ERP (Enterprise Resource Planning) can be defined as the technological computer-based systems that can transfer data and the related processes between different departments within an organization. Various traders trade in these systems, and they include SAP, Oracle, PeopleSoft, and Edwards. These systems are different as compared to non- ERP computer systems since the course of business is incorporated with the smooth operation of labor due to the interlinked files, which can facilitate real-time capturing and processing of economic events. These are advantageous as compared to other soft wares that are non- ERP. For example, formerly a transaction is captured, all subsequent processes are automatically updated, thereby reducing greatly the likelihood of failure to record and bill a shipment (completeness). In spite of its benefits, the ERP systems have received wide media coverage of their deficiencies. These deficiencies include disruption of commerce caused by rigid mechanisms which are co-dependent in the course of production where the management is weak, whereas over execution wastes time for the company as well as incurring extra expenses for the business. The very fact that the ERP system is made up of many parts integrated into one though working as different components to suit the needs of the different departments in an organization poses a great danger for trade as well as to auditors who may find it difficult to assess the progress of a business, as compared to other computer systems. An ERP system poses the danger of interrupting trade activities, as well as posing a threat to safety and interdependence. Consequently, the expansion of the ERP range has contributed to high risks in the financial department of an organization such that there may be the occurrence of mistakes in the process of analyzing a Company’s financial status. Despite the numerous disadvantages associated with ERPs, Multinational companies still utilize these soft wares. This study aims to explore the factors behind MNC’s utilization of this software despite its disadvantages.
The ERP system
There has been a disagreement over the functions of ERP software in the corporate world. While some people believe that ERP help manage a business in its entirety, others believe that it can only help in managing the important parts of the business. It is noteworthy that the ERP software is elevated to such a level where several functions are incorporated in an institution. Hence it is a system that uses Information and Communication Technology which are promising in terms of ensuring the flow of information in all departments of an organization, thus giving such a situation an added advantage. In order for an organization to have all its systems incorporated, it is important that all the employees of a company utilizing this system ensure that they are well versed with its operation as it connects all tasks in an organization.
An ERP software has various main features, namely a computer systems distribution: it utilizes the client/ server machinery. The functions of this feature are dispensed and spread out. Though the servers may be at a central place, the clients are dispersed all over the venture. Another feature is an enterprise-wide database where ERP software is applied through a main record of the structure. Records in the ERP software relate to all the functions in the scheme; hence there would be no cases of inefficiency, thus ensuring reliability. Application models are also another feature where an ERP user is expected to follow the procedure given by the Manufacturers as well as enquire about the services of an ERP vendor when the need arises. This is because the main characteristic of an ERP is the incorporation of all the components in the scheme for it to function properly. It also has an open system architecture which means that the ERP scheme can have some of its parts detached without affecting the other parts of the system, plus it can operate in the presence of other data schemes. It is also in support of daily actions as it gives a provision of the required data sustains the choice of information by consumers as well as the administration (English, 1999). Lastly, the ERP should not be restricted within the borders of a business but should have the capacity to sustain other businesses using the internet and should be the foundation for the functions in e-commerce.
Factors contributing to the utilization of the ERP systems by the Multi-National corporations
MNCs utilize the ERP scheme as it is a good asset that would ensure profits for the organization due to its efficiency (Kaplan and Norton, 1996) after a short time the scheme is being implemented. According to a study carried out by Hunton et al., 2003 companies that utilized the ERP scheme witnessed bigger profits as compared to companies that did not adopt this scheme. The fact that the ERP scheme provides a wide range of solutions makes it beneficial to Multi-National Corporations since they are able to conduct business at a low cost, thus ensuring the better provision of services to the customers. ERP has a competitive advantage over other schemes as it prepares companies for future challenges giving it an edge over other systems. It is also dynamic in that it is adaptable to any changes. It also makes it easy for the customers to communicate with the manufacturing company about the products, through the customer relationship management (CRM) function. This system also allows flexibility in the utility of language, standards as well as currency; therefore the level of adaptability to globalization as well as growth in the world market is enhanced. In this case, the issue of disintegration in data is done away where the channel of communication from the consumers through the suppliers to the business partners is enhanced. Successful application of the ERP soft wares like ERPII, as well as the supply-chain management software, and finally the Customer Relationship Management software makes e-business as well as e-commerce easy.
It also ensures that the businesses are well integrated and standardized, thus ensuring automatic updates of data in the various business parts and applications. It also saves time as data input and output are very fast and also obtainable from various places. This ensures that there are no difficulties when incorporating data in an organization’s ERP scheme. In turn, this translates to an easy task in making management choices as all the data required is within reach. The business performance becomes better as all the departments in an organization are incorporated in one system such that there is one center from which to get data from (Davenport, 1999). In turn, the business improvement caused by the well-integrated ERP system ensures that the life cycle of a product is cut. The fact that it saves time due to the central source of data, the fact that traders in the ERP systems offer after-sale services means that the costs incurred in the course of operation are reduced. The ERP systems also ensure that costs of incorporation are reduced. It is the above advantages attached to the ERP systems that make it a favorite among Multinational corporations.
Disadvantages of the ERP system
Despite the fact that the ERP system has several advantages and thus encourages its wide use among Multinational Corporations, it has been marred by several disadvantages. For starters, it requires a great deal of time and endeavor as well as expert knowledge for it to be utilized in an organization. It is worth noting that most of the companies using this method have no expert knowledge about the ERP system, and they have to seek help from the ERP systems dealers as well as companies specializing in this system for them to use the ERP system without any hitches. A study by the Standish Group meant to assess the accomplishment of the ERP a third of the ERP ventures end up being called off, while ten percent of the get accomplished according to the stipulated time as well as budget. A further study on fifty-five percent of the ERP ventures shows that most of them had incurred a higher cost than expected. Moreover, five percent of ERP malfunction is due to the incorrect choices in the ERP supplier, while ten percent is due to the problem of poor implementation. On the other hand, eighty-five percent of the failures in the ERP system have to do with the associations’ provisions, whereby twenty-five percent of the trade course provisions, while thirty percent has to do with the ERP execution while the remaining thirty percent has to with the lack of equilibrium in terms of the duties assigned to the concerned stakeholders.
It is clear that the ERP systems are advantageous in terms of the quality services offered by these systems. This mainly stems from the fact that the ERP system is an all-inclusive system with all the departments in organizations being merged into one system. In turn, this makes it easy for an employee in an organization to have easy access to information from a certain department when the need arises as the ERP systems are integrated. The result of this is that operating costs are cut while time is saved as an employee does not have to struggle to acquire the data required for the better performance of their services. It is the various advantages associated with the ERP systems which prompt Multinational corporations to utilize this system. Despite the fact that the ERP system is very helpful to organizations, it has been criticized for its various failures. One of the failures includes a lack of completing an ERP project, incurring higher costs than had been budgeted for, and so on. It is, however, noteworthy in order to avoid failures associated with the ERP system, it is important for the employees of an organization to be trained on the proper use of the system as it is considered to be a multifaceted system. A company should also give a detailed provision of the ERP system in its organization. Furthermore, stakeholders involved in the ERP project should ensure they have an organization’s interest at heart for the ERP venture to succeed.
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