Advantages and Disadvantages of ERP Implementation

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Introduction

An ERP is an integrated management system used by most organizations to manage the different business functions of the organization. This is a relatively new concept in some organizations and it’s effectively used to co ordinate business functions. ERP has come of date from the makers of MRP software who tried to develop ideas, software related beyond manufacturing (Ashish 2009). The system has now evolved beyond manufacturing and is now used in virtually all kinds of business functions. It has also spread beyond normal business and is now used in non profit organizations and businesses non manufacturing in nature (Avraham & Reuven 2008).

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Currently the ERP serves a number of functions in the organization among them: Financial data, human resource functions, distribution and product life cycle management. More over, it’s also incorporated in supply chains management including procurement, purchasing, manufacturing and distribution. It’s is also widely popular in Customer Relations Management (CRM). For those organizations engaged in stores and safekeeping of goods, ERP can be used in Warehouse Management. At managerial levels, ERPs can be incorporated as a decision support system. ERP is therefore all rounded with an applicability of virtually all facets related to business (Brown 2008).

ERPs saw a huge adoption in the 1990s because it was noted to boost sales when companies were grappling with the Y2K problem and legacy systems. ERPs are also contrary to other older management techniques like customer desk services, its utilization is only fixed to use by staff and management but locks out the general public and customers. It is also a deviation from the electronic systems like e-commerce, e-government, e-telecom, e-finance among others. It’s unique in its own sense because it’s cross functional and integrates virtually all functions of the system. ERPs are now available as software (Carol & Eli 2004).

Definition of an ERP System

Enterprise resource planning (ERP) is an integrated system used to manage an enterprise’s resources. Resources like human capital, tangible assets, financial resources, and stock can be efficiently managed with the system. ERPs usually work through architecture of software integration to facilitate the flow of information among the relevant work areas of the enterprise. External connections with the business are also efficiently managed with the system for instance supplier relations, creditors among others. The ERP system relies on a central database for the proper management of its functions and usually works through Local Area Networks in the organization by utilizing a uniform computing platform (Christopher 2006).

For efficient running of ERPs the system should be operated in real time situations with no periodic batch dates (Clemons 1986). Different applications should also rely on one data base for efficient reliance of the results. Users of the system should be able to access information at all times without help from the IS or IT departments, otherwise redundancy would be witnessed. Modules relating to the system should also be of the same nature such as in their look. Different companies however request ERPs to suit their companies operations for instance a service company wouldn’t rely on manufacturing module for its operations (Clemons 1986).

Risks Involved in Implementing an ERP System

ERPs are a highly organized system meant to be immune from many malfunctions and interruptions of operations in the organization. This might work for or against the applicability of the whole system depending on the functions of an organization. ERPs can be integrated with external functions and third party programs (Yusuf 2004).

This can make it technically easy to expose ERP programs to the external environment thereby creating a problem of privacy of company programs. The system could be integrated by other functions including scanning, printing and other forms of data production. This could therefore expose confidential information from a disgruntled employee if he/she was intending to use the information against the company. Moreover a huge database of information is at the disposal of the users because ERPs integrates virtually all data related to the organization. This becomes quite dangerous if someone had the intention to play foul with the company.

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However, the nature of ERPs is to limit any changes to data through sophisticated rules of operations and this can limit the prompt need to tailor the system to work in tandem to new operations in the working environment (Wagner 2009).

Lack of a corporate policy to protect the integrity of the information in ERPs would leave the system vulnerable to misuse by the users. Companies should always try and formulate a workable corporate policy to safeguard against this risk and oversee its implementation throughout the organization. However, this attempt might be inhibited by employees not well trained to handle the system. A situation therefore arises where implementation is very poor. Maybe, before organizations embark on formulation of strategic policies, a comprehensive training program should be administered to the employees to equip them with the necessary skills to deal with the system (Dehning & Stratopoulos 2003).

