Abstract
Many present organizations have adopted ERP systems due to the need for these organizations to remain relevant in the market and compete globally. This paper explores the significance of ERPS systems in organizations, problems that may be encountered due to lack of these systems, how ERP systems address these problems as well as benefits associated with ERP systems.
Most Companies have adopted ERP systems due to the need to correct deficiencies such as inventory management, which can only be addressed efficiently by ERP systems. Other organizational areas that can be addressed by ERP systems include inventory control, data management, reporting and provision of real time information. Benefits associated with ERP systems derive from addressing these organizational areas.
The paper also includes two case studies, which aim at demonstrating some problems that companies face due to lack of ERP systems, and how these systems can address these issues for overall success of organizations.
Enterprise Resource Planning Systems
Despite the high costs and technical complexity involved with integrating Enterprise Resource Planning (ERP) systems, businesses of all classes are opting to adopt their use. ERPS systems are strong software packages which allow companies to integrate a range of different functions (Leary 2000).
Particularly, ERP systems have the capacity to offer an organization with a broad range of e-commerce processes such as tracing, web-based ordering and inventory management.
Importance of Integration to Companies
Integration of ERP systems is significant in various ways. Vaman (2007) reveals that ERP systems act as the backbone of a company’s needs for information and provides unrivaled enhancements in business activities as well as an excellent chance for standardization and linkages.
Besides, use of ERP systems enables an organization to share information both externally and internally in a timely manner, synchronize demand and supply and enable managers to comprehend different features of their businesses (Vaman 2007).
Also, Davenport (1998) reveals that ERP systems contain structures that aid in resolving the issue of data fragmentation, which is prevalent in large business groups. He adds that ERP systems integrate all data flowing inside a business.
In brief, significance of ERP systems can be categorized into four. First, ERP systems enable companies to computerize and integrate key aspects of their business activities. Second, ERP systems enhance distribution of common information, practices and processes across the whole organization.
Third, ERP systems support business planning and reporting together with analyzing real time data. Fourth, ERP systems offer data, share data and access data in the immediate environment.
Significance of ERP systems can be traced back to 1990’s. In early 1990’s ERP systems became set up as integrated suites that computerized main business activities like production, human resources, accounting distribution and supply (Leon 2008).
Most Companies began adopting ERP applications, in 2000, due to the need to correct deficiencies such as inventory management, which could only be addressed efficiently by ERP systems. Presently, most companies prefer to spend heavily on ERP system installations rather than to spend almost the same amount on compliance requirements.
This is because ERP systems offer various applications that boost global competitiveness, create answers to the problem of legacy systems, lessen development risk and augment business effectiveness (Leon 2008).
Organizations are also adopting ERP packages in order to advance their financials. ERP enables businesses to connect financial accounting with all other industry activities (Vaman 2007). ERP requires much time and cost before it attains full implementation.
However, organizations that implement ERP systems efficiently may augment productions as well as cut down on expenses. ERP applications are allowing organizations to meet present day priorities such as definite, lower margins all through the supply chain, as well as, rapid reactions and turnarounds. ERP thrives when there is strong collaboration between an organization and its technological suppliers.
Another significance of ERP systems is that it can replace Material Requirement Planning (MRP). MRP is a group of techniques that employs inventory information, bills of material and the master production program to compute requirements for materials (Toomey, 1996).
While MRP obtained broad recognition as a planning instrument, in the past, it is usually too slow and burdensome to manage the quickly, varying daily veracities of production processes. The complex, advance prediction of MRP is of slight value when information requires to be traced in a day. However, ERP provides a solution to this problem through presenting real time tracking application.
Finally, several companies adopt ERP for regularization of information. Most companies require consistent data flow especially in cases of mergers and acquisitions or in cases of international companies.
A regular system enables the client and supplier to communicate as if they are operating from a similar organization. Employees or managers who obtain transfers to other subsidiaries of the same company can participate in projects, direct productions and participate in human resource plans without any difficulties.
Issues which Occur due to Lack of Integration
Lack of integration among people, processes and applications make companies be less productive than their counterparts in the market. Businesses fail to thrive because they lack real time information regarding their suppliers, customers, market changes and competition. Besides, companies that lack ERP systems will experience difficulties in regulatory compliance and operational transparency (Vaman 2007).
