Analysis of Enterprise Resource Planning - Research Paper Example

Enterprise Resource Planning has been an enigma for the industry and business at large. This paper has attempted to unravel it in a short and concise display of explaining the need, usefulness and evolution of the concepts of ERP. However this is only half the story. An equally mystifying fact is that most ERP’s end up as failures and the defining point is the improper attention paid to implementation. This aspect of the implementation process, together with the methods and barriers has been explained. ERP indeed brings about a change and almost all people resist change as it means new learning and a fear of not being able to cope with it. The leaders of the organisation adopting the ERP have a major role to play here and this has been emphasised in this work. 1.0 INTRODUCTION TO ERP All manufacturing companies generate enormous data and need to know their inventory, production, rejects and wastages and cost of production. This means that they need to combine data from purchase, finance and human resources. The result of this combination will show returns or profits but that needs data from marketing and customer relationship management as well. The company therefore needs to gather, analyse, report and distribute all of this data in a structured manner so that the recipients get only that data which has meaning for them. This data should not only fulfil the above requirements, but should be able to be used as show trends and needs of the future. Such a huge data management system is what Enterprise Resource Planning (ERP) all about. Gupta (2000) describes it as the emerging value based system for organisations. Today business functions in a collaborative environment (Horvath 2001); hence a further use of the ERP is that it not only encircles the entire data of the company but also receives and sends relevant data to its partners across the whole supply chain. This is how production planning becomes streamlined, inventories are kept at minimum, costs are reduced, finances are better utilised, downtime is eliminated, wastages are reduced and rejects controlled through quality examination at the shop floor level itself so that they do not get shipped at all. This will result in better service to customers, reducing returns and creating confidence and goodwill. Most losses occur due to bad decisions that rely on inaccurate data or on assumptions only; therefore the final and the biggest benefit of an ERP is who ever receives a meaningful report is able to take informed decision and thus ensure increase in productivity and profits. 2.0 THE EVOLUTION OF ERP After the Second World War there was a general reconstruction of manufacturing all over the world. It was already understood that mass production through assembly lines was the call of the day and for this extraordinary controls were required. Since procurement was the major factor and shortage of raw material and component held up production, the concept of Material Requirement Planning (MRP) was introduced. This was the first conscious effort to introduce controls that would lead to smoother production and was also called the MRP I. The essence of MRP I was to manage inventories in a way that no shortfall was created. But that made it material centric and inventories became heavier. The result was that while production did not suffer yet the costs could not be reduced as the holding cost of inventory went up. Elzarka and Lansford (1996) have described this as an objective based system where the focal point is that production must be fed with materials on demand. Manufacturing Resource Planning (MRP II) was conceived in the eighties when production planning was also made a part of the system (Chung and Snyder 2000). Under this system the complexities of the production process were adopted and the data provided reports on different levels to help in improving the output. It was essentially an expansion of the principles of MRP I and was intended to integrate this data along with that of MRP I. From MRP I to MRP II was a journey that evolved into ERP. This was a combination of both plus a seamless integration with other functions of the company such as finance and human resources and marketing and purchase. This can now be called the ERP I as we now see a further evolution of ERP II which is now encompassing the whole supply chain including the independent suppliers and logistics companies Shakir and Hussain 2002). The collaborative efforts of all the partners is now thought to be an essential feature of competitive business, hence it is but natural that they should be able to share there data in real time in order to deliver the ultimate benefits for cost effectiveness (Chen 2001). The essence of the ERP is that it is an enabling tool for making decisions. It has been called a decision making process by Kumar et al (2002) and this captures the core of the system. Once this is understood, the next stage, that of implementation will become clear to all concerned whether internally as in the case of employees or externally as in the case of suppliers and is likely to offer benefits beyond expectations (Scott and Vessey 2000). 3.0 IMPLEMENTATION OF ERP The success of an ERP and its eventual usefulness for the industry lies in its implementation. Al-Mashari (2003) points out the fact emphatically that successful implementation is the clue to the success of ERP as a solution. The most difficult aspect of implementation is its acceptance at the employee level. The resistance to an ERP is enormous. While this feature will be discussed in the next section, it is important to understand that the process of implementation requires the same meticulous planning as the development of the solution itself. Wight (2000) has suggested that the management should prepare a checklist of questions that it should ask itself and its employees and honestly enquire how far each of them is prepared to go along with the process. This means that all the issues need to be discussed threadbare with each section or department and it should be made clear to them that their concerns will be answered by the process. Wallace and Kremzar (1992) have outlined a Proven Path for the success of an ERP. The six steps they suggested are; education and training, vision and objectives, defining of new process and statement of requirements, system selection and contract negotiation, implementation planning and finally Implementation