The emergence of the Internet, evolving customer demands, pressure to accelerate business process, and the need to establish more collaborative relationships with key suppliers and business partners are all pushing organizations towards ERP solution. So, what is ERP?
Enterprise Resource Planning (ERP) is described as an “information system package that integrates information and information based processes within and across functional areas in an organization” [1].
Traditional stand-alone applications were designed for specific customers, with limited functionality, and isolated from other applications. On the contrary, ERP is a business tool that integrates all the applications required by an organization as a whole, and connects the organization to other enterprises in a network form. It is usually compromised of several modules such as: a financial module, a distribution module, or a production module. Today, ERP have added new functions such as supply chain management, product data management, electronic commerce and warehouse management. Thus, ERP opens a window of opportunity for businesses to compete globally, respond to competitive pressures, and increase revenue.
ERP Characteristics & Basic Operations:
ERP facilitates company-wide Integrated Information System covering all functional areas like Manufacturing, Selling and distribution, Payables, Receivables, Inventory, Accounts, Human resources, Purchases etc.
– ERP performs core business activities and increases customer service satisfaction.
– ERP facilitates information flow across different sections or departments of the organisation.
– ERP bridges the gap between business partners allowing ongoing collaboration.
– ERP is a good solution for better project management.
– ERP is built as open system architecture, meaning it allows automatic introduction of the latest technologies such as: Electronic Fund Transfer (EFT), Electronic Data Interchange (EDI), Internet, Intranet, Video conferencing, E-Commerce etc.
– ERP not only addresses the current requirements of the company but also provides the opportunity of continually improving and refining business processes.
– ERP provides business intelligence tools like Decision Support Systems (DSS), Executive Information System (EIS), Reporting, Data Mining and Early Warning Systems (Robots) for enabling people to make better decisions and thus improve their business processes.
– ERP tracks a wide range of events in an organisation, and plans for future activities based on these events.
ERP driving forces:
1. The need to increase supply chain efficiency.
2. The need to increase customer access to products or services.
3. The need to reduce operating costs.
4. The need to respond more rapidly and flexibly to a changing market place.
Global ERP Implementation:
Historically, most international companies have managed their systems on regional basis, because there was no single solution that was globally acceptable.
In today’s dynamic business environment there is a strong need for the organisations to become globally competitive. The key for success lies in customer satisfaction, through understanding customer needs, and providing quality goods and services in the shortest time possible. To support a global outlook, many firms implemented or are in the process of implementing Enterprise Resource Planning (ERP) Systems, in order to improve level of coordination among national entities of the same firm, and also with business partners. However, to achieve this level of coordination it is important to have a global market strategy, a common IT infrastructure, and business processes in place.
An analysis of past global ERP projects, highlight on the importance of aligning organisation structure with business process and business strategy with IT strategy in order to compete in the international market. ‘Threads’ is a good example of an international company that replaced its legacy system with ERP. ‘Threads’ had a national organisation structure that operates on country by country basis.
To obtain a global view ‘Threads’ decided that its time for change by transforming the company from a local to a global geographical perspective. Hence, making Europe as one market for their business operations, and also ensuring competitiveness through a focus on the quality, price, and customer service. The intended organization structure and supporting global ERP is shown in [2].
Enabling Technologies:Traditional ERP systems required sophisticated and expensive information technology infrastructure such as, mainframe computers. Nowadays, with the advancement of information technology and the cost reduction of computers it becomes possible for SME’s to think about ERP Systems. Moreover, the power of Three Tier Client Server architecture and scalable relational data base management has made it easier to deploy ERP Systems in multiple locations.
Implementation of ERP
Implementing an ERP project is a process consisted of many phases. Following, a step by step approach will simplify the process and is more likely to yield a better result. The normal steps involved in the implementation of an ERP are as below:
o Project Planning
o Business & Operational analysis including Gap analysis
o Business Process Reengineering
o Installation and configuration
o Project team training
o Business Requirement mapping
o Module configuration
o System interfaces
o Data conversion
o Custom Documentation
o End user training
o Acceptance testing
o Post implementation/Audit support
In short, implementing ERP can transform the way an organization conducts business. It helps the enterprise link its resources, utilise and allocate them in the best possible manner and control them on real time basis. For instance, in the case of ‘Threads’ the transformation from Legacy system to ERP system resulted in a reduction of data redundancy, reduction of overheads, an increase in customer responsiveness and customer service levels throughout the firm. This has been facilitated by implementing a common global ERP system throughout its European operation.
