What are the major challenges in implementing ERP?

Abstract

ERP implementations is very difficult, several firms fail due to lack of proper
implementation. There are so many challenges, during the installation process of ERP
system in organizations. They are different critical issues that must be consider for the
successful implementation of the ERP which include commitment from top
management, reengineering or existing process, integration of the ERP with other
business information system, selection of ERP consultants, implementation time,
implementation costs, ERP Vendors, selecting the right employees, Training of the
employees and Morale of the selecting employees. Several organizations do not
understand the direct cost that associate to ERP system, when they firstly initiate to
implement the system. The ERP benefits are so clear, they are totally understandable
but the costs of implementation not clear before the implementation. Before
implementation vendor try to aware about the cost and difficulties when they try to
implement and sale to the organization.
Top management commitment
According to Johnson, J. Chaos (1995) the IT and ERP researches have clearly defined
that, for success of IT project and ERP system, the top management support should be
critically required. Implementation of ERP system is not a subject of software change;
it’s an issue of repositioning the company and transforming the business practices on to
the other system. Due to competitive advantage of the company top management
should be consider the strategic implications of implementing an ERP solution.

According to Devenport, T. Putting (1998) before implementation of ERP system the

management should ask various questions about the implementation, organization
positioning after implementation, affect of business cultural change. For example does
ERP system support to the company’s competitive position? Does it affect on the
organization competitive position? How does ERP change the organizational structure
and its culture? What is the scope of ERP implementation in term of organization
functions or on the entire organization, Is there any other platform that meet the
organization requirements as better the ERP system?

Management of the multinational firms concern about the system, should this system
improve the efficiency of the organization in term business performance. They should
concerns about they operate this system globally or regionally? Top management need
to follow up every activities concern about implementation. Some organization IT
departments sometime make some big mistakes of handing the proper implementation
of ERP system. This might be a risk to the entire organizational for their more survival,
because ERP systems carry all the business implications.

Implementation of ERP is on people, not processes or technology. Organization needs

to go among transformation, and the management needs careful planned and thru
implementation of this change. Top management not only funding the project, but also
take an active role in their implementation. Successful ERP implementation is a
complete turning point of the organizations; continuous commitment of the top
management is required. Infact result of the management commitment is the overall
commitment of the organization and overall commitment is ensure way of successful
implementation.

Reengineering
Accomplishment of an ERP system engages reengineering the existing business
practices to the best business process standard. Purpose of ERP system to built on
best performances that are followed in the industry. The major benefits of ERP system
appear from reengineering the organization existing way of doing business. All process
of the organization should appear to the ERP model. The cost and benefits of ERP
model might be high. In an organization it’s very difficult, every one agrees with the
same process, when an organization has a plan to go globally. For a while the business
process so unique that they need to be preserved and appropriate steps need to be
taken to customized the business process.

According to Melymuka, K. (1998) several time organizations also face some questions,
whether to implement the ERP system “AS IS” and take up the ERP built in practices or
modify the product to the exact needs of the company. Several researchers prove that
best application can only meet the 70 % need of the company but what happen with rest
of the company requirement. Organization need to change its process as per ERP
system and customize the system according to their needs. Due to this modification the
total implementation cost may be increase and the customization cost is greater than
their implementation cost. Due to increasing cost, organization try to continue their
system “AS IS” and try to reduce their customization cost as much as they can, and try
to maintain future upgrade expenses.

Integration
Several companies realize that having a single vendor means a “common view” that is
important to server their customer competently and took less effort to maintaining the
system in future. Unfortunately there is no single application that meets the customer
requirements. Companies might be needs any other product applications to meet the
unique requirement of their customers. Other specific applications are totally integrated
with the ERP system and are completely compatible. In this situation, in an organization
ERP serves as a backbone and all others systems working as a bolted on the ERP
software. In this context ERP working as a server and all other application working as
bolted on the ERP system. And other third party applications work as middleware, which
integrate the other product software with the ERP system. Sometime middleware
application does not compatible with the others product software. Vendor of the
middleware application need to more concentrate and focus on the technical aspect of
the application and on the inter-operability rather than connecting business process. In
appropriate integration might be effect the ERP system and as a result company may
be lost their customer.

Organization need to identify the nature of the integration and how it affects the entire
business. Before integration of the system, functional department need analyses the
whole system integration and try to find mistake and bug with the application, that made
by other department. If they find any error than need to correct them before they affect
the other department. With the tight integration, error real time affects the one business
units to other entire business units. For Example production department made an error
in the bill of materials, might it could not affect only on the operation in the production
department but also affect on the inventory department, accounting department and so
others.

ERP Consultant
ERP market has growing festally and the available competent consultant does not meet
the requirement of the ERP market. It’s impossible to fill this gap in the specific field
immediately. Major challenge is that, in current situation it too much hard to find the right
people from the market and them to achieve the desire goal. ERP implementation
requires multi skills functional, technical and interpersonal skills. It’s very difficult to find
number of consultants that have specific industry knowledge, multi industry knowledge.

The available consultant demands more money. It’s very hard to a firm to hire a number
of consultants for ERP implementation. For example in USA there are few consultants
that have approximately five year experience. Only few consultants that have three or
more years experience. SAP one year experience consultant demand $ 70,000 to
$80,000 annually, three to five year experience consultant demand up to $ 200,000
annually.
According to Schwartz (1998) employees and it firm even more difficult. The success or
failure of the project is determined on how well management meets these challenges.

Implementation time

It’s impossible to implement complete ERP system at once, because ERP system
comes in modular fashion and its implement phase by phase. A number of companies
follow phase by phase implementation process and move towards to complete one
module at a time. For Example SAP R/A is composed of number of components. The
implementation of complete modules depending on the organizations needs. Mainly
install modules are sales and distribution, materials management, production and
planning module, and finance and controlling module. The time requirement of one
ERP system is normally 14 month and more than 150 consultants are required.
Normally the roll out ERP plans its required ten of its specialized separate
manufacturing divisions and approximately five to eight years to rollout system.

