Achieving high efficiency is critical for success of multinational corporations and small and medium scale enterprises. In complex organizations, management of information flow is usually not easy. The beginning of 21st century witnessed a surge in large multinational corporations and complex local companies. This growth of companies led to an increase in the need for speedy and efficient flow of information from one department to another. The challenges arising from rapid need of efficiency in management lead to incorporation of information and technology in enterprise management. Different softwares have since been invented and applied in enterprise management. In the year 1990, the term ERP – Enterprise Resource Management was used in reference to the integrated software facilitating Online Transaction Processing (OLTP) of useful enterprise information systems. Gafen and Ragowsky (2005) report that organizations spend more than $80 billion annually on ERP initiatives. Conversely, Seewald (2002) asserts that one-third of organizations’ ICT Budget is apportioned to the development of ERP capabilities. This paper explores scholarly papers and establishes the benefits that an organization enjoys from the use of ERP system in practice. In addition, the paper identifies some of the challenges that an organization using ERP system in practice is prone to.
Characteristics of ERP System
For effective use of an ERP system, an organization should be competent in both software and business processes. In addition to these two requirements, it is useful for an organization to endeavor to be fully conversant with characteristics of an ERP system. The following are the fundamental characteristics of any given ERP system:
System characteristics. Jackson (2003) points out that ERP is a complete system. He highlights the presence of ERP’s holistic properties as key characteristic of any vital system. Other than the holistic properties, ERP is bolstered by its possession of wholeness, structure, boundary and functions. These are indeed crucial elements of a system.
Business process management. Managerial thinking and, in particular, business process management are the critical managerial aids that ERP offers to enterprise management. Talking of supply management, flexible manufacturing systems and total quality control are some of the areas that an ERP system is designed to tackle when implemented by an organization.
Information technology. The relationship between ERP systems and information technology is impressive. The basic understanding here is the fact that ERP systems cannot make their presence in absence of information technology. As such, any advancement made in information technology affects the performance of ERP systems. In addition, users of ERP systems are required to possess invaluable skills in information technology. It is further critical to point out here that information technology also accrues benefits from the use ERP systems. Within an organization ERP system integrates all units of the organization; as such, information technology benefits from interlinking of the various units.
ERP System implementation process
The implementation of ERP system within an organization is quite involving and takes time process. Jones et al. (2006) writes that the period ranges from a few months to several years. The availability of resources within an organization is critical to the implementation of ERP Systems in an organization. Research indicates that organizations using ERP systems usually allocate one-third of their information technology (IT) budget on maintenance and stabilization of the ERP system (Gefen & Ragowsky 2005). The study further indicates that the highest proportion of application’s budget in the large and medium size enterprises goes towards ERP system initiatives; an estimated $80 billion being spent annually. The high costs involved in installation and the subsequent implementation of ERP systems match the high expectations that organizations investing in the system have. It is, therefore, essential for a due procedure to be followed during ERP system implementation (Swanton 2004).
The first stage in implementing ERP system in an organization involves the initial analysis of the organizational processes and data. This procedure facilitates the laying out of plans with due consideration of the feasible adjustments that should be made on the organizational processes and data in order for them to reflect the ERP system requirements. After making the necessary adjustments, the next phase is usually training the prospective users of the ERP system. The ERP system is a technical application; this necessitates the orientation of the users towards the technological changes that come with implementation of the system. This makes the user training a necessity before the organization can go ahead to install the completed packages for use (Swanton 2004).
There are a significant number of organizations implementing ERP systems. However, their financial returns do not reflect the large capital invested in ERP systems. It should be understood that systems take several months or at times years to stabilize. Success in the use of ERP system depends largely on the awareness and compatibility of the system with structures within the organization. Software training interventions, work process training interventions and experimental interventions facilitate software understanding and similarly the work process understanding. When these are linked with the installed ERP system functionality, the result is the system usage and hence, the system benefits. In order to enjoy benefits of the implemented ERP system, the mentioned working model is useful (Yi & Davis 2003).
ERP implementation techniques
Conversion technique is the technique in which implementation of the ERP system can be carried out either in a full wave at once or in steps. Where the organization goes for the full scale implementation, all features of the system are brought to operation simultaneously. In cases where the organization decides to adopt a stepwise conversion method, the sub-systems of the ERP system are called into action one at a time. Another conversion technique exists and is applied in instances with an existing ERP system. The parallel conversion method enables the coexistence of a new ERP system with the initially implemented system. The parallel system ensures that two systems run concurrently within the organization. The major advantage of this arrangement is its allowance for investigation of the efficiency of the new system without taking any risk on the existing system.
