Enterprise Resource Planning (ERP) systems are comprehensive software applications that support critical organizational functions. ERP systems integrate both the various functional aspects of the organization and the systems within the organization with those of its suppliers and partners. The goal of the system is to facilitate the dynamic and immediate flow of information therefore increasing the usefulness and value of the information. Another goal is to integrate departments and functions across an organization onto a single infrastructure that meets the needs of the department.
ERP systems require a substantial investment from an organization in terms of cost, time, and people. These investments can run into millions of dollars over several years and involve hundreds of people from the organization. No organization is willing to invest a huge amount of resources unless the benefits outweigh the costs.
Implementation of ERP systems are generally very complex, time consuming, and resource intensive. Because of its size and impact on an organization, an ERP system only increases this complexity; therefore, before implementing ERP, an organization has to plan and understand the life cycle of these systems. The move towards the use of ERP systems partly arose out of the fact that somewhere between one half and three quarters of bespoke system development projects were being classed as failures.
Companies viewed the switch to off-the shelf solutions (like ERP systems) as a way of containing costs and risks whilst also providing the added benefit of vendor support for the ERP product. They saw them as an opportunity to both share data and to standardise processes across the organisation. The promised benefits of a successful ERP implementation appear attractive to an organisation, because they include reductions in costs (inventory, raw materials and production), customer lead times and production times (Gunn, 1998, cited in Somers & Nelson, 2001).
ERP systems are inherently implemented differently from bespoke systems. The word “implemented”, although widely used in this context, is somewhat misleading. It is really the vendors who implement the ERP software, which the purchaser then has to configure for their organisation. Given that there are major differences between ERP systems development projects and bespoke development projects, it seems sensible to suggest that they should be planned and executed differently. This idea has been captured by alternative lifecycle models for the development of ERP systems. There does not appear to be one best model, however, and many of them use a mixture of new and old terminology to name the phases within the lifecycle. This makes things somewhat confusing because the same name is used to describe different activities, such as “implementation” which really means configuration and adaptation in an ERP systems development project.
The model proposed by Esteves and Pastor (1999) is novel in that it includes dimensions as well as phases. The dimensions are really areas of concerns or viewpoints that need to be considered during each of the phases. These dimensions are:
• Product: the particular ERP system that has been chosen, its hardware and software.
• Process: how the business processes relate to the ERP system, and how those processes or the ERP system need to be adapted.
• People: making sure that the project team are appropriately educated and skilled to deal with the development as it proceeds, and that users are given the skills to allow them to work on the new system when it goes live.
• Change management: ensuring that the appropriate knowledge is in place to implement the organisational change in a timely manner and on budget.
Companies with a desire to attain or maintain competitive advantage, and can afford it, opt to “implement” ERP systems. By operating more efficiently, companies have the opportunity to reduce operating costs while improving profitability. They are also able to redeploy existing resources from time-consuming, manual administrative tasks to strategic decision making and planning. According to Aberdeen , 70% of “best-in-class” companies have a standardized ERP implementation.
In contrast, average or laggard companies are more likely to use standalone applications to manage operations, such as accounting and finances, customer relationships, payroll, inventory, manufacturing, and distribution, and employ spreadsheets for operational and financial planning. The use of these disparate applications makes it difficult and time consuming for employees throughout the organization to obtain the information they need in a format they can use. Employees find themselves rekeying information into multiple systems or pulling information from multiple systems to create reports and analyze business information for key business decisions.
ERP solutions improve efficiency by automating business processes, furnishing integrated applications that share data to give employees instant access to the information they need, and by providing business intelligence and analytics to improve decisions and planning.
ERP systems, as mentioned before, represent a costly investment to organizations and as such, are out of the reach of small to mid-sized businesses. With the explosion of cloud computing, this is now a thing of the past. Cloud computing delivers a new way for organizations to gain access to software applications. Typically, organizations buy and install servers in house, install software on the servers, and chargee a license for each employee. With Cloud computing, organizations access application technologies and computing power on-demand from internet “clouds” that furnish the server, software, and data center.
The Cloud is enabled by virtualization technology that consolidates hardware to improve efficiency and makes it easier and less expensive to deliver on-demand computing resources. Software as a Service (SaaS) is a delivery model that allows a business to access applications on a Cloud infrastructure. Key aspects of Cloud/SaaS computing include the following:
• The software is not licensed or owned by the user, it’s provided as a service over the Internet
• Users subscribe to a complete turnkey package that includes software and the entire delivery mechanism
• Users can access the system over the Internet regardless of their location
Because of tight budgets, IT managers are looking for more affordable ways to access sophisticated ERP software solutions. Cloud computing applications reduce capital costs. They are also easier to use and deploy, reducing the time it takes for organizations to use them to meet specific business needs and lowering the total cost of ownership (TCO).
- “Do You Really Need an ERP Solution?” Vertex Systems. Retrieved from http://vertexsystems.com/blog/2011/04/do-you-really-need-an-erp-solution/
- Enterprise Resource Planning (ERP). Retrieved from http://www.managementstudyguide.com/enterprise-resource-planning.htm
- Motiwalla, L., & Thompson, J. (2012). Enterprise Systems for Management (2nd ed.) Pearson Education
- “Why Do You Need an ERP Solution?” Retrieved from http://www.business-software.com/article/why-do-you-need-an-erp-solution/