Legacy accounting holds sway

Express Computers - Bombay,India
These systems were running applications such as sales and finance, payroll
and inventory management. Many applications were home grown and developed
by ...

Small businesses continue to rely on their legacy standalone accounting systems for business insight. However there have been instances where some of them have followed in the footsteps of enterprises by deploying enterprise applications. Since the support IT infrastructure is already in place, deployment of enterprise application software is on the cards. By Akhtar Pasha

Most of the small businesses that Express Computer spoke to have one thing in common and that is they are still relying heaving on a legacy application developed in-house to meet their business requirements. That said they all agree that this legacy application does not give a clear view of their transactional systems because it is not integrated with the company’s business processes. Small businesses are following the same path as today’s large businesses and understand that efficient systems that support growth will only come from robust IT investments.

It is said that history repeats itself and is true in every context. Large enterprises perhaps faced the same problems that small businesses face today—the need for stronger transactional and operational systems to sustain growth and be competitive in the market place. They started with standalone accounting systems for inventory control and as they grew their business, they wanted to monitor the entire production, planning, material management and dispatch processes. We have seen in the past that small businesses grow using legacy applications that fail to provide critical business insights only to be replaced by standard core enterprise applications that not only meet their current and future requirements but also support growth and expansion and contribute to their bottom and top line revenues. This trend is slowly catching up in small business as they are slowly becoming a larger part of the global supply chain. According to IMRB two thirds of respondents are using ERP and a third are using CRM and SCM solutions.

IT is a strategic investment

The bulk of the respondents believe that IT is a strategic investment. The basic infrastructure such as LAN technology is already in place as a basic IT infrastructure. A majority of them have already invested in LAN technologies such as Fast and Gigabit Ethernet. WAN, ERP, storage and wireless are the next investment areas for small businesses. Almost two thirds of the verticals—auto components, services, FMCG, Chemicals—have already invested in LAN technologies. Keeping this in mind they want to capture the market opportunity and hence need to increase their production and market reach in order to compete.

Almost half the 197 respondents view IT investments or deployments as part of their corporate strategy. The existing infrastructure had issues like non-scalable legacy technologies that were unable to meet current and future business requirements. Additionally small businesses were not able to implement any standard technology due to such issues and in order to address such issues they are viewing their IT investments as strategic in nature. Additionally it is easier to implement technologies such as enterprise applications, storage and servers if the basic IT infrastructure such as LAN is already in place. Half of respondents surveyed by IMRB across verticals agree with this assertion and that it is the primary reason for investing in ERP, SCM, CRM and BI. Basic IT infrastructure dominated IT deployments made last year. Enterprise Applications were also experimented with by small businesses.

Paul Arthur Dueman, business analyst and head-IT, Maestro Engineering says, “Deploying an ERP (mySAP) solution enabled us [a high-end fashion made-to-order garments manufacturer and exporter] to take on additional clients by reducing production wastage and improving capacity planning.”

Aftab Waseem, EDP In charge, Atria Hotel in Bangalore says, “We are using hotel management software from Intellect Data Systems & Software (IDS), which has helped integrate our entire business processes. We are able to generate revenue reports on a daily basis, customer data is online, and looking at past data of a corporate customer or regular guest, we can pass on discounts.”

P Kumar, tech lead, Trident Infosol says, “Our business is heavily dependent on IT [in-house developed ERP] which is 60 percent strategic.”

There are certain key areas where small businesses want to take action—bring products faster to market, become more competitive, trim operational expenditure while increasing productivity and sales.

Since small businesses are largely family run, most do not use a standard ERP package. Instead they are using an in-house developed application that suits their requirement. Take the case of Trident Infosol that is engaged into electrical and electronic design used in industrial automation and defence applications. Kumar says, “We have a small IT team that develops and manages IT systems. We have developed a legacy ERP application and CRM solution as we cannot afford to buy a standard ERP package as we are still a small operation.”

Stephen Pavan, systems administrator, Ascent Consulting Services (a third party payroll processing company) agrees, “We still need to grow from the legacy applications then only the investments in standard products will be justified.”

Streamlining operations

Clearly small businesses want to integrate their business areas and want to get away from the legacy applications which they have acquired and maintained for so long. Dueman recalls three challenges faced by him—first because of the standalone legacy application developed in-house there was no visibility into business. Second, the modules such as inventory, production planning, forecasting and merchandising were working in isolation making integration impossible and hence the company was unable to get real-time information that was required for making business decisions. Third, Material Resource Planning (MRP) also known as the ‘Shopping List’ had to be done manually, a process that required human interaction and was error-prone. He says, “Our production planning was based on guesstimates and not on actual details. When we placed the order for fabric at the grid stage—such as weaving, dying and printing it took a longer time increasing the lead-time that typically ran to 60 to 90 days. Additionally in our business, details such as style, colour and size have to be tracked. Though our end-customers pay a uniform retail price irrespective of the size and colour of a garment that they buy, the material costs are different during procurement. In our legacy system the Bill of Materials (BOM) did not allow us to drill down or map the material required for manufacturing a certain quantity- sometimes leading to overstocking of inventory. Similarly, production suffered when the quantities failed to reach on time- since there was no way to get an online inventory report.”

According to an AMCO Batteries official, “We had been using DOS-based applications for inventory, accounts and invoicing which were not integrated leading to non-availability of real-time data. Additionally accounts bill settlement and collection used to take 30 to 35 days, which is now reduced to 10 days post ERP deployment. We are now able to take business decisions and a market position on a daily basis; this was not possible earlier.”

