New Age Advantage

CW India Staff , March 1st, 2009

Satish Pendse, CIO of Hindustan Construction Company Ltd discusses the importance of Enterprise Resource Planning (ERP) from the construction industry's perspective

The term Enterprise Resource Planning (ERP) has become synonymous with a software application that automates all the critical business functions of an organisation.

From the construction industry’s perspective, it is a single application, a single database that automates functions such as land acquisition, project planning & budgeting, execution, materials management, equipment handling, sales, lease management, utilities management, costing, accounts & finance, HR, Payroll and so on.

This is a single software running across all the locations and the business functions of the organisation.

The key advantage is that it provides a single set of figures giving end-to-end view of the business in an on-line, real-time manner, for all business locations spread across the globe. In the absence of integrated ERP, different functions work on different set of figures. The time is then spent in deciding which figure is correct.

Post ERP implementation, this problem ceases to exist since everyone works on a single set of figure. Saved time can be used for acting on the information provided through ERP reports, in order to reduce cycle-time and costs.

ERP automates the key business processes, eliminating duplication and improving efficiency. World-class ERP software are built around best-practices, thereby giving us an opportunity to upgrade our business processes.

Adoption of world-class ERP software such as SAP also helps organisations to reach next levels of corporate governance and creates adequate transparency. This is the reason private equity investors give preference to construction organisations that have implemented systems like world-class ERP.

ERP allows an organisation to exercise required systemic controls, which becomes a necessity as organisation starts growing and spreading geographically. With ERP, one can get better control over funds and is also able to track the actual expenditure vis-à-vis a planned one and act on the deviations before it is too late.

Even a small improvement in productivity, utilisation of the construction equipment, reduction of inventory or reduction of wastage using the information provided by ERP, can lead to considerable savings in operating costs.

It is also experienced that the automation using ERP helps to track the records properly which results into getting better tax credits. By tracking the dates, it also helps in ensuring timely payment of statutory dues.

Real estate organisations use ERP to track customer collections during and after the construction. Real estate organisations whose business model consists of leasing the developed property get value through ERP. They can do much better management of lease rentals.

The system also does for them the rule based distribution of maintenance charges to all the occupants. Tracking of land-bank development, status of approvals of each hissa of land-bank gets facilitated through usage of SAP like ERP software.

In a nutshell, ERP has become a business infrastructure today. The way country needs solid infrastructure backbone in the form of roads, power, ports, airports and so on to sustain its growth, a construction organisation needs ERP backbone to sustain its growth in the future.

Beyond concerns

Construction companies do have some concerns regarding implementing world-class ERP solutions such as SAP. There is a perception that the system is complex. An implementation partner having domain knowledge can guide you about eliminating complications without scarifying the value.

Some of the construction companies also believe that their internal processes are not matured as yet and hence they may face difficulties while adopting ERP. The reality is that such companies should rather adopt world-class ERP, so that they can quickly migrate to world-class processes. Our staff, although may not be as educated, generally ends up surprising us positively in terms of the pace and comfort with which they adopt the software.

Organisations are concerned about their own ability to enter the data in a timely and accurate manner. If the data is incorrect or incomplete, then the output information will also be of lower quality. Implementation partner with domain knowledge can come out with mechanisms for tracking the data-discipline on an ongoing basis.

Adoption of ERP is a cultural transformation and hence it is most successful when led from the top. Involvement, education and communication are the three pillars that can help the organisation to successfully carry out this cultural transformation.

Cost is concern. Some of the organisations choose locally developed, ‘low cost’ ERP, which may pose longer term issues. The total cost of ownership of SAP ERP has fallen considerably. Some of the implementation partners have developed industry specific templates that reduces the time and costs. From a holistic perspective, the total cost of ownership of SAP turns out to be cheaper. One can expect the payback for these investments to be in the range of 2-3 years. One can also plan for phased implementation, if one-time investment is a concern.

Way forward

Construction organisations should seriously consider implementing world-class ERP immediately. This challenging period should be utilised to set right the systems and processes so that the organisation will be at an advantage when the tide turns.

We at Hindustan Construction Company implemented SAP very comprehensively, about three years back and are now reaping the benefits. We have now started implementing SAP for other construction companies. We have already implemented the same for five other construction organisations and that has gone off very well. I will be delighted to address any query in this regard and it will be our pleasure to partner with you in your journey towards ERP based business processes excellence.

The author can be reached at satish.pendse@hccindia.com

Advantages of ERP implementation

Single application that automates various key functions
Gives an end-to-end real time business view
Connects business locations spread across the globe
Increases productivity and boosts efficiency
Considerably saves time, money and resources
Gives control over inventory and reduces waste