Enterprise Resource Planning

The beginning of the twenty-first century is typically approached as the information age. Information is becoming one of the most valued and controversial products, which is sold and bought, stored and distributed, protected and abused. A considerable part of the today’s innovations is focused on information processing. Business and commerce are apparently the first issues to stimulate these innovations, to be affected by them and respond to their introduction. The term “enterprise resource planning” (ERP) stands for software systems intended to embrace and integrate internal and external management of an organization. Khosrow-Puor (2006, p.865) has explained that, “The purpose of ERP is to facilitate the flow of information between all business functions inside the boundaries of the organization and manage the connections to outside stakeholders.” It seems significant to underline that the today’s ERP systems are more than just a database used as a repository for information. As Wailgum (2008, p.19) has noted, “ERP’s best hope for demonstrating a value is as a sort of battering ram for improving the way your company takes a customer order and processes it into an invoice and revenue – otherwise known as the order fulfillment process.”

ERP systems consist of different modules. ERP modules are information groups set according to the functional areas of any organization. These ones are commonly financial  and management accounting, human resources, manufacturing, supply chain management, project management, customer relationship management and data services. In financial accounting, ERP is applied for general ledger, payables and receivables, fixed asset, cash management, and etc. Then, ERP modules within management accounting include budgeting, cost management and activity-based costing. Human resources department applies ERP for recruiting and retirement, training, payroll and benefits management, defined-contribution or defined-benefit retirement plans. Next one is ERP in manufacturing that deals with engineering, scheduling, workflow management, a manufacturing process and quality control, as well as product life cycle management. Supply chain management involves ERP modules for supply chain planning, supply scheduling, cash orders, purchasing, and claim processing. Further, project management needs ERP modules for project planning, resource evaluation, break down structure, temporal and spatial resources assessing, performance units, perspectives and activity management. ERP in customer relationship management is helpful for sales and marketing, customer contact, service, call center support, and etc. Finally, data services include a wide range of self-service interfaces for employees, customers and suppliers. It does not mean that each organization feels its duty to adopt each of the modules listed above. Some of the companies prefer to be selective and limit themselves to the most necessary or the most popular modules like finance and accounting modules. It goes without saying that the choice of each organization depends on its capacity and prerogatives, “Generally speaking, the greater the number of modules selected, the greater the integration benefits, but also the greater the costs, risks and changes involved” (Gill 2011, p.35).

Meanwhile, Sheilds (2005, p.9) offers a list of components usually presented in efficient ERP systems. These components are: business intelligence system; document management; transactional database; customizable reporting; management portal/dashboard; analyzing; search; external access via technology such as web services; messaging/chat/wiki; and workflow management.

All these elements determine the advantages of ERP systems. It is obvious that the automation of the majority of information processes results in time and expense saving. Moreover, the number of errors at each stage is reduced. Decisions can be made much faster. The reliable data become visible and accessible across the organization while they are thoroughly protected by the special software. What is more, the inventory optimization becomes possible due to sales forecasting. It becomes easier through ERP. Every transaction is fixed in a chronological history so that the relevant data can be found anytime and anywhere. Each order can be tracked either upon the customer’s request or the need of any employee. Meanwhile, the revenue is tracked from invoice to a cash receipt as well. Since all the business data are centralized by ERP, the need to synchronize changes from each department is no longer pressing. Each bit of the statistical data is transparent and legitimate. Finally, the sensitive data are protected by consolidating multiple security systems into a single structure (Kovacs & Paganelli 2003, p.165).

