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Enterprise Resource Planning (ERP): A Technology of Effective Management

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The Journal of Computing (TJC), Volume2, Issue7, July 2011
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Enterprise Resource Planning (ERP):

A Technology of Effective Management

Himanshu Gupta
Faculty Member, Amity Institute of Information Technology,
Amity University, Noida.

ABSTRACT

This paper explores ERP as an ambivalent technology of Effective Management. Enterprise Resource Planning
(ERP) systems offer distinct advantages in this new business environment as they lower operating costs, reduce
cycle times and (arguably) increase customer satisfaction. This paper examines the underlying reasons why
companies choose to adopt ERP systems, their impact on management process including implementation
problems encountered. The empirical evidence confirms a number of benefits derived from ERP systems
particularly for management process but also, problems encountered. Results provide the basis for future
research on the potential of ERP systems, for more effective business integration.

Keywords: ERP, SCM, Process, Configuration

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I-INTRODUCTION should be reliable, accessible, and easily shared. The

Enterprise resource planning (ERP) systems integrate modular software design should mean a business can
primary business applications; all the applications in select the modules they need, mix and match modules
an ERP suite share a common set of data that is stored from different vendors, and add new modules of their
in a central database. A typical ERP system provides own to improve business performance.
applications for accounting and controlling,
production and materials management, quality II-TECHNOLOGICAL IMPERATIVE OF ERP:
EMPOWERMENT & EFFECTIVE MANAGEMENT
management, plant maintenance, sales and
distribution, human resources, and project Some organizations — typically those with sufficient
management. in-house IT skills to integrate multiple software
Enterprise resource planning (ERP) is the planning of products — choose to implement only portions of an
how business resources (materials, employees, ERP system and develop an external interface to other
customers etc.) are acquired and moved from one state ERP or stand-alone systems for their other application
to another. An ERP system is a business support needs. For example, one may choose to use Human
system that maintains in a single database the data Resource Management system from one vendor, and
needed for a variety of business functions such as the financial systems from another, and perform the
Manufacturing, Supply Chain Management, integration between the systems themselves.
Financials, Projects, Human Resources and Customer This is very common in the retail sector], where even a
Relationship Management.ERP is a powerful mid-sized retailer will have a discrete Point-of-Sale
integrated solution allowing businesses to derive real (POS) product and financials application, then a series
benefits across the enterprise. Organizations are of specialized applications to handle business
looking to harness greater process efficiency with an requirements such as warehouse management, staff
emphasis on maximizing their IT investment across rostering, merchandising and logistics.
the value chain, from back office to frontline Ideally, ERP delivers a single database that contains
operations. all data for the software modules, which would
ERP is a tool that will: include:
• Enable access to real time and shared Manufacturing
information Engineering, Bills of Material, Scheduling, Capacity,
• Give greater visibility of data that will drive Workflow Management, Quality Control, Cost
improved productivity, efficiency and market Management, Manufacturing Process, Manufacturing
intelligence Projects, Manufacturing Flow

• Reduce integration complexity and cost of Supply Chain Management

ownership Inventory, Order Entry, Purchasing, Product

• Provide process improvement along the value Configuration, Supply Chain Planning, Supplier

chain Scheduling, Inspection of goods, Claim Processing,

• Support the business strategy Commission Calculation

An ERP system is based on a common database and a Financials

modular software design. The common database can General Ledger, Cash Management, Accounts

allow every department of a business to store and Payable, Accounts Receivable, Fixed Assets

retrieve information in real-time. The information

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Projects In addition to manufacturing, warehousing, logistics,

Costing, Billing, Time and Expense, Activity and information technology, this would include
Management accounting, human resources, marketing, and strategic
Human Resources management.
Human Resources, Payroll, Training, Time &
Attendance, Rostering, Benefits
Customer Relationship Management
Sales and Marketing, Commissions, Service,
Customer Contact and Call Center support
Data Warehouse
And various Self-Service interfaces for Customers,
Suppliers, and Employees

