This research paper investigates Enterprise Resource Planning (ERP) system. It reviews the literature on the subject and provides information on the use and vendor of the software. ERP system incorporates different business functions in an organization with a central software application. The system allows sharing of information, increase efficiency, and allows viewing of transaction immediately. ERP system was introduced in the 20th century and has failed and succeeded, depending on the implementation process. One should select appropriate software that will address the requirements of the organization.
The steps to implement ERP systems are preparation, configuration, customization, extensions, and data migration. ERP system modules, which work as business functions include Accounting and Finance, Human Resource Management, Supply chain management, and Customer Relationship Management modules. Oracle Corporation and Microsoft are examples of the major vendors of ERP software. It is a recommended investigation on the suitable software proceed before software implementation.
Businesses have been keen to advance their progress by adopting different tactics to ensure their success. The ventures have been encouraged by the invention of technology, which is compatible with businesses. The businesses then make meaningful use of technology and develop ways of enhancing the business process. One of the developments in the use of Enterprise Resource Planning (ERP). This research paper will investigate the meaning and historical evolution of Enterprise Resource Planning. It will discuss the market needs and value of Enterprise Resource Planning in business then analyze the challenges involved. The software selection, implementation, and modules will also be discussed then give an example of a case where the ERP system failed. The research paper will give examples of two major ERP software vendors.
Enterprise Resource Planning
Definition and historical evolution
ERP is a system that incorporates the internal and external business functions information systems within the organization using application software. It facilitates the sharing of information within the organization’s business functions to enable the smooth running of activities in the organization and effective attachment with the stakeholders. ERP systems can use database as storage for information, alongside hardware and network constitutes. ERP has a joining application that is applicable to all applications, reliable in all modules, incorporates systems that function in real or closes to real-time, and installation of the applications by the information technology department.
Hoffman (2010, p. 1) mentions that the origin of ERP can be traced back to 20th century. In 1960’s, the prototype was developed. The prototype was given the name Manufacturing Requirement Planning. The system was successful in manufacturing and began to be expanded. In 1990, Enterprise Resource Planning (ERP) was formed. ERP was adopted by fortune 500 companies since it was viewed to be a great resource for large companies. Medium-sized and small enterprises did not adopt ERP right away. The functionality and capabilities were not designed for small and medium-sized enterprises. Besides, ERP was considered a waste for the medium and small enterprise. Moreover, purchasing ERP was way too expensive for small and medium-sized companies.
When the Euro was introduced, many systems were disrupted; hence companies adopted ERP allowing the growth of ERP. In 1999, the growth of ERP was slowed down after the issues were addressed. Initially, ERP aimed at making the internal functioning smooth and did not affect the external stakeholders. Later on, customer relations, electronic business systems, and supply management were integrated. The integration was enhanced with the coming of internet. ERP became network based software that allowed different business functions and employees access the ERP system in real time.
The market needs and value for ERP
The market requires ERP to enable the integration of different business functions make services efficient. The senior management can visualize the important processes of the organization in real time as they happen. The activities are automated with flow from one department to another which ensures that a business process is professionally completed within a limited period. The results are almost immediately and reduce wastage of time. ERP system enables more functions to be performed and provides value for business when organizations increase sales via the automated system.
The central or single software can be used by different function within the organization to reduce the cost of buying the software. Accordingly, the cost of maintenance is shared by the different departments within the organization. For an organization that uses different software for each business function, the cost of software and maintenance is very high.
Analyzing statistics is made easy, since there is a central reporting system. The statistics are accurate and the errors are reduced. The results of data analysis and numbers can be obtained almost immediately. Consequently, decision making process is enhanced by the easy access to data and can be made within a short period. The status of many business functions can be viewed in real time.
Incorporating highly developed electronic commerce is straightforward. Software that enables network based tracking can facilitate processing. What is more is that depending on the vendor, it is possible to introduce business intelligence function to extent ERP systems. The software allows the organization to incorporate the modules according to the needs of the organization. There is a large variety of modules that can be utilized using the ERP. The integration of different modules enhances the efficiency of services.
