The face of business has continued to change in the past years due to the rapid pace of changes in technological advancement. Technological changes have enabled businesses, organizations and corporation to rapidly respond to the needs of customers and take advantage of the market opportunities. Without any doubt, it has been evident that businesses have managed to strive on improving themselves in the areas of quality, customer satisfaction, making informed decisions, profitability, time to market performance, and with the use of technology. Many businesses have achieved this through the implementation of the Enterprise Resource Planning (ERP). According to Glenn, the earlier ERP is implemented the faster the desired results and benefits are achieved. Glenn further claims that a well implemented ERP system can create a comprehensive efficiency across a company’s departments, serve as a tool for better project management and result to an improved customer service or better client relationship with the company.
Enterprise Resource Planning (ERP)
Enterprise Resource Planning (ERP) systems are known to have been first introduced in the 1960s and 1970s when computers began to be used in organizations. Therefore, the systems have had more than a 30 year history of evolution. ERP systems are often viewed as the technique used to integrate the different functional systems of an organization across every department, into a single database in order to increase efficiency, and thus, maximizing profits. The Enterprise Resource Planning is made up of several software and hardware applications that are used to incorporate the different systems of an organization that includes planning, shipping, manufacturing, distribution, and accounting. All these functional systems are integrated into one structure. Therefore, many companies prefer using ERP system over any other convention methods, as it introduces companies to some of the latest technologies, which lead to developed expertise in database management. ERP systems also serve as a solution for a better project management, as well as, provide an automatic overture of the latest technology.
Originally, ERP was created for larger industrial types of companies and implemented in industrial manufacturing sector as a planning tool. During this period, the original systems were known as the Material Requirement Planning (MRP). The MRP systems were used as tools to increase the efficiency of ordering and managing the inventory of materials that were required for the production process by using forecast sales. The MRP systems were later modified to handling management of resource allocation for equipment, as well as, labor, by forecasting financial and production issues, as demand changes. As a result of the technological advancements made in information technology, the MRP systems were later changed to ERP systems. ERP systems became more viable for businesses and organizations from the early 1990s and gave way to a clear evolution path of deployment, method used, and the evolution of the desirable knowledge for business leadership. This was brought about by the modification of integrated additional front and back office functions such as human resource, financials, purchasing, warehousing, distribution, sales force, quality control and electronic commerce among others. Thus, it is evident that the purpose of ERP systems has changed and become extremely comprehensive, as it has also become even more useful to any type of organization; either small or large.
The development of ERP systems has been widely accepted as a valuable tool by many organizations, as it is viewed as an integral part of the business process around the world. For instance, researchers have observed that a large number of Fortunate 500 corporations have turned to ERP in order to integrate their performance and operation, so as to become more efficient and more profitable. The same observation has been seen in other corporations that have implemented ERP through their generation of high revenues. Businesses that have realized the importance of the ERP system have been able to address needs like reduced cycle time, increased customer focus, and has enabled the sharing of information seamlessly across the enterprise globally. The use of ERP systems in different organization has been well documented to result to improved efficiency, use of latest technology, business integration, better analysis and planning capabilities among others.
ERP market and software vendors
The ERP market has continued to experience rapid growth grown rapidly over the past 2 decades. As a result, many ERP software vendors have continually increased their revenues from millions of dollars in the 1990s to billions of dollars in the past years. According to Sharma, the estimated growth of the ERP market in the next five years is 37%, which implies that the growth rate of the ERP market is still on the rise. This is because the EPR market has impacted the manufacturing industry, and other industries such as retail, distribution, transportation, banking, education, utilities and health care. On the other hand, there have been a rising number of software applications resembling ERP entering the market place at a steady rate. Despite this, some of the important factors that have enabled ERP software vendors to survive their market competition include support service, innovativeness and adaptability among others.
The five well known world largest providers of ERP software include System Applications and Products (SAP), Oracle, Baan, J.D. Edwards and PeopleSoft. Some of these well known companies have not been performing well in the market place, while some have experienced merging due to generating low revenues and low profits For instance, PeopleSoft is known to be in the process of merging with J.D Edwards. On the other hand, Oracle is known to have had a hostile takeover of PeopleSoft, and thus, have been ranked as the second largest supplier of ERP software after SAP. Among other ERP software vendors that have experienced rapid growth over the years include Great Plains, System Union, QAD and Ross systems among others. The market of ERP vendors is expected to grow and gain more popularity, because ERP system has helped to resolve problems experienced by many business enterprises.