Davenport’s Value: Integrate, Optimize and Informate

Enterprise resource planning packages make up one of the segments of enterprise solutions which “connect and manage information flows across complex organizations, allowing managers to make decisions based on the information that truly reflects the current state of their business” (Davenport, Harris & Cantrell 2002, p.5). Back-office systems of that kind connect and manage seamless information flows across complex organizations. In this way, the transaction-intensive processes are integrated and automated, but the benefits of ERP and other enterprise solutions can never be enjoyed by an organization until the value of implementation has been realized. Before organizations start to introduce the innovation software into their functional processes, they need to “achieve the vision” (Davenport, Harris & Cantrell 2002, p.5). It means that the value can never be fully realized until the effort has been taken, and the outcomes seen. Each organization has certain assets that are not utilized in a proper way, whereupon the energy is spared in vain, and the balance is not achieved. Whereas this problem is common for large and complex organizations, there are some special studies conducted to work out the strategies and methods for solving them. In particular, there have been some surveys conducted among 163 organizations already applying enterprise solutions. The analysis of the study results to enable Davenport, Harris and Cantrell to work out a consistent strategy of successful enterprise solutions application and to present it in a creative manner.

The main mistake organizations tend to make while coming up with the decision to integrate enterprise solutions is their “onetime” approach. They try to embrace the whole process at one time to accomplish the project at once. This project seems to be “a mammoth deal” for them. The executives tend to limit their role to overseeing the necessary resources for building a new capability and waiting for the finished product from their prerequisite investments. However, the way between these two stages, i.e. the investment and outcomes, is rather longer and requires more involvement of intellectual efforts. Davenport, Harris & Cantrell (2002, p.6) have stressed that substantial benefits are realized only when the organization creatively takes raw components, claims them as its own and directs them to meet its unique business vision. In other words, each case requires an individual approach and flexibility. Still, there are three necessary conditions each organization should meet.

Firstly, they must integrate. It means that all the solutions, data and processes within the organization must be unified and harmonized with the environment. For that, the ERP systems are applied to make more reliable connections with suppliers and customers and between the internal structures. At the same time, at colleges and universities being integrated into the system by the means of ERP, it allows students to perform communications with instructors, advisors, consultants and the administrative staff (Brown & Vessey 2003, p.17).

Secondly, they must optimize their processes. This condition is associated with fitting the best practices. The focus is made on the unique strategic needs of the organization according to which the determined processes are molded and shaped.

Thirdly, the information must be used to transform the enterprise solutions into the knowledge valuable for the business. This process is called “informating”: “In the context of enterprise solutions, organizations informate by transforming enterprise solutions data into the context-rich information and knowledge that supports the unique business analysis and decision-making needs of multiple work forces” (Davenport, Harris & Cantrell 2002, p.6).

These three conditions have proved to be irreplaceable and necessary for the enterprise solutions’ maximization and profound payoff. The components of value targeted in this way are as follows: improved management decision making; improved customer service and retention; improved financial management; cycle time reduction; ease of expansion/growth and increased flexibility; “faster, more accurate transactions; headcount reduction; fewer physical resources and improved logistics; improved inventory and asset management”; and the increased revenue (Dehning & Stratopoulos 2003, p.58). At the same time, resources investment, experience building and extensive implementation are the foundations of value. They are prerequisites of minimal value achievement. Significant resources (time, money, human resources, skills, and technology) have to be invested into enterprise solutions. Enterprise solutions should embrace the entire organization, and the certain relevant experience is needed.

Integrate

Integration is one of the crucial factors of successful enterprise solutions. Due to ERP, each key functional system of the company gets the access to centralized information and can, in turn, share its own data with other departments without any delay. Standardization and integration of data and business processes across functions result in the reduction of expenses. Moreover, communications are speeded up, and the overall decision-making process is improved. Integration is also a premise for the financial consolidation. Besides, integration is especially remarkable in the context of globalization. Sales managers often operate in one country; warehouses are located in another one; whilst customers make orders from other locations, sometimes from the opposite corner of the world. Consequently, a reliable net connecting each of these elements is critically needed to make the service quick and optimized. Still, the integration of enterprise solutions can seldom bring benefits immediately. It should not be approached as an initial step on the way to a value. Instead, the integration is usually a continuous and ongoing process. It is not reasonable to forget about it after the first results have been achieved (King 2005, p.217). The choice of solutions depends on the geographic location of a unique business unit and some economic, social and marketing opportunities. All points considered, the marketing research is required in every location the organization deals with, and for each location solutions will be unique.

