Enterprise resource planning (ERP) is commonly defined as the software that is designed to address the various business functions in an organization. According to Zeng and Skibniewski, the system is used to manage information and other related activities within a firm (333). Traditionally, ERP is associated with operations in the manufacturing and production sector.
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The expansion of global trade has led to the emergence of various business functions in different industries. The development has affected ERP. Today, the system is not restricted to the manufacturing industry. It has evolved and involves a number of business operations. Some of the processes addressed by this network include:
- Electronic commerce.
- Enterprise performance management.
- Human capital management.
- Supply chain management.
- Business information warehousing.
- Sales force automation.
- Customer relationship management.
- Educational students systems.
The efficiency of an ERP system is regarded as one of the main reasons why it is applied in business management. According to Siau (as cited in Pamungkas 78), the benefits of the system are made apparent when one analyzes how it increases the performance of a company. Its effectiveness is further associated with the improvement of business processes and a reduction in the cost of operations.
ERP systems are designed to ensure that data management and other processes in the organization meet the requirement for the best practices within the industry. Leiber (as cited in Zeng and Skibniewski 336) points out that ERP leads to a single transaction system.
The integrative ability of this system increases the ability of the company to manage most of its core functions. The centralized mechanism associated with this approach reduces the maintenance costs related to information systems.
ERP is regarded as an effective mechanism of improving the performance of an organization with respect to its core missions. Consequently, many firms have seen the need to implement the model and make it part of their business undertakings (Pamungkas 71).
However, the actual mechanisms through which the efficiency of this system is realized are scarcely outlined in the various studies conducted in this field. The current study is meant to address this gap.
The research revolves around one main thesis statement:
The implementation of an ERP system improves the performance of an organization due to the effective management of data and other functions.
Objectives of the Study
The current study has one major objective and three specific missions. The major objective is the determination of how an organization can implement an ERP system. The following are the specific objectives:
To determine the benefits of enterprise resource planning.
The implementation of an ERP system within an organization requires a rational approach. To this end, the benefits highlighted will inform companies on the need to implement the system.
To highlight the various challenges involved in the implementation of an ERP system.
The envisioned implementation entails a huge project that needs to be undertaken by the company. The current study examines the various hurdles that impede the effective implementation of an ERP model. Mapping out the challenges enables interested parties to navigate around them.
To find out the strategies used in the implementation of an ERP framework in an organization.
ERP systems are broad based policy measures put in place by an entity to improve its performance. Such undertakings are informed by the strategies formulated by the management to operate the organization.
The study employs an exploratory research design. According to Creswell, such a research design relies on secondary sources of information (23). To this end, the study utilizes information obtained through an extensive literature review and a case study.
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An analysis of the various studies addressing the subject of Enterprise Resource Planning will provide a general idea on how organizations have implemented the system. Some of the information obtained addresses the issue of the applicability of ERP systems and their benefits. In addition, the factors affecting the success of the strategy are highlighted.
The research involves a case study of the implementation of ERP at ENGCO. To this end, details pertaining to the company’s adoption of the strategy are outlined. Seo provides a holistic perspective of how the company effectively implemented the ERP framework (35). The study analyses the status of the company before the implementation and the various issues affecting the adoption process itself.
The outcomes of the project are also outlined. The information obtained from the case study is compared to data generated from the literature review to establish the link between the two. The discussion segment reviews the findings from the secondary data. Consequently, a framework for the implementation is developed.
Significance of the Study
Industries that have appeared to shun ERP in the past are now indicating their interests in this system. A study on how to implement this strategy provides the stakeholders with the necessary information on how the process should be carried out.
Seo posits that new industries that are slowly making ERP part of their operations require access to information (7). Consequently, a study like this one provides the necessary knowledge. For instance, the literature review section outlines the various aspects of ERP implementation.
The study highlights the gaps in literature and provides a suitable model to address them. For instance, many studies emphasize on how ERP improves efficiency in an organization. However, as indicated by Pamungkas, such surveys ignore the intricacies behind these outcomes.
The current research undertaking will address this problem. To this end, students and professionals interested in the subject will have access to new ideas on the benefits of ERP implementation.
The objective of carrying out any research undertaking is to ensure that the thesis statement is properly addressed. Creswell illustrates the need to have a set of research questions that will ensure the study does not drift from its objectives (57). In light of this, the following questions were considered relevant with respect to the current research undertaking;
- What is enterprise resource planning?
- How does an organization benefit from the ERP system?
- Are there challenges involved in the implementation of an ERP framework within an organization?
- What are the challenges encountered in the implementation of an ERP strategy?
- What are the various strategies that are used in the implementation of an ERP system?
- How does one evaluate the performance of an ERP system once implemented in an organization?