Implementing of the ERP systems has proven to be a real challenge for many companies due to various failure factors. Without sound management of the implementation process, and without the identification of the changes a business must undergo during operation, ERP systems can result to many difficulties in an organization. However, many companies have implemented the ERP successfully by understanding critical success factors. Thus, the implementation of the ERP systems in an organization requires a major investment and commitment for any organization. Therefore, for an organization to achieve a successful ERP implementation, eminent investment and commitment is required. The amount needed in implementing the ERP system is influenced by the size of the organization and the complexity of the level of the ERP projects. In addition, before implementing ERP systems in an organization, it is advisable for an organization to begin by determining the most suitable ERP systems it should implement. However, there are common factors that determine the success of the ERP systems implementation, which includes project planning, architectural devices, data requirement, adequate resources, and organization commitment among others.
Success factors of an ERP implementation
i) Project Planning
ERP implementation should begin with project planning. Project planning offers an opportunity for the organization to evaluate and re-evaluate all the integral components of the project in detail. This may involve conducting specific tasks such as identifying significant business requirements, setting project goals, establishing projects teams and estimating the overall costs of the project. If the ERP project is not justified at this stage, then the organization should be ready to cancel the ERP project.
ii) Architectural devise
Architectural devise may require selecting and deciding the most suitable IT technologies for the company. This factor is critical to the success of integrating with e-commerce applications, e-business applications or legacy systems.
iii) Data requirement
Data or information requirement usually reflect details of business requirement. This factor may involve the precise level and comprehensive details of a company’s business requirement. Identifying the required data during the early stage of planning is very essential to avoiding avoidable mistakes and wastage of resources. Data requirement is a critical factor required for ERP to interact with other applications.
iv) Adequate resources
Adequate resources in functional areas ensure required replacements are done in order to introduce key team participants. In this case, those people who have the most knowledge will be needed during most of the project. Thus, adequate resources are required in hiring and contracting any additional requirement to serve as backfill for key office personnel. It is observed that when resources are sufficient, the ERP implementation is usually successful, but lack of enough resources result to the failure of the project.
v) User involvement
User participation and involvement is directly linked with the success of the ERP implementation. User participation and involvement may include the set of participation and activities performed by the user especially in the development of the process.
Failure factors of an ERP implementation
i) Lack of organization commitment
An organization may shows lack of commitment in the in the ERP implementation process despite investing sufficient funds in the process. If an organization fails to take up the active role in the process, the implementation process is deemed to failure. In most cases, this leads to revert to the old processes or systems because of their lack of interest and knowledge in actively participating and learning the capabilities of the capabilities of the new ERP system.
ii) Lack proper training
It may be easy for an organization to assume that the ERP users are well knowledgeable and underestimate the appropriate training required to get the new ERP system up and running. It is important for an organization to know that many employees may not be familiar in operating the ERP system, as some may still be conversant with the traditional MRP system. Thus, an organization should make sure that there are adequate resources to hire knowledgeable personnel and train the available workforce.
iii) Lack of communication
In situation where the organization fails to communicate properly with its ERP providers, many misunderstandings are likely to arise. Lack of communication between the ERP software provider and the organization becomes a major hindrance to successful implementation as it results to wrong specifications and the requirements may be implemented against the desire of the organizations.
iv) Lack of adequate resources
The process of implementing a new ERP system requires substantial capital investment because it is usually viewed as a long term commitment. Despite the fact the costs have become more affordable due to the rapid advent of computer technology; the full implementation of an ERP may still be costly for some organizations. More so, small firms may lack the required resources, or may not have the expertise of an experienced workforce to implement this complex system.
v) Incompatible system environment
Some business environment may not fully experience the benefit of implementing an ERP system. In such cases, the environment of the organization may not offer the business the ERP distinct advantage over the other systems, as the business may make more loss that profits. For instance, there is no need for a small retail shop in a small town to implement an expensive new ERP system.
