Conducting ERP System Step by Step

——Case Analysis of a Certain Group

Hongming Chen 1, Yujin Lu 2

1
School of Management, Changsha University of Science &Technology, Changsha, 410076 China

cjxdsh@csust.cn
2
School of Management, Changsha University of Science &Technology, Changsha, 410076 China

luyujin09@163.com

Abstract: Nowadays, ERP system is the tendency and effective tool of information-based management mode of modern
enterprises. This paper introduces experiences and lessons of each stage of ERP system development process and tries to
explain the implementation of ERP system is a gradual process based on the example of Hunan Salt Group.

Keywords: ERP System, long-term planning, conducting ERP system step by step

1. INTRODUCTION
ERP (Enterprise Resource Planning) is a systematic managing idea based on IT, providing enterprise
decision for managers and employees with a managing platform. It is also a tool of foundation and
[1]
standardization of modern enterprises management . In brief, ERP is an integrated management information
system of production, logistics, finance and human resources including information integration of not only every
interior management function in enterprises, but also all interrelated businesses of the whole supply chain.
Nowadays, ERP system is the tendency and effective tool of information-based management mode of modern
enterprises. The ultimate objective of implementing ERP is to rationally adjust and make full use of enterprise
resources to realize the maximization of enterprise value.
As the enterprise which enjoys the largest scale and WAN coverage in light industry and salt industry in
China, Salt Group is the first enterprise conducting ERP in salt industry. Based on the spot investigation, the
author holds that conducting ERP in an enterprise cannot be realized in a short time. According to the actual
situation of the enterprise, we must make integrated planning, consider the cost benefit, and promote the
full-scale implementation of the ERP system step by step.

2. CASE ANALYSIS
Hunan Salt Group LTD.CO is a large-sized stated-owned enterprise directly affiliated to government of
Hunan Province. This group manages state-owned assets authorized by Hunan Province and controls the
exclusive distribution of salt in Hunan Province. Its business consists of science, industry, trade, transportation,
and processing industry of raw materials governing more than 40 subsidiary companies, 68 sub-branch
companies and 2 salt mines.
Owing to the management system, informatization construction of Hunan Salt Group had been lagging
behind. To meet the need of market economy, Powerise Software Company and Kingdee Company were
selected to joint-develop the ERP system by means of bidding in 2002 12th. For 3 years, until 2005 12th, the ERP

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system was admitted. The ERP system is in the sound state and the secondary development of this system is
being planned and prepared presently.
According to the order of development process of the ERP system, this paper introduces experiences and
lessons of each stage of ERP system development process and gives some suggestions based on the example of
Hunan Salt Group.
2.1 Leading decision-making
Before carrying out the ERP system, the information management of Hunan Salt Group was relatively
disordered. There was no unified management information system and parent-subsidiary companies have their
own management information systems. For instance, different members of the group choose different financial
management systems. This situation not only affects the internal communication of the group but also difficult
for the leaders to know the production, supply and marketing of the group, which results in the fact that the
group cannot adjust itself to the market growth immediately and the leaders cannot make timely and effective
measures.
With China’s entry into the WTO and the development of marketing economy, this outdated condition of
information management cannot adapt to the demand of the competition. Aiming at the future of the group,
Hunan Salt Group established a group which is leaded by the leader of the company and began the integrated
planning and experts’ demonstration of the information engineering application system project of Hunan Salt
Group. The general objectives of the information engineering are to establish a network information
management platform gradually consisting of a centralized, unified, fast and accurate financial management,
the salt transportation, sale and the salt administration, the office automation, logistics, cash flows and electronic
commerce management by utilizing modern management model, to provide the information and the data support
for the scientific leading decision-making, to insure all work under the effective and powerful control to
promote the level of scientific management gradually, to improve the efficiency and the benefit of economic
work of the group and enhance the comprehensive competence of Hunan Salt Group.
Project supported by Provincial Natural Science Foundation of Hunan (06JJ4082), supported by the Key
Research Institute of Philosophies and Social Sciences in Hunan Universities.
However, the general objective is an ultimate goal. In the statement of this general objective, “step by step”
is emphasized. Because of the restraints of time, capital and human resource and etc, ERP system cannot be
implemented in all business modules and all the functions cannot be realized at the same time, so the enterprise
should conduct the ERP system step by step from the angle of enhancing the comprehensive competence of the
enterprise. The functional required modules which can improve value addition activities should be giving
priority and those cannot be made use of temporarily should reserve the frames and developed only after the
terms matured. Only like this, the time and cost of the ERP system can be controlled and the enterprise can
benefit from the system and then the subsequent work can proceed.
2.2 Choosing right software developers
Considering of the exclusive distribution and monopoly of the salt industry, Hunan Salt Group didn’t buy
the existing management information system software directly, it selected Powerise Software Company and
Kingdee Software Company to joint-develop the ERP system by means of bidding.
The method of selecting software developers by means of bidding is worthy of being advocated. According
to the bid documents of different software developers, Salt Group can select the most suitable scheme by
comparing different schemes provided by different competitors. The group can determine the cost of the project
by comparing different prizes of different competitors with full consideration of it own economic capability.
Meanwhile, this joint-developing method is also a trial and innovation. Not only because Kingdee Company is a
famous financial management system software company in China whose conception is very new and technology