- What are modules in relation to enterprise resource planning?
The chapter lays the foundation for the current study. Background information was provided to give a brief overview of enterprise resource planning in the context of a business setting. In addition, the problem statement was illustrated to ascertain the veracity to the identified thesis statement. In addition, the objectives of the study were outlined.
The objectives will act as a guide to ensure the research undertaking stays on course. The significance of the study was highlighted to justify the current research undertaking. The justification was followed by the research questions to be addressed in the study. The next chapter is a review of the findings made in the various studies carried out on the subject of enterprise resource planning.
History of ERP Systems
The adoption of ERP systems by businesses has a long history. The process can be traced back to the formative years of the model in the 1990s. According to Pamungkas, ERP is responsible for the creation of an organized computing system in an organization (45).
Information is easily shared across different departments with the help of this framework. Pamungkas argues that ERP has evolved over time (45). The computerization process in most companies started with accounts. At the time, the software developed was used specifically for inventory purposes.
Evolution of ERP saw the development of the Materials Requirements Planning (MRP) framework. Pamungkas points out that MRP was introduced in manufacturing companies to improve their operations (56). Further development and need for efficiency saw manufacturing companies come up with manufacturing resource planning packages (MRPII).
ERP has subsequently spread to other areas of a contemporary business firm. The framework was created to address the inefficiencies of the main frame-based computing systems that existed in the 1970s and 1980s. The expense and limits associated with the main frame systems necessitated the introduction of an efficient model that is currently represented by ERP.
Definition of ERP Systems
In every industry, there are terminologies whose definitions are as diverse as the information about them. Enterprise resource planning systems are not any different. Minahan (as cited in Sun and Bhattacherjee 469) defines ERP from the perspective of a software system.
Minahan argues that this system is basically a mechanism that is used to synchronize various basic processes associated with a business. Minahan associates an ERP system with a spreadsheet application in the conventional computer. The application is used to handle data generated and needed by the entity.
ERP can also be regarded as the processes through which an organization conducts its affairs. The definition adopts generic connotations. The proposition was advanced by Koch (as cited in Sun and Bhattacherjee 470). Koch observed that all the departments in an organization can be brought together.
To this end, ERP is defined as the combination of the software and hardware elements of the application. The elements are related to the various processes that are linked to provide solutions to the requirements of an organization.
The two definitions outlined above highlight the need to discuss the features of an ERP system (Tsai et al. 38). Studies carried out in this field have identified a number of elements regarded as the features of the system. The following are some of the key aspects that support a proper definition of ERP systems:
- Databases used to manage records in a company.
- A modular integration that brings together the operational functions designed to ensure that the system works properly.
- A server that provides network for all the computers in an organization
- Excellent business practices
The ERP is a system. As such, it is characterized by a number of modules. The study by Tsai et al. observes that the modules of an ERP system relate to the specific functions of a series of applications. An example of such a component includes the payroll system used by the human resource department in a given entity. To this end, an ERP module depends on the system applied in a particular business firm.
The most common component is the human resource module. Patel and Shah (as cited in Sun and Bhattacherjee 473) describe the said element as a series of applications that are used in the handling of all the information touching on the workforce in the company.
The human resource module is characterized by a number of features. Payroll is one of the most common characteristics of this application. Sun and Bhattacherjee also mention the various processes associated with human resource management. The processes include travel and recruitment. All of them are part of the human resource module.
Companies whose core operations include manufacturing and logistics have a component that is meant to deal with these processes. Hoffman (as cited in Pamungkas 125) carried out a study to evaluate how ERP works in the manufacturing sector. A manufacturing and logistics module illustrates the production and delivery of goods in a given manufacturing outlet.
Hoffman (as cited in Pamungkas 125) justifies the existence of this module by pointing out the multi-faceted objectives of a manufacturing company. Such areas as the production line, storage, and eventual delivery require a system that will ensure their harmonization.
When discussing modules, it is important to highlight the financial aspect of an organization. The finance department is seen as the major determinant of most processes taking place in the company. A finance module has been developed to manage this core element of business operations (Pamungkas 97).
The component is designed to ensure that all the financial records of an organization are in order. Some of the information handled by this module includes data on assets and the accounts held by the company.
Applicability of ERP Systems across Industries
As already mentioned, ERP is mainly involved with operations related to organizations in the manufacturing industries. However, developments in the recent past have seen the increased adoption of these systems in various sectors of the economy. According to Al-Sehali (and cited in Tsai et al. 37), ERP systems are now applicable in industries that are not specifically dealing with manufacturing.