Roots Industries that manufactures auto ancillary components and specialises in the manufacture of electronic horns for four- and two- wheelers is using SAP to manage its growth. Says O A Balasubramaniyam, GM-IT, Roots Industries adds, “Prior to mySAP we were using MRP 9000 Intuitive Manufacturing Solution and we felt that our operations were overgrowing this legacy application and wanted a standard ERP system to manage our growth. Our in-bound and out-bound deliveries were growing, and so were the revenues.”

Prior to the SAP R/3 ERP deployment, Macmillan India was using several legacy systems (developed using FoxPro and Oracle) which were not interconnected and failed to talk to each other in real time. These systems were running applications such as sales and finance, payroll and inventory management. Many applications were home grown and developed by certain individuals. Whenever one of these individuals left the organisation, the others didn’t have the expertise to work on the systems. Moreover, the systems catered to the lower rungs of the organisation. M Visweswaran, Macmillan’s chief information officer explains, ‘The data which was being produced by the legacy system was catering to clerical activities, and was not satisfying the needs of the higher management; this affected the process of decision-making. The flow of information was not uniform, and there was no control over it.’ As a result of the legacy systems, Macmillan was unable to control its expenditure effectively, and this led to rising inventory costs.

SFA and limited CRM

Small businesses are using some standalone systems for tracking contact management, service request or responding to proposal and order management. There has been an interest by small business regarding the use of SFA to capture service requests and respond to proposals and track orders. Idea Design, a dealer for design software product is using a SFA solution to monitor RFP (request for proposal) invoices and order fulfilment. There are some small travel companies using SFA to capture customer interactions.
EAS speeds time to market

Of the 197 respondents, 39 percent single out faster delivery of products and services as the most significant fall out of their top IT deployment. The most significant impact realised with the deployment of the most significant IT project across industry verticals has been optimising their supply chain be it through faster delivery of products or services or through better integration with suppliers and markets. Manufacturing/engineering and auto/auto components put this figure [faster delivery of products] as high as 53 percent. It also helps small businesses build a competitive advantage. Pavan says, “IT deployments have sped up payroll processing. We process close to 60,000 records per month and we have able to cut processing time for most of our customers.”

According to Ajoy Menjhi, assistant manager-IT, Keventer Agro Ltd., “We manufacture agro products and were using paper-based transactional systems, which used to affect the decision making cycle. Surely the IT investment helps us build competitiveness and reach the market faster.”

Kumar Ravish, business manager-IT, Superton Electronics Ltd says, “We are using Radix as core application (ERP) for distribution of IT hardware products. We are monitoring the logistics and finance. The IT deployment (Radix) has been a clear differentiator in our business helping reach the market faster.”

Exports = standard processes

Exports have emerged as a strong factor for small businesses operating in auto-ancillaries supplying parts to OEMs worldwide and in textile and apparel manufacturing (specialised fashion garments). Dueman says, “Our turnaround time is short, and we have two seasons in a year—autumn-winter and spring-summer—each spread over six months. During each season, two months are spent in sampling, booking orders, production and dispatch. The only way in which we could reach the market on time was to invest in ERP and Advance Planning Optimisation to streamline our processes across the supply chain.”

IT impacts the organisation

Most small businesses whole heartedly supported the fact that deploying IT impacts their business in more than one form. About 60 percent of them say that the IT deployment has sped up their delivery of products and services and had a major impact on their growth and bottom lines. Additionally IT has streamlined their internal processes for complete transparency and helped them gain a competitive edge over the competition. For example manufacturing/engineering and auto-auto components have invested in core business applications because they have become global supplier to the world and hence there is need to streamline their processes and expand their capabilities to meet the market demands. Manufacturing, auto-auto components, chemical/pharma are heavily depended on their supplier chain network and hence the emphasis is to achieve greater integration with supply chain.

Maestro deals with close to 900 BOM (Bill of Materials) of individual styles and shades, which is a complex and difficult-to-manage process. Using Variant Configuration (VC) the company does not need to create a separate BOM for each product variant. The company can use one configurable material to cover all variants. For example, if Maestro is manufacturing garments of size ‘M’ in three colours, it automatically generates the purchase order, checks for stocks level of each component required for manufacturing and if found short in supply, raises new purchase orders and plans capacities. The VC considerably eases the capacity planning and production efficiencies increase by 50 percent up to production rollout helping in faster time to market. There are instances which justify the investment made in SAP R/3. “When we placed the order for fabric at the grid stage—such as weaving, dying and printing it took 60 to 90 days. Prior to the SAP R/3 implementation our production window was two months long. With SAP in place our production window increased to 15 to 20 days more. And our production planning which was based on guesstimates and not on actual details, we used to procure materials 10 to 15 percent over what we needed. This resulted in 7 to 10 percent of the production being dead stock, which was worth Rs 30 to 50 lakhs per fashion cycle. These savings have gone straight to our bottom line justifying the investment. The ERP has helped in expanding our bottom line. It has enabled increase in production window and reduction in production wastage,” says Dueman.

Overall the small business market is wide open for any EAS vendors. Since most of the support IT infrastructure such as LAN infrastructure, servers and already in place, it is time to move from legacy applications and invest in scalable and reliable solutions that provides transparency into transactional and operational systems. These companies need to automate their processes as well bring better products faster to the marketplace.