Relationship Between Implementation Method and Enterprise Characteristics
The decision on the most suitable method for implementing ERP system is largely dependent on the internal structures within the organization. The various crucial factors that should be analyzed in order to settle on the most useful method are:
Organization scale and complexity. Research indicates that small and less complex organizations perform better when they adopt the complete conversion method. Since these organization merits from easier communication chains, implementing ERP system in full scale is cost effective. On the other hand, enterprises that are more complex are subject to bureaucracy; this makes it necessary for them to consider the progressive conversion method. The complexity of the activities in these organizations aligns with the stepwise process that the progressive conversion method provides.
Levels of organization and degree of control factors, for example, the levels present in the enterprise and magnitude of the control must be factored when choosing the method. Just like the less complex and small enterprises, a one-level organization having loose management style is better off with the complete conversion method. On the other hand, multi-level organizations are better off with the progressive conversion method.
Scope of implementation. It is critical for the organization to assess its limitations in the use of the ERP system. Guan (2002) asserts that the organization should always endeavor to establish the number of modules required. In addition, the extent of customization required by the organization should be established.
Successful factors of ERP implementation
Existing research: knowledge of the fundamental control points in the course of the implementation process of ERP system. It is, therefore, critical for an organization to carry out a comprehensive research to determine and be able to understand and hence manage the main control points now. These points then can be designed as instrumental decision areas upon which all crucial decisions should be built. Having defined these points this way draws attention towards them during the ERP implementation process.
Benefits of implementing ERP practice
Every single advance made in technology often makes man’s life more comfortable. The development of information technology was a tremendous boost to all sectors of economy. In the business world, success of an enterprise, be it medium or large scale, is deeply anchored in the efficiency and effectiveness of the communication channels employed. It is impossible to talk about success of an organization without referring to the role of the management of that organization. The management of an enterprise creates a link between all the units, which together constitute the organization. It is, therefore, imperative for the management to be sufficed with every detail and data that affects the organization. This calls for the need to have a system, which integrates all units of the organization. The ERP system is given this role and hence benefits organizations in a variety of ways as discussed here.
System wide data sharing
ERP system provides an organization with opportunity to have all departments of the organization involved in managerial activities to be served with the same data. When changes are made on the supplied data, the involved departments access the changes in real time. The system on its own accord enables an organization to maintain a centralized database. Centralization of an organization’s database is particularly essential when it comes to issues of decision-making. It eliminates the occurrence of decisions, which do not reflect what the department or the enterprise expects. This is a common scenario in all enterprises where managers make decisions while relying on scanty data available to them due to decentralization of the database. By centralization of the database data quality usually takes a center stage. It becomes a requirement for the accuracy and adequacy of the data to be ascertained before it can be uploaded. This is an indispensable dimension in the management, and which is possible today, courtesy of ERP.
The concept of systems planning is a fundamental characteristic of the ERP. The concept is attributed to the idea of establishing plans that reflect thinking from a macro level and down to micro level. It also recommends planning from strategic level and accelerating towards the tactical perspective. In addition, the concept requires for plans to be made beginning with the general ones and narrowing down to the specific ones. ERP ensures that primarily the most relevant units within the enterprise handle the planning process. On the other hand, the operation units mandates are fundamentally discharging the said plans and management of the feedback information. ERP system of equilibrium facilitates a careful study of the correlation between supply and demand requirements before plans reach the execution stage to establish the feasibility of the plan. This increases effectiveness and efficiency of the organization’s plans.
ERP’s inherent system of the engineering capacity enables it to integrate all departments constituting an enterprise into a single entity. This function of ERP challenges the individual divisions within an enterprise to ensure that they discharge their responsibilities to reflect entirety of the system. It also necessitates the identification of the each employee’s responsibilities in the organization. This arrangement enables the optimum performance of each unit of the organization, and hence promotes the optimal use of the organization’s resources. This increases the output and hence profitability of the organization beyond the invested capital on the installation and implementation of the ERP system in the end.
Accessibility of Information from Field Level Until the Management Level
In order to come up with a centralized database, there is a need for information or data to flow from the field level and climb upwards to the management level. The ERP system has the mechanism through which it facilitates the free flow of information. This crucial role aids the managerial teams in making key decisions that determine the direction an organization takes. Organizations, which use the ERP system in maintaining data, enjoy a greater advantage as compared to those that still do not have faith in the system when it comes to the pace of information flow. The volatile economies in which enterprises operate require accurate and swift decision-making. This is only possible where the management has an access to as much data as possible concerning the situation at hand. The ERP ensures that relevant managerial divisions within the organization have as much information as possible about the enterprise at all times (Shang & Seddon 2002).