The universal call for improvement of the performance of all sectors has led to the development of enterprise resource planning systems in industries like hospitality, banking and even military (Tsai et al. 37). As illustrated I section 1.1 of this review, ERP systems have evolved due to increased demand for efficiency from other sectors. The same explains its applicability outside the manufacturing industry.
The Cost of Implementing and Sustaining an ERP System
As already defined, the enterprise resource planning system incorporates, software, hardware and business processes. Tsai et al. argue that it is impossible to ignore the expense associated with each of the features mentioned, when a company intends to implement the ERP system (37).
A similar notion is supported by Reed (and cited in Sun and Bhattacherjee 470). Some of the components that require monetary expenditure include the actual software coupled by the necessary support infrastructure.
Once most of the components are acquired the cost of ERP system implementation enters another dimension. Sun and Bhattacherjee carried out a study to evaluate implementation of the ERP system in China (469). The study found that the financial cost of implementing an ERP model is driven up by such issues as customization and training.
The components (hardware and software) acquired requires to be designed in such a way that it is compatible with the infrastructure of an organization.
To this end, additional skilled labor is required. Also, the staff in the organization will require training to ensure they understand how to operate the system (Sun and Bhattacherjee 471). Consequently, the cost of implementing the ERP system is exponentially high depending on the location of an organization.
The cost of implementing and ERP system is often associated by the revenues and expenditure of a given company. The study by Sun and Bhattacherjee carried out a survey in China to determine the cost of implementing the system among small and medium-sized enterprises (477).
The results of the survey indicated that the companies that had annual revenues of $ 350 million had a cost overrun that stood at between 163% and 179%. The study also indicated that the consultancy cost for implementing the system was around 13% of a company’s annual revenue.
Sun and Bhattacherjee recommend a sound financial buffer for companies that intend to implement an ERP system. The high costs have a direct impact on the productivity of a given company.
Rationale and Benefits of ERP Systems in Contemporary Organizations
The implementation of an ERP system in a company is not for aesthetic purposes. There are a number of reasons as to why companies will go the extra length of incurring the huge costs to acquire the system Weston (as cited in Pamungkas 132) argues that by virtue of being software enabled, ERP systems introduce automation in a business.
Sun and Bhattacherjee observe that companies with an automated system tend to achieve most of their core business missions and objectives. To this end, ERP systems give an organization a certain competitive advantage within the market owing to the effects of automation.
Another benefit of ERP systems is the provision of consistent information across the entire spectrum of an organization. Tsai et al. examined the infrastructure associated with an ERP system (38).
The study indicated that ERP systems have the ability to share information in the database across all departments. Given the accuracy with which the database is created, the information shard in the finance department will be the same that is shared in an assembly line.
Enterprise resource planning systems are known to reduce redundancy in many organizations. Sun and Bhattacherjee observed a trend in China where companies with the ERP system had a single database (478). However, companies without a single database were characterized with a lot of redundancies.
The importance of a single database is such that once information is keyed into the system from one department, it can easily be accessed elsewhere. Consequently, repetitions are avoided across the organization thereby resulting in standardization in terms of operations within a given company.
Other benefits of the ERP system include a reduction of operational costs and ensuring compliance with the cyber age creeping into organizations. Pamungkas also points out that ERP systems help organizations to adapt to the dynamic nature of the business environment (163). The ERP system also helps to reduce the cycle times especially in a production line.
To this end, companies that implement the ERP system can expect exponential growth since the core missions are being implemented. Sun and Bhattacherjee argue that the growth of the Chinese business environment can be attributed to the increased use of ERP systems across various businesses (490).
Strategies used in the Implementation of ERP Systems
One way f reducing the cost of implementing the ERP systems is the existence of different modules. Zeng and Skibniewski carried out a study to examine how an organization can implement an ERP system (332). The study found that ERP systems can be implemented in phases and that there is no requirement to have an instant implementation. Bingi (as cited in Pamungkas 117) also recommends the implementation of the system to be carried out in phases.
The different modules of the ERP systems make it possible for the phase implementation since they can always be interlinked later. However leading ERP vendors like SAP, while recommending phase implementation, emphasize on commencing the process using the financial module.
Cissna (as cited in Tsai et al. 40) found that companies that started using the financial modules found it easier to introduce other modules like production and supplies. Such a strategy is referred to as the “inside-out” installation strategy and helps prudent expenditure n the ERP implementation process.
ERP system implementation can also can also be formulated in such a way that a company acquires software packages that relate to the diverse functions in an organization. The strategy was first advanced by Miranda (as cited in Zeng and Skibniewski 335) who examines the need to avoid overall failure.
According to Miranda (and cited in Zeng and Skibniewski 335), one part of the system can fail and in the event of a central database, the entire information in the network can be lost. However, courtesy of this best of breed strategy, the respective packages are interlinked through a series of programs (Zeng and Skibniewski 335).