ERPs are obtained through purchase of software from software developers. This leaves the programs already predetermined by the developer and might pose a challenge to the company in customizing the program to suit the organization’s individual needs (Robert 2000). Users then find it redundant if it can’t be applied to normal operations of the company. Nevertheless, software developers have tried to equip ERPs with built in features that would enable organizations customize the programs to suit their individual needs. Managers should then purchase systems that specifically aim at improving value and not duplicate efforts already carried out by the employees (Dimitris 2001).

One major risk to integration of all business functions is the likelihood of inaccuracy in other applications that the whole system depends on. The organization might enjoy optimum production but a slight malfunction of one of the components of the ERP system would upset the entire system. This might lead to financial losses for models that might be supporting financial data and overall inefficiency (Thomas 2004).

When the system is broad in applicability, the company boundaries become less clear for the employees and may cause accountability problems. The increased boundaries might be perceived as an increase in workload for the employees and therefore may cause lack of employee morale that might create more problems in productivity for the entire organization. If there is resistance witnessed in sharing some information in the organization, it might upset the entire system which is reliant on the information (Grant 2000).

A managerial problem might however be witnessed in organizations which have well established departments with a clear chain of command when integrated into one unit. This might lead to limited benefits for the whole organization when consolidated efforts are undertaken. An ERP model might therefore work best for small organizations that don’t have a well established departmental differentiation (Turban 2008).

Costs and Benefits of ERPs

Many companies don’t have the capacity to adopt ERP systems in their organizations (Heinz 2009). Moreover, ERPs are deemed quite expensive to set up and implement for any organization. There are costs associated to ERPs that greatly increases its adoption costs. These costs can manifest themselves in extensive training programs to orient employees to adopt the system or outsourcing for consultation services from firms specialized in the implementation of such systems (Scott 2002).

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These consulting firms offer a varied number of services including planning, training, selecting, testing, delivery and implementation of the whole ERP system. Costs associated with outsourcing such services might be expensive for many organizations (King 2005). For most mid sized organizations, the cost of effective implementation of ERPs may involve the initial cost of purchasing the ERP itself and other costs of implementation that maybe twice the list price of ERP (Head 2005).

For larger companies, costs realized for buying and licensing of ERPs isn’t so high, but the catch is on the implementation costs (Sheilds 2001). Large organizations especially multinationals and global organizations might realize costs up to five times the costs realized by small and medium sized companies depending on the level of customization required.

These high costs are realized through educating a large number of staff, setup of local area connections throughout the organization to costs associated in maintaining the system. A highly trained team needs to be in place to check for proper functioning of the system and effective implementation of the ERT system. The costs associated to maintaining such a team might also add up to the initial costs for implementing and setting up the system, thereby compounding on the whole costs. The benefits associated to setting up the whole system are priceless and managers shouldn’t be discouraged from adopting the system.

Benefits

Without ERPs many organizations would find themselves with systems that wouldn’t be able to communicate with one another. This therefore makes it hard for tasks that need to be interlinked to work in harmony with one another. ERPs therefore make software programs to be able to effectively communicate with one another. This enables organizations to create a precise focus on the outcome of certain processes for example enabling organizations to maintain inventory at the maximum profitable levels for organizations dealing in production (Travis 2000).

The integration within various departments and business units will enable the organizations to be able to maintain a high level of productivity and efficiency. Nevertheless, this requires a high level of caution among all departments because a slight error in one of the departments will translate to an equal magnitude of error in the overall system. However, a harmonious environment will be created within the organization and many departmental managers will have an eased workload by efficient communication in the system (Khosrow 2006).

In ERP systems that support program development, the best products can be engineered for the market. This especially comes in handy for the manufacturing industry as the system will be used when trying to come up with the best products for the market. This comes as a result of ERPs being able to support different products through their lifecycle. A uniform type of manufacturing is also realizable as compared to human development of the products.

ERPs are able to track revenue systems quite effectively as would be compared to humans doing so. It’s able to perform the task with absolutely no bias at the different stages of revenue realization, through invoicing to the actual receipt of cash. This is easily done through formulation of programs customized to run this task.