This is because these two processes require updated information about the business. Information serves a basis from where the company’s quality management can be assessed and supply chain partnerships established.
Also, lack of proper, integrated systems among people, applications and processes harden the assessment of vital data as data resides in disparate systems, accumulated. As a result, companies incur increased costs due to duplication and confusion that data fragmentation causes.
Most of other issues, which occur due to lack of integration among people, process and applications, revolve around the provision of general services and expenses incurred. First, lack of integration hardens the process of companies competing globally as they cannot reach many vendors, which should lead to the creation of further competitive bids.
Failure to obtain competitive bids implies that companies will obtain products at a high cost than companies where a vast number of vendors participated in the bid. Second, lack of an ERP system makes organizations spend vast amounts on papers and postage mails thus reducing the amount that can be saved. Also, organizations that lack ERP systems spend time and money in retrieving data and ordering for services.
Employees in these organizations may also experience delays in payment processing, while customer service may be compromised due to delayed access to account histories leading to low quality planning and analysis.
Cases of delays in receiving, awarding and distributing contracts and awards characterize these systems. Delays in processes also limit counties and city bodies from participating in purchasing events, which bars costs savings.
Equally, lack of proper integration among people, processes and applications can have several implications in the management sector (Leon 2008). First, much time gets spent on report generation and entering data associated with budgets. Second, the content and analysis of the budget experiences limitation because there lacks proper systems for retrieval and analysis of data.
Third, directors, legal authorities and stakeholders cannot access real time budget data regarding companies that lack ERP systems. Fourth, lack of proper integration implies that budget systems lacks connection to human resource, accounting and payroll departments, thus disallowing data sharing across departments. Lastly, lack of proper integration makes the process of performance assessment in organizations.
How do ERP Systems address these Integration Issues?
ERP systems contain many applications. All these applications get integrated in the entire system although each application serves a definite function in the organization. Most challenges faced by lack of integration can be addressed by ERP systems. Some areas that ERP systems address include data management through a single source, inventory control, reporting and provision of real time information (Leon 2008).
Inventory Control
Inventory management, which is a function of an ERP structure, provides firms with the stock and visibility calculations essential for enhanced production (Ray 2011). Inventories enable managers to access sale orders from customers and provide these orders. Moreover, the system changes the position of stock so as to ensure it is not available for any extra sales demands.
This is normally the commencement of keeping up proper levels of upheld stock in the store. Furthermore, there are other roles of stock control, which involve reporting on stock condition, controlling item utilizations, and reconciling stock balances. Also, having a fully incorporated ERP structure application ensures that consumer orders obtain updates with no strain and in time.
Reporting
Accurate reporting in an ERP is a potential device for identification of all data that reside in the system. Sorting throughout the bulky size of records may be devastating, but with information like documents, financials aging data, could be explained in either direct report layouts or more complicated according to reporting required (Leary 2000).
The kind or size of the report does not matter, since all can be utilized for coming up with well-versed business choices.
Every transaction in the reporting database obtains automatic updates thus enabling maximum precision in the records. With these records, can establish pre calculated values and ultimate projections. The records store may be designed to meet definite requirements of a company.
Real time
Real time information is simply information that obtains transmission instantly after compilation. In modern settings, real-time records are vital to production achievement, in order to cope with the changing environment. Producers typically pursue pre defined instructions for their products (Leon 2008). ERP Systems, which do not function on real time, create products that have segments for delivery.
All subsequent upstream and downstream computations presume that all goals become realized during the process. Nevertheless all producers go into making losses, like those of poor unprocessed materials that require to be determined, in order to have precise consignment ticket satisfaction. In situations where a firm does not have real time statistics, a vast amount of income loss is likely to occur.
Data precision concerning suppliers and consumers is as well an advantage when making use of real-time method. Data duplication is also an advantage in a real-time scheme since double entry is unnecessary. Availability of more recent and reliable facts makes businesses formulate more informed and precise business decisions.
Single basis of Data
Use of a single source of data saves much time as information obtained from different places can easily be accessed through a single mode (Leon, 2008). An ERP structure tends to bridge gaps among departments.
In the past, information from departments such as human resource, production and operations, sales and marketing, as well as accounting and finance could only be obtained from independent sources. However, this data can be obtained jointly through the use of ERP applications.
What Benefits can Companies Achieve when this Integration Occurs?