Consequently, depending on which applications system emerges as the best, one system is molded. The only flaw of this strategy is the absence of a single database which may result in redundancy.
Companies can also implement an ERP system through a strategy termed as the true ERP strategy. Miranda (as cited in Zeng and Skibniewski 336) underscores the relevance of this strategy since it relies on respective ERP vendors. Several studies have referred to this strategy as a means of outsourcing the implementations process.
Tsai et al. also advocate for this strategy since it helps in reducing the overall cost of the implementation. Essentially, a company allows a ERP vendor access to all their internal systems. The professional capabilities of the ERP vendors make it possible for the implementation to be effective.
Implementation of ERP and Success Factors
The implementation of a huge project like the one involving an ERP system relies on a number of factors to guarantee that the endeavor yields the desired fruits in a company. A study carried out by Umble and Umble (and cited in Zeng and Skibniewski 339) suggest that when a company implements the system for the first time the success depends on the following:
- The strategy used
- The personnel involved
- The process followed
The implementation of an ERP system within an organization is a huge policy move y any organization. To this end, there needs to be an involvement of the top management. The study by Sun and Bhattacherjee observes that the success of the system’s implementation among Chinese companies relied on the goodwill of the top management (476).
Implementing an ERP system without the support and goodwill of the organization’s top management is catastrophic. The only way such a system can meet its desired expectation is through the involvement of the leadership.
Other factors that ensure the success of an ERP system include the RP consultants and employees morale. The same were featured in a list of success factors prepared by Bingi, Sharma and Godla (and cited in Zeng and Skibniewski 339). The study by Zeng and Skibniewski outlines the following factors as key to the success of an ERP system implementation:
- Commitment from the top management
- A knowledgeable workforce
- Capabilities of the ERP vendor
- Capabilities of the ERP consultants
- The duration of implementation
- Morale of the workforce
Evaluating the Implementation of the ERP System
The implementation of an ERP system is not complete unless it begins to yield results. Pamungkas, while making reference to SAP (leading ERP vendors), suggest that the results of a successfully implemented ERP system are realized within 18 months (114).
Miranda (as cited in Zeng and Skibniewski 335) suggests that an ERP system is evaluated and regarded as successful depending on the speed with which the expected results come about. To this end, the implementation period ought to be very small to ensure the evaluation rings back a successful outcome.
The evaluation of an ERP system implementation is also measured through the return on investment. According to Pamungkas, the ratio of the loss (or profit), relative to the amount invested makes up the return on investment.
To this end, the return on investment is dependent upon the success factors outlined in the previous section. A successful evaluation of the ERP implementation must provide a high return on investment. Consequently, the management of the company must be seen to contribute towards the success of the system as a show of goodwill.
Gaps in Literature
The literature review has illustrated several aspects of ERP and how it relates to a business setting. However, a closer inspection of the information provided, reveals several aspects of literature that are either scantily mentioned or not discussed altogether.
Pamungkas argues that ERP will only be beneficial once most of the challenges surrounding the subject are discussed (100). Consequently, the gaps in literature ought to be pointed out to prompt further research.
The first aspect that requires attention is the high cost of implementing an ERP system within an organization. Studies like the ones by Tsai et al. mention the high cost of implementing the system (37). However, rather than point out the ways in which the costs can be brought down, such studies create the impression that businesses should look at the greater good of investing in the system.
Whereas such a move is prudent in promoting interest in the field, many businesses end up being locked out of the process altogether. Consequently, research ought to be carried out to find out how the cost of ERP acquisition can be brought down.
The essence of transacting business is to bring about profit to a given enterprise. Several studies indicate that ERP systems bring about profits in an organization (Dylst, Vulto and Simoens 735; Tsai et al. 41; Zeng and Skibniewski 334).
However, what most of those studies fail to elaborate is the guarantee of profit especially after a heavy investment towards the acquisition of the ERP system. Consequently research ought to be undertaken to outline the exact steps that companies should undertake to ensure that the endeavor is not an exercise in futility.
The current chapter provides details of ERP systems from various studies. A historical perspective on how the concept came into being, followed by definitions on the subject are outlined. The chapter further examines the various modules that relate to ERP systems. The applicability of the concept is illustrated in details with an explanation on how the same spread to other industries being outlined.
Other elements discussed in the literature review include the cost, benefits and implementation strategies of the ERP. Also, the chapter outlines the future of the concept in relation to business. The next chapter is a case study, outlining a company that implemented the same and has results to show regarding the same.
A Case Study Of Erp Implementation At Engco
Precursor to the ERP Initiative
ENGCO is a leading engineering organization that engages in engineering contractual works for large factories in various parts of the world. According to Seo, the main business activities at ENGCO can be summed up using the acronym EPC (35). The acronym stands for engineering, procurement and construction, all of which are core activities of the company.
