basic data Operative structure Planning budgeting Execution Information system

Environment management • • Production safety Dangerous goods management

Treasury • • • • • • • • • Cash management Loan Cash budget management Market risk Treasury management Money market Foreign exchange Securities Information system

Controlling • • • • • Cost elements Cost control Actual costing Material ledger Internal order

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Profitability anaylises Projects Product cost planning

Capital investment management • • • • • • Appropriate Request Program Internal order Investment projects fixed assets

Human resource managements Real estate management • Master data rental management • Rental adjustment • Rental accounting • Service charge settlement • Information system Web-Based SAP Special web has been made for web service-based ERP. Limit of web is that, employee can work online when they are sitting in offices. But the future of sap is that employee can work in their home. They will only connect their computer with internet and by using web-based ERP they will be able to do their work in every where the internal web-based ERP system –SAP is available in internal web site

Conclusion Finding Report:
• Packages limited spent 20 million PKR on the implementation, training, and service cost of ERP system. Through this system all departments have been integrated and interlink with each other. It is a huge project which is grown and improved with the passage of time. Web- based ERP system will be developed in future where packages is planning for the employees who will even work in their home by connecting their computers with internet Due to loss packages did not announced cash/stock dividend to shareholder in financial year 2008 Packages ltd invested a huge amount on consumer product department for producing more tissue due to increasing demand of tissue Most of manager in packages ltd follow the principle of <management by walking around> where manager physically rounds all areas of responsibility and collect first hand information so it is a cool way to solve many internal problems in a structural manner

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Up to 31st march 2009 the first quarter report shows the profit of 6355017000 PK Rs. of packages ltd. Now packages ltd is in investing phase due to new project of Bulleh Shah Paper Mills Projects and bearing the overhead cost of all plants but in spite of this packages limited is in profit it show the rapidly growth of packages so on the base of that information we can forecast the future growth of packages ltd packages will grow and its sale and profit will increase due to expansion of paper & paper board

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