Understanding The Implications And Benefits Of Implementing An ERP System In Companies

Introduction to ERP Systems

The Enterprise Resource Planning system or ERP system is actually a software package which is related to business process and it consist of a system of consolidated applications for managing business as well as automating functions related to human resources, technology and services of a company. ERP system help in efficient conduct of business operations, in tracking business assets such as money, raw materials, capital assets  and in monitoring financial transaction and industries all major  requests (Matende and Ogao 2013). ERP implementation depends various people related costs and issues such as business requirements collection, project management, accessibility of skilled resources, acceptance and adherence to new system (Powell et al. 2013). The paper aims to understand the implications of these issues as well as how managing those issues can have positive impact on ERP implementation. The paper provides a research report regarding the utility and applications of ERP system in companies. Firstly, it discusses about the never-ending journey of the ERP systems followed by the case studies regarding the benefits of ERP implementation. Then it discusses about the possible stages of the journey of ERP systems. Additionally, it mention the probable benefits of each stage. Further, the report identifies the drivers and barriers during stage transition for companies. Finally, it concludes and discusses the effect of implementing ERP system on performance and productivity of company.

One of the most expensive, complicated and time-consuming task that a company can have is execution and implementation of ERP system. During execution, there are risks of delays or unexpected expenses every time. The whole organization must understand the project’s objective before implementation of ERP system. Any confusion or misunderstanding might lead to resistance to change and affect the success of the project. It is notable that as similar to information system the implementation as well as use of ERP system must be considered in view of new prospects as it effect every individual in the company. Several researches about the users adoption of new technology has concluded that for the successful development and implementation of an information system the acceptance of end-users is of prime importance. In the information technology (IT) section the assessment research concerns with both efficiency as well as effectiveness. In efficiency perspective, the central activity is on system’s operations itself. Whereas in the effectiveness perspective, the central activity is on the role of technological usage in serving the requirements of the company and its employees.

Stages of Implementing ERP Systems

Case study of LG company:-Before ERP system implementation, the company was facing the following problems (El Sayed, Hubbard and Tipi 2013):-

• Site-specific different system leads to improper resource optimization.
• Site-specific processes lacks automation and global reporting.
• There are limited resources for staff training and learning.
• Business impact due to strain in decision-making train.

• Centralized management system with lower maintenance costs.
• Efficiency in real time reporting along with tracking of objectives and goals by higher management which results in quick and easy decision-making.
• Cost savings along with increased employee productivity and engagement.
• Transparency and fairness in employee recruitment and appraisal process.

Case study of Fuze Energy Drinks:- Before ERP system implementation, the company was facing the following problems (Jirava and Toseafa 2017):-

• Unable to manage the growing stocks, inventory.
• Improper planning and production management to control demand and supply.
• There are reporting requirement for financial decision-making.

After implementation of ERP system, the company has achieved the following benefits:-

• There are automation modules for orders as well as inventory in order to ensure complete and in-time production reports.
• Due to production reporting there is improvement in the demand and supply.
• Accounting details based on real-time data allows in time decision-making.
• Transparency and fairness in employee recruitment and appraisal process.

1) Evaluation Screening:-In this stage, the objectives must be clearly defined in view of the current system along with the existing loopholes and expected customizations. Moreover, sufficient finances should be allocated for the upcoming project in this stage. Early evaluation results in better decision making as well as smooth and efficient implementation.

2) Vendor selection:-In this stage, shortlisting and evaluation of the available vendors are done according to business requirements. In addition, solutions that are unmatched with the business needs as well as beyond budget scope are removed (Khan and Faisal 2015).

3) Project planning:- After finalizing the vendor, all functionalities as per the pre-specified goals, customizations and requirement analysis of the first stage are listed down. Further, a project plan involving experts and top management are developed (Schniederjans and Yadav 2013). This implies that a blueprint of the project starting and project finishing are developed at this stage.

4) System installation:-In this stage, the set up and configuration process of networking components such as servers and routers along with display devices are performed and lastly software is installed.

5) Transfer and loading of data:- After the required setup and installation, all the data must be entered, transferred and loaded into the system’s database. If the current data format does not match with the format of the new system then it needs to be converted into the desired format. After ensuring backup for disaster recovery plan the data transaction takes place (Nordin and Adegoke 2015).