The database provides a large and central storage of information that is required by the ERP system. It also acts as a backup for the information required by all the functions within the organization. All the processes can be trailed using the ERP systems and implement common security measures. Moreover, tracking the processes as they happen enhances security and visibility of the processes as they happen in different functions of the organization. Therefore, different functions collaborate to offer services faster and in a fulfilling manner.
ERP allows for the integration of other application such as the bar code reader via the Application Programming Interface. ERP system will allow tracking orders, inventories and revenues. Additionally, one can use the data to make predictions and plan for future activities. The international companies in diverse localities across the world can benefit from the ERP systems and utilize the management system effectively (excITingIP.com, 2011 p. 1).
Shortcomings of ERP
ERP systems have shortcomings that can hinder the success of a business enterprise. To purchase, implement, plan, test, configure, and customize ERP software is costly. For a successful and functional system to be adopted, an average of two years is required. The challenge is left to large enterprises that might be able to purchase the software. In addition, time of deployment may extend owing to challenges that occur in the installation of the software.
A certain measure of customization is required, depending on an individual organizational situation. The system may slow down and limit upgrading if the customization is extensive. On the other hand, the system may fail to integrate if there is limited customization. Moreover, it takes a long period to realize the saved costs and measuring the saved costs may become challenging after a long time.
Training is important and cannot be underestimated. ERP systems are complex to study and the users should have adequate knowledge of using the system. Training is critical and is necessary for the success of the ERP system. Additional costs are also realized in the training of the ERP system users and change in the information technology infrastructure. The organization may be required to upgrade the network systems.
Stand alone software and integrated software are challenging when it comes to transferring information. Transferring the information will be a challenge, despite being mandatory to enable the different functions operates under a central software and system. ERP systems are more successful in centralized business organizations than in decentralized business organizations. The business process is dispersed in different functions and may become challenging when integrating them. Upon the success of the ERP system, the organization depends on the vendor who implemented the process to provide the upgrades and customize the system in the future.
ERP software selection criteria
Gill (2008, p. 1) says that for the ERP software to become a success, the organization should consider certain factors. The organizational vision should be considered. Changes with the supplier, the products and the structure should be evaluated. The plans of the organization should be the guiding factor of the organizational needs. The level of involvement of the senior management and their knowledgeability should also be considered when selecting the software.
Before selecting software, the information technology system of the organization should be considered. The capacity should be assessed to ensure that the system will have an appropriate scale to support the ERP system. The speed of the system will be required to be acceptable for daily use. Before customizing, the organization will review if customization will hinder future upgrading. The organization can also consider customizing without robust charges.
Moreover, the system should allow the inclusion of different servers and a number of data bases within the system. Furthermore, selecting software that is compliant to the requirements will be of great benefit to the organization. Software that can allow other applications such as bar code and electronic commerce are favored. Depending on the organizational scope, it may be necessary to ensure that the software will allow the multiplicity of currency use, locations and divisions within the same organization. The software can also be required to meet the requirements of different companies under similar management. The restrictions that apply to the software should be analyzed before the management and the information technology system be restructured.
The ERP software to be purchased should also be reviewed to understand how it can be applicable to the unique needs of the company. Software has requirements which should be followed and the organization should analyze the availability of the requirements. The instructions for use should be understandable and simple to follow. Access to data and help files should be made available and allow for customization to meet the individual requirements of the organization be fulfilled. The software should be convenient for an average user. Complex software is discouraged. Software should allow reporting and retrieval of important information. The product or software should be useful and simple to use for the specific needs of the organization.
Costs involved should be evaluated to measure the viability. The organization should investigate the costs and analyze if they are affordable. The needs and outcomes of the organization should be compared to the ability to function after implementation of the ERP system. Moreover, the time involved should be considered to ensure that the desired outcome will be realized in the desirable environment.