ERP systems typically handle the manufacturing,

logistics, distribution, inventory, shipping, invoicing,
Fig1. ERP Structure
and accounting for a company. Enterprise Resource
Planning or ERP software can aid in the control of
A. BEFORE THE EXISTENCE OF ERP SYSTEM
many business activities, like sales, marketing, Prior to the concept of ERP systems, it was not
delivery, billing, production, inventory management, unusual for each department within an organization to
quality management, and human resource have its own customized computer system. For
management. ERP systems saw a large boost in sales example, the human resources (HR) department, the
in the 1990s as companies faced the Y2K problem in payroll department, and the financial department
their legacy systems. Many companies took this might all have their own computer systems. Typical
opportunity to replace their legacy information difficulties involved integration of data from
systems with ERP systems. This rapid growth in sales potentially different computer manufacturers and
was followed by a slump in 1999, at which time most systems. For example, the HR computer system (often
companies had already implemented their Y2K called HRMS or HRIS) would typically manage
solution. [1] employee information while the payroll department
would typically calculate and store paycheck
ERPs are often incorrectly called back office systems information for each employee, and the financial
indicating that customers and the general public are department would typically store financial
not directly involved. This is contrasted with front transactions for the organization. Each system would
office systems like Customer Relationship have to integrate using a predefined set of common
Management (CRM) systems that deal directly with data which would be transferred between each
the customers or the e-Business systems such as computer system. Any deviation from the data format
eCommerce, e-Government, e-Telecom, and e- or the integration schedule often resulted in problems.
Finance, or Supplier Relationship Management (SRM) B. AFTER THE EXISTENCE OF ERP SYSTEM
systems. ERPs are cross-functional and enterprise ERP software, among other things, combined the data
wide. All functional departments that are involved in of formerly separate applications. This simplified
operations or production are integrated in one system. keeping data in synchronization across the enterprise,
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it simplified the computer infrastructure within a large client/partner relationship that has mutual respect
organization, and it standardized and reduced the for the expertise in technical and business
number of software specialties required within larger excellence. This must encompass the use of best
organizations. practice and the ability to listen and act upon
advice in two way open communication.
III-5 KEY SUCCESS FACTORS FOR ERP

• A clear strategic vision - The evaluation and

project team must be able to translate the strategic
business vision in to clear scope across the
enterprise and maintain it during implementation.
This is more than simply ensuring a ROI. It
encompass future flexibility, step improvements
in business processes, long term incremental
improvements and identifying where the business
core strengths already exist.
• Senior Sponsorship across the business – The
project must not rely on one sponsor, buy-in must
be across the whole executive layer. The
philosophy must consist of a “win win” mindset. Fig.2 ERP MARKET GROWTH
The ability to see the big picture rather than a silo IV- ERP IMPLEMENTATION
embodies ERP.
Because of their wide scope of application within a
• An Empowered Team – The project team must
business, ERP software systems are typically complex
consist of the best from the business who can
and usually impose significant changes on staff work
embrace change and are an investment in the
practices. Implementing ERP software is typically not
future state. Team members require stamina,
an "in-house" skill, so even smaller projects are more
business knowledge and the ability to influence
cost effective if specialist ERP implementation
peer groups. Clear project management and
consultants are employed. The length of time to
direction is critical to maintain pace and moral
implement an ERP system depends on the size of the
during the varied conditions of an ERP project
business, the scope of the change and willingness of
life cycle.
the customer to take ownership for the project. A
• Change Management– Managing organizational
small project (e.g., a company of less than 100 staff)
change is essential to an ERP solution being
may be planned and delivered within 3-9 months;
delivered on time across the Organization. This
however, a large, multi-site or multi-country
must build real ownership and develop a pull
implementation may take years.
from the business. Quality in training is an
To implement ERP systems, companies often seek the
essential ingredient to developing an informed
help of an ERP vendor or of third-party consulting
and confident user community.
companies. These firms typically provide three areas
• Relationships and Technical Excellence - The
of professional services: consulting, customization and
implementation is dependent upon a strong
support. The client organization may also employ
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independent program management, business analysis, achieve further process congruence. Research
change management to ensure their business indicates that the risk of business process mismatch is
requirements remain a priority during implementation. decreased by:
Data migration is one of the most important activities • linking each current organizational process to
in determining the success of an ERP implementation. the organization's strategy;
Since many decisions must be made before migration, • analyzing the effectiveness of each process in
a significant amount of planning must occur. light of its current related business capability;
Unfortunately, data migration is the last activity • understanding the automated solutions
before the production phase of an ERP currently implemented. [5] [6]