6) Testing and validation:- Here the company’s information technology (IT) team will conduct comparison as well as validation of existing data and transferred data. In addition, it is also verified whether newly implemented ERP software produces the expected or desired results or not (Nagpal, Khatri and Kumar 2015). It is notable that testing as well as validation are done side by side and consequently, acceptance reports are signed by the authorized parties.

7) Go Live:- It is done by any of the three following approaches (Powell et al. 2013).

• The instantaneous approach:- Here new system becomes functional by shutting down the old system.
• The phased approach:- Here the system goes live one-by-one or department-by-department.
• The parallel approach:-Here both old system and new system are simultaneously operated by the user for a particular time period and slowly stops using the old system.

8) Customer support, system maintenance and user support:- In this stage, company employees and staffs gets hands-on training of the functionalities of different modules. Customer support in case of any crisis and system maintenance of carrying out periodic backup and in-time upgrades are vendor’s responsibility.

Benefits of Implementing an ERP System

It is notable that implementation lifecycle above needs to be followed in order to extensively use the ERP system.

1) Efficiency and productivity:-. An ERP system provides efficiency through streamlining business operations, removal of repetitive processes and minimizes the need for manual entry of information. Besides automating the business operations cross-departmentally, the manufacturing software also providing accurate as well as real-time information to everybody utilizing the solution. This results in improved production, order completion and delivery (M. Beheshti, et al. 2014).

2) Forecasting:-. ERP software allows users for effective forecasts.

3) Collaboration:- As the data entered in ERP system is consistent and centralized and the software also touches almost every business aspect. This encourage the interdepartmental as well as collaborative efforts, which is crucial for any business (Al-Hinai, Edwards and Humphries 2013).

4) Flexibility and Scalability:- ERP systems must facilitates addition of new functions and users in case of any business growth or resource requirement.

5) Integrated Information:- All information are accommodated in a single location in ERP systems. This helps in integrating platforms with ERP system as well as maintain data consistency, accuracy and uniqueness. Hence, customer details, their order details and inventory, all put together in a common place.

6) Cost Savings:- By having common source of accurate as well as real-time information, ERP software minimizes both operation and administrative costs. Manufacturers uses ERP software to manage operations effectively, to prevent any disruptions and delays and also helps users in making quick decision.

7) Mobility:- ERP system allows access of centralized database from home, office or anywhere through mobile solution and application (Peng and Gala 2014).

8) Reporting:- ERP system provides easier and customizable reports, which allow the company to respond to complex data request much quickly.

9) Regulatory Compliance:- ERP systems keep track of industry regulations through monitoring the changes in compliance (Mundy and Owen 2013).

10) Customer Service:- Using an enterprise solution ERP system provides high-quality customer service.

11) Security:- ERP system provides security through firewalls and built-in resources. In addition, Security data restrictions can be increased by managers so that one can make his/her own software as secure as he/she would like (May, Dhillon and Caldeira 2013).

1) Clear arrangement of business strategy:- One most common challenges of ERP implementation is improper arrangement between a project and the company’s business strategy. For instance, it was found that one company’s objective was to improve customer experience. However, their ERP implementation was focusing on automation of back office functions instead of customer-oriented improvements. This improper arrangement resulted in higher project costs and confusion among executive and customer expectations (Chang 2016). Thus, the company must take help of ERP software experts for translating and implementing its business strategy and plan.

Case Study of Successful ERP Implementation

2) Realistic expectations during implementation planning:- It was found that several ERP implementations are disastrous from the start as from day one, the project teams had non-realistic expectations. For instance, in case project team commit to the management team to complete the project with a non-realistic budget and timeframe, there are chances cutting critical activities such as improvement of business process and management of organizational change. This may result in time and cost overruns (Garg and Garg 2014). Thus, instead of taking vendor’s proposal at face value, the company must rely on any independent third party to validate its project implementation strategy and plan.

3) Less focus on people, workforce transition and organizational change management:- Organizational and people issues are the number one reason most ERP implementations take more time and money than expected. The project team should find ways to solve these issues as well as build stakeholders along with focus on more business benefits and value as expected. The company must deliberately invest in its people and in organizational change management activities as the people would be in the software and technical activities of project. In long term, this will result in less risk, time and money (Laudon and Laudon 2016).

4) Effective business process management and process improvement:- One biggest mistake generally made by the project team is to deferring of the selected ERP software to discover the future look of company’s business processes. In these days, ERP systems are very flexible and robuste, which implies that the team is required to define the business processes before their implementation. Hence, the project team must define the future state business processes before implementation of technical software.