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Methodology or Tools for Implementing ERP

ERP modeling should be done in such a way that it aligns to the organization’s structure. The tools for this implementation are varied with each organization. However, some common pointers should be noted in trying to make ERP models work. When applying these models, optimality should be the key factor to be considered. One of the methodologies used in ERP is the Object Process Methodology (OPM) which centers on optimization of object and processes within the organization (Karl 2001)

This method (OPM) advocates for organizations to convert the EPM model into an object model where it’s easier to identify the relation between the model and the business processes in the organization. Managers should be able to depict the whole process visually such that different processes can be easily identified and how they are all linked to the overall ERP model. This method has an advantage of easy identification of missing links in the whole ERP model when the system malfunctions. It becomes easy for managers to identify a problem when it occurs (Loh 2004).

Another approach that can be used by managers to implement ERP is by determining the different functional levels of the whole ERP model ( Wagner 2009). Emphasis should then be made in trying to make each level work. For instance an ERP model based on the product lifecycle should be implemented by ensuring each stage in the product lifecycle is effectively implemented. An advantage of this method is that it’s quite easy for managers to identify at which strategic point isn’t the level working. More adjustments should be made then (Monk 2006).

Identifying the occurrence level at which the ERP model is to be observed also serves a good implementation point for the ERP model. Managers should identify the basic level at which results are bound to occur and evaluate the outcomes with the expected results. Efforts should then be made to ensure each level of occurrence has an optimal outcome. When the results aren’t to par on a level of occurrence, more efforts should be channeled to make it perform.

A global business process model would also come in handy for the managers in trying to make the overall ERP model work. A global business process model would enable the managers to evaluate the domestic model to the global model. Areas of concern or variations should be noted for further improvement. A global business model would act as an ideal model for evaluation and comparison for the managers (Stephen 2003).

Steps for Success

Adaptation

Nelson (2006) identifies that companies should be able to embrace change when adopting the ERP model. Organizations can’t succeed by carrying out operations they way they used to after adopting ERP. Managers should look for new aspects the ERP is bound to incorporate in the organization and seek to device ways of aligning these benefits with the organization. In marketing sense, the business should especially seek ways to identify how ERP can enable the business to have a competitive advantage over other organizations (Nelson 2006).

Ensuring Security

Managers should always seek new ways in which they can secure the entire ERP model to protect the information in the common database. Security software like “Always on audit trail” should be sought by managers to ensure the information is safe enough (Nelson 2006). This would enable organizations to note if the information in the database was changed, by whom and when. The company should be able to strictly define the roles of each user so that everyone sticks to his/her role (Christian 2005). A metrics dashboard should also be established to detect any alterations in numbers early enough for the system to be rectified. This is better in comparison to quarterly or annual analysis of the system which might be too late for the organization to reverse the damages.

Recognize the Importance of Training

Organizations should identify the importance of training their personnel so that chances of malpractice or errors might be reduced. Enough time and financial resources should also be availed for the whole process to work efficiently. Small and medium sized organizations should be able to identify a small training process that best suits the small nature of the organization. This should especially be emphasized to managers of these small companies who might find the input of huge financial resources to training, unnecessary (Nelson 2006).

Know the Costs Involved

Before any organization thinks of incorporating an ERP system relevant financial costs involved should be put in mind. Managers should be aware of the costs other than the costs attributed to purchase of software because there are many relevant costs involved with setting up the whole system. It should be clear that setting up the system from scratch might be very expensive for the organization (Nelson 2006).

Take Care of Weak Links

The biggest problem associated with implementation of ERP is the duplication of errors across all sections of the system. A weak link in the system might have detrimental effects for other departments; for instance when a sale is made, the warehousing department is expected to avail the goods and when the money is received; the finance department is expected to reflect the receipt. When there is a weak link at the point of sale, there will be a recurring effect on warehousing and finance departments (Nelson 2006).