process. It can be observed that the path is vertical and each step is either a product of the previous one or a supportive act. This clearly demonstrates the various activities required at people, technological and process level, all of which need to be worked with for eventual successful deployment. The Proven Path is an easily understood guideline on how to approach and adopt the ERP with success. Wallace and Kremzar ( 2001) have further suggested that an ERP is not a software; rather it is a system that enables the people to work with hardware and software. In other words it is a replica of what people do in the normal course in a business; the difference being that they can now use both hardware and software to do the same work more efficiently and easily. Kapp et al (2001) state that implementation of an ERP is possible only when the following five viewpoints are understood. They are; first of all the ERP is a databank that contains huge and complete data of a company and its associates; secondly the central database is connected to a number of modules that define a specific type of activity; thirdly it consists of a manufacturing (or service) philosophy (process) and is not a software programme; fourthly it is a business process tool; and lastly it is a knowledge system that contains all knowledge about the running of the business it has been made for. Once this is understood by all stakeholders, implementation becomes possible as they can then see and accept its usefulness to them. Essentially the Implementation should be done with a plan that envisages the introduction of the ERP in either a phased manner; module by module; or a simultaneous manner by introducing all modules at a time. Those in favour of the first method argue that this allows for both adoption and adaptation in a systematic way and is an easy replacement of existing legacy system. This method ensures that there is no chaos. The drawback of the method is obvious as the company works in an integrated environment. If one module say inventory is adopted, it will fail to work optimally as data to and from it needs to go from purchasing and towards production planning. The seamless flow will not occur until all modules are adopted. This is one big reason of frustration and eventual failure. The simultaneous or the Big Bang method has its merits but requires a greater effort that means greater disruptions while adoption takes place. However the befits are clearly seen at early stages that take the pain away and creates enthusiasm amongst the participants as they can get to use the data for their benefit, and also for the company, at a very early stage. This issue can and should be taken up on a case to case basis and the suitability will depend on company size, location, ability and preparedness of the stakeholders that has been taken care of through change management programmes and training. 3.1 CRITICAL SUCCESS FACTORS OF ERP IMPLEMENTATION Adoption of new work processes brings about a huge change in the organisation and it needs to be carefully managed. Installing and Implementing and ERP system will certainly change the entire working practices and will affect every individual and department. A change of this magnitude requires three kinds of strategies to mange successful change. For successful deployment of an ERP solution it is imperative that the following critical factors are understood and taken care of. These are strategies that need to be in place even before the commencement of the Implementation process. They are Organisational Strategies, Technical Strategies and People Strategies. Organisational strategy covers the area of developing a change strategy and its deployment, change management techniques, project management, changing organisational structures as well as resources, modifying managerial style and thinking, bringing about co-ordination and emphasising on Information Technologies (Al-Mashari and Zairi 2000). This means that the Project Manager must make an honest assessment of the attitudes of the management and the behaviour of the people and construct strategies in accordance to the requirements. The management needs to support these strategies in full by backing them up with finances and assets as required. Technical strategies will comprise of Installation of the ERP, understanding and explaining of the complexities, arranging in-house technical capability besides managing the time and cost of this exercise (Russo et al., 1999, Sarker and Sarker, 2000). This will mean that the domain knowledge has to be clear to the developers so that the data flow is both meaningful and seamless. Analysis always goes hand in hand with architecture of the ERP but without a complete understanding of the process of manufacture or service this will become redundant. People strategies would mean training of staff including management of their attitudes and behaviour (Gable and Stewart 1999). This is by far the mot important as this will require persuading the staff to adopt the new standards of efficiency and work. They have to be convinced that it is more in their interest to become efficient as this will automatically work for the benefit of the company. Compensations as well as self actualisation will play a big role in this case. 3.2 BARRIERS TO IMPLEMENTATION The greatest barriers to implementation are the people. They always resist change as it is perceived that ERP will make them redundant. This is due to the misunderstanding of ERP as the end and not the means. Once it can be explained that it is a tool for enhancing efficiency it will be a lot easier to implement it. Whenever change is contemplated it is the management which has to show the way. The leaders of the company, be they at management level or supervisory level, need to demonstrate that change from status quo is essential for both increasing productivity as well as realisation of the true potential of the worker. After all the company comprises of its workers who are the human capital and on whose competency the company depends upon for delivery of quality products. When the leaders can express this in convincing terms it becomes evident to the workers to appreciate the effort by the management to deploy a major tool like the ERP which will benefit them too. Senge (1990) has put it across quite candidly that when the management offers this vision to the workers, it enthuses them and their confidence grows. They realise that the objectives envisioned and explained