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of developing financial management system mature, but also Powerise Software Company has its own distinct
experience and technical superiority as a star enterprise in software industry. This kind of cooperation unites the
advantages of the two software developers and will certainly develop a powerful, perfect and highly pertinent
ERP system.
However, this cooperation has some defects. (1)The duties of the two software developers are unclear
because of combining bidding, so it is quite possible that two developers pass the buck to each other if there are
technical problems. (2)If the two developers don’t have enough communication each other, it is likely that there
are matching problems at which the two parts join. (3)In practical of Hunan Salt Group, because Kingdee
Company got a small portion of the bidding price, it is potential that Kingdee Company doesn’t design some
modules carefully and comprehensively by considering its cost.
2.3 Requirement analysis and System design
The requirement analysis is one of almost the most important links in the development of ERP system. This
step has heavy workload and involves all aspects of the group including not only each kind of objective data and
information, but also subjective persons, so the step is quite complicated of which the quality is a decisive factor
of the development of the entire ERP system project [2].
The course of requirement analysis is an interaction between software developer and enterprise. From the
view of software developer, requirement analysis is actually to investigate the whole enterprise. (1)Understand
the overall survey, the organizational structure as well as production, supply and marketing of the enterprise,
including not only the particular flow and working style of each business, but also management mode of the
enterprise. (2) Know the situation of the present system with the example of its work quality, efficiency, security,
reliability. It also needs to understand the quality and quantity of the information staff and whether the present
system is suitable for the business flow and work tasks. (3) Analyze the external environment, for instance, the
stability of the network. (4)The most important is that the software developer must know entirely what the
enterprise needs in this new system. What functional required modules must be finished in Phase 1 project and
some modules can be reserved while others developed later. For the enterprise, the enterprise should collaborate
with the software developer intimately in the whole course of requirement analysis. IT personnel are not familiar
with the management system and management business of the enterprise, so every person from the general
manager to the managers and staff of each department must collaborate on the investigation with the software
developers so as to help them fully know the situation of the enterprise.
Sometimes, external strength is necessary. For instance, the enterprise hires experts who have managerial
experience and computer knowledge as the consultants of this project. These experts may provide not only the
specialized opinions of management and the computer, but also rational consultation and proper intendance
because they are in neutral position so they could help to smoothly complete the requirement analysis.
According to the result of the requirement analysis, software developer begins to design the new system
②
and plans on how to realize the new system based on the system analysis report which is authorized .
After the requirement analysis, the Salt Group and the software developers are determined not to develop
the production module of two salt mines and the budget module of the whole group in the Phase 1 project with
the ERP system. The reasons are as follows: (1)From the perspective of the parent company, the business of two
mines is relatively complex, so the production module wasn’t developed in Phase 1 project of the ERP system
considering cost-benefit factor. (2)From the view of two salt mines, as subsidiary companies of Salt Group, they
are independent legal persons and independent financial units, so they worry about themselves being completed
to parent company. (3)For the budget module, the group is only arranging one person who is engaged in budget
now, but if adding comprehensive budget module into ERP system immediately, the group has to increase
personnel, as a result, the operating cost is increasing but economic benefit isn’t apparent in a short term. Taking

