Introduction
An Enterprise Resource Planning, ERP, is a type of system that consolidates all management information and handling flow of data within an organization. It mostly kits a common enterprise data besides application elements to enhance everyday operational of business activities.
For example ERP can play an important aspect in managing finance, accounting, manufacturing, project management, sales, human resource planning, and distribution and so on. The ERP system is composed of three aspects; the information technology, specific business goals and business management practices.
This paper explores the valuable decision that a company can consider in adopting an ERP system. It further discusses some reasons why a company cannot opt for ERP system and identifies the risks the company can be aware of while adopting the system.
Reasons for Recommending an ERP System
Many reasons arise as to why a company may implement an ERP system. It ties together business data and processes that would on the other hand disparage, aiding managers to have comprehensive business acumen. Besides integrating business processes, ERP assist companies in merging processes from all departments within the company and consolidate it in a central database.
This is achieved without incurring more costs and time hence making it easy for accessibility and smooth flow of work. Merging is achieved by building a database repository that allows integration with a variety of application software hence presenting business statistics and other information to various departments within the organization.
To have an ideal ERP system, the system should have an ERP structure which is made up of integrated central database repository in a fused environment
One reason why I would recommend my company to implement an ERP solution is to improve information accuracy and decision making. Modern business has created a competitive environment hence for any similar business to stay relevant it needs to have accurate managed information. According to Cruz-Cunha (2009, p.123), managing company’s future entails accuracy in managing information.
ERP solution is important in strengthening both internal and external information needs of a company. Hence linking information from various sources enhances continues flow of information thus aiding in decision making.
In other words for instance, if a process starts within the manufacturing department and ends at sales department or marketing with stops in-between, an ERP solution can facilitate a smooth transition from the beginning to the end (Cruz-Cunha, 2009, p.102).
Besides, an ERP system functions in real time. This implies that if someone in an accounting department for examples captures certain information in the system, it would immediately be available to anyone who accesses the system. The solution is normally implemented with a comparable feel and look in all departments thus consistency is factored to enhance efficiency in the company.
Secondly, ERP improves the relationship and performance of the company and its suppliers. The quality of raw materials and the ability of dealers to supply on time are important for any successful company. Cruz-Cunha (2009, p116) suggests that, a company has to its select its supplier cautiously and screen their actions to identify any problems before they pose a threat to the company.
To recognize these benefits, companies depend on ERP systems to manage, plan and control the intricate process linked to supplier’s partnerships. The ERP solutions offers dealer procurement and management support apparatus intended to harmonize critical aspects of procurement procedure.
They aid a company to aptly monitor, control, schedule and negotiate procurement costs to ensure superior quality is guaranteed (Cruz-Cunha, 2009, p.125). ERP encompasses supplier management and control processes that aid a company in managing supplier relationships, dealer activities and supplier quality.
Thirdly, ERP increases flexibility of a company. Competition is alive in modern business environments, hence businesses which learn to respond to a customer’s wish besides market changes stays ahead of the game. An ERP system play an important role in aiding companies to accurately forecasts the future and lay strategies to ensure it succeeds.
According to Malaga (2005, p.78), ERP encompasses forecasting tools to such as customer’s preferences sales projections, financial statements and feedbacks besides many tools. A company can rely on these tools to strategically plan and execute new ideas and strategies to remain competitive in business environment. Flexibility will ensure timely formulation of strategy and adjusting to prevailing market condition.
Fourthly, ERP system plays an important role in financial management. The market leaders or the best managed businesses in the world of today have embraced the ERP Financial Solution.
The adoption of an ERP financial solution has in many cases proved to make financial management more efficient. Financial management is a cornerstone is charting organizational success (Malaga, 2005, p.79). An ERP system makes financial management easier and efficient due to a number of factors.
Finance and accounting is, in a sense, about ensuring there are enough checks and controls on how organizational finances flow. ERP functions in a simple way; it has some internally embedded controls in its functions. With internal checks and controls, an ERP solution makes the preparation of accounts and other financial documents easier and fast.
It is very easy to generate account statements at the end of every accounting period. An ERP feature helps most companies to work with ease, because it can support various languages and currencies. Further, ERP systems or solutions are standardized or tailored in a way that it supports international operations; it meets the international accounting and reporting standards (Chorafas, 2001, p.76).
Financial ERP has various features and functions that enable organization achieve its financial management standards. One of the core features of most ERP’s is the Treasury; this is a feature that helps in providing risk management ability.
This facility is important because it enables an organization to know precisely how to manage their cash, and plan a head for financial risk. It also facilitates streamlining and interactions with financial institutions such as bank for matters regarding payment processes (Chorafas, 2001, p.89).
The treasury capability allows ERP applications to interlink endlessly with treasury activities which result in more effective control and management. It leads to integration with the ERP software general ledgers to guarantee adherent to policies and regulatory involvement in reporting financial standards (Glenn, 2008, p.83).
Financial chain management is a feature which is useful in ERP’s and which allows most companies to easily resolve disputes arising from invoices and significantly reduces their collections via electronic billings and other applications. Moreover, Seamless merging within ERP’s allows current information and accuracy reporting of information.