Integration through ERP systems makes employees and managers to make informed decisions. Vaman (2007) reveals that leading businesses are reviewing their technology plans and processes, creating room for users to access and interpret immense amounts of data and craft informed decisions. Business managers release information concealed across systems converting data into awareness and awareness into gains.
Besides, use of ERP systems cuts down costs involved in production of general services. ERP systems make global competition for companies possible, since they can reach many vendors thus leading to the creation of further competitive bids and broadening involvement in government contracts. Involving many vendors in bids implies that companies will obtain products at a low cost since competition will be high.
Presence of an ERP system makes organizations incur low expenses on papers and postage mails thus creating further savings. Organizations that have ERP systems do not spend much time and money retrieving data and ordering for services, since the application records real time data (Monk 2009).
Employees in these organizations do not experience delays in payment processing and customer service, due to swift access to account histories leading to high quality planning and analysis. ERP applications quicken the process of receiving, awarding and distributing contracts and awards.
These organizations experience much cost savings as they create room for counties and city bodies to participate in purchasing events, which increases costs savings. Also, little time gets spent on report generation and entering data associated with budgets as ERP systems are extremely efficient in this area. Again, budget analysis and reporting becomes easy as there are proper systems for retrieval and analysis of data.
In addition, directors, legal authorities and stakeholders can easily access real time budget data regarding companies through ERP systems.
Further, existence of proper integration implies that budget systems will have a connection to human resource, accounting and payroll departments, thus allowing data sharing across departments. Finally, use of ERP systems makes the process of performance assessment in organizations easy (Umble et al. 2003).
In summary, use of ERP systems boost access to information, which aids decision making, enhance work processes, avails precise and timely data and boosts time for customer response. Also, ERP systems facilitate response to varying business processes and market environment producing enhanced competitive advantages, easy access to the employee and customer data as well as decreased paper work.
Case Studies of Companies and their Experiences
Huck International Company
Huck International deals with production, design and distribution of fastening systems for industrial, commercial and aerospace. The company succeeded in implementing an ERP system in the year 1998. Huck International Inc had two industrial fastener plants, three aerospace fastener plants, five global sales and distribution stores, one manufacturing plant and corporate headquarters (Umble et al. 2003).
Since the Company had many subsidiaries, data sharing, inventory management and tracking data became difficult. Besides, lack of Y2K compatibility made the company to experience difficulties when it came to compliance. This is because several upgrades and restructuring of site-specific adjustments had not faced any noteworthy enhancements.
Also, the business atmosphere was swiftly changing to support closer industry-industry transactions with main clients, and the previous system did not attune to the novel systems that became set up in the consumer base.
There were no expectations for enhancements to the prevailing system and the company did not want to maintain in-house information system resources to produce the new capacities and interfaces that seemed essential (Umble et al. 2003).
The anticipation was that ERP systems could substitute all existing person-person activities. Such activities included sales, distribution and accounting. Human resources and payroll became left out of the system. While the potential to integrate financials were favorable, every site obtained installation as a free financial unit.
The key strategy for implementation was to build model systems at the main site, which was in Texas, and expand to other sites a structure on which to erect local activities. This activity would offer to learn curve gains together with competent resource deployment as the support employees could transfer from one site to another as timeline continued.
Implementation of ERP systems at Huck International was successful as it was able to address most issues that the organization faced ahead of adopting the system. For implementation to be deemed successful, a system must have attained a considerable share of its expected benefits (Chung 2007).
In the case of ERP systems, benefits may comprise reduced expenses in information technology, reduced employees, enhanced inventory control and an enhancement in financial operations along with order management (Leon 2008).
The company experienced a considerable enhancement in the field of inventory control. Adoption of the new systems supported transformation of warehouses that contained manufactured products from zone storages to random storages through ERP features. Also, the company condensed the warehouse space 40%, through employing system guidelines on lot control (Umble et al. 2003).
The level of inventory precision augmented from 94.5% to 98.8% (Umble et al. 2003). This precision was surprising, though the error tolerance did not modify. However, the present tolerance is more rigid than that employed earlier.
Formerly, only cycle counts that had more than an error of 0.5% of six months practice became regarded as unsuitable. Presently, the cycle count seems unsuitable in cases of variance, in whichever location, or lot figure. The level of precision is 99.6% in areas that are entirely under the authority of the warehouse system.
