Impacts of Implementing an ERP System

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Introduction

Large organizations often have the challenge of converting great performance in individual units into enterprise-wide success. When different aspects of the organization function and depend on themselves without translating production into the larger organization’s goals and needs then chances are that the performance of the company may be reduced substantially or even slowed down. Although many large organizations have been highly affected by these problems, medium or small-sized companies also have the challenge of managing their information. (Stratopoulos & Dehning, 2003)

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Usually, firms that have isolated information frameworks have difficulty synchronizing their activities and seem quite uncoordinated. Furthermore, these organizations are characterized by a lack of awareness among various departments on how the enterprise functions.

This means that even decision-making processes can be particularly ineffective. For example, if the procurement team wants to make purchases, it cannot do so unless they are informed about the amount of money that is available; this falls under the financial business function. Poor information synchronization leads to overestimation on the part of the procurement side and thus unproductive decision-making. (Turban, 2008) Companies, therefore, need to look for business solutions that can prevent such an occurrence, and Enterprise Resource Planning is a plausible approach.

Definition of an ERP system

Enterprise resource planning is a software system that amalgamates information technology, business practices, and business objectives. It is principally introduced into corporations to bring together a wide range of information from various parts of the enterprise (Tech faq, 2010) Basically, the ERP system collects and disseminates information to various areas of applications that the organization is comprised. The aim is to manage external and internal or tangible and intangible resources in a company through a computer system. (Hossein, 2004) Certain software applications may be amalgamated through ERP ranging from logistics handling to warehouse management. (ERP.com, 2010)

Enterprise resource planning software, therefore, focuses on bringing together the databases and networks created for these specific business units and uniting them under one software design; it also leads to the flow of information within and outside the organization to respective stakeholders. It should be noted that the existence of ERP systems does not necessarily imply that databases across various functional units cease to exist; it simply implies that there will be better communication between a single data storage area and software applications in different parts of the organization such that information is provided to all the different areas of business. (Hossein, 2004)

If a central database store area exists and computer platforms are fused, then it can be said that the ERP system is quite effective. Sometimes the ERP system can be implemented through a central system found on one server or can be located within a local area network (LAN) where various applications communicate to the LAN. The major advantage with the latter is that it eliminates the need for a multiplicity of information especially in areas where it will not be necessary. The former method is also advantageous because it provides better focus. (ERP.com, 2010) Not only does Enterprise Resource Planning dwell on the issue of integration; it also creates international focus, flexibility, and enhanced communication.

Risks involved in implementing ERP systems

When companies choose to implement an ERP system, then they must be prepared for some of the risks associated with it. First, there is always the possibility that some departments may be hesitant to share information especially when the data is sensitive. Once such fears are not addressed then companies will not be in a position to fully integrate their systems and this may impede project ERP success. Furthermore, for an ERP system to be very effective, then it must possess a high degree of accuracy. If companies keep getting inaccurate data from certain business functions, then chances are that the ERP system will not work very well as certain business applications may be written off as being unreliable. Sometimes when a lot of inaccuracy is reported then system failure can occur. (Moon, 2007)

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On the other hand, system failure can also be brought about by specific conditions within the company. ERP systems often require maintenance of high standards; sometimes these may necessitate intense reengineering of business processes (Katherine, 2008). It may be possible that those processes were a source of competitive advantage and once they have been altered, then chances are that other firms may do better than the concerned organization. Usually, workflows vary from company to company and it is these aspects that make them unique. Since ERP systems cannot be flexible enough to adapt to those processes, then it is organizations that have to adapt to those systems. However, this may not always be the case and failure of both these entities to work in harmony with one another can lead to failure. (Srivastava, 2009)

There is always the possibility that expected outcomes for ERP implementation are overestimated. This may be so when the concerned company has too many entities with very little correlation between each other. To this end, bringing them all together may not translate into substantial benefits especially when their resources, missions, and leadership are very distinct from each other. (Hall et. al, 2006)

Costs and benefits of implementing an ERP system

One of the major benefits of an ERP system is the synchronization of business functions thus facilitating well-coordinated actions; they also contribute towards better workflows and improved business processes. The latter is normally achieved when revenue cycles are internalized i.e. from the invoice to the receipt or through management of accounting systems and shortened delivery times or production times.