Ensure Collaboration of all Departments

An attempt to withhold information from one of the departments may cause the software to malfunction. Different departments are sub sectional entities for the success of the whole system. Managers should ensure all departments work together for the realization of optimum production in the organization. Personal squabbles by departmental managers in sharing sensitive departmental information should be avoided at all costs.

Ensure Compatibility

Managers should ensure that ERP software is compatible with the organizations operations. The ERP software should be able to support both the external and internal environments of the organization. Compatibility would ensure the system integrates efficiently with the whole organization and will lead to efficiency of the entire organization though with poor integration the opposite may be realized as well (Norbert 1999).

Case Studies

There have been studies of companies that have actually adopted ERP to succeed in their operations. Among them:

Jada Precisions Plastics INC.

This company wasn’t happy with the initial practicability of ERP model, but, time proved the system to be quite useful for the company. The company had initially adopted the system to raise competency levels and help it reduce competencies related to labour. This initial attempt gave them commendable results but the ultimate breakthrough came from the adoption of IQMS ERP software which delivered the required results (Erpwire 2009)

San Antonio’s Light House

San Antonio lighthouse aids physically challenged people especially the blind in gaining meaningful employment. The company is engaged in producing products that their people would find useful enough to earn a living out of. The company attempted to find a way that enabled them get the products to the respective clients in good time. Pressure was also piling from competitors and that’s when its management decided to adopt ERP. The implementation process proved very successful in gaining a competitive advantage and shipping was also done in due time (Erpwire 2009).

Tata Iron and Steel Company Ltd

ERP helped this company tailor its products in line with the market requirements. It wasn’t bogged down by the challenges it faced in the implementation process that almost lasted one year. The company managed to do this through the implementation of SAP ERP 3 which proved quite useful. The company also factored in future prospects by implementation of this model. It’s living proof that managers should forecast well enough to know how the system can build on the values of the company (Erpwire 2009).

Other Relevant Topics

More studies should be done to analyze the extent that ERP has as a decision support system for managers. The impact ERP also has on Human resource should be an interesting piece, especially on how the system integrates with human capabilities. Customization has also been highlighted as one major component for relevance of the system to the whole organization. More research should be done on this field as well to establish the ways managers can use to customize the ERP model to best suit their organizations. These topics are very vital for the realization of optimum efficiency.

Conclusion

ERP should be taken to be a method that improves the overall efficiency of different business units. Much caution should however be observed in the implementation of the system. The financial costs, manpower involved, and compatibility with the organization should be top in mind for managers before they adopt the system. Some managers however think that ERP systems take years to implement, but the overall implementation generally depends on the nature of the organization and the zeal of the managers. It’s however important for managers to realize that ERPs can do a tremendous work in streamlining the operations of the organization. Their level of efficiency cannot be compared to the way human beings can do the same job.

ERPs also have the advantage of customization which can easily counter the challenges that come out of business dynamics. This is an important feature of ERP because it can accommodate business extensions and at the same time accommodate any elimination of operations in the business. It is also important in the sense that it can comprehensively handle all the operations of the organization at the same time which if left to human beings, it would require a lot of time and personnel to undertake the same task. With these points in mind, ERP should realize its full capabilities in improving productivity and efficiency in many organizations.

References

Ashish, S 2009, Configuring SAP ERP sales and distribution, New York, John Wiley and Sons.

Avraham, S, & Reuven, K 2008, ERP: The dynamics of supply chain and process management, New York, Springer.

Brown, C 2008, ‘Managing the next wave of enterprise systems: leveraging lessons from ERP’, MIS Quarterly Executive, vol. 2, no. 1, pp. 34-40.

Carol, A, & Eli, S 2004, ERP: tools, techniques, and applications for integrating the supply chain, Washington, CRC Press.

Christian, N 2005, ERP and supply chain management, Chicago, Chi Publishers.

Christopher, W 2006, ‘The false promise of technological determinism: the case of enterprise resource planning systems’, New Technology, Work & Employment, vol. 21, no. 1, pp. 2–15.

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Nelson 2006, ERP – Seven steps to success. Web.

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