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accounting of the three factors above, the frames production and budget modules are reserved in Phase 1 project
and the rest will continue in the secondary development.
2.4 System switching
System switching is a sticking point which is a vital factor of the development of the ERP system project.
Almost all problems of prior work are reflected in this step.
Generally speaking, the quality of data in old system is poor and dispersing (the data in old system consist
of those in present computer system and those manual data which haven’t entered the computer system). When
switching to the new system, these data in old system must be processed and enter the new system accurately.
To make sure that the data in old system and the new data produced during the system switching process can
enter new system accurately, system switching of the Salt Group has been experiencing the period of parallel
operation. In some modules the time of parallel operation is 1 year, but in others, parallel operation has still been
proceeding. During the period of parallel operation, data are inputted, that account is handled and that financial
statements reported in both old system and the new one at the same time. In this process, as a user of this new
system, the Salt Group found a neglected problem left by the step of requirement analysis. The ERP system is
developed by two software developers and they didn’t communicate enough, so they had not attached
importance to coding and didn’t institute a unified coding rule so that coding of business system developed by
Kingdee Company is arranged according to sequence number while coding of financial system developed by
Powerise Company is arranged by another rule.
Parallel operation is one of the methods of system switching whose goal is to find and solve the problems
of prior work and avoid the risk of failure.
2.5 System operation
The author mentioned at the beginning of the paper, the ERP system of the Salt Group is in the sound state
at present. However, we should not only solve the problems left by the earlier work, but also discover the
shortage of the system and make adequate preparation for the secondary development in the operation of the
new system.
(1) Solve the problem that the coding of business system and financial system is non-unified. To solve the
problem, the Salt Group instituted a correspondent rule of internal group and developed the software called
‘Data Management Center’ for the interface of PowerERM business system of Powerise Software Company and
K/3 financial system of Kingdee Software Company. According to rules, Data Management Center transfers
data automatically from business system to financial system. Some other data transferred unsuccessfully are
imputed by hand. This interface software solves the problem of coding in some degree but this method wasting
time is not absolutely feasible in long run. The Salt Group used to try reinitializing the data compellingly, but
this method, associated to all departments, was lain over because of inimical emotion of staff and will be solved
in the secondary development.
(2)It is difficult to control the production cost. The production module of the two mines is not included in
this ERP system and the parent company can’t deeply understand the cost and expenditure of the subsidiary
companies from the source so that the parent company can’t make effective measurements to control the
subsidiary companies. As a result, cost and expenditure of production is out-of-control.
(3)The functions of financial management and decision support are not powerful enough. Although the
‘Financial Searching and Analysis System’ is able to inquire about more than 70 account sets independently,
make dynamic integration and analyze the financial data of the whole group. In this system, indexes, reports and
the index value searched are arbitrary and even accurate to any time point. But it is short of acrossing account
set searching function. For what the group leader was restricted to consider overall operation conditions of the
whole group in some degree and the decision will be affected more or less.

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2.6 Secondary development of ERP system
The phase 1 project of the ERP system of the Salt Group not only establish as a comparative perfecting
ERP system so as to make the scientific management level reach a higher step, but also changes the ideas of
managers and staff from fear, clash to welcome, cooperation. After 3years, the ERP system of the Salt Group
passed the acceptance in 2005 12th which marked not only the fruit of Phase 1 project have been affirmed, but
also that the Phase 2 project of this system could be putted to agenda.
Firstly, solve the problem of non-unification coding. It is a pis aller to connect the coding of business
system and the one of financial system by the interface software in Phase 1 project. In secondary development,
two software developers should communicate efficiently and institute a unified coding rule which classify the
objects by their attributes. After standardizations of the coding, data are reinitialized in the whole group to
thoroughly solve the coding problem.
Secondly, perfect the ERP system by adding detailed information into production, budget and human
resource modules in a good time so that these modules are more than some frames.
Finally, improve the performances of financial management and decision support. Realize the function of the
acrossing account set searching and establish an internal performance evaluation system of group company.
Enhance the scientific level of management in order to realize the maximization of enterprise value.

3. CONCLUSIONS
For Hunan Salt Group, the implementation of ERP system not only strengthens supervision to various
departments and subsidiary companies, enhances the connection of every parts of the group and shares recourses
and information of the group company, but also avoids isolated progress, reduces recourses wastes. In a word,
the Salt Group full plays the priority with the help of the ERP system. That the Phase 1 project of this ERP
system was affirmed doesn't mean the end of informatization construction of enterprise resource management, in
other words, the Phase 2 project is not the end-point. The ERP system is being on its developing and
consummating era.
The implementation of ERP system is a gradual process on the basis of long-term plan. (1)Before an
enterprise decides to develop an ERP system, it must know its present state of information management and
analyzes in detail whether it is a good time to carry out ERP system. (2)If the enterprise confirms the idea,
taking the economic strength and management status into consideration, it should be certain what functional
required modules must be finished in Phase 1 project and which can be lain over to avoiding consuming plenty
of manpower, material resources and financial abilities. (3)The modules developed in Phase 2 project should be
reserved the frames in Phase 1 project in order to save time cost and capital cost. Only making sure carrying out
every step smoothly, finding and solving problems in each step can the information management level of the
enterprise improve step by step and are enterprise decision and performance evaluation supported.
Learning from the case of the ERP system operated by Hunan Salt Group, the enterprises which are
carrying out or going to carry out the ERP system must take practical situation, the key factors, the integrated
plan and the implementation stages into consideration instead of being over anxious for quick results and
one-sided development. Besides, they must make sure that every stage target should be achieved in the whole
development process. Meanwhile, the input-output relationship should be fully considered in order to attain the
maximum utility. If not, the modules which can’t play positive roles immediately, needless to say to bring out
the economic efficiency, would drag the enterprise in a dilemma finally caused by income falling short of
expenditure.

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 REFERENCES
[1]Liu Yulong, Knowledge and Application of ERP, Haitian Press, 2005. 16
[2]Xue Huacheng, Management Information System, (3rd.ed), Tsinghua University Press, 1999 May. 306-328 [3]Wang Wen,
Numbers can Talk—Financial Management in ERP, China Machine Press, 2003 Jan. 223

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