Communication is always a key aspect in successful enterprises and by implementing ERP; companies can enjoy better communication between different units. Businesses will also be in a position of effectively determining patterns in their business processes thus being able to engage in business forecasting (Mureell, 2001). They can also look for the most effective paths for creating a product and this means that product design can be optimized.

The systems can also contribute towards better customer service because productivity will be at a higher level, responses to the consumers will be speedy and so will communication. Some of the specific issues that can facilitate better customer satisfaction include the implementation of order tracking where the placement of the order by the customer to the fulfillment of the order is thoroughly analyzed. (Loh & Ching, 2004)

However, these benefits do not come without their costs. For instance, new companies may have to sacrifice certain levels of flexibility because of the use of ERP systems. Alternatively, there may be minimal technical support for implementation and this hampers the effectiveness of the process. Sometimes, companies may not possess the financial resources to implement such a system as it is quite costly.

Issues may also arise concerning business processes; certain units or members may not be flexible enough to rethink their business processes. (Sandiego, 2006) Additionally, ERP can be customized only up to a certain extent even when companies require more of it; this brings limitations to the company. On top of the latter, there may be problems establishing clear lines of responsibility in the firm if everything has been synchronized. Other employees may not feel as accountable to their organizations as they were in the past and this could diminish employee drive since previous limits have been blurred.

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Methodologies/ tools for implementing

Because of the complexity of enterprise resource planning, it is often necessary for organizations to look for experts who can facilitate the process. Usually, these experts can come into an organization under three major platforms. The first is as consultants where companies may be going through the early stages of implementation. Such consultants assist companies in training their workforce, putting the system in place, and boosting the flow of work. (Anderegg, 2007) Alternatively, experts may come in to facilitate the customization of the new ERP system. Here they can assist in altering interfaces or expanding applications of ERP (Ngarato, 2009). Lastly, experts may also offer support where troubleshooting and system maintenance are mostly emphasized. (Gable, 2000)

Besides the latter three methods of ERP implementation, certain extensions can be made to the ERP system to supplement its outcomes. In this regard, companies have the choice of using third-party programs. (Mehdi, 2006) An example is an employment of archiving and reporting. Usually, the latter program is effective for data that does not change with time such as historical accounts of the early Catholic Church. Another program is transactional data capturing where scanners and such like devices are employed to capture data. Nonetheless, ERP systems in themselves can achieve these functions, and bringing in other applications can complicate the process. (Mehdi, 2006)

The major tools available for the utilisation of this system depend on the objectives of the process. For Transactions, then the organization can utilize product lifecycle management components, distribution, HR, and financial tools. For advanced systems, they have the choice of warehouse management systems, supply chain management systems, and customer relationship management tools. For management, the decision support system is available for their use. (Abthorpe et. al, 2004)

Steps for success

Usually, organizations can customize the steps needed to implement ERP systems. However, most of them tend to go through five major stages.

  1. Planning: Here, members who will be responsible for the ERP system implementation are selected and a leader assigned. The process also involves carving out a direction that the team will follow throughout the process. This means that some objectives will need to be set and timelines as well.
  2. Assessment phase: Resource capabilities for the implementation process are done. Here, the actual details needed for the ERP system are curved out. At this point, organizations may find it necessary to create different procedures after examining business processes before the implementation of the ERP system. (Al- Mashari et al, 2000)
  3. Data gathering: Fully-fledged IT involvement occurs in this third phase. At this point, all the data that will have to be altered must be identified and new data will also be identified. It is here where most organizations discard irrelevant information and also assess others for their precision and entirety.
  4. Testing: After all the data has been analyzed, then testing must be done. (Piturro, 1999) Here, training may first have to be carried out amongst the workforce to make them familiar with the workings of the ERP system. Usually, the fourth phase is characterized by a complete and compiled database. However, for an organization to be able to use it well, then there must be some methods put in place to countercheck the information to guarantee better performance during actual use. Once all affected users are sure about their contribution to the ERP system then companies can proceed to the last phase.
  5. Implementation and delivery of the system: Usually, a company goes live with the ERP system and then monitors the system to look for any sort of errors that may crop up. (Sharif, 2005)