Integration in Application in the Organizational Departments
Most organizations in the modern world make use of a variety of applications in solving various problems affecting their businesses. In most instances these applications were made at different times, which makes it difficult to interlink these applications to work together. This is the greatest challenge that faces the departments of any given organization. Further, the applications were made on different platforms and hence require a real expert to make them work together. In most instances these applications have isolated functionality which results into similar data, which can, in turn, result into higher costs and inefficiency in dealing with customers.
Application integration simply refers to the secure and reliable sharing of the information and processes between departments in an organization. Several benefits accompany the effective integration process. Effective integration application allows applications to be incorporated into the business departments much more easily and at the lower costs. It allows one to modify business processes more readily to suit the requirements of the business. This helps in monitoring the different processes taking place in the organization. An effective integration process also provides multiple delivery channels to the organization. This also allows for automation of different departmental processes that were otherwise operated manually. As is well known, automated processes tend not only to be cost effective but also accurate and time saving.
The process of merging these applications calls for a high level of organization that can effectively be achieved through ERP (Liaquat, Patrick and Rashid 2002). This integration of applications can further be classified into three types, which include manual, semi-automated and fully automated application integration. In the manual integration process, people serve as the interfaces in interlinking the various applications. It involves the little application of technology and becomes more complex with the increase of the business complexity. This can ultimately lead to inaccuracies. Semi-automated application makes use of both the human services and the automated services. This is applicable in circumstances where the equipment is too expensive to enact full automation of the services. Fully automated application thoroughly removes human input in the process and only uses machines. However, people are maintained as part of the solution in case things fail. This system is preferred by most organizations due to its efficiency and cost effectiveness.
Each of these types is crucial at a certain level to all the businesses and hence cannot be eliminated from the business. For instance, some processes, such as approvals and system breakdowns do require human intervention. Therefore, during the Enterprise Resource Planning (ERP), it is crucial that provisions be made in all perspectives, which provide appropriate interventions in the event of unprecedented occurrences. This will ensure the continuous flow of the relevant information and processes in an organization at any given time, hence saving on time. A proper integration system allows all the relevant parties to be connected to a centralized system that controls processes of an organization. Therefore, these parties are able to detect any errors and offer close supervision of the department processes. The efficiency of these processes can be enhanced by scaling the process of integrating these applications. This would involve reducing the human steps while increasing the automated steps. This, however, requires the proper planning process which will weigh all the possible options and come up with solid solutions.
Improved Program Management Practices
In any given organization there are a number of programs demanding adequate management in ensuring proper operation of the various departments in an organization. Numerous ERP domains exist in organizations, which serve crucial functions. Some of these domains include product line management, supply chain management, customer relations management and procurement management. One of the benefits of ERP is to coordinate for proper organization of these domains to facilitate their smooth operations. In the product line management, there is a need for advanced planning of how to acquire and utilize the raw materials to achieve the desired products at lower costs. A proper ERP procedure would include systematic management of these materials, which links together all the other domains. All these domains are interdependent and, therefore, mismanagement of one of them will likely affect operations of others. Similar to preparation for an event, thorough planning should be carried out during project management. This is because unplanned management practices have the likelihood of misusing the available resources, which will increase the production costs. All these issues do revolve around ERP implementation. For this reason, response to the internal customers is paramount in order to achieve proper customer relations management. Ignoring the internal customers will make them resistant to accommodate the implementation process of the ERP system.
With implementation of the ERP, management practices are bound to improve due to increase in transparency. Transparency management can be achieved through various means. One of the ways of achieving this is keeping stock of the operations of the leadership teams for a better-integrated management. This is quite easily done by monitoring the different departments ranging from finance to the information technology sections. Further, there is a need to inventory the inefficient departments and help uplift them to the desired levels. Efficient management systems aim at facing the budget constraints and sorting them out. They aim at creating management intelligence quickly to achieve the results.
Improved Security Systems
Security is a paramount issue in the implementation of the ERP system. Every ERP facet can be classified into three sections, which include the network layer, the presentation layer and the application layer. These include business processes, internal interfaces and database. A communication by the customer to the ERP system or the business process is directed to the security domain, that is independent on the ERP system but they are interlinked. The presentation layer comprises of the graphical user interface (GUI), the browser and the PCs. It is virtually impossible for the ERP system servers to restrict the flow of information; therefore, they cannot control the security of these systems. The only best way would be to provide a CITRIX server on the interface of the user and the ERP system. The application layer relies heavily on the ERP experts to offer security to the business data and processes. It will also be the technician’s choice to either activate or deactivate the security details provided by database venders as per the overall security solution.