The seamless capability of ERP helps to minimize costs whereas improving net flow of cash in organizations. The feature of financial and management capability is quite beneficial in most organizations because it provide a cornerstone of accounting.
This facility allows accuracy in accounts reporting major large companies with distributed networks (Grant, 2003, p.90). The solution when integrated with general ledger enables achievement of accuracy in balances and reporting
Fifthly, human resource management is better managed by ERP system. Human resource is a valuable asset in a successful business enterprise. Adoption of an ERP system ensures continuous flow of Information related to labor or an organization’s personnel. When such information is received by the HR department it facilitates evaluations.
Human resource related evaluations help organizations in establishing skill and knowledge needs and well as attitude related gaps or issues that have to be addressed. The collection of such information is important for employees as it is instrumentally applied to encourage development of professionalism and improvement of working conditions within the organization.
Human resource managers handle huge loads of information. In big organizations, unless technology is adopted, it is very difficult to keep up to date data on all employees (Grant, 2003, p.68). ERP Solution is a productive management tool which comes in handy to orient and help users to remain focused on their task while focusing direct link with fellow staff (Grant, 2003, p.79).
This tool links personal ability and objectives to the aspirations and goals of the company. Through the use of ERP system, it is easier to facilitate collection and storage of information in a centralized location which allows staff in the human resource departments to center their goal in other strategic planning and personnel development.
Moreover, the operative functions are assumed and tailored automatically hence relieving the department personnel of work load. ERP provides integrated solution to all the different activities and functions in the human resource department.
These activities and functions of the human resource department include; the administration of payroll and manpower related, employee professional growth and development and the general administration in the organization (Grant, 2003, p.111).
Apart from providing the above mentioned services to the organization, the ERP solution provides a platform to enable decision making and analysis so that it can aid in management control reporting. Communication and especially internal communication is paramount in the day to day operations in an organization (Leon, 2007, p.98).
The ERP solution has been tailored to facilitate this function. Services such as opinion polls, news and appointment letters as daily communication examples have been proved efficient for being incorporated in the solution.
On management, the ERP features have tended to vary in regard of employee social benefits. but this social benefits such as vacation and trips and assessment forms have been catered in most ERP’s this simplify the work of Human resource department ( Leon,2007,p.103).
ERP solutions have enabled what is referred to as e-recruitment. The development of e-recruitment practice enabled by development of supporting ERP solutions play an important role in reduction of recruitment related costs for an organization. As the world job market gets complex and more demanding, many organizations have come up with e-recruitment process to enhance tapping the correct talent within and across their borders.
This means finding the right person for the right job. Developing a worthwhile human resource pool and human resource management structures is of great necessity to organizations. It is the human resource pool that drives the organization’s strategic goals or objectives to realization.
E-recruitment facilitates or plays a critical role towards identification of the right kind of employees in the globalized job market. E-recruitment assists the company to manage its recruitments processes more effectively.
Disadvantages of ERP systems
One disadvantage associated with an ERP system is Cost. ERP solutions are expensive and complicated to implement and manage. This is the case in larger companies (Bansal, 2009, p.96). Perhaps, established companies have many legacy systems with different configurations thus it demands a great deal of project resources to unravel most of these system methods.
Besides, identifying overlaps, and establishing data feeds into the ERP systems is costly. Installations in larger organizations embraces bespoke solutions thus requiring specialized resources. In such cases, if the company is small or medium sized, the implementation outlay may pose a serious disadvantage. So, before adopting ERP, the company has to asses its capability.
The second disadvantage is the impact it brings on the business process. ERP solutions are dictated by changes in business processes. The changes can sometimes be complex.in order to determine each individual element appropriate in an ERP structure, it is uncertain that specific procedures and policies can remain intact (Bansal, 2009, 114).
Thus the application of ERP solution tends to mirror the architecture of a much broader business change project. These processes tend to be iterative hence when outlining the range of ERP solution at initial stages, most of these deliberations will not come to light.
ERP implementations tend to be viewed as projects that”compel” undesired changes on a company process (Bansal, 2009, p.69). When the ERP implementation is ongoing, often, no substitute is a solution but to alter business processes without starting from zero.
Also lack of adaptability and flexibility is a problem linked to ERP systems. ERP architecture conforms well to established businesses which have distinct procedures and practices. When these processes are aptly on place, ERP system will effectively support them.
However, for companies that are in a process of altering their business processes, ERP tends to be inflexible. This is because, an ERP system has a standardized architecture hence even a small change can cost a lot and complicate its implementation. Hence Companies, constantly exploring changes in line with their business process will not accrue like benefits from the solution because it not conforms to business activities.
Further, matters relating to ongoing support can be a serious setback if not addressed. Most ERP systems are mostly supported by third party dealers. This can lead to issues relating to service level agreements where quality of support and response time is not in tandem with company requirements (Bansal, 2009, p. 79).
Support and licensing fees can also surge the cost of the solution.Moreover, security of information stored in the ERP can be a major concern incase third party dealers are the custodian, thus many companies utilizing ERP are always at the sympathy of dealers with no adequate control over information and availability of the system.