Steps for success

Summary of the steps to success

Case studies

Pantaloon retail chain

The first company under analysis is Pantaloon which is an Indian retailer offering a wide array of products such as books, gifts, stationery, home design commodities, electronics, fashion accessories and apparel, footwear, and foodstuffs too. Usually, these products are offered by a series of specialized retail stores (140) located across various parts of India. It is found in Mumbai and has a workforce of fourteen thousand. The company needed the ERP system because it wanted to surpass the competition in the intense Indian retail sector. Furthermore, the company was implementing a rapid national expansion program. It needed to keep track of the goings-on in these new retail branches and thus have a better understanding of its business position. (Shah, 2007)

After identifying that it needed to implement ESP, it approached a consulting firm known as SAP retail solutions whose aim was to implement a transaction management system that would help in running the operations. It was determined that the process was going to take six months and that the company would dedicate ten million dollars towards this process. The SAP group also collaborated with another third party known as Novasoft.

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At the beginning of the process, the company selected about twenty-four people from its organization who were to work hand in hand with the ERP consultants. They carried this out in three phases the first was the analysis of existing systems and mapping out desired ones, the second was the creation of a template that covered the needs of the retailer and the third was the implementation of the system through migration of data into the central system. After the six months target, the company went live and continued to do so for another six months after which the ERP system was now fully in place. (Shah, 2007)

The company’s biggest challenge was during the data analysis phase when several obstacles came in the way of effectively synchronizing data. Furthermore, minimal benefits have been achieved so far but management is optimistic that this will soon change since ERP systems rarely bring short-term gains. Long-term results are likely to be depicted later on. Furthermore, the organization had a hard time dealing with employees during the period between the system going live and the half-year that proceeded because ERP represented a different way of doing things.

It has dealt with these challenges by designating the maintenance of the applications to several employees and also by establishing a competency center. The latter firm is an excellent case study of what to do right in ERP implementation as they did not supersede their budget and also carried out the process within the time limit. (Head, 2005)

Contico Europe Holdings

The latter organization is headquartered in the US but it has its subsidiaries in Europe; the focus of the analysis will be on the UK branch where one hundred and fifty employees were found at the time of the ERP implementation. It belongs to the manufacturing industry with a focus on toolboxes and sprayers. The firm needed to implement ERP because of dwindling customer service and low-yielding performance software.

Their ERP system development was done in the year 1996 where it was established that the main goal of the system would be to implement a business improvement program. The company then formed a steering committee (not a project team) and established eight task forces that would be under the latter committee. Members were then taken through training and presentations done amongst fifty employees. (Robinson, 1998)

Implementation was done with several weekly meetings amongst the concerned groups. However, some immediate problems began cropping up. First, stock accuracy was quite low because inventory movement was difficult to track; a situation brought about by their twenty-four-hour operations. Furthermore, the company had a difficult time integrating the three software tools it had chosen and it could not forecast consumption. As if these were not enough, the company had to further contend with budgetary constraints and less time dedicated to customer service. Therefore, the very situation that had led to the implementation of the ERP system was worsening. (Robinson, 1998)

This company demonstrated what ought not to be done in ERP systems implementation. The first mistake was not forming a permanent project team to be responsible for the system (Wagner & Ellen, 2009).