Seo reports that the company relies on its domestic market for most of its revenue (35). Unfortunately, the company suffered huge financial challenges in 2003 owing to a slump in the domestic market. During their financial crisis, the company also engaged the services of a new chief executive officer (CEO).
The new CEO decided to shift the company’s investment portfolio to the international market. Unfortunately, the company’s IT capabilities were found to be wanting. Seo argues that the only way ENGCO would compete with other leading engineering firms would be to improve on all the computerized systems within the organization (35).
Separately, Sun and Bhattacherjee observe that a company with an excellent IT department has a fair chance of competing on the international arena (470). The CEO had a vision to ensure that ENGCO can properly compete with similar companies in the EPC business.
The ERP initiative at the company is reported to have started way back in the year 2000. According to Seo, ENGCO had developed a two year roadmap that would see, key business functions integrated to enhance efficiency (35).
Essentially, the key functions incorporated in the ambitious project included the cost control, sales, treasury and financial business functions. Unfortunately, the company had not factored in the international market. Consequently, when the slump in the market came about, the company was caught flat footed.
Fortunately, the newly appointed head of the company came with a wealth of experience. Pamungkas notes that large corporations require an experienced hand to oversee the implementation of an ERP system (88). The same is also supported by the success factors outlined in the literature review.
The intended transformation of ENGCO into the global arena largely depended on the successful implementation of the ERP system. The projected effect of the ERP was set for the sixth month after implementation.
The assembly of the ERP implementation strategy requires commitment from the company’s leadership, as already illustrated. Consequently, the CEO introduced a new member of the corporate leadership structure in the capacity of the chief information officer (Seo 35). The CIO, in turn came up with a competent IT team that would directly carry out the ERP system implementation.
ENGCO happens to be a subsidiary of a larger business conglomerate as is ICTCO (Seo 35). To this end, the former ended up outsourcing their IT department to the latter owing to the wealth of experience.
The Implementation Process
The ERP system implementation process, at ENGCO, commenced with an actual ERP section. According to Tsai et al. ERP selection is essential in ensuring that one gets the requisite personnel to carry out the actual works that constitute the implementation (38). The company settled upon SAP, which is a leading ERP vendor. According to Seo the decision was informed by consultants drawn from ENGCO’s sister company, ICTCO (36). The main reason given for the selection of SAP was that it would provide ENGCO with earned value management (EVM).
As mentioned earlier, the implementation of an ERP system must be seen to yield results to the company in reference. The EVM, cited above, enables a company to evaluate the performance of the implementation project on the basis of schedule, cost and scope (Tsai et al. 40).
Also, SAP was recommended as an ideal ERP vendor owing to the reliability. The company has built its reputation based on the need to deliver on quality (Tsai et al. 40). The decision to settle on SAP was, indeed, well informed.
Implementing such a huge project requires a dedicated team. Zeng and Skibniewski argue that implementing an ERP system is akin to the handling f a new project by an organization (341). To this end, it is expected that a company forms some sort of task force that will oversee the implementation.
In line with such sentiments, the CEO at ENGCO formed a taskforce that would coordinate the ERP implementation. Owing to the magnitude of the project, the members of this task force were drawn from the managerial level across all the departments. Other members included the team from ICTC and the initial IT department that created the domestic system.
The task at hand requires season personnel who have a firm grasp of the technical matters relating to information technology. Seo reports that the task force was characterized with personnel who had limited experience relating to ERP systems (37). The most affected members of the task force were the ones drawn from the business departments.
Fortunately, the consulting team that was brought on board provided a 2 week training course. The training targeted the basics of ERP systems to ensure that all the members of the task force are aware of what is expected of them once the implementation gets underway.
The implementation of an ERP system within an organization requires the adoption of a number of modules. Zeng and Skibniewski point out that the modules that are usually adopted are in line with the various functions of an organization (333). During the implementation process at ENGCO, the taskforce adopted six modules upon recommendations from SAP.
According to Seo, the task force was forced to make some alterations on the standardization modules suggested by SAP (39). The reason behind the alteration is that SAP had recommended standardization modules that were ideal for a manufacturing company. The modules adopted are as follows:
- Materials management (MM)
- Treasury (TR)
- Financial (FI)
- Sales and Distribution (SD)
- Project system (PS)
- Cost controlling (CO)
Implementing an ERP system within an organization does not come without a number of hurdles. ENGCO faced a number of challenges in implementing the ERP system under the new CEO (Seo 39).
