ERP in Construction industry
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How does ERP help the construction industry? What are the post ERP challenges & benefits? ERP solutions
ERP in Construction industry
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How does ERP help the construction industry? What are the post ERP challenges & benefits? ERP solutions
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ERP in Construction industry
- 1. ERP IN CONSTRUCTION INDUSTRY PRESENTED BY: Ashar Ghayas Mehermah Shafat Saif Hasan Zainab Jamal
- 2. 1) Core and Support functions of Construction Industry using Porter’s Value Chain Model Value chain analysis is used to study the value process production of companies. Firms are able to identify their primary and support activities through the use of this model. The construction industry is divided into two subsectors: buildings and infrastructure. The building subsector includes residential, commercial, and institutional building types. Whereas, the infrastructure subsector includes roads and bridges, water and sanitation, and civil works. For both subsectors, building materials and equipment include: Building blocks Cobblestone/sett Steel bars (cutting and assembling/welding) Cement (packaging) Quarrying (sand, aggregates) Security and telecommunication equipment Fire suppression & electrical equipment 1.1) For the Construction Industry, the value chain model is presented below 1.2) Primary Activities relate directly to the production, sale, maintenance and support of a product or service. These include: • Inbound logistics –all activities related to receiving, storing, and distributing inputs internally. It also involves creating relationship with suppliers to create value. • Operations – this includes planning, developing and construction of laid out models.
- 3. • Outbound logistics – include delivering the final product to your customers. Activities like collection, storage, and distribution systems. • Marketing and sales – all activities that are to attract customers to make a purchase from your company rather than from your competitors. Value is created by the benefits you offer and how well you communicate these benefits to target audience. • Service – These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased. 1.3) Support Activities support the above core activities. These include: • Procurement (purchasing) – To find all the required resources for operations. This includes finding suppliers and negotiating best prices. • Human resource management –how well a company recruits, hires, trains, motivates, rewards, and retains its workers. • Technological development –Minimizing information technology costs, staying updated with technological advances, and maintaining technical excellence are sources of value creation. • Infrastructure – These are a company's support systems, and the functions that allow it to maintain daily operations. E.g. accounting, legal and administration. 1.4) Raw Materials Cement Cement is the binding element in both concrete and mortar. It is made most commonly of limestone, clay, shells, silica sand and other materials. These materials are crushed and then combined with other ingredients (including iron ore), and then heated to about 2,700 Fahrenheit. This material, called Clinker, is ground into a fine powder. Problems with cement production include: Increase in governmental levies and taxes which have a direct impact on cost of raw material purchased by construction industry. Cement industry accounts for 5% of global greenhouse gas emission. China holds 51.7% of the global market Concrete Concrete is commonly used across the world as a strong foundation and infrastructure for almost any type of building. Its unique characteristic is that it starts out as a simple, dry mixture, becomes a liquid, flexible material capable of forming into any mold or shape, and ends up as the hard-as- rock material we know as concrete.
- 4. Mortar Mortar is composed of cement and sand. When water is mixed in with this product, the cement is activated. Whereas concrete can stand alone, mortar is used to hold together bricks, stones or other such hardscape components. Cement mixing includes the use of cement in the mixing of mortar or concrete. Metal Metal is used as structural framework for larger buildings such as skyscrapers, or as an external surface covering. Problems concerning Metal Industry include; Solid waste management in the industry Depleting resources and reserves impact manufacturing and mining Margins at global steel-making groups have inevitably contracted as prices have started falling faster than raw materials. Steel prices normally track iron ore, the metal’s main ingredient. Fire Bricks and Clay Blocks Bricks are made in a similar way to mud-bricks except without the fibrous binder such as straw and are fired after they have air-dried to permanently harden them. Kiln fired clay bricks are a ceramic material. Fired bricks can be solid or have hollow cavities to aid in dying and make them lighter and easier to transport.
- 5. 2) An Era without ERP Enterprise Resource Planning has transformed every business and is continuing to do so, there are many businesses that still are reluctant to use this automation but they will have to make a decision for the better now or later many industries are using this technology oriented database and are taking full advantages, Those firms and businesses in Construction Industry if looked with a broader perspective are in dire need of the simplicity and ease comes from this work because there are many Challenges that come for Construction based Industries that work without ERP because every business in construction whether it is realty based or infrastructure based can take a lot of help through smooth flow of information between their departments. The Challenges in the construction industry are much like any other project based business that includes managing cost, risk, cash flow, time and resources in an effective manner to fully work through the potential. The way these factors are managed, both individually and collectively, determines the success or failure of a project, and ultimately of the project-based businesses behind it. Also there are some common key processes involved in the business of a typical construction firm: 2.1) ERP for Engineering, Construction & Infrastructure EPCs or architectural firms make 3D based design that make a digital model of the asset. Using specifications that are now often taken from a BIM environment, bids are tendered to EPCs and other firms wanting to be the lead general contractor for the building of an asset. The project is bid out by scaling down major areas of construction regarding the scopes of work involved. Companies involved in the bidding process create their estimates based upon different estimating approaches which have historically been based on quantities in the scopes of work, often using BoQs as the basis for the estimate. When a main contractor is placing bid for a project, it normally will start sub-bidding out segments of the project to subcontractors. There may be some material procurement to achieve, but basically, subcontract management is a vital part to construction industry. As the project is being built, it requires to be coordinated using project management tools, costs need to be tracked, and milestones managed. Also, as the asset gets built, any “as constructed” or “as installed” changes to the asset master data need to be tracked and, increasingly, cycled back into a BIM environment. Once construction is complete and the asset is commissioned and handed over to the owner or operator, the construction firm or EPC has to ensure a smooth handover of data into any EAM or maintenance system the owner or operator will be using. Without ERP these processes are becoming increasingly prone to problems and challenges and without ERP, EAM and project management solutions these processes become harder to manage.