The second problem was the dedication of only a small portion of their budget towards such a large-scale project. If the company knew that it was facing some budgetary constraints then it would have been better if they set a longer time limit for the project or if they postponed it to a time when the resources were adequate to handle such an enormous challenge. As stated earlier, one of the biggest risks for any ERP system is that if accuracy is not given top precedence then the likelihood of failure is quite high. Contico’s stock-taking process was highly inaccurate and this compromised the ERP system failure. (Vessey & Brown, 2003)

Peet’s Coffee and Tea

The latter organization is a firm based in the United States. It markets and sells whole bean or freshly roasted coffee, owns 195 retail stores, and has a total of 3, 750 employees. Its revenue for the year 2008 was 284 million dollars. The organization felt that it needed to revamp its IT infrastructure through ERP after it realized that existent ones were going to collapse under the pressure of expansion.

Their business portfolio was quite diverse with about 1500 grocery stores, a calling center, corporate partners, delivery fleets, and many others; these units all had their own IT infrastructure and some of them were entangled with each other. Furthermore, their information system was quite old and could not be upgraded. The situation implied that stakeholders’ demands such as order requests during peak seasons could not be fulfilled. The firm had a just-in-time model for roasting coffee and their information infrastructure failed miserably during such times. (Torode, 2009)

The company embarked on change through an ERP system but before deciding to do so, it was convinced by members of the sales team from an ERP consultant. They informed the company that despite the disruption to daily operations that ERP could cause, there were high chances that the supply chain would be clearer, all inventory could be understood, orders and costing information would be available and most importantly visibility throughout the lifecycle of the business would be witnessed. The project was approved and 2.5 million dollars was dedicated towards this project. It started with the planning phase where it was decided that a system overhaul was necessary through revisiting the company’s business processes. Cullen and Junction solutions were selected as the consultants for the project.

The assessment phase proceeded where only core processes were selected such as inventory, procurement, manufacturing, and management. Even within those processes, the focus was given to the main activities and not to every single aspect. The company then went ahead with designing the ERP process and project managers had to be tough- they stuck to what had been agreed on even when the business wanted to do otherwise. Testing and training followed although this took longer than expected since the company wanted to be 100% ready. Thereafter, it went into the implementation phase and is still undergoing this process. It chose Microsoft Dynamics AX because the staff would be familiar with the system. (Torode, 2009)

This case study has some very useful facts for getting the ERP system to work well. First, the project manager ensured that all the members of the organization were on board. Secondly, the company chose a vendor that members were familiar with to ease the transition. (Rawaswamy, 2007). Lastly, they pushed implementation until they were sure that training and testing had been properly done to minimize failure. (Waldner, 1992)

Sara Lee

Sara Lee is a household manufacturer; it needed an ERP system to get its business up to par with its challenges. It selected MRP Ltd for the project and started with assessment. At that time an assessment was done of all areas that had to be overhauled. They eliminated duplication of services, improved inventory accuracy, and customer service through implementation (Robinson, 1997). This case study shows that companies must be patient to see the results of the ERP system since they recorded positive changes after two years. Furthermore, the company illustrates just how transformative ERP can be. (Wylie, 1990)

Conclusion

Enterprise resource planning can alter how businesses perform as it offers visibility, synchronization of business units, and better communication. However, for these results to be achieved companies must be willing to stick to their objectives; they must have the material and human support of the organization and must maintain thoroughness inaccuracy, training and preparation. Utmost care needs to be given to the five steps for success as these can make the difference between the companies doing well or not. Without these precedents, the ERP system may fail as was seen in one of the case studies.

Failure can come from reluctance to share sensitive material, inaccurate data gathering or it may come from the overestimation of perceived benefits when the business units are too different from one another to be integrated. Companies need to be aware that there are always inherent risks in ERP implementation and sometimes implementing it may not lead to expected results. Nonetheless, successful organizations have stayed committed to the ERP course even when it was necessary to sacrifice short-term results. They have also selected the right vendors and have delayed implementation until all were on board.

After sticking to this formula, the successful organizations in the case studies have benefitted from better tracking of business units as in Pantaloon Retail, clear inventory in the entire supply chain as well as visibility of business functions as the case was for Peet’s coffee and retail and lastly, better customer service, less duplication of services and accuracy in inventory as in Sara lee. ERP is therefore quite transformative to organizations once it has been implemented properly.

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