As summarized by Van de Riet, Janssen and Gruijter (2000), there are some security aspects in the ERP system. The ERP experts have the mandate to ensure that security policies are implemented. These policies provide guidelines to the administrators on access to data. They help administrators to determine and allow some people to access the information and some not to access. These security aspects also help in the user authentication. This means that they are involved in verifying the identity of the user. They help in duty separation in which case they restrict certain tasks to certain individuals. This is aimed at ensuring that the information is only accessed by the restricted number of individuals and is not leaked. They are used in the authorization process, which determines whether the user has the authority to access the materials. They also incorporate the log and trace function, which assists in tracing back related functions and hence prevents the log files from breach. These security details, provided by the ERP system on the organizational information are paramount toward the important decisions of the organization and only allow specific people at a specific time to access them. The ERP system also has its own shortcomings. Some of the disadvantages of this system include:
The High Implementation Costs
The sole purpose of implementation of the ERP system is to facilitate the smooth flow of data from one department to the other in an organization. As such, many sacrifices in terms of cash, time and efforts are made during the implementation process. These implementation costs vary as governed by a number of issues among which is the size and complexity of the organization. The execution also involves many processes and these are further extended by high consultancy charges and training charges. Therefore, due to the costs involved, it is crucial for adequate planning before the implementation process. There is a need to have an overview of the expected costs since at times the installation costs, data migration and implementation surpass the budget (Liaquat, Patrick and Rashid 2002).
In a bid to cut down the implementation costs, alternatives should be weighed, such as seeking for off-site consultation services, which are cheaper. The costs involved are both direct and indirect. The direct costs would comprise of the software license costs, the hardware costs, the modules, integrations among others. This total cost increases with the increase in the number of users. The indirect costs include customization, training and maintenance costs. Determination of these direct and indirect costs should serve as the starting point in projecting the total implementation costs. The timeframe should also be stated for preparation and planning, training time and changes in the management. It is only after these estimations that the total cost of implementation can be determined.
Customization of the ERP implementation is a topic of controversy, which demands absolute care in handling. Whereas it is virtually impossible to evade customization, aiming at zeroing can serve a fantastic deal in minimizing it. The downside of customization is that the customized code ceases to work with the application of patches, service packs and version upgrades. Its upper hand, however, is that it can turn things round to realize the benefits in the event of failure by ERP in providing a solution. Accomplishing the customization process is the main challenge after unveiling the process itself. This would require careful extraction of information from the ERP systems and working on it before reinserting the modified data pack back. This keeps the risks involved with customization at its minimum. Choosing to access and work on the ERP source could, however, trigger unprecedented risks that might blow things out of proportion. Therefore, during the implementation process, care should be taken to keep ERP customization in its limits.
The plan should contain explicit controls to keep customization under control and should be developed by IT experts. These controls should specify the type of customization the person allowed to do and the one to approve it. This arena of customization requires consistent and intelligent judgment to keep the ERP system standard. Surprisingly, each of these customizations is usually accompanied by benefits. However, unlimited customizations usually culminate into disaster. As it has been illustrated, the customization process requires absolute care in handling if it is to bring any benefits whatsoever. Its application should be only to a certain restricted level beyond which it can bring about serious damages. IT specialists should always be consulted for any crucial decisions in the event of lack of adequate knowledge in the field.
In conclusion, the ERP system, as was meant to do, has had remarkable contributions in organizing processes in different departments of any organization. It is accompanied by many benefits upon its implementation, as has been addressed in this paper. Most organizations that have adopted the system have grown further due to these benefits, which, most importantly, have to do with lower operation costs and transparency. This means accountability of the relevant personnel to the processes taking place in the departments. On the other hand, abuse of the system has its own consequences. The system has a restricted number of uses, and any over usage that is out of the specification is, in most cases, accompanied by losses. The dogged challenge of having different softwares created at different times, the main shortcoming of this system is in linking different softwares to perform a similar function. The fact that all these softwares require installation together to work in unison serves to increase the costs of implementation. Thorough research, therefore, needs to be done before venturing out on the implementation process to avoid any unwarranted costs. In the world today, advances are being made to find possible solutions to the complex bits of the ERP system. These advances are geared towards increasing the pace of the ERP software evolution. With new delivery options and equipped with the newly established browser-based interfaces this system has been simplified in its operations to achieve faster user adoption. This has further led to the shorter implementation periods and simpler, cheaper and faster system integration. Therefore, the result has improved the quality for the information systems management.