Lastly, the ERP system erodes with the type of business. Efficiency of an ERP depends on the type of business and processes to be executed to aid and sustain the architecture. According to Bansal (2009, p.79), companies that have less investment in efficient training of their employees for instance, will not feel the results of ERP implementation.
Where companies work in a tight environment, the system will tend to give little results. The ERP architecture is anchored on an integrated business environment and limitation in sharing of information within departments will hinder efficient working thus creating more risk to a business.
Risks Associated with ERP Systems
Without proper risks identification in selecting an ERP system, a lot of time, resources and knowledge can be wasted. Early risk identification ensures that success is achieved when a company is making a choice of implementing an ERP, because this incorporates of having a quality system in an organization (Grant, 2003, p.39).
The risk associated with the Implementation of the ERP systems includes the complexity of an application, lack of end user experience and lack of clear job definition of members handling the project. For any systems to successfully be utilized in an acompany, good end user support is important, lack of support poses a huge risk in implementing the ERP project in an organization (Grant, 2003, p.46).
Without proper job roles and specification, the project team can pose a serious risk in implementing the ERP project. The Project should be able to grasp and understand a complex technological problem regarding the application (Grant, 2003, p.56). This makes it better to relay and give clear support to the end user of the application. This eliminates risks and enhances proper implementation.
Lack of proper coordination between the company structure, strategy and processes and the choice of the ERP solutions also pose a severe risk. ERP alone cannot really improve the performance of the businesses (Harwood, 2003, p. 57).
Companies or organization should reduce the risks by restructuring its operational processes and the implementation should be seen as a business initiative. Unless an organization fails to strategize its implementation goals, this risk can make it harder for quality implementation (Harwood, 2003, p.77).
Loss of Project control is also a major risk in an ERP project implementation. ERP project loses control in two major ways which includes; lack of control over the project team members and failure to control the employees when the system is implemented and in operational (Jutras, 2003, p. 58).
This failure or lack or coordination leads to decentralization of decisions which develops into unproductive authorization of decisions. To ensure effective decision making and enabling proper ERP implementation, the collocation of information about ERP implementation, the company should set up a project implementation team.
The team should be conversant and have relevant information and knowledge about ERP system implementation (Jutras, 2003, p.79). The team should have knowledge of information Technology or change management skills. Decision making should be conferred to the team by the management
ERP also pose risk, Operational ERP solution results in responsibility of devolution and empowerment of lower or middle level employees. If no proper controls are instituted, either within the ERP or in the process that organization deems best, then there will be a potential risk (Jutras, 2003, p.87).
Complexity of the project also poses a major risk in ERP project implementation. ERP systems involve the use of large expenditures which encompasses software, hardware, consultation, implementation costs and training. This always takes more time to be completed (Leon, 2007, p.68).
ERP projects have been known to take longer time than other ordinary Information system management. The complexity of this ERP cause change of roles in the company and this pose a business risk in an organization
Lack of important in house skills in an organization also creates a risk in implementing an ERP system (Leon, 2007, p.98). This has been attributed to lack of skills by the project team which is associated with program development risk.
ERP development and deployment requires a variety of skills which encompasses, risk management, change management, technical knowledge in implementation among other factors. Most organization lacks knowledge on change management needed for ERP implementation (Myerson, 2001, p.68).
Furthermore, ERP is build using a programming concepts, this is sometimes new to existing IT personnel in an organization. Thus, lack of house skills regarding the ERP systems creates a possible business risk (Myerson, 2001, p.68).
Conclusion
The ERP is designed to provide much needed facility within and geographically dispersed businesses across a multi platform with its functional units.
This has been viewed as important to support itinerant management executives to have much needed details to support their decision making at the management level. For effective choice of an ERP system, a company as to efficiently explore its usefulness, demerits and risks factors to have a clear understanding.
References
Bansal, S., 2009,Technology Scorecards: Aligning IT Investments with Business Performance, John Wiley and Sons, New Jersey, NJ
Chorafas, D., N., 2004, Integrating ERP, CRM, supply chain management, and smart material, CRC Press, Boca Roda, FL
Cruz-Cunha, M., M., 2009, Enterprise Information Systems for Business Integration in SMEs: Technological, Organizational, and Social Dimension, Idea Group Inc (IGI), New York, NY,
Glenn, G., 2008, Enterprise Resource Planning 100 Success Secrets – 100 Most Asked Questions: The Missing ERP Software, Systems, Solutions, Applications and Implementation, Lulu.com, North Carolina
Grant, G., G., 2003, ERP & Data Warehousing in Organizations: Issues and Challenges, Group Inc (IGI), New Jersey, NJ
Harwood, S., 2003, ERP: The Implementation Cycle, Butterworth-Heinemann, Amsterdam
Jutras, C., M., 2003, ERP Optimization: Using your Existing System to Support Profitable E-business Initiatives, CRC Press, Boca Raton
Leon, A., 2007, Enterprise Resource Planning, Tata McGraw-Hill, New York, NY
Malaga, R., A., 2005, Information Systems Technology, Pearson Prentice Hall, London Myerson, J., M., 2001, Enterprise Systems Integration, CRC Press, Boca Raton