by the leaders are indeed achievable and that the ERP is a tool through which this can be done. In fact the workers cannot be coerced but they can certainly be persuaded by a display of facts and encouraged by performance related compensations. The other significant, although smaller, barriers are the cooperation required from collaborators and partners in either furnishing data or acting on data received from the ERP system. This can be overcome by explaining the necessity of action through education and training. More often than not it will be the psople at the other end of the spectrum who will be resisting the intrusion by ERP in their normal way of functioning. Here too the leaders of the partnering organisation have to come to the fore to explain and induce action as stated bove. The Cost of implementation can become a barrier too. However the solution to this problem is to get hold of a domain expert who can also understand the ERP architecture for supervising the implementation. The other requirement is to make sure that the ERP vendor has the required domain expertise of the industry vertical that he is trying to serve through his ERP development. Moe of this will be explained in the section of Selection of Vendors. 4.0 CHOOSING THE RIGHT VENDORS Globally there are many large vendors who have developed ERP solutions that are applicable to many industries with some amount of customization. The most renowned among them are SAP, Oracle, J.D.Edwards, Microsoft, PeopleSoft and many others. They all have several modules ranging from marketing, purchase, inventory management, finance, human resources and production planning and control. Besides they also have CRM and SCM for eventual integration with the supply chain and Business Intelligence for projecting trends. Then there are others like Lawson and Ramco who deal in specific domains and cater to a group of industries only. They too have the modules described above and have the same functionality with the difference that they have been structured with specific industry vertical or domain in mind, hence they need very little customisation for adoption and deployment. Their implementation is also comparatively quicker as both the developer and the customer understand each other due to having common domain knowledge. Tornatzky and Klein (1982) believe that compatibility with each other is the key factor in selection of a vendor. While this is largely true another factor is the cost of ownership and the cost of implementation. These can become inhibitory factors if timelines become flexible and uncontrolled. Here is where the buying company has to ensure its internal preparedness through inculcation of suitable change programmes so that resistance is removed. Yet another factor to be considered while choosing a vendor is the extent of customisation that will be required. Vendors argue that they are capable of any customisation. This is a myth and Scheer and Habermann (2000) have categorically stated that customisation as well as business process re-engineering is both a great cause of dissatisfaction with ERP systems. Domain knowledge is not easily acquired and the fine distinction of production and other processes are quite peculiar in relation to any industry. One needs expertise in order to grasp the issues that bother a particular industry and customisation may not be the final answer. The choice of vendor is therefore a laborious but necessary process and the choice must indeed by influenced by his level of understanding of the industry domain. 5.0 CONCLUSIONS It is necessary to have ERP systems in manufacturing and service industries as the amount of data handled by them these days is enormous. Added to that is the fact that all large industries and many small and medium sized industries are located at multiple locations. This aggravates the situation as all need data at the same time to continue their respective operations. Planning is an essential part of business but unless these plans can be communicated to the relevant stakeholders in time the realisation or outcome cannot be ensured. Beyond planning execution of the plans and their constant monitoring for adjustments, failures and changes are all too demanding and time lost will result in lost production, quality losses and even rejections. These will all effect bottom lines as competition is very intense. Hence the need of the ERP cannot be ignored. However the ownership of the ERP is not meaningful without proper implementation. The barriers and resistance has to be overcome through good understanding, sharing of visions and enabling change management. The supply chain also needs to be secured onto the same system to ensure seamless flow of information so that all partners can offer optimum performance that contributes to the cost advantage of the product or service offered. Lastly but most importantly the vendor of the ERP needs to be selected with great care. Unless he has the domain expertise his analytical capability and the benefit of the business intelligence tools he offers will go waste. The company also needs to understand that ERP is an evolving concept and that they need to upgrade themselves to changes, in similar fashion as they upgrade for other technological changes in their production process. In the context of ERP the evolution that began with MRP I has now entered the ERP 2 phase and this latest improvement is comprised of business intelligence. It may well be added here that this ,ay be a forerunner to use of Artificial Intelligence as is already being observed on the shop-floor through robotisation of work processes. Deployment of an ERP solution is a long and difficult exercise but one that is essential for survival and growth of business. Bibliography Al-Mashari, M., (2003), “Enterprise Resource Planning (ERP) Systems: A Research Agenda” Industrial Management & Data Systems 103/1 2003 pp. 22-27. Al-Mashari, M. and Zairi, M., (2000), ``Information and business process equality: the case of SAP R/3 implementation’’, Electronic Journal on Information Systems in Developing Countries, Vol. 2 (http://www.unimas.my/fit/roger/EJISDC/EJISDC.htm) Chen, I.J., (2001), Planning for ERP Systems: analysis and future trends, Business Process Management Journal, 7 (5), pp374-386 Chung, S.H. and Snyder, C.A., (2000), ERP Adoption: a technological evolution approach, International Journal of Agile Management Systems, 2 (1), pp24-32. 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