Further on, “integrating with a firm’s customers, suppliers and business partners can also lead to dramatic improvements in operational efficiencies that can have a clear relationship to profitability” (Davenport, Harris & Cantrell 2002, p.14). The significance of integrated supply chains under the economic globalization and internationalization of operations is widely recognized. The desired level of integration is sought through the implementation of information technologies like ERP by some world-known companies. Their experience is undoubtedly worth studying. It helps to see the reasons of failure and systemize the knowledge generated as a result of the successful implementation. Before ERP’s integration, Rolls-Royce, “a truly global business offering a range of first class world leading products” (Yusuf 2004, p.255), has used to develop its own systems, but it took much time and efforts. What is more, legacy systems were rather expensive not only to invent and register, but also to operate and maintain. Different departments worked in isolation, which led to compliance problems. Then, Rolls-Royce has selected Systems, Applications and Products in Data Processing (SAP R/3) to integrate their business processes professionally.

The effect of the fruitful information exchange is long-term and can hardly be overestimated. Integration can be strengthened by consolidation of applications into a single global instance, and the integration of package modules with other legacy systems. For example, one of the global telecommunications companies has saved $25 million through the consolidation of applications and adoption of shared services. The US Sanitary Ware Company, in turn, has reduced the number of data centers from 75 to two and consolidated them to a single hardware platform (Fryling 2010, p.393). Web-services are now gaining the popularity even more rapidly. It is not surprising because these integration technologies have proved to make the internal and external business communication easier and less expensive.

One more promising way to improve integration is to be selective. An organization should define the key business processes and apparently define the key information. Thus, Rolls-Royce has concentrated on nine principal business processes, i.e. cash management, shareholders’ satisfaction, business resources, business planning, order generation, order fulfillment, customer solutions, customer relationships and customer problems resolution. These processes were united into a business process model, which empowered the executives with a clear vision of codependency between them and the justification for the upgrade process. It goes without saying that contributing to each function can be unbearable. Therefore, the list of prerogatives should be created. Sometimes it is rather painful for executives to refuse the expansion of an investment area, but the factor of quality seems to be more worthy and long-term than the one of quantity. “Significantly reducing the number of data and process definitions will not only help internal integration, but pave the way for easier external integration as well,” Davenport, Harris and Cantrell (2002, p.14) have stated  

Optimize

Value realization is rather hard to achieve without optimization, as the study has shown. Optimization is often associated with the concept of reengineering business processes, but even the careful configuration of all the systems and simultaneous restructuration are actually not enough to take a full advantage of new enterprise solutions. Significant optimization can hardly be achieved if getting the system in and meeting the deadline is the only goal to hit. A real business change comes only after the capabilities of a new system are thoroughly learnt in practice. The experience of Chinese building equipment company has shown that the best way to succeed is to get 75 percent of optimization during the implementation and wait for the rest after the capabilities of the new system are clearly understood (Chang et al. 2000, p.495).

It is natural that radical changes are seldom welcomed by business. Therefore, it is better to concentrate on a gradual improvement and reorientation. Refinement is needed regularly. The improvement of any business process is a continuous strategy. The technological advance has no pauses, so it is reasonable to track them diligently and fit the system to them. In Mitteilung, a publishing company with headquarters in Germany, the system deployment is centralized, and the processes supporting enterprise solutions are examined regularly. At the same time, decisions on change are taken locally. Each operating unit departs from the unique situation and local business needs. What is more, all the best practices are immediately shared company wide. The efficiency is stimulated (Monk & Wagner 2009, p.302).