The annual maintenance costs can be assessed to determine if the project will be successful and within the industry average. The maintenance cost should fall within the designated time of contract depending on the industry of the organization. The costs can be compared with those of similar companies that have implemented the software. The success of software implementation in other organizations in the industry can be considered. The organization should make an assessment of the estimated outcomes given a measurable time and the expected benefits of the software.
The support and service will significantly contribute to the implementation and success of the ERP. The vendor’s sales team should be able to answer questions and provide adequate and honest knowledge that will provide a comprehensive solution. The organization should get information on the available management techniques and training programs. It can investigate on the qualification of the employees and experience to use the system. Availability of the providers round the clock and availability of updates is important. Find out on additional service the vendor can give such as business re-engineering process and the vendors experience in the specific industry.
The organization should reflect on the period the vendor has practiced, the products available and their success. The company’s profitability and maintenance of its staff should be put into consideration. Investigate the progress of the vendor in the past year and check for customer reference sites if they are accessible.
One of the challenges a business should consider before purchasing a solution from a vendor is the cost involved. The restructuring of the information system and training of the employees or users of the software will be additional costs to purchasing the software. Selecting a specific vendor will require the company to continue receiving services from the vendor until the project is complete. They will also require consulting them when they want to make changes in the system. The data may have to be standardized so that the standard requirements are met.
The process of implementation has significant effects on the workforce. It will require support during consultations and customization processes of the company because the procedures will be disrupted and new ones introduced. Time to be consumed is depended on the customizations, time taken by the company to adopt the project, the change process, the size of the organization and the modules to be introduced. The implementation process increases with the number of changes to be made and the size of the organization. The implement the ERP system, the organization should follow the following stages which include; preparation, configuration, customization, extensions and data migration.
Preparation involves planning and understanding changes that will occur. The organization will assess the opportunities that will be realized after implementing the project. Processes that can be aligned with the new system can be identified. To avoid the failure of the ERP system, the processes should be in line with the organizational mission, vision and goals. Each process to be introduced should be scrutinized to identify its usefulness in the organization and the level of effectiveness that will be realized. The solutions provided should also identify with the organizational goals and be understood by the management. The structure of the organization should be considered to identify areas that may hinder implementation. Decentralized organization will have decision making, rules, information management and leadership that are diverse and can make implementation come to a halt. It will require additional customization and migration of some functions and might cause delays.
ERP system is configured to meet the needs of the organization and to work as it was designed. The system can be changed to advocate for certain applications and operations that are required by the organization. The organization will make configuration after analyzing the effects and the outcomes. The organization can incorporate organizational policies and rules at this stage. Configuration should be done before any software. Configuration gives predictable results and is the domain of the vendor. Consequently, the vendor ensures that future upgrades are compatible.
When organizational policies and rules are configured, some breaches may be realized. The breaches can be corrected by configuring the system. Customization can be effected by introducing an external interface, incorporating another module or rewriting the functionality. Customization is optional; its effects are not predictable always. Customization risks over upgrading hence the implementation process may end up being repeated. Customized systems meet the requirements of the organization and may result in a competitive advantage. However, additional time and costs are incurred in installation and for maintenance.
Third party software is important and can be introduced by the vendor during implementation. Extensions allow use of specialized data. Extensions make it possible for the organization to make reports of the business transaction by retrieving data within a short period. Moreover, extensions provide features like republishing, allow archiving and enhance reporting.
The data should be moved to the new system. It can be copied or restructured to suit the ERP system. Transfer of data is the last stage before the ERP system is allowed to operate. It requires more attention. To make the transfer of the data successful, the organization should identify information to be transferred and select the best time to transfer the information. Then, make decisions on the templates and toolsets and move the information or data on the selected set ups. Choose the mode of archives and introduce necessary rules on the access of the data. When the required data and the previous stages are followed, the ERP installation is likely to be a success.
ERP system is designed to work with modules. The modules resemble the functions of an organization. They are unique to every organization and serve the individual needs of the organization.
Accounting and Finance module enable the system incorporate accounting and financial data from all functions of the organization and make meaningful data. It also keeps records of financial ledgers, fixed assets, budgets, payables, receivables, consolidation and management of cash. The module avails financial and accounting statements and reports as required.