- 6. 3) How ERP transforms existing processes and challenges The construction business industry is having a substantial change. Construction enterprises today face the challenge of more competition, growing markets, and rising customer expectations. Implementing an ERP system involves transforming the existing business processes to the best business process standard. One of the main reasons why ERP and other large technologically advanced systems fail is that organizations simply underestimate the extent to which they have to change and transform the existing business processes. ERP systems are built on best practices that are followed in the industry. In the construction industry ERP can transform existing process and challenges by providing dynamic analysis of financial and operational data, which provides executives with more accurate and precisely calculated information in real-time. By using this data effectively, companies can track simultaneous operations and report and manage deficiencies across departments in a more effective manner. An accurate analysis of raw materials required, effective utilization of manpower, contract management and architectural design is essential for proper channeling of resources. Construction ERP programming can be useful in offering leniency for security use and budgetary planning of the task. This keeps away from superfluous downtime and authoritative complications with the customer, all through the term of the venture. Managing and compiling data can be difficult to handle when it is in the form of excel sheets or PowerPoint presentation, and using different software for different tasks can make the job harder, so here ERP provides the solution for both the problems. ERP can be used to determine an accurate estimation, so that the actual cost does not vary much from the projected cost. For the smooth management of the operations, it is necessary for effective communication channels to exist between employees. An ERP program allowing chat forums and video communication facilities to provide the perfect platform for employees and superior management to communicate internally, no matter where the location of the work being carried out is. The main objective of any construction enterprise is to deliver quality work and gain as many satisfied clients as possible. Without the existence of construction ERP software, contractors would find it hard to implement marketing strategies to effectively handle customers, projects and outsourced employees.
- 7. 4) ERP solutions Enterprise Resource Planning (ERP) software for construction can support all the business processes that are included in building and engineering developments. The construction software provides a range of functions from project management to estimations, project payments, finance and human resource management. Functional solutions offered by construction software include: 1. Sales and Marketing Customer Relationship Management: CRM enables companies to categorize customers into prospective customers, present customer and prospects which enable companies to maintain records including contacts and activities to be able to direct various marketing campaigns, information and mails to the desired target audience. Lead Management: Lead Management is a process of handling and managing systems intended to generate new clients for the business using several marketing campaigns. Records are kept of prospective projects that a company wants to cater to and detailed records in the approach are stored as quotes. Document Management: The software allows companies to store inbound and outbound documents on a centralized database that where these files can be accessed by relevant stakeholders including project teams and suppliers. Provisional Work: It allows companies to generate specifications and drawing lists for vendors and subcontractors, complete with version management, additional information and notes. 2. Estimating It enables companies to create estimates through construct designed to offer elasticity and intuitive abilities. Material and labor norm data are stores in comprehensive database that are used in reaching to estimates. Approximations can be created built on notional, actual, historic or standard costs, sales prices, special pricing or externally generated costing. Quick estimates can be generated for a project using Bill of Quantity (BOQ) where supplies including material, parts and labor are itemized. Estimates can be simply translated into projects for budgeting, planning and procurement. The process becomes easier because data files can be imported from various other templates, sources and projects and integrated to form an estimate. It enables companies to request quotes from third parties during the estimate process. On receipt of the quote data it is easy to import it into your estimate. Using this data company can easily create a price comparison table and export it to excel file. 3. Project Engineering Budgets: Transparency is ensured in creation of budget where they can freeze and referred back to when needed. Adjustment codes are used to make any editions that are required. House Building Software: It allows companies to store information such as house model, house type and other related information and this information updates the budget and cost is option is selected by a buyer.