Once the field of modification has been determined and parameters of reconfiguration set, the system should be customized specifically. Each business has its particular features, which should be taken into account while the implementing process flows. Davenport, Harris and Cantrell (2002, p.18) have underlined that the “better alignment between desired processes and the system itself can be achieved through the implementation of systems or modules” being specifically built to fit an organization’s given industry. Otherwise, most of benefits of integration can be easily lost. The principle of the competitive differentiation is obviously a basic one for the successful customization with fewer difficulties coming from custom extensions as well as from the code modifying. For example, Owens Corning has decided to implement the code modification and supplementation on the basis of their current SAP system (Turban et al. 2008, p.309).

In addition, the adjustment of business processes to the new context is important not only for commercial enterprises, but also for such institutions as colleges and universities. Due to the ERP implementation, administrative skills are greatly upgraded, and IT staff is essentially improved. “Over time the new system should eliminate many manual tasks and instantly provide current and accurate information to students, faculty, advisors, and the university’s decision-makers,” Yakovlev (2002, p.57) has revealed.

The research has demonstrated that the risk of rigidness and options freezing associated with enterprise solutions is not high. On the contrary, the promotion of best practices throughout a company is a precondition for an easier adaption to a changing business environment and more flexibility. Of course, sometimes the total reimplementation is needed to undergo a business model change; for instance, this is a serious test for the company. Still, the expenses are justified if the instructions are followed thoroughly. First and foremost, the goal of optimization and customization should be carefully communicated to employees of all operation units. The knowledge of the entire system should be spread among them, and the potential of the company can be tested by educative simulations, “literally walking business people through the impacts of the changes that the system could have on their processes” (Davenport, Harris & Cantrell 2002, p.21). This premise was perfectly understood by Rolls-Royce. Before the real ERP implementation, there was a small-scale pilot of the system. The pilot had been run for 3 months, and its purpose was to demonstrate the company’s business principles; processes; procedures; role definitions and behaviors; software, hardware and data transfers (Yusuf 2004, p.261). During the pilot, much attention was paid not only to systems testing, but also to getting a user to accept the system.

Informate

As mentioned above, the information is a product of great importance. To make a value, the information must be in-time, consistent, accurate, complete and truthful. Being armed with the valuable information, companies can make a benefit without some extra external resources. In the meantime, a socially responsible business means transparency and dialogue. In this way, enterprise solutions data make up the information with a special status. With the access to such data and enough analytic capabilities, front-line workforces can make decisions based on the facts and, thus, improve their performance. A business analysis and fact-based decision-making require enterprise solutions data to be transformed into the context-rich information. In other words, they need to be “informated”. For example, Rolls-Royce has used SAP, which was initially dedicated to “produce products that improve the return of the information gathered by an organization” (Yusuf et al. 2004, p.254). In 1992, SAP R/3 was released to serve as a business solution reinvented for the client and server architecture environment. The goal of developers was the delivery of information to the end PC user.

In the meantime, the data sharing is important not only in commerce, but also in education. For example, enrollees can get the access to admissions’ data entry, receive promotional mailings and learn the tuition information or registration deadline. Later on, each student may receive an individual account for Web services to be aware of grades, tasks, degree audit and pastime opportunities (Yakovlev 2002, p.54).

Nevertheless, mere access to open data and advanced technological tools is not enough to make informed decisions even with robust analytic capabilities. To improve the managerial information, time resources must be contributed. The evaluation of information, its processing and promotion makes up a steady process. Even when the data flow is improved, time is needed to learn how to use the information to its full potential. Ivik, an international air-conditioning systems company, reports that implementing a new functionality without the improved access to data and analytic skills could never be. But, at the same time, it is admitted that the flow of information is so strong, that it can do harm instead of good if not controlled and filtered. Ivik has long communicated with their Japanese partners and come up with a decision to use the performance measurement applications in order to track the performance of their units on a monthly basis. Information requests are handled immediately, and management information is gradually analyzed (Yakovlev 2002, p.56).