Benefits of Enterprise Resource Planning
The most common notable and primary benefit of ERP is business integration. ERP packages are considered to be integrated because of the automatic updating that is possible among related business components (Parthasarthy). Unlike the MRP systems, The ERP is integrated and it uses a single database to provide a broader scope and up to date information. This enables the management to make better decisions that usually benefits the entire supply chain. In addition, the ERP systems provide real time information that helps to communicate information about operational changes to the supply chain members without any delays.
ERP systems allow the utilizations of the latest technology in allowing efficient communication and performance through the use of standardized methods. It is, therefore, possible to monitor performance across the entire organization using the ERP systems in a multi-business unit enterprise using the same measurements and standards. In addition, the single software platform in the ERP system allows integration of financial, production, supply and customer order information. In this case, organizations are able to keep track of orders, financial status, and materials and can efficiently coordinate manufacturing, inventory and shipping activities in different locations.
The ERP systems also help to boost planning functions. This is achieved by allowing a comprehensive and unified management of related business and its data, which becomes possible to fully make use of the different type of decision support systems and simulation functions (Parthasarthy). Furthermore, has continued to provide tested security system, which guarantees organizations of their data security in accordance with the safety standards.
Shortcomings of Enterprise Resource Planning
Although ERP systems are impressive and have proved very beneficial, it is not without any shortcomings. To start with, ERP systems require a substantial amount of capital investment that is needed in purchasing and implementing the system. According to Jain, ERP systems are usually very expensive to install and may range from $30,000 to $500,000,000 for multinational companies. For an organization to implement the process, it has to set aside a considerable amount of money and time to evaluate the ERP software applications, as well as, purchase the hardware and software. A considerable amount of money is also spent on training the employees on how to operate the new system. In this case, ERP implementation process leads to spending a large total amount in professional services, hardware, software, and training among other internal staff expenses. It is, therefore, evident that the ERP process is very complex and it has proven difficult to implement especially in large multi-business unit organization.
It has been observed that despite the costly adoption of the ERP system, many large organizations have continued to scramble as a result of the challenges experienced during implementation. Some of the challenges experienced have remained unsolved, whereas in some cases, scores of ERP systems have been grossly underutilized. Furthermore, organizations face intricate reengineering challenges that arise when business processes are adapted to the software. This has raised many questions if whether some large can effectively manage their operations with the challenges of the sophisticated information technology.
Before implementing the ERP systems, it is recommendable that the top management be ready and informed about the commitments required on the ERP implementation. These commitments may include active participation, amount of resources that is sufficient for the project, the project budget, and the critical success and failure factors. This will enable the top management to prepare and make contingency plans for the possible impacts that are likely to be experience in the ERP implementation.
It is also recommended for an organization to consider the success versus the loss or failure achieved after implementing the ERP systems. Before committing to the ERP initiative, it is recommended that an organization consider the observable rate of success strongly as a discipline, attention or commitment in achieving the required success from the implementation. More so, the organization should be able to compare the benefits that will be reaped from the implementation, and compare them to the disadvantages the organization may face as a result of the new system.
Organizations are recommended to educate the users of the new ERP system such as the management, suppliers and customers. This is because; the ERP systems may incorporate an adoption of new technology that is inclusive of the information based system that may change the management approaches used by the organization. Efficiently trained personnel are critical to the success and functioning of the business especially in the case of current advancing technology.
The ERP systems have been widely adopted by many organizations in the recent years. Although the systems have been beneficial, there have been other organizations that not focused on the contradiction related to their adoption of the systems in the organization. The track record of ERP implementation has been found to be inconsistent with the many examples of much advertised failures. Therefore, it is important for organizations to make much consideration on the success and failure factors before implementing the ERP into their organization. In addition, since ERP is a complex process, it should not only be viewed as a large investment, but rather a complex project that requires the involvement of knowledgeable people, should ensure good information flow, and excellent communication. Therefore, it is important to keep in mind that the process of the project requires dealing with a variety of complex activities that require all life dependent elements in the entire organization. Indeed, the whole project and process should be considerable and reasonable in terms of its strategy, function and implementation costs.