Monday, October 1, 2012

ERP – Stories of Success and Failure

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Information technology has changed our lives forever. It is found in every pore of the modern society. Business world is not spared; in contrary it is probably impacted harder than anything else. We are witnesses of the evolution of production and operation philosophies, from the economic order quantity to the supply chain management. After implementation of one philosophy, further steps must be taken to insure the edge over the competition. The key in today’s business environment is the Supply Chain Management. In order to adopt and implement SCM philosophy, a firm must adopt and implement an Enterprise Resource Planning System.

ERP is the application software necessary for successful supply management. It is the key integration factor between different business functions that allows for fast and easy data exchange, which leads to process improvements throughout organization as well as successful SCM. ERP emerged as a result of the need to successfully communicate across business functions. It insures that data found throughout the organization is always current and available. It is a masterpiece of digital records. Rajagopal (00) offers additional history and reasoning “Firms around the world have been implementing ERP systems since 10s to have an uniform information system in their respective organizations and to reengineer their business processes.” Once implemented ERP affects every aspect of the organization. ERP has evolved from MRP systems. Once the lack of integration in MRP systems was discovered, only logical step was creation of the new software package that would solve the integration issues. Many of the problems firms ones had with MRP and MRP II were fixed through the implementation of ERP. ERP is therefore an extension of MRP systems. Rajagopal (00) also concludes in his research “Organizations that implemented ERP systems have made improvements in cross-functional coordination and have improved business performance at various levels.”

SCM can be defined as the vertical integration and coordination of the participants in a supply chain as well as their processes, and all in order to gain a competitive advantage over their competition. We are witnesses of the evolution of production and operation philosophies, from the economic order quantity to the supply chain management. After implementation of one philosophy steps must be taken to further insure the edge over the competition. A company cannot exist and survive in today’s world if all of the philosophies are not included in its processes. At the present time, the final philosophy that must be accepted is the supply chain management. A supply chain includes all participants from the raw materials to the consumption. ERP’s role in the SCM is to provide necessary information support and make integration and coordination possible, fast, and reliable across the supply chain. Successful management of the supply chain is not possible without ERP implementation, and a firm that fails to properly implement ERP is likely to lose it’s place in the market to a competitor that had a successful ERP implementation.

Although it sounds extremely important, too many firms fail to understand SCM and importance of the proper ERP implementation. Most common mistake firms make is that they fail to understand that people are the key of successful implementation. Instead, they take the information technology for granted expecting it to solve all of the problems. Lack of the involvement and proper training is among leading causes of the unsuccessful ERP implementations stories. Also there are claims that organizations are unwilling to pay what it costs to properly implement ERP as well as unwilling to undergo needed cultural change that comes with ERP implementation. People fail to realize that information systems are only a tool available and the managers are the ones managing company using management principles and process. If an ERP system is successfully implemented it will eventually lead to cost minimization and revenue maximization. Movement across supply chain and supply chain management will be easier, and customer satisfaction will rise to higher levels. Integration within the company and across the supply chain will bring the competitive advantage to the company.

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As stated earlier the major reason to implement ERP system is that it supports SCM and therefore provides an organization with a competitive advantage. However, benefits that are provided with ERP and that directly lead to overall objective, therefore influencing decision to implement ERP system include distribution and availability of information, integration aspects of the system, information centralization, timely information, time and money savings, improved quality, and minimizing errors. It is good idea to implement the system when a company has standardized products and regular customers and suppliers. On the other hand, some firms face certain problems if they decide to implement such a system. The problems that might point against the ERP implementation include loss of flexibility that might be the key in the business processes, cost of the implementation, little experience with formal information systems, and changing information system requirements.

Probability of the successful ERP implementation hugely depends on implementation plan. Proper implementation plan that gives enough time and more importantly involves people within the organization is the key to success. Even if people are involved in the process, hasty implementation will leave too many holes that will have a huge negative impact on company’s performance. Many articles found on the internet that describe successful and unsuccessful implementations agree that consulting, training, and personnel involvement are the key to the successful implementation of ERP systems. Many firms fail to understand ERP from the managerial point of view, they rather see it as the IT solution that should be developed by IT personnel. Gunson and Blasis (00) conclude “Further analysis of success or failure factors show that primarily it is the implementation effect on Organization, the Workplace and the Individuals at Work which yields a positive or negative result. Laughlin puts this clearly by stating that ERP implementations do not fail because applications does not work, they fail because the enterprise rejects them.”

Financial benefits for the company in case of successful implementation are huge. Cost minimization and revenue maximization will result from successfully implemented ERP system. This yields from easier movement across supply chain and easier SCM that resulted in a competitive advantage for the company. On the other hand, if the implementation is unsuccessful a company will face financial distress and difficulties. Unsuccessful implementation leads to disruptions in a supply chain and business processes, customers are not properly satisfied, and trained workforce leaves the company. All of this results in higher cost and lower revenues, sometimes running a firm out of business and in best case creating difficulties that take time to recover from. A firm with such a financial problems gets lower credit ratings as well, therefore making recovery even harder.

Every firm has a huge impact on the environment it is situated in. This impact is mainly reflected through the workforce it employs. Every change within the organization has implications on the workforce and their environment. Successful ERP implementation can have a positive impact on people and therefore spread out in their social environment. However, in some cases, success of one company can create negative effects on the other one situated in same area and conducting similar business. These effects can include loss of business and the jobs, so all of the positive can be dismissed with the negative. Some societies oppose the evolution of the Information Technology since it takes away power from the people, at least the way they see it. Gunson and Blasis (00) see new development of the workforce into knowledge workers “Some characteristics of knowledge workers include Professionals rather than employees, Interdependent on other knowledge professionals, The need for continuing education, Identification with their knowledge (rather than to any particular company), Unlimited upward mobility.” Since the ERP systems support development of the above characteristics we can conclude that successful ERP implementation has a huge impact on the social environment and encourages individual development. On the other hand, failure will discourage people and negatively impact their social surrounding.

The future of the ERP systems is focused on the Internet. The Internet will most likely be a replacement to electronic data interchange systems. It seems to be that Internet will have a huge impact on the future software developments. Davenport (000) points out “We dont need big enterprise systems anymore, because weve got the Internet now.” He argues that the information flow through the Internet is of such a scale and flexibility that the companies will not need as big systems as before, and they will be able to facilitate a lot of things by using the Internet. No matter what, if a firm wants to be a part of the 1st century, it is forced to adopt SCM and therefore implement ERP system.

Blasis, J.P., Gunson, J. (00). Implementing ERP in Multinational Companies Their Effects on Organizations and Individuals at Work. Geneva. Found at http//hec.info.unige.ch/recherches_publications/cahiers/00/00.07.pdf.

Davenport, T. (000). Long Live ERP. CIO Magazine.

Jacobs, R., Whybark, C. (000). Why ERP? A Primer on SAP Implementation. McGraw-Hill Higher Education.

Malhotra, Y. (1). Knowledge Management for Organizational White-Waters An Ecological Framework. United Kingdom. Knowledge Management.

Rajagopal, P. (00). Information and Management. Houghton. Elsevier Science.

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