Human Resource Management module assists in the organization of human capital and human resources. It maintains a database of human resources with information concerning the qualification, job description, salary awards, promotion records, performance and attendance.
Supply chain management module keeps a database on the supply chain management, the entry of orders, orders on cash, schedules of supply, inventory, available products, dates for inspection of products, purchasing and commissions awarded. The information on processing claims is available in this module.
Customer Relationship Management module offers solutions to marketing and sales by providing an appropriate software. It contains information and on those who qualify for commissions. The data on services available, the contacts of different clients and support center are under this module.
Case study of ERP system failure
According to Chapman (2007, p. 1), Hershey’s is one the companies that implemented ERP system and experienced failure. It had depreciated by 19% in its revenues owing to computer failures. The company that manufacture chocolate bar had installed ERP software from SAP vendor. The company was unable to meet the target for the year and lost a great deal of clients during the festive season.
Reasons for failure include poor understanding of the process and failure to prepare adequately. Less attention in the last stage of transferring data can cause the installation to become unsuccessful. There was need for expansion in the information technology infrastructure to accommodate the large number processes and to attain a comfortable speed for the system on a daily basis.
Two major vendors
Major ERP system vendors include oracle, SAP and Microsoft. There are other emerging vendors since the numbers of businesses in need of ERP software are increasing. The cost of installing the ERP software has been known to be very high. Consequently, large enterprises have been known to subscribe to the services of software vendors. The vendors have also begun offering services to the small and medium business enterprises.
Oracle Corporation is a multinational company that specializes in the computer technology. The company manufactures database management systems. Besides developing the enterprise software, Oracle Corporation participates in market hardware production. The company headquarters are in United States and has employed over 100, 000 employees among then software consultants in different parts of the globe. The company generates its revenue from the sales of the software and is the thirds largest competitor in the markets after IBM and Microsoft. The major data base tool it possesses is the ERP software and its modules including customer relation management and supply management software. Oracle Corporation application is around 20% of the market share.
Oracle Corporation has developed a large number of software that has been successful in the businesses. Oracle software products include: oracle data base, fusion middleware, enterprise manager, secure enterprise search, oracle beehive, collaboration suite and development software. Oracle develops a number of applications which are: Electronic business suit, PeopleSoft enterprise, Siebel systems, JD Edwards EnterpriseOne and JD Edwards World. There are third party applications that oracle uses for ERP system clients to assist in archiving, controlling and splitting the system to enable effective functioning. Oracle provides a wide range of services among them the ERP services and maintenance services.
Oracle Corporation experiences competition from IBM, Microsoft and the merging vendors. It constantly engages in research to upgrade the software it provides in the market to provide a comprehensive solution for businesses in the market. Oracle has been able to stay afloat owing to the affiliation with large enterprises it has successful provided ERP system solution. Small software companies are growing and the major software provider is considering offering ERP solutions to small and medium sized enterprises.
Oracle and SAP are in collaboration. The two software vendors have strengthened their market by offering comprehensive solutions. Oracle corporation software can be used by the SAP customers. Oracle has experienced growth and has been provided business solutions for a large number of businesses.
Microsoft is the leading software developer offering a wide range of solutions with the ERP software. Over 14% of the market share is owned by Microsoft. Microsoft managed to become a leading vendor by absorbing small and emerging software vendors who had specialized in specific software development. Consequently, Microsoft Dynamics became a reservoir of ERP solutions.
Microsoft is developed software with a common code to enable incorporation and upgrading easy and fast. The unification will enable Microsoft fill in the gaps and address the problems in ERP systems comprehensively. The unification will be achieved through upgrades of the existing systems that were previously acquired. Microsoft has eventually provided a breed of software solutions that has not existed before by improving the previous one. The software offers a variety that businesses can select from to obtain a broad solution. The wide range of application and software pose competition to other vendors. The competitors have invested in research, time and intensive labor to develop the software. Microsoft tactfully acquired technologies that had been developed earlier and improved them. Consequently, a large number of organizations have acquired the solutions from Microsoft which has a variety of solutions and special software for unique needs of the organization.