According to Stedman C (1998) the implementation time only depend on the number of
modules that being implement. The time of implementation might be extending due to
the range of the module implementations and the amount of customization and the
number of interface with other applications. Implementation only depends on the
number of unites and the scope of the implementation grow up from a single business
unit to multiple units extensive globally and due to this implementation time is increase.

The main problem with ERP system is that it is very common and need to be configured
to a specific business. The customization of ERP depending on the specific
requirements of the business and they takes a long time. It varies business to business
requirements. For example SAP is so difficult and common that there are almost 8000
switches that need to be set properly to make it handle the business processes in a way
a company needs.
Implementation Cost

The price of prewritten software is economical as compared to in house development.

The total cost of implementation might be three to five time high as compare to the
application purchase price. The implementation cost depends on the customization
cost. If system customization is increase as per company requirements then
implementation cost also rise. The 30% of, the total implementation budget is only
consume on the consultants cost. For example as per Gartner Group, the total cost is
of an external SAP consultant is around $1600 per day. If we consider in-house
development, SAP trained technologist creates its own problem. Huge amount is
required to train the selected employees. After training the employee it’s also a
challenge to retain them in this competitive environment, which is hungry of skilled SAP
consultant. Due to competitive market, employees could demand salaries double or
triple of their current salaries and also requires extra bonus programs, company perks,
salary increase, frequent training and education. For the purpose of workers loyalty the
organization also put some other intangible strategic such as flexible working hours,
telecommuting options and also some opportunities to work with leading technologies
that are also provides.

ERP Vendors

Approximately 500 ERP applications are exists in the market and some companies are
more working on it and try to make more secure and strong. Selection of appropriate
products is particularly important in the competitive environment. For example Gartner
Group has purchase smart program, which has more than 1700 questions to help a
company to choose an appropriate ERP package. The role of the top management is
important when they selecting a vender.

Management need to focus on the company requirements, for this purpose they need to
ask various questions about the vendor. For instance market focus, track record, vision
etc. At global level implementation the design of the ERP is more important, because it
work in different countries. Top management also ensures that the ERP vendor has the
same version of the software available in all the counties, that company want to
implement.

Selecting the right employees

Those companies that they want to implement an ERP system. They needs to be
allocate some of their best employees for the successful implementation of the project.
Some companies assign this task of their internal employees and some companies’ hire
some outsources employees for monitoring of project. The general phenomenon is
that, internal company’s employees are more dedicated as compare to external people.
Internal employees are more willing in organization success. Mainly organizations just
provide inclusive guideline for selecting internal resources of the project. Companies
need to take work out seriously and select the right people of project implementation.
Some time lack of good understanding of the project need, Lack of ability, lack of
appropriates guideline regarding project. The company internal resources are a major
cause of failure of ERP system.

Training Employees

Continuously Training and updating the employees on ERP is a most important

challenge. People are hidden cost of ERP implementation. Without appropriate training
almost 30 % to 40% of frontline workers will not capable to handle the needs of new
system.

According to Koch, C (1996). “The people at the keyboard are now making important
decisions about buying and selling on the behalf of company .They need to understand
how their data affects the rest of company”.

Mostly earlier manager has responsible to the decision of front line staff. It need to the
manager to understand the changes and encourage their front staff in self decision
process. ERP employees training is not simple as such as excel training. For example
Company gives only some week training and then put into job. In this way it is totally
wrong. ERP system is much more complex as compare to other computer application.
ERP system demands appropriate training.
Employee Morale

ERP implementation takes long time. Mostly employees put long working on the
system, sometime 20 hours in a day and seven days in a week and even holidays. This
working style valuable for their career growth. Long hours working some time create
stress in their jobs and could decrease their moral gradually. Upper management
should needs to boost up employees morale of the project trough different ways. For
example Employees taking on field trip, give some extra bonus etc.

Conclusion

ERP solution is revolutionization of the manufacturing and services industries. Through

ERP system organization integrate their different units. ERP system help them of their
speedily flow of smooth information across the industries. Even though this system
bring several benefits of the company, but also bring sometime problem, when it does
not implement properly. Proper implementation required appropriate planning and their
execution. ERP systems is so much complex, they not simple software, they also affect
on the business process itself. Strong top management commitment is required for the
appropriate implementation, because its implementation involves considerable
modification in the existing business practices as well as huge investment amount is
required. In the integration process, top management plays a very important role to
bring some change for the proper implementation.

Finding and managing the appropriate consultants is also a big challenge in the
competitive market, where already have shortage of skilled consultants. Good ERP
vendors also help to reduce the time and cost of implementation, through specific
solution and new technique. Finding the right employees is also a critical challenge and
then continues training is also very important.
References

Stedman, C., "Global ERP Rollouts Present Cross-Border Problems,"

Computerworld, Vol. 32, No. 47, November 1998, p. 10.

Schwartz, K., "Putting Consultants on Your Team," Beyondcomputing, Vol. 7, No.6,

August 1998.

Johnson, J. Chaos: “The Dollar Drain of IT project Failures, “Application Development

Trends”, January 1995, pp. 41-48.

Devenport, T., “Putting the enterprise into the Enterprise system, Harvard Business
Review”, July August 1998, Vol. 76, No. 4, PP. 121-131.

Melymuka, K., “ERP is Growing from being just an efficiency tool to one that can also
help a company Grow”, Computerworld, September 1998.

Koch, C., “Surprise, Surprise,” CIO, June 15, 1996.