ENTERPRISE RESOURCE PLANNING
In today’s dynamic business environment, an organization must stay competitive by thinking tactically and strategically. Enterprise Resource management (ERP) is a tool, which helps an organization gain a competitive edge by integrating business processes and optimizing resources. It is this authors opinion that past success and failure of ERP implementations only serve as building blocks from which to learn. With this in mind, the paper will explore the following issues surrounding ERP:
What is Enterprise Resource Planning?
Advantages of ERP
Challenges facing ERP Solutions
Guidelines to Successful ERP Implementations
WHAT IS ENTERPRISE RESOURCE PLANNING?
Enterprise Resource Planning (ERP), as defined by Computerworld, is "a set of applications that automate finance and human resources departments and help manufacturers handle jobs such as order processing and production scheduling." In more detail an "ERP system manages functions and activities as different as the bills of materials, order entry, purchasing, accounts payable, human resources, and inventory control, [finance] … a few of the 60 modules available. As needed, ERP is also able to share the data from these processes with other corporate software systems."
The fundamental basis for ERP is the whole being greater than the sum of its parts. Traditional application systems are built around specific functions and could result in an organization having various department applications or point products. In some cases management will get data from various sources and have to put it together to get an overall picture of the business. This kind of patchwork system is very inefficient, especially in the dynamic business world of today. For instance, an organization may use one vendor’s software for financials and another vendor software for accounts payable. The two applications may hold redundant information and in some instances may not interface. The goal of ERP applications is to stop treating transactions separately as stand alone activities, rather treat them as inter-linked processes that make up the business. This is achieved by developing modular applications, which address business processes rather than segmented functions. The modules share data standards and can interface with modules from the same ERP application, and even with modules from other vendor software.
Any way you define ERP, it is a tool used tactically or strategically that has the potential to help streamline business processes in such a way as to help the corporate competitive edge. Some of the early forerunners in ERP application software were SAP AG’s R/3 and Peoplesoft. These applications were usually chosen by large multinational corporations to help transcend business processes across their global enterprise. Other vendors, such as, Glovia International, Oracle, QAD and Baan have come out with their versions of ERP. In some cases, these newer versions have found specific niches to which they offer an advantage. For example, vendors may focus on processes more tailored to automotive or manufacturing industries versus service industries. Others may be better equipped to support multilanguage or multicurrency needs. The important thing to note is that different packages may offer different advantages depending on the defined organizational requirements.
ADVANTAGES OF ERP:
As defined above, ERP applications help streamline business processes within an organization to enhance the competitive edge. Other advantages of ERP applications are:
Cost Advantage: One of the many reasons organizations implement ERP applications is to achieve cost savings. Most savings are achieved by overall efficiencies that are put in place, reduction in inventory levels, better management of resources, and by strategic alignment achieved by the inherent nature of the ERP system. Some of these savings are intangible and hard to measure, but can play a key role in gaining competitive edge.
Modular and Open: ERP systems are designed with open system architecture. This means that a module can be interfaced or detached as needed without effecting the other module’s performance. ERP systems may support multiple hardware platforms for those organizations with a heterogeneous collection of systems. It should also support some third party add-ons.
Standardized Business Processes: ERP applications are generally designed to offer the best business processes applicable worldwide. When focusing on a particular process to be streamlined by ERP, the organization is forced to assess their current processes and standardize as needed for all those points of business implementing ERP. Re-engineering of processes may be a result of the need to standardize. Standardization as a result of packaged applications offer the advantage that "as the state of the art moves, you move with it".
Empowers Users: ERP provides accountability and responsibility to users in ways not available before. With the integration and flow of data, more information is available to users. User screens may provide data which allows users the ability to make informed decisions, whereas before they where just a conduit for keystrokes. For example, when placing an order for a client a service representative may not have had access to inventory stock. Therefore they would just take the order, and if not in stock, the client would find out at a later date. With integrated systems, the service rep is able to tell that the item is out of stock and when it is expected. The information can be relayed to the customer, whereby they can make a decision to still purchase the item or decline. This information empowers the service rep.