Before the information is spread, managers must make sure it is real-time, accurate and consistent. Only after that the problem of access should be solved. In order to empower employees with a better understanding of what they have to do, the access should not be limitless. Rather, it needs to be justified by the person’s needs and the context of decision. As soon as users are familiar with the available data, they should be trained to manipulate the information for corporate needs, i.e. to “interpret enterprise solutions information relevant to specific tasks” (Davenport, Harris & Cantrell 2002, p.22). When Rolls-Royce has come up with the decision to introduce SAP, training and cultural changes were addressed by an original implementation plan. There were seminars organized separately for specialists and mass users. Technically based training was provided by the developers of software. Afterwards, the trained experts distributed their knowledge and understanding to other users. Demonstrations within the workplace, information meetings and presentations have also proved to be a useful tool to relay the information to all functional units.

Accordingly, skilled and professional staff is not absolutely substituted even by the most intelligent software agents. The ERP implementation rather creates new roles in the company. At Rolls-Royce, a solid core implementation team has been built, but the key roles after the implementation are MRP controllers and capacity owners. Software and Web services definitely assist in data processing and automate most of the routine processes. However, the decision-making process is still a task for a well-prepared specialist, and not a machine. That is why Nestlé, for instance, pays much attention to human resources. It was a group decision to change the organizational structure in 2002. It helped the company to advance their abilities and to use their potential almost to its full. Nestlé’s executives admit that the enterprise solution could not be reached without a balanced information distribution.

Conclusion

The enterprise resource planning software attempts to optimize the functioning of each department within an organization uniting all of them into a single integrated program. Owing to such an integrated repository for the data available to each functioning area, the process of cross-level internal and external communication as well as information sharing, processing and updating becomes transparent, legitimate, easier and more efficient. ERP systems have been worked out to automate the access to information, processing and updating of information throughout the organization, including the following levels: finance and accounting, personnel affairs, manufacturing, sales and service, project and development management, and customer relationship management. The integrated software application is used not only by the employees and managers of organization, but also by customers and clients. It makes the communication with customers easier and more effective. Due to the ERP, the status of an order can be tracked at any given point. One more significant advantage of ERP systems is that the existing information systems are replaced by the evolutionary software; and the flow of management information is properly standardized.

Each function of the company may receive a corresponding module, i.e. a piece of software to help them fulfill their physical tasks. Some of the organizations are likely to install just a human resources module or a financial module since other items of expenses seem to be more prerogative. However, ERP is more than the back-office software. Its implementation is more than a software installation effort. To make the ERP implementation successful, it must be managed as a program of broad organizational change initiatives. One of the critical success factors for the ERP implementation is a pre-determined business process methodology. If a company understands a need to implement modern large-scale enterprise system, it must follow three basic precepts: to integrate, to optimize and to informate. Accordingly, the certain organizational and technology changes are required for enterprise solutions customization. The enterprise application integration, web-services, hardware and database consolidation are only few of probable decisions for effective integration. According to the results of case studies, in order to be competitive, world producers must recognize the necessity of a change and learn the practice of their predecessors.

When a committed promise to deliver is offered to customers, it is impossible to do without the accurate information systems and direct communication with suppliers.  To enjoy the value, consultancy specialists, sound architectural frameworks, and continuous training is needed. No full benefits of the project will be experienced and achieved until the system undergoes a period of stability and becomes executive. At least one year is needed for the system to become stable and for users to adjust to new business and operational practices. Only after that the benefits of ERP implementation can become visible, and the value can come true. All in all, case studies have demonstrated that if a company is ready to integrate, optimize and informate consistently, there will be a long list of positive outcomes. In brief, transactions will be easier; the relationship in the supply chain and customer confidence will be improved; costs will be saved, and revenue will increase. Using the ERP provides companies with a competitive advantage through the way they operate the system and exploit the automatically updated data. However, the company must assess itself whether it is ready for the ERP. The main thing is that it is applicable to any kind of organization from global corporations to small colleges. After all, electronic communications are friendly, sustainable and reliable for those that are ready to contribute time, efforts and money into their implementation.

Related Free Research Essays