- 8. Complaints: Complaints pertaining to present or completed projects can be logged, registered and followed up in the complaint module. 4. Projects It allows record keeping on the progress of the project for example supplying actual hours, time sheets, settlement statements, progress levels and projections. Progress levels are used to record the progress of the work on any project, either in actual quantities or using percentages. Forecast results are created using projections entered in project controls. Reports are created in accordance to international accounting standards for financial reporting based on forecast results and progress levels. 5. Subcontractor Management (Subcontract Ledger) Allows management of relationship with subcontractors and includes all types of application, retention and discount management. Multiple sub-contractor dealings can be processed including orders, applications, certificates, invoices, timesheets and payments. 6. Invoicing Installments are routinely created for the initial contract amount, extension contracts and extension options. There is also the option to invoice projects or work orders on the basis of cost plus. In the construction industry, billing is complex to generate and hence application for billing and invoices are generated using the software. Complete history of transactions made by clients and audit trails are also stored in the database. 7. Procurement Purchase actions enable companies to get quotes from potential suppliers and compare them though built in functionality in the software. Attributes such as region code and product group are assigned to vendors that allow the software to automatically set vendor as part of the quotation process. Favorable quotes are converted into purchase orders. Companies also have the choice to assign weight to vendors. They can be assessed based on their performance on objective information, including delivery dates and accuracy of the order, or subjective information, such as friendliness or level of customer service you feel they offer overall. 8. Financial Administration Tight integration systems used in creating ledgers and project administration ensure differences are not created. Subtotal overviews, columns with numbers and comparisons are created online the moment you retrieve the enquiry or report. 9. Cost Value Reconciliation Spreadsheet patters can be formed for the user to conduct their valuation including all the up-to- date information from the costing module and any relevant areas.
- 9. 10. Payroll and HR Fully integrated payroll modules are in place allowing calculation of payroll and allow labor cost to be calculated accurately. HR module adds functionality and looks into absenteeism control, training, development, and recruitment. 11. Contract Sales Ledger (Contact Management) The Contract Sales Ledger manages applications for payment based on internal valuations. It also manages contract cash flow by providing information to support applications as well as monitoring applications, certificates and payments per contract. VAT is declared when an application is certified and payment is received.
- 10. 5) Post ERP challenges and benefits 5.1) Benefits of Implementing Construction ERP 1. It allows companies to manage and tailor the business development process according to the functionality of the business. It allows companies to attain a better fit where fields desired by your business processes can be added and it allows companies to monitor the development of key performance indicators. 2. Productivity can be increased though effective construction ERP. Integrated with numerous construction estimating software products, information can be requested or sent on a single click For example, tender material and subcontractor package pricing can be sent on a single click which increases the probability of gaining a contract. 3. All relevant information pertaining to vital contracts can be defined and administered as contract details. The Bill of Quantities, which is uploaded to the system at the PQQ and Tendering phase, can now be utilized to set and achieve budgets by outlining them for each phase of the contract. Sign- off and approval protocols can be set-up so that Commercial Managers and Finance Directors proactively control spend as part of the purchasing approval workflow. 4. Procurement costs are reduced Construction ERP software allows efficient purchase of material, plants, and labor and subcontract packages. Workbench in procurement gives an overview of the requirements of each project. Company can hence buy in bulk to meet all the requirements to achieve economies of scale and reduce costs. 5. Better control and transparency is ensured by having access to all the information locally or via web. 6. Quality of subcontractor and supplier performance through traffic light system that is integrated with ISO compliance standards. 7. Enhanced project and operational control It allows projects to be managed effectively through project centric solutions which provide increased level of control. The system is designed so that it is accessible by all organizational staff plus workflow options can be created to provide all the users with visibility of tasks. 8. Broad business intelligence and reporting. On one click, detailed reports can be generated accurately that allows informed decisions to be made, 9. Analysis is accurately and promptly presented. All transactions are posted straightaway to the contract ledger allowing users live, real time feedback analysis of contract performance.
- 11. 5.2) Post Implementation Challenges in ERP Post implementation phase of ERP software requires thorough efforts and moderate to huge costs are associated with this phase. Brining people on board and familiarizing the end users with the system and the systems undergo rigorous workloads and their performance parameters are cross checked with reality. The learning process of ERP should be very effective with frequent trainings. End users are inclined towards using easy and simple features and avoid complex ones which have to be monitored through monitoring systems. It is likely that there may be problems in integration of the modules in the ERP system, because of heavy customization of the ERP modules. It may carry greater chances of bugs in the post ERP implementation phase. Development processes are heavily tested with a focus group of end users but chances are that bugs may be present in the system and will be witnessed during post implementation phase. The reason is that it is not possible to test each and every case that causes generation of bugs in software or a system. Issues in the post implementation phase of ERP system become severe when proficient IT professionals are not in board through the ongoing system of development, implementation and post implementation. 6) Conclusion In today's highly populated and constantly advancing world, the need for advanced technologies in business operations has become essential for better efficiency and performance. Effective development of construction projects rely on strategic resource management and planning. ERP software helps ensure that your business operations are carried out smoothly and adhere to your organizational objectives. ERP is a one-step solution for all your business demands if you are looking to make an imprint in today’s competitive era of construction. The construction industry has been more fragmented in its approach for an ERP methodology. Varying types of contractors and subcontractors, along with very specialized software modules for estimating, scheduling, and controlling resources, have prevented the easy adaption of a unified methodology template and associated software.