Real time financial data: ERP applications facilitate the real-time movement of financial data throughout the company. General ledger interfaces between processes such as accounts payable, payroll and purchases allow for ease in recording and monitoring these transactions. Additionally, the interfaces allow for consistency of reporting when tracking back GL source data.
Internal Management: ERP can improve analytical and planning capabilities for management by storing data in a common, consistent format that can be accessed quickly. As a result of the implementation process, many business processes and data requirements were standardized. This standardization allows for the ability to extract, manipulate, and analyze information at a more comprehensive level. Management is provided valuable information from which to make decisions. One aside on this subject, it is important to remember that data integrity, one aspect of the value of information, can be at risk if users are not properly trained or process requirements not fully explored in the course of the ERP implementation.
Strategic placement: Most organizations are moving toward internet, intranet and extranets in their business. ERP lays the back end groundwork to support business on the "net". This is most evident with the material/inventory processes. Many companies are online with suppliers where the tracking of materials becomes a crucial process as items are often in "virtual warehouses". ERP provides the flow of information between the sales department, inventory, purchasing, on to outside suppliers who need to know when to ship materials. ERP also supports globalization and helps transcend across geographic or language barriers.
All the above offer reasons why organizations choose to move from traditional, segmented business functions to ERP’s integrated systems. However, as we know, ERP is not all bells and whistles. There have been numerous organizations that have had a less than pleasant experience in implementing ERP applications.
CHALLENGES FACING ERP SOLUTIONS:
Many of us have read about the ERP implementation failures at corporations such as Hershey Foods and Whirlpool. Both of these companies blamed shipping delays that eventually hurt sales, on difficulties associated with their ERP implementation. Other companies have attempted ERP implementation and have met with what they term as failure, for various reasons. History tells us that there are difficulties with successfully implementing ERP. As one article stated, "the issues that companies face when implementing ERP are complex, since it is not just IT that is being bought. Processes, culture and even strategy might be challenged too." Challenges to be aware of are:
Executive Misperceptions: Three executive misperceptions were outlined in an Computerworld article by Jeanne Ross First, management fails to recognize that ERP systems provide the foundation for a different kind of business. They are not new technical infrastructures to replace broken ones. If the IT infrastructure was dysfunctional before, it is likely that it will still be dysfunctional after an ERP system implementation. Second, executives may think that an ERP system will impose discipline and process integration on an organization. In reality, unless the organization is cross functional in its processes, ERP may provide an ineffective infrastructure and may not deliver "best practice." Lastly, ERP systems have big impacts on processes that were not measured before, because they fell between the cracks. Therefore, improvements may not be in baseline measurements as thought, which makes it more difficult to demonstrate positive returns.
Choosing the right Vendor: Several instances occurred where an organization began an ERP project with a vendor, but halted the project mid stream due to incompatibilities. In the late 90’s Dell Computer Corp. planned to roll out SAP’s full R/3. However after implementing the HR modules, they stopped. At some point Dell realized that their company grew at such a fast pace, that SAP wouldn’t be able to keep up. A fabric manufacturer in India rolled out QAD Inc.’s ERP, but ended up having to make costly modifications. The system couldn’t handle the requirement that a bolt of cloth may be priced two ways: one price for domestic consumption and another price for export. It is very important in the course of analysis that an organization understands their business or industry requirements and shops accordingly for the proper vendor package.
Choosing the right Consultant: Most organizations engage consultants to help with the analysis of the business requirements, vendor selection and follow through of implementation of ERP applications. The advantage of consultants is that you have experienced and knowledgeable resources helping with the undertaking of the project. As an organization you are relying on the consultants to guide you in the right direction, based on their experience. Therefore, one would want to make sure the consultants know the specific technology and nuances of the industry.
Maintaining Timelines: One of the many comments heard from organizations adapting ERP are that they exceeded budgeted cost. In many cases, organizations will fall behind schedule. Many reasons come into play as to why. All the challenges listed in this paper, plus numerous others play a key role in the success of milestones and timely implementation dates. One of the biggest issues is probably just proper planning and analysis of the overall project. Upper management needs to be engaged in the project from the start, so that communication and direction throughout the organization is clear. Key milestones need to be set, so that progress can be measured. Additionally, accountability needs to be assigned so that all parties are aware of their responsibilities.