implementation, and therefore receives minimal A disadvantage usually attributed to ERP is that
attention due to time constraints. The following are business process redesign to fit the standardized ERP
steps of a data migration strategy that can help with modules can lead to a loss of competitive advantage.
[2]
the success of an ERP implementation: While documented cases exist where this has indeed
• Identifying the data to be migrated materialized, other cases show that following
• Determining the timing of data migration thorough process preparation ERP systems can
• Generating the data templates actually increase sustainable competitive advantage. [7]
•
[8]
Freezing the tools for data migration
• Deciding on migration related setups VI-CONFIGURATION
• Deciding on data archiving
Configuring an ERP system is largely a matter of
V-PROCESS PREPARATION balancing the way you want the system to work with
the way the system lets you work. Begin by deciding
ERP vendors have designed their systems around
which modules to install, and then adjust the system
standard business processes, based upon best business
using configuration tables to achieve the best possible
practices. Different vendor(s) have different types of
fit in working with your company’s processes.
processes but they are all of a standard, modular
Modules - Most systems are modular simply for the
nature. Firms that want to implement ERP systems are
flexibility of implementing some functions but not
consequently forced to adapt their organizations to
others. Some common modules, such as finance and
standardized processes as opposed to adapting the
accounting are adopted by nearly all companies
ERP package to the existing processes.[3] Neglecting
implementing enterprise systems; others however such
to map current business processes prior to starting
as human resource management are not needed by
ERP implementation is a main reason for failure of
some companies and therefore not adopted. A service
ERP projects.[4] It is therefore crucial that
company for example will not likely need a module
organizations perform a thorough business process
for manufacturing. Other times companies will not
analysis before selecting an ERP vendor and setting
adopt a module because they already have their own
off on the implementation track. This analysis should
proprietary system they believe to be superior.
map out all present operational processes, enabling
Generally speaking the greater number of modules
selection of an ERP vendor whose standard modules
selected, the greater the integration benefits, but also
are most closely aligned with the established
the increase in costs, risks and changes involved.
organization. Redesign can then be implemented to
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Configuration Tables – A configuration table enables licenses -- three to five times more is not uncommon
a company to tailor a particular aspect of the system to for a multi-site implementation.
the way it chooses to do business. For example, an
organization can select the type of inventory
accounting – FIFO or LIFO – it will employ or VIII-CUSTOMIZATION SERVICES
whether it wants to recognize revenue by geographical
Customization Services involves any modifications or
unit, product line, or distribution channel.
extensions that change how the out-of-the-box ERP
So what happens when the options the system allows
system works. Customizing an ERP package can be
just aren’t good enough? At this point a company has
very expensive and complicated. Some ERP packages
two choices, both of which are not ideal. It can re-
are not designed to support customization, so most
write some of the enterprise system’s code, or it can
businesses implement the best practices embedded in
continue to use an existing system and build interfaces
the acquired ERP system. Some ERP packages have
between it and the new enterprise system. Both
very generic features, such that customization occurs
options will add time and cost to the implementation
in most implementations. It is also often possible to
process. Additionally they can dilute the system’s
extend the standard ERP package by purchasing third
integration benefits. The more customized the system
party software to provide additional functionality.
becomes the less possible seamless communication
Customization can be further classified into: Core
becomes between suppliers and customers. [9]
system customization or custom extensions in