Critical factors for Success of ERP:
The successful implementation of an ERP project requires management to plan carefully, and have all needed human and financial resources in place. Below is a list of the main critical factors for the success of ERP:
1- Top Management Support:
Among the most important factors for the success of ERP project is the top management commitment and support. The role of top management includes, developing an understanding of the capabilities and limitation of the proposed system, setting goals, and communicating the corporate IT Strategy to all employees [3].
2- Project Management:
Another important factor for the success of ERP is managing the project life cycle from initiating to closing phase. The Project Manager (PM) has sole responsibility and authority for planning and controlling the project scope to meet the deliverables in the given time frame and budget.
3- Selection of the appropriate package:
Selecting the appropriate package is an important managerial decision. Analysing and evaluating the organisation needs and processes help in taking the right choice that best suits the business environment. A careful selection of the right package results in minimum modification and successful implementation and use. On the hand, selecting the wrong software may mean a commitment to architecture and application that do not fit the organizational strategic goal or business process [3].
4- User training and education:
A quality implementation can de derailed by poorly trained employees who do not know how to properly operate the ERP system. The knowledge transfer to employees is arguably more important than the quality of the system. For that reason, companies should use consultants to run training sessions on how the system works, and how they relate to the business process.
5- Business Process Re-engineering:
Business Process Reengineering is a pre-requisite for going ahead with implementing ERP system. An in depth BPR study has to be done before taking up ERP. Business Process Reengineering brings out deficiencies of the existing system and attempts to maximize productivity through restructuring and re-organizing the human resources as well as divisions and departments in the organisation
6- Dedicated Resources:
One of the main critical factors for ERP success is determining the human and financial resources needed to implement the system. This should be done at an early stage of the project. Failing to commit the required resources often result in schedule and cost overdue.
7- Project Team Competence:
Another key element of ERP success or failure is related to the knowledge, skills, abilities, and experience of the project manager and team members. The project team should work in a coordinated way to achieve one goal. Hence, it is vital for team members to have technical and business skills to complement their work.
8- Clear goals and objectives:
Setting clear goals and Identifying the Objectives of the ERP Project is the third most critical success factor. The initial phase of any project should begin with a conceptualization of the goals and possible ways to accomplish these goals. It is important to set the goals of the project before even seeking top management support [3].
9- Ongoing Vendor Support:
Ongoing vendor support represents an important factor with any software package. ERP systems require ongoing vendor support to keep them up to date with the latest modules and version. In addition to this, vendor support provides technical assistance, and maintenance.
10- Interdepartmental communication:
Good communication is a key component for the success of ERP. Hence, it is essential to communicate effectively between team members and the rest of the organization, in order to keep everything working properly.
To conclude, ERP implementation could become a complex and risky process, if not managed properly. Organizations need to identify the critical issues that affect the implementation process. Such as: selecting the appropriate software package, securing commitment and support from top management, cooperation from business partners, having adequate knowledge among team members, training employees and keeping them informed. All those issues and other more can minimize the failure of ERP project and maximizes the success of ERP implementation.
References:
[1] Kumar, K. and Van Hillegersberg, J. ERP Experiences and Evolution, Communication of the ACM, (43:4), pp. 23- 26, 2000.
[2] Holland C. and Light B. (1999) Global Enterprise Resource Planning Implementation Retrieved August, 27, 2005 from: http://csdl2.computer.org/comp/proceedings/hicss/1999/0001/07/00017016.PDF
[3] Somers T.M., and Nelson K. (2001), The Impact of Critical Success Factors across the Stages of Enterprise Resource Planning Implementations, published in 34th Hawaii International Conference on System Sciences 2001, Hawaii
[4] Holland C.P, and Light B. (1999), A Critical Success factor Model for ERP implementation, IEEE Software, May/June 1999, pp. 30-36
[5] Hammer M. and Champy J. (1994) Reengineering the Corporation, New York, Harper Business.
[6] Kerchevak M. (2005) Five Steps to an ERP Solution, Retrieved September 3, 2005 from: http://archives.tcm.ie/businesspost/2005/06/05/story5254.asp
[7] Robinson S. (2004) A Developer’s Overview of ERP, Retrieved September 1, 2005 from: http://www.developer.com/design/article.php/3446551