The initial system developed for ENCO’s domestic market, was carried out using a method referred to as the Work Breakdown Structure (WBS). In the new ERP system for the international market, the WBS was found to be ineffective. According to Seo, using the WBS inhibited the implementation of the schedule function (39).
As already mentioned, the functioning modules proposed by SAP were meant for a manufacturing company. EPC companies have their own codes that are completely different from the ones suggested by SAP (Seo 39).
The discrepancy in the materials codes required them to b fine tuned so that they may be compatible for the processes in an EPC business. The fine tuning is an expensive affair and the result added an extrat cost to the initial budget intended for the procedure.
The ERP system that was implemented at ENGCO was a success owing to the efficient project management by the task force. Seo indicates that the system made is possible for the existence of 7 standard WBS groups (40). The groups were designed to ensure a balance in terms of the contracts that the company engaged itself in.
The ERP system that was implemented ensured the development of WBS elements basing on a cost breakdown structure. As a result, ENGCO was able to carry out effective communication among the MM, SD and the CO.
The ERP enable all the project managers to come up with budgets that they could regulate. Seo adds that the ERP system further enabled the managers to develop and analyze the cost and profits for their respective tasks all through a centralized system (40).
The centralized access of information within the company implied that regardless where one is based on the globe, the required tasks would be performed in the same speed, thereby increasing the efficiency of the organization at the international platform.
Upon the implementation of the ERP system at EGNCO, the company witnessed an integrated business administration process that was faster than others in the industry. Tsai et al. also make reference to the brisk nature of ERP systems as a benefit once implemented in an organization (43). Initially, the closing process at ENGCO was one month (Seo 40).
However, with the new system the duration was drastically reduced to 5 days. Consequently, a more accurate forecast of business transactions would be made. Courtesy of the enhanced forecasting, elements touching on foreign exchange rates were instantly overcome.
The most common reason as to why companies opt for an ERP system is the improvement of communications within their organizations. Sun and Bhattacherjee observed that companies which have an improved communications platform are better placed in carrying out their core missions and objectives (481).
At ENGCO, the communication was drastically improved owing to the ERP systems that were introduced into the company. According to Seo, the new systems were capable of processing multiple data in a short time (40). Consequently, transactions would be carried out at an even faster rate.
The chapter is a c case study of the implementation of ERP systems at ENGCO. A precursor to the implementation is outlined. The precursor illustrates the reasons as to why ENGCO saw it fit to implement the system as suggested. Thereafter the actual implementation of the ERP system within the company is discussed. The strategies adopted and hurdles faced are outlined.
The chapter concludes by illustrating the outcome of the said implementation. The information obtained from this chapter is essential in developing the implications of the current study. The subsequent chapter is a discussion on the information obtained from the secondary data.
The Rationale for ERP Systems
The ever changing world of business requires such enterprises to carry out effective operations. One way of ensuring the operations are effective is the introduction of an enterprise resource planning system within an organization.
According to Dylst et al., companies that require an expansion or internationalization process require the ERP system (729). As illustrated in the case study, ENGCO’s position in the global EPC market stood to benefit once they improved on their IT shortcomings.
When a company has expanded its operations, there are also increased numbers of functions that ought to be responded to. Dylst et al. argue that when such functions are not effectively adhered to, the performance of a company begins to dwindle (729).
However, the ERP system is capable of ensuring that all the functions of a company are properly coordinated. Consequently, the same provides a rationale for large companies that require efficient coordination of all their companies as illustrated by ENGCO.
There are several other reasons as to why a company should make use of ERP systems. However, the implementation cannot be realized unless the company demonstrates some sense of readiness on their part. Towards this end, Gartner (as cited in Seo 43) insists that companies should be tested on their readiness activity.
The test allows an organization to evaluate whether they are in a position to execute the system. The test further outlines the extent up to which such a project can be implemented. Such a test enables an organization to improve upon the areas of weaknesses as regards ERP systems implementation.
The readiness of a company to implements an ERP system is based on a three level rating system. Seo points out that the ratings levels range from ready to limited and weak (43). A company is only rated as ‘ready’ when all indicators suggest that the company is very well prepared.
A “limited” rating suggests that there company needs to add in more effort in a bid to insulate it against potential risks associated with the implementation program. Lastly, a company is rated as ‘weak’ on the ERP readiness meter on the account that it has not capacity whatsoever to handle the system.
Historically, ERP systems derive their operations from manufacturing industries. At the time it was assumed that the industry had multiple roles that require handling (Pamungkas 186). The increasing business activity has led to an upsurge in the number of functions that a company can undertake.
Towards this end, it is essential that such companies take steps to ensure that the functions, albeit many, do not inhibit the performance of the core duties. ERP systems provide a guarantee to ensuring that the multiple functions are coordinated to ensure that the core objectives of the company are met.