Huck International also experienced nonfinancial enhancements. Presently, Huck International can maintain to develop and pursue new chances for partnerships, which were difficult to accomplish using the previous technology on information systems.
Adoption of ERP systems has seen the corporation survive consolidation and growth records. Besides, Huck international is, in a better position, to grow new techniques and strategies to manage the industry with a strong instrument (Umble et al. 2003).
Pacific Dunlop
Pacific Dunlop is a leading government dealer in Australia. The company is a producer and distributor of famous international brands. Some years back the company became over extended and experienced functional difficulties, which resulted to insolvency. As a result, the company executives decided to use a subsidiary of the company called Dongguan as an experimental company for implementation of ERP systems.
The company obtained guidance from ERP system consultant called Parellax systems. Some of the steps that this company recommended this subsidiary to undertake involved inventory management, order processing, production control material requisition, management of the production progress and accounting (Parellax Systems n. d.).
Barely six months after implementation of these ERP procedures, the Dongguan factory experienced remarkable outcomes. Consequently, Pacific Dunlop implemented this system to all companies and agencies belonging to the group. Besides, Pacific Dunlop included the functionality of supply chain management into the system in order to connect the group to its suppliers and thus develop its value.
Since the implementation, of ERP systems, the company’s product planning procedure has developed. Previously, the company produced refined products depending on sales projections, which came from inventories. The company did not provide to the need of the market since the inventory had vast amounts of data. Presently, fabrication depends on orders of clients, whereby orders instigate production.
The company responds swiftly to demands the markets and makes better sales, using this method. Also, levels of dead stock have declined with inventory turnover accelerating, and the amounts of time that materials and ready products spend in stores become condensed. Previously, import distributors had to stock inventory for almost half a year. At present, the time required to stock inventory has reduced by approximately 70%.
Besides, all subsidiaries had to order material earlier and retain prepared products for almost four months, in the past. At present, these subsidiaries have the capacity to order materials immediately after reception of orders. Also, duration of storage has decreased, and prepared products can only be retained for a maximum of three weeks, which has condensed inventory by about 25 % (Parellax Systems n. d.).
Previously, designs for overseas needed six months, while, at present, they require only three months. This implies that there is almost a 50 % increase in time saving. Previously, cycles of production required up to 9 months while at present these cycles take only two weeks. The company has computerized and simplified order processes that seemed complex through enhancing communication among departments.
At present employees can enter data into the system concerned with processing of orders just once. All significant data and records obtain automatic recording, which decreases the amounts of losses due to human error. It is currently possible to process orders at a faster rate than previously.
In conclusion, all organizations that seek to remain competitive and relevant in the market must adopt ERP systems. ERP systems allow an organization to share information in a timely manner, harmonize demand and supply and facilitate managers in understanding different features of their businesses. ERP systems are significant as they enable companies to computerize and integrate key aspects of their business activities.
Besides, ERP systems enhance circulation of common information, practices and procedures across the entire organization. Again, ERP systems promote business planning and reporting along with analyzing real time data. Further, ERP systems present data, share data and access data from direct environment.
Lack of proper, integrated systems among people, applications and processes, harden the process of assessing vital data, which can lead to incurring increased costs. Lack of proper integration among people, processes and applications can also have several implications in the management area. First, lots of time become spent on report generation and entering data related with budgets. S
econd, analysis of budgets experience delays because there lacks proper systems for reclamation and data analysis. Third, legal authorities, directors and stakeholders are unable to access real time budget data concerning companies that lack ERP systems.
Fourth, lack of proper integration makes budget systems to lack connections with human resource, accounting and payroll departments, thus disabling data sharing across departments. Finally, lack of proper integration makes organizations experience difficulties while evaluating performance.
Main areas that can be addressed by ERP systems include provision of real time information, inventory control, data management and sharing as well as reporting. Use of ERP systems boost access to information, which avails timely data, enhance decision making and work procedures, avails precise and timely data, and reduces the time taken before responding to customers’ needs.
Procedures of payment processing and customer service are usually efficient due to swift access to account histories, which facilitates high quality structures and analysis. ERP applications also accelerate the process of receiving, awarding and distributing contracts and awards.
Furthermore, ERP systems facilitate response to varying business processes and market environment producing enhanced competitive advantages, easy access to the employee and customer data as well as decreased paper work. These results obtain confirmation from the two case studies reviewed in this paper.
References
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