Tuesday, 13 December 2011

Kazi Farms' ERP implementation experience

By Zeeshan Hasan
(From the August 2011 issue of CIO magazine, Bangladesh edition)

Practically everyone has heard the ERP buzzword, but many are still unclear what it means; in brief, ERP (Enterprise Resource Planning) is integrated business software which combines accounts, costing, purchase, inventory, manufacturing, sales, human resources and project management. In other words, it’s the holy grail of MIS (Management Information Systems); it puts all company information in one live, constantly updated database where whatever reports anyone requires can be instantly produced.

Three years ago Kazi Farms, the largest poultry company in Bangladesh, decided to embark on its own ERP implementation journey. In the course of it, many mistakes were made and lessons learned. When I started doing research into typical ERP implementations, I realized that the mistakes we made were typical; ERP implementation is a complex business, touching every department in an organization, where many things can and often do go wrong. The academic field of Management of Information Systems largely grew up due to recognition of the fact that around 50% of large software projects (typically ERP) usually fail. This sounds like an incredibly high number, but it’s one that has been repeatedly found by survey after survey around the world.

Why should ERP systems fail so often? The simple reason is their very nature; ERP integrates all departments in an company. But these departments, in the real world, may not be accustomed to working with each other so closely, and may not want to cooperate. Prior to implementing ERP, a company’s sales, purchase, manufacturing and accounts departments operate in relative isolation, since no one else is directly using their data; this means every department is fairly independent. Usually, in companies without ERP, all departments have to reconcile their data only once every thirty days to produce the monthly accounts. But once ERP comes along, everyone is forced to work together and reconcile stocks and other data on a daily basis. People who hardly know each other have to work together very closely. The result is that all the interpersonal and interdepartmental politics lying under the surface of the organization is aggravated. Any such intra-company politics and disagreement is likely to cause the ERP effort to fail, since an integrated ERP system requires coordinated input from every department.

The Kazi Farms experience here will be illustrative. Prior to our ERP effort, Kazi Farms was a highly distributed company operating in many locations; however, there was no distributed information system other than e-mail. The standard way that information was exchanged was by a daily transfer of huge quantities of paper vouchers and documents from each location to a massive team of accountants in the head office, who then put in a superhuman effort to enter all that data into a central Tally accounting package. The old way of doing things had obvious drawbacks; the huge volume of paper vouchers and documents being transfered every day from locations to the head office meant that things sometimes got lost, and the huge pressure of Tally data entry at the head office meant that errors were made. Both of these errors caused problems that took time to resolve. The net result was that accounts could never be made more frequently than once a month, and at a delay of several weeks at that.

Around 2008, GPRS connections finally became sufficiently widespread and reliable that we could think about integrating all these departments and locations with a modern web-based ERP. This was the solution, obviously, to our absurd data entry workload in the accounts department. The central feature of any ERP software is that there is practically no accounting data entry workload; ERP means that all operational data entry such as purchase, manufacturing or sales automatically generates accounting entries in the system. This profoundly changes the work of accountants; they no longer have any data entry to worry about. Instead, they can concentrate on the real work of accounts, which is financial control and cost control.

The first thing we did was recruit a Cheif Technology Officer (CTO), an experienced ERP implementation person with the same status as our existing General Managers of accounts, sales etc. The CTO was given the responsibility of coordinating all the ERP related efforts of different departments. Appointment of the CTO immediately created problems with several General Managers, particularly in the accounts department, as the GM of accounts was suddenly no longer the expert on the accounting system; as an ERP novice, he obviously knew much less about the new accounting system than the CTO.

This started a game of non-cooperation between the GM of accounts and the CTO that severely hampered the ERP implementation. Even though the accounts department was no longer supposed to do the bulk of data entry, they still needed to check all balances and the verify the accuracy of each entry. An ERP software is still an accounting system, and accountants have to ensure the validity of data in any accounting system. That means that, if the ERP is to work, accountants have to minutely supervise the daily data entry work in every single location by every single department; this is a task they may not be prepared for or willing to do. Any wrong data entry anywhere will result in wrong accounting entries being made. If this is not found and corrected immediately, there will be a huge mess in accounts. The fundamental rule of any computerized system is that if you put garbage in, you get garbage out; there is no alternative to correct data entry.

Once the Kazi Farms ERP project began, the accounts department had a vastly changed job; it was more managerial in nature, in that they had to check the data entry work of all departments every day. It was also more distributed, in that they had to do this job in every location every day. That was where the problem lay; the junior accounts people in remote locations were not ready to take on these new responsibilities. They had always done a simple clerical job of writing paper vouchers by hand and sending them to the head office for entry in Tally. This job changed completely; these junior accounts staff suddenly had to make all the real entries into the ERP system. Many of them had never used a computer before, and it required a huge HR effort to arrange training for them.

But even after the junior accounts people were trained in the data entry job, they could not be expected to take over the responsibility of checking all the accounting entries and adjustments that had to be made each month. That was supposed to be the job of the senior accounts staff in the head office. But senior accounts people were busy with their game of non-cooperation with the CTO, and simply refused to take responsibility for data entry accuracy happening at remote locations; they had never visited those places in their lives as accountants, so why should they care about them now? The junior accounts people posted in remote locations were simply not qualified to do the whole job of checking everything themselves without the aid of the senior accountants, who were not interested.

Before we realized what was happening, we saw unacceptable data entry errors creeping into our ERP accounting reports. When asked what was going on, our senior accountants had no answers as they had simply not fulfilled their responsibilities to check all data entry in all locations.

What was the solution at that point? Quite simply, the senior accountants who were becoming the barrier to the ERP running smoothly had to go. We realized that our most senior and highly qualified accountants were not going to accept the new way of working required by the ERP. The management of Kazi Farms made it clear that we were now married to our ERP solution, not to our senior accountants. Ultimately, the senior accountants left or were sidelined to non-critical duties. They were replaced by a new set of senior accountants, recruited from companies which had already implemented ERP solutions, and came in knowing what was expected of them.

In retrospect, we would have had a much easier time implementing our ERP if we had taken three steps to prepare for it better.  Firstly, we should have recruited a number of senior accountants of at least Assistant General Manager level from companies experienced with ERP implementation so that someone senior in the accounts department could be relied upon to take the ERP implementation seriously. Secondly, we should have had a much stronger internal audit department. If internal audit had been stronger, any failure in the accounts department would have been found and highlighted immediately, and been easier to correct. Thirdly, we should have had a better Human Resources department. Our HR department at the time was only concerned with paying monthly salaries and overtime with Excel spreadsheets. But HR should have been the department which identified that our locations were weak in terms of experienced accountants who would not be able to manage the job of checking all data entry; at that point, HR should have pro-actively recruited and trained better people in locations to overcome this weakness.

The good news is that, two years later, our accounts department is reorganized with more capable people in remote locations as well as ERP-savvy senior accountants at the head office; our internal audit and HR departments are also much stronger than they were. In retrospect, strengthening of all these departments was required to make the whole company better managed. The ultimate benefit is that our ERP software is now working, and has made the organization much more efficient and transparent. We have capabilities we could only dream of before, such as up-to-date product costing, live inventories visible in all locations, and the ability to get daily income statements from each location.

As Bangladesh develops, companies will become bigger, and it is inevitable that more of them will be turning to ERP. I hope that this recollection of Kazi Farms’ experience with ERP implementation will be of use to others in their own attempts. As someone once said: “Fools learn from their own mistakes; wise men from those of others.”


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