Fulfillment of the Critical Success Factors
In the literature review, there were a number of factors that were identified as contributing towards the success of the ERP systems implementation. According to Dylst et al., the commitment and support from the top management is one of the contributing factors (733). The same can be illustrated in the case study outlined by ENGCO.
The CEO demonstrated goodwill by creating a corporate head of information. In addition, the task force that was constituted comprised of managers. When a company policy has the backing of the leadership apparatus, its success is inevitable. The success of the ERP system at ENGCO affirms this notion.
The case study outlined in this paper illustrates a scenario where the ERP has a standard software package. However, the package may not necessarily fit all business environments (Seo 47). Consequently, it becomes necessary to restructure some of the business processes to suit the package requirements.
During the implementation of the ERP at ENGCO, it emerged that the ERP provider, SAP, provided a module that only applies to a manufacturing industry.
However, that did not deter the implementation process since there was a system customization coupled with a reengineering of certain business processes. The restructuring of the business processes tends to increase the cost of the ERP implementation. However, the long term benefits justify the extra costs as was the case at ENGCO.
The implementation of an ERP system within an organization has an effect on the overall organizational structure. Such a scenario presented itself ant ENGCO, where a new position of CIO was created at the corporate level (Seo 35). The motivation behind such a move is largely meant to ensure that the implementation process is successful.
The example presented in the case study illustrates how the change was necessary to ensure that the IT department at the company had adequate capacity to bring about the expected change. Also, the change can involve the task force which has an oversight role over the entire project.
The changes should not be seen as an attempt to disorganize the company. Rather the changes should be embraced a means of ensuring the implementation process is a success.
The success of an ERP implementation process relies on the communication plan that as been laid out. The complex nature of the project requires efficient communication among all the concerned parties (Seo 47).
An example is illustrated in the case study, where there was an effective communication plan between the task force and the ERP vendor. Such issues as reengineering and customization depend on a communication plan that ropes in all the concerned parities. The success of the ERP at ENGCO underscores the importance of an effective communication plan. Such a plan must be transparent and with little or no administrative hurdles.
Comparison between Literature Review and the Case Study
The literature review presented a platform upon which an implementation strategy can be adopted. However, Sun and Bhattacherjee recommend the inclusion of all the components of an ERP framework prior to the actual implementation (333).
To this end, it is important that a company establishes a database that will be used to channel out the information regarding the required functions. Similar sentiments were found in the case study. Seo refers to the internationalization of ENGCO as requiring technical assistance to integrate all information (35). Consequently, ERP is meaningless without a database.
An ERP system requires a modular integration. In the literature review, Pamungkas suggests that modular integration is necessary to ensure that operational function work in tandem with the system (67). The case study presents a deeper insight into the aspect of modular integration (Seo 35).
The ERP implementation at ENGCO outlines the need to reengineer certain business process and customize some functions. The same is brought about by the non uniformity of the modules issues by ERP vendors. To this end, modular integration is regarded as a pillar in terms of ERP implementation.
The literature review associates an ERP system with an interconnectivity of computers. The same brings about the element of networks within an organization. Seo points out that ENGC also relies on networks to guarantee the success of the system (35). The upgrading of the IT department brought about improved interconnectivity within the organization’s departments.
Finally, an ERP system requires excellent business services. The literature review outlined the various strategies of implementing an ERP system within an organization. One of the strategies mentioned referred to the implementation being carried out in phases (Tsai et al. 38). The phase implementation relies on a company’s preferred business practices.
A similar perspective on business practices is shared by the company illustrated in the case study (Seo 38). ENGCO was required to align its business functions to respond to the unique nature of the modules presented by SAP (Seo 38). Consequently, the excellence of a company’s business services will determine the impact of the ER system.
The Benefits of the ERP System to an Organization
As already mentioned, implementation of an ERP system in a company is drive by the rationale. The major benefit outlined is the automation aspect. According to Sun and Bhattacherjee, companies with an automated system are more likely to meet their goals (470).
Due to the automation an organization is able to handle multiple tasks. In the case study, ENGCO exhibits this benefit by pointing out the reduced service delivery times from a month to five days. The same is credited to the automation.
Secondly, ERP systems provide consistent information throughout an organization. ERP systems are designed in such a way that they can share information stored in the database across all departments (Tsai et al. 38).
Most, if not all, databases are created with pin point accuracy such that if details are logged in from one station, the same information will be found in a different station owing to the interconnectivity and tamperproof nature of the ERP systems. The same is exhibited in the case study, where ENGCO opted for an international system that can allow transactions from various points in the world.