5) Strong project management, governance and controls:- Since imperfect project management and controls can result in heavy damage on the implementation so the project team must follow these steps (Muller 2017).

• The team must ensure that the structure and governance controls must be clearly defined in the project charter.
• The roles, responsibilities as well as other internal and third-party project roles of the project manager and executive steering committee must be clearly and properly mentioned.
• Governance must be arranged as per the company’s dynamics and unique requirements. The framework of the governance must be specific, comprehensive and repeatable.

1) Resistance to change:- ERP is based on complete reworking of the company’s business processes. This will develop resistance to change, as change on this level is not comfortable and acceptable. Thus, ERP implementation also includes the meeting as well as overcoming this resistance. ERP process without that will bound to fail irrespective of technical successfulness of the implementation (Salih, Hussin and Dahlan 2013).

 2) Insufficient sponsorship:- There must be a consistent and strong support from company’s top management for successful implementation of ERP system. Otherwise, the implementation will not be able to drive forward to tackle the unavoidable barriers.

Critical Success Factors in ERP Implementation

 3) Non-realistic expectations:- ERP system is not a magical solution that will solve all the company’s issues and problems. Moreover, its implementation is not at all easy. Hence, it is important that the reality of ERP must not be out-spaced by company’s expectations.

4) Improper project management:- ERP project cannot succeed without effective project management. Hence, competent project management is one of the prime requirement for implementing ERP system. Moreover, the project must be assigned on full time basis to an experienced project manager so that he/she can drive hard on the project for its successful completion.

5) No effective case for change:- ERP implementation implies big change and in order to drive forward the implementation need for change should be clearly understood. It is difficult to maintain the required momentum for an effective ERP program in absence of effective communication regarding reason for change.

 6) Lack of skills in project team:- The members of the project team must have wider perspective as well as skill set in order to handle both the information technology (IT) part and other part of project.

 7) Scope Creep:- Though it is not possible to determine everything in advance, still the scope of ERP implementation should be well and transparently designed prior to beginning. Otherwise, the project will add time, money as well as arise confusion in case of any changing requirements in middle of project. However, minor realistic changes can be made in project but it must have minimal effect (Dey, Clegg and Cheffi 2013).                               

8) No Horizontal Process View:- Keeping all the project aspects every time, the project team needs to focus on the entire process instead of focusing on certain areas.

 9) Information Technology (IT) Perspective Not Integrated:- One barrier to a successful ERP project is putting the ERP implementation under IT team. In spite of the fact that IT is not the entirety of ERP implementation, still IT has a vital role and thus its considerations is unavoidable. (Tarhini, Ammar and Tarhini 2015).

Conclusion:-

From the above discussion, it draws conclusion that the journey of ERP can be called as the most composite changes in IT that a company can take on. The discussion also reveals the requirement of careful planning before and after ERP implementation for its successfulness. Case studies of successful ERP implementations throw light about how ERP system overcome the company problems, provides solutions as well as benefits. The stages in ERP systems journey helps to understand the importance of proper selection criteria of vendors along with systems and solutions as well as understanding the existing gaps and goals to be met along with continuous client consultation with the vendor, as requirements can change dynamically throughout the implementation phase. From the above discussion it can be said that ERP implementations not just technology initiatives. It is also a complex business transformation. Hence, right people, controls and governance must be arranged undertake properly before the implementation begins. Moreover, the discussion shows how identifying and recognizing the drivers of ERP stages helps in overall project success. Finally, the discussion also shows that for successful ERP implementation, barriers to ERP implementation have to be recognized and overcome.

References: –

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Chang, J.F., 2016. Business process management systems: strategy and implementation. Auerbach Publications.

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El Sayed, M., Hubbard, N.J. and Tipi, N.S., 2013. Evaluating enterprise resource planning (ERP) post implementation problems in Egypt: Findings from case studies of governmental, multinational and private Egyptian organisations.

Garg, P. and Garg, A., 2014. Factors influencing ERP implementation in retail sector: an empirical study from India. Journal of Enterprise Information Management, 27(4), pp.424-448.

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Khan, H. and Faisal, M.N., 2015. A Grey-based approach for ERP vendor selection in small and medium enterprises in Qatar. International Journal of Business Information Systems, 19(4), pp.465-487.

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