Microsoft advantage is the wide variety of modules it can offer as opposed to its competitors. Some of the modules Microsoft offers include: manufacturing automation, electronic commerce, marketing and logistics, filed service management, financial management, retail management, supply chain management, accounting and projects management, human resource management and customer relationship management.
ERP system can be accessed via the Microsoft partners. Microsoft has been in the market for a long period of time and has been a leading soft ware provider. It provides a wide range of application and software that has been used successfully by business organization. It has posed competition to the emerging software providers. The partners provide unique services depending on the software specialization.
Microsoft can offer solutions in the construction, manufacturing, healthcare, retail, professional service, government, and distribution and education industries. The major competitors include: SAP, Epicor, Sage Business Solutions and Blackbaud. Microsoft would be an appropriate solution for an organization seeking to install ERP system because of its wide range specialization in software development, ability to provide application and upgrading services (Business software.com, 2011).
The number of vendor has increased and the major vendors have turned to offer solutions to the small and medium business enterprises. The success of installing ERP software in small enterprises has been expensive and has failed in some occasions. The specific needs of the small enterprises can be effectively managed if the ERP is designed to meet the needs of the small enterprises. Competition, growing demand as well as transferable tangible benefits from large enterprises have been realized.
The growing number of vendors has increased the competition making some of the vendors opt to provide their products and services to the small and medium enterprises. The small and medium enterprise can also access the services of ERP vendors readily. The small business enterprises are growing hence the need for increased ERP services for their unique needs. Both major and growing ERP vendors are accommodating the medium and small business enterprises.
The small business enterprises are growing in number and significantly contributing to the growth of economy. Consequently, they are expected to develop and generate a great measure in economy as the upgrade to the next level. As a result low cost and easy to implement ERP solutions are necessary. The solutions for the large enterprises are equally complex and challenging as those of small enterprises. They all require specific address ton their unique needs (Martinez 2010, p. 1).
ERP system incorporates all business functions within an organization using application software. The system enables sharing of information and increase efficiency in the operations of the entire organization. ERP software was introduced in the 20 th century and were mainly used by large business enterprise in the manufacturing industry. Today, ERP is has extended to different industries and to large, medium and small business enterprises. The market requires ERP system to increase efficiency and integrate different functions of the organization, share information and view processes as they happen. Installation and maintenance cost of using central software is cost effective. Obtaining statistics and tracking activities is easy.
The processes involved in installing the system are costly. Additional costs and restructuring the organization may affect the business. Training is required for the users of the software. Decentralized organization will require changes for the system to work effectively. When selecting the software, ensure that the information technology system can accommodate changes. Also ensure that different servers, applications, upgrades and extensions can be included. Review the organizational needs against the costs involved and ensure that software that is specific to the needs of the organization is obtained from a successful vendor.
When implementing the ERP system, begin by gathering information and understand the process and then make plans. Next, make configurations that are in line with organizational needs and comply with the usage of the software. Then customize the software to enable the users use it comfortably. After customizing, introduce extensions that are required. Finally, transfer data before using the software. ERP system works with modules that are synonymous to the functions of a business.
They include: Accounting and Finance, Human Resource Management, Supply chain management and Customer Relationship Management modules. Hershey’s a chocolate bar manufacturing company failed after experiencing computer problems. It would have prevented the problem by increasing the capacity of computer system and planning. Oracle Corporation and Microsoft are some of the major vendor of ERP system. They offer ERP solutions by selling specific software that are designed for unique needs of an organization.
An assessment of the business before venturing into ERP system installation is necessary. The organization should analyze the level of benefit it will realize against the available time and resources. The installation of ERP software can be a success if a careful selection of the appropriate vendor and required software solution is made.
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Martinez, R., (2010). Three Reasons Why ERP Vendors Should Target ERP for Small Business. Web.