VII-CONSULTING SERVICES custom libraries

Core system customization is where customers change
Many organizations did not have sufficient internal the software vendors’ proprietary code. This means
skills to implement an ERP project. This resulted in that the software will no longer be supported by the
many organizations offering consulting services for vendor for the particular function that was customized
ERP implementation. Typically, a consulting team as the code would be modified to the customers need.
was responsible for the entire ERP implementation The customers IT department will then normally
including planning, training, testing, implementation, support the code in-house or subcontract a consulting
and delivery of any customized modules. Examples of organization to do so.
customization includes additional product training; Custom extensions are where a customer build bolt on
creation of process triggers and workflow; specialist custom applications that run parallel to the standard
advice to improve how the ERP is used in the system i.e. custom extended applications. Modules
business; system optimization; and assistance writing that are extended but core code not changed remain
reports, complex data extracts or implementing supported but the extensions will have to be supported
Business Intelligence. by the customers IT department or subcontracted
For most mid-sized companies, the cost of the consulting organization
implementation will range from around the list price
of the ERP user licenses to up to twice this amount
(depending on the level of customization required).
Large companies, and especially those with multiple
sites or countries, will often spend considerably more
on the implementation than the cost of the user
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IX-MAINTENANCE AND SUPPORT SERVICES are also moving toward better integration with other
kinds of information security tools. [10]
Maintenance and Support Services involves
monitoring and managing an Operational ERP system.
XI-LIMITATIONS OF ERP SYSTEM
This function is often provided in-house using
Problems with ERP systems are mainly due to
members of the IT department, but may also be
inadequate investment in ongoing training for
provided by specialist external consulting and services
involved personnel, including those implementing and
companies.
testing changes, as well as a lack of corporate policy
protecting the integrity of the data in the ERP systems
X-BENEFITS OF ERP SYSTEM IN
MANAGEMENT and how it is used.
• Customization of the ERP software is
In the absence of an ERP system, a large manufacturer
limited.
may find itself with many software applications that
• Re-engineering of business processes to fit
do not talk to each other and do not effectively
the "industry standard" prescribed by the
interface. Tasks that need to interface with one
ERP system may lead to a loss of competitive
another may involve:
advantage.
• design engineering (how to best make the
• ERP systems can be very expensive leading
product)
to a new category of "ERP light" solutions
• order tracking from acceptance through
• ERPs are often seen as too rigid and too
fulfillment
difficult to adapt to the specific workflow
• the revenue cycle from invoice through cash
and business process of some companies—
receipt
this is cited as one of the main causes of their
• managing interdependencies of complex Bill
failure.
of Materials
• Many of the integrated links need high
• tracking the 3-way match between Purchase
accuracy in other applications to work
orders (what was ordered), Inventory receipts
effectively. A company can achieve
(what arrived), and Costing (what the vendor
minimum standards, then over time "dirty
invoiced)
data" will reduce the reliability of some
• the Accounting for all of these tasks, tracking
applications.
the Revenue, Cost and Profit on a granular
• Once a system is established, switching costs
level.
are very high for any one of the partners
Some security features are included within an ERP
(reducing flexibility and strategic control at
system to protect against both outsider crime, such as
the corporate level).
industrial espionage, and insider crime. A data
• The blurring of company boundaries can
tampering scenario might involve a disgruntled
cause problems in accountability, lines of
employee intentionally modifying prices to below the
responsibility, and employee morale.
breakeven point in order to attempt to take down the
• Resistance in sharing sensitive internal
company, or other sabotage. ERP systems typically
information between departments can reduce
provide functionality for implementing internal
the effectiveness of the software.
controls to prevent actions of this kind. ERP vendors
 The Journal of Computing (TJC), Volume2, Issue7, July 2011
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• Some large organizations may have multiple [4].Brown, C., and I. Vessey, "Managing the Next
departments with separate, independent Wave of Enterprise Systems: Leveraging Lessons
resources, missions, chains-of-command, etc, from ERP," MIS Quarterly Executive, 2(1), 2003.
and consolidation into a single enterprise [5]. King. W., "Ensuring ERP implementation
may yield limited benefits. success," Information Systems Management, Summer
• The system may be too complex measured 2005.
the actual needs of the customer. [6].Yusuf, Y., A. Gunasekaran, and M. Abthorpe,
"Enterprise Information Systems Project
XII-CONCLUSION Implementation: A Case Study of ERP in Rolls-
Royce," International Journal of Production
The movement toward an effective management
Economics, 87(3), February 2004.
technology is evident in just about every market
[7]."Requirements Engineering for Cross-
sector, from technology companies selling products as
organizational ERP Implementation: Undocumented
services, to companies of all types outsourcing
Assumptions and Potential Mismatches". University
business and IT functions to consultants and service
of Twenty. Retrieved on 2008-07-12.
providers. In current scenario ERPs are taking the role
[8].Turban et al. (2008). Information Technology for
of service providers to their companies' business units.
Management, Transforming Organizations in the
Increasingly, efficient value-added and cost-effective
Digital Economy. Massachusetts: John Wiley & Sons,
delivery of services is one of the keys to an
Inc., p. 320. ISBN-13 978-0-471-78712-9
organization's competitive advantage. To manage the
[9].Dehning,B. and T.Stratopoulos, 'Determinants of a
challenges of today's resurgent services sector,
Sustainable Competitive Advantage Due to an IT-
professional and embedded service firms are
enabled Strategy,' Journal of Strategic Information
increasingly turning to ERP technology in order to
Systems, Vol. 12, 2003
outpace their competition and grow their business. At
[ [10].Walsh, Katherine (January 2008). "The ERP
last, we have drawn the conclusion that ERP gives
Security Challenge". CSO online. CXO Media Inc.
greater flexibility, lower cost of ownership, ease of
Retrieved on 2008-01-17.
integration and greater benefits from real time
information in enterprise and corporate sector.

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Enterprise Resource Planning (Second ed.), Boston:
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