The reduction of redundancy makes up for the third benefit of the ERP systems. As indicated by Sun and Bhattacherjee, many companies in China with the ERP system relied on a single database (478). Such companies had effectively eliminated all forms of redundancies. Redundancies are common in companies where the database is not centralized.
Redundancy emerges when certain functions are duplicated across the board in an organization. For instance, a function X can be carried out in the marketing department and repeated in the sales department. However, courtesy of an ERP system, such repetitions are avoided across the organization. The result of zero redundancy is increased company performance.
ERP systems also help in the reduction of operational costs. The same is realized courtesy of the phased out redundancy. As mentioned in the literature review, ERP systems enable organizations to adapt to the dynamic nature of the business environment (Pamungkas 163). The ERP system also helps to reduce the cycle times especially in a production line.
The same was evident in the case study outlining such an implementation at ENGCO. As illustrated in the literature review and the case study the implementation of an ERP system results in exponential growth since the core missions are being carried out quite well. The benefits illustrated are a representative of the advantages that ERP systems bring to companies.
The current chapter is a discussion of the information obtained from the literature review and the case study as the secondary sources of information. To this end, a rationale for the implementation of an ERP system is outlined. Thereafter, a discussion on the fulfillment of success factors is outlined in a bid to elaborate on how to evaluate ERP systems in an organization. A comparison of the literature review and the case study is outlined with the intention of developing a reference point for the implementation. The chapter concludes with the benefits touching on ERP systems. The next chapter summarizes the entire study by providing implications and conclusions on the entire subject.
Implications And Conclusion
The discussions elaborated in the current study affirm the importance of ERP systems and the applicability in business. Dylst et al. suggest that ERP systems ensure that a company adheres to its core objectives (729). The adherence does not just happen automatically.
ERP systems, primarily, integrate the functions of an organization and ensure that waste in the said organizations is completely avoided. The implication is that once waste, in form of redundancy and extra cost, is eliminated, the workforce can focus on the core objectives of the organization.
ERP is a costly endeavor. Sun and Bhattacherjee argue that the cost of implementing the ERP in an organization is extremely high (471). As indicated by the example of companies in China, the process eats into the revenues of a company.
The cost implications are such that a company is advised to evaluate their readiness on the ERP implementation front. In the event that a given organization grades as weak, it would not be prudent to invest in the system.
The strategy of implementation builds upon the cost implications outlined. According to Sun and Bhattacherjee, the expense involved in implementing ERP systems inhibits many companies from taking that path (471). However, what many companies fail to realize is that the system can be implemented in phases.
The cost implications have a direct impact on the strategy that a company can implement the system For instance, rather than implement the entire system all at once, companies can opt to start with a given department like the finance department followed by the human resource department.
ERP systems are no longer the preserve of manufacturing industries. Increasing trade practices across the board have resulted in the need for efficiency. ERP systems provide this much needed efficiency by streamlining various functions.
The system further ensures that all the information relating to various business practices is easily accessed (Dylst et al. 731). Some of the sectors in which the ERP system finds applicability include both public and private sectors. Industries like the military and finance are increasingly implementing ERP systems in their organizations.
The study presupposes that the implementation of an ERP system ensures that a given organization is able to perform its core objectives. The same is brought about by the integration of data and functions. The implications, elaborated, are an indicator of the benefits associated with the system. To this end, once an organization focuses on its core objectives, profits and efficiency arise (Pamungkas 71).
Enterprise resource planning is beneficial to any business establishment. The example given of ENGCO, in the case study, illustrates the actual benefits associated with the ERP systems. Tsai et al. posit that the benefits are only realized once the implementation is carried out in a proper manner (38).
As illustrated in the study, the success of the ERP implementation protocol is dependent of a number of factors. The support from the company’s leadership coupled with the reengineering of company roles have been cited as the most common contributors towards the success of the system.
Organizations need to embrace the adoption of ERP systems owing to the increased number of functions. However, Zeng and Skibniewski (332) argue that the cost factor inhibits small and medium sized organizations from tapping on the benefits mentioned. Consequently, this study recommends further research on matters pertaining to cost implications of the ERP systems.
The argument stems from the fact that the IT industry has witnessed significant strides in innovation that reduce the cost of their technology. The same should trickle down to subsidiary sectors like the ERP which, as illustrated in this study, is an integral aspect of efficiency in business.
The current chapter concludes the study by providing the implications ad an overall conclusion. An overview of the study of the entire study is outlined, restating the thesis statement. The chapter affirms the sentiments advanced in the thesis statement.
The implications made in this chapter are seen as an avenue through which an organization can implement the ERP system and reap the full benefits thereof. While concluding the study, the researcher is aware that there is need for further research. Consequently, a recommendation is made on research as to how the cost of implementing the ERP system can be brought down.
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