Any change in a project’s time-line has a direct effect not only on the cost of the project, but also on the overall morale of users. Ultimately, it comes back to thorough planning and analysis on the overall project.
Cost of Internal Resources: Most ERP implementations require the involvement of a variety of people from within the organization. User input is important, as the users are the people who know the current business processes and data requirements in the organization. This information is extremely important when trying to create requirements for the new ERP application. As a result the balance between maintaining normal workflow and demands made due to ERP planning and implementation can be quite burdensome on employees. Not only is employee morale at stake but loss of normal business productivity is a cost to the organization. Often, subsets of people are asked to take a more active role in the planning and implementation process. These "Super Users" as they are usually referred to, are generally people who know the internal systems and business well, so they are valuable resources during the ERP process. They spend most of their time working with management, consultants and other users. Consequently, organizations need to plan on how to allocate the "Super User’s" normal functions so that business as usual gets completed. This may end out being one more burden for other users to contend with.
Training: Inadequate training is probably one of the largest problems facing ERP implementations. As one source states "Companies often mistakenly regard SAP [ERP] implementation as a purely technical issues. In fact, at least half of the issues in ERP disasters are not technical but people related and culture related." Successful ERP’s require users to be properly trained not only on how to do their job, but the why as well. If a user doesn’t understand the ERP process or degree of integration, there is every likelihood that they won’t understand the importance of data integrity. Since the whole concept of ERP is that data and information are transient, mistakes by users can quickly become exponential as their data input is integrated with other information and processes.
Therefore, much emphasis should be placed on proper training and the associated cost can be quite high.
Scope Creep: ERP applications are basically sold as "off the shelf" applications with potential for client customization as needed. However, most businesses want to maintain the core application with little or no customizations for ease of future maintenance and upgrades. "Off the shelf" applications are designed with "Best Business Practices" which may not replicate current business practices in organizations. The challenge becomes changing mind-sets and organization processes from traditional ways to processes that fit the chosen ERP model. Scope creep enters the equation as traditional processes are challenged users may try to mold the new system to meet old requirements rather than new requirements.
Desktop Standardization: An issue that may be easily overlooked in the early stages of project analysis is software compatibility. The rollout of an ERP system may require the standardization of all user machines. If multiple PC’s need to be upgraded for consistency, this could be a large, culture change requiring user training. For example, PC’s that had run on DOS may need to be upgraded to Windows for the new ERP applications to run. For many users, this could be a point of resistance, simply because they are faced with the unknown. The cost of training on the new system and allowing for learning curve is a cost to the organization not only in dollars, but employee morale.
You should now have a better understanding of what ERP is, advantages of implementing ERP and the challenges facing an organization. Not all advantages and challenges were explored. Rather, the intent was to put forth some of the more prominent points in order to illustrate issues faced by organizations. The next section puts forth some guidelines intended to help in the preparation and planning of a successful ERP implementation.
GUIDELINES TO SUCCESSFUL ERP IMPLEMENTATIONS:
It seems fairly obvious that proper planning and vision, as in any project, is key to success. One source states that "Strategy and objectives do matter: initiatives based on a clear strategic vision and strategic assessment achieved positive outcomes 53 per cent of the time, versus 22 per cent for those lacking clear strategy." Historically ERP implementations are costly, resource intensive and lengthy. Unfortunately, cost and time are two easy measurements to gage success by. For any organization planning to undertake and ERP implementation, remember the important thing is not to focus on how long it will take but to understand why you need it and how you will use it to improve the business. Lastly, remember that technology requires new business processes. Organizations beginning any kind of technology implementation, ERP or otherwise need to be open to change. The marriage of processes and technology should be a happy and healthy one. "Using technology in existing operations is like buying the latest, fastest car, but taking it for a walk. You cannot walk cars; you must drive them to new destinations." Following are guidelines outlined to help an organization in their assessment and, if needed, implementation of an ERP system:
Have clear understandings of the business problem being addressed: The goal is to improve the business, not necessarily implement software. Towards this end, make sure a cross-functional team of users, management and executives are involved with the identification, examination and re-engineering of current business processes.
Establish business goals: Plan a strategy to achieve goals. According to Peter Drucker this involves "determining where you are today, determining where you want to go and figuring out how to get there." This may include developing new business processes or changing old ones. It is important that all stakeholders are involved in process assessment. Management needs to focus people’s attention on key initiatives and create an empowered environment.
Cost Benefit Analysis: Once goals are established and strategy outlined the organization needs to do a cost benefit analysis. Understand how an ERP system will support the overall business strategy and if it will work with the business processes. If a successful cost/benefit analysis can’t be argued, then ERP is not the route to go. It may be the business issue being addressed can be addressed by implementation of just one module in an ERP system, rather than all. Remember one of the advantages of ERP is that it is modular. It is not all or nothing; rather modules can be used as building blocks - one step at a time.
Choose consultants wisely: Look for someone to teach internal employees to do the work themselves. Assess candidate’s technology skills, depth of business knowledge particularly in relevant industry, and operational experience of individuals. Remember that past clients are good sources of feedback, including contacting clients who may not be on the "reference" list.
Make informed decisions regarding vendor: Talk to existing users about what they like and dislike in their ERP system. Talk with users within relevant industry. Attend application demonstrations. Investigate vendor strengths and weaknesses. If a vendor is a specialist in one area of interest to the organization, don’t forget to scrutinize other modules closely to make sure their functionality is sufficient for the organization’s needs.
Corporate Control Issues: Know where conflicts may arise regarding software functionality and management expectations or corporate culture. For example, if management is hands-on make sure the vendor application offers reports that can be drilled down and not too aggregate. Where there are conflicts either the software or company style or culture must change. This is something to know early in the process, not in the middle of implementation. Another thing to note, understand hardware needs and scalability in relation to ERP applications. Allow for growth and its effect on the ERP system from a hardware perspective. It would very unpleasant if a CIO didn’t account for this and a year or two after finishing a large ERP rollout; the organization was faced with the potential of outgrowing the existing environment.
Engage the right people: No one knows the business better than the employees do. Make sure knowledgeable employees and the right mix of employees are part of the implementation teams. Key employees are a resource not only planning but can be key with user’s involvement and understanding.
Know the showstoppers: Showstopper is "a missing feature or unsupported business process that transforms an otherwise great fit into a complete mismatch." This could be something as simple as overlooking need for multilanguage or multicurrency capabilities. Also watch for specialized processes in the industry or organization. Showstoppers emphasize the importance of knowing business requirements.
Provide adequate training: Allow enough time. There is a need to not only train users on how to do something, but to educate them on the why, who, and where issues. Earlier in this paper, training was noted as a challenge. When costs are running over budget, it is very easy to save by minimizing user training to the basics. However, if they don’t understand the why, who and where issues they won’t appreciate the consequences of their actions. Unlike legacy systems, an informal practice or user error that may have gone undetected before could have catastrophic effects on an integrated ERP environment.
Install ERP on a rolling basis: Begin with small but visible business units. Early successes help spark overall organizational enthusiasm and reaffirm or generate executive commitment.
Finally, it doesn’t end after implementation: Even after implementation it is important to continue to assess business processes to ensure organizational goals and strategies are being attained.
Enterprise Resource Planning is a term used to describe the aggregate of various modules or applications that address business processes rather that the traditional, segregated business functions. Although past ERP implementations have met with some noted failures, it continues to be a growing trend because of the advantages it offers. ERP offers a competitive edge, as it lays some of the back end groundwork for expansion into internet, intranet and extranet web economies. Additionally, it streamlines business processes and builds efficiencies that over time will help keep costs down. An organization is faced with many challenges during all stages leading up to and after implementation of an ERP system. Some of the more notable challenges being cost containment and change management. However, with a well thought out plan and methodical approach, organizations can achieve successful ERP environments.
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Last Modified: November 13, 2000