ERP Systems

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Contents 1 Overview 2 How can ERP improve a company's business performance? 3 What will ERP fix in my business? 4 Limitations of ERP 5 Experience with ERPs 6 List of ERP vendors

[edit] Overview

Enterprise resource planning software, or ERP, doesn’t live up to its acronym. Forget about planning—it doesn’t do much of that—and forget about resource, a throwaway term. But remember the enterprise part. This is ERP’s true ambition. The software attempts to integrate all departments and functions across a company onto a single computer system that can serve all those departments’ particular needs.

ERPs are unique in the way they operate and their philosophy. An ERP tries to use a single platform (software and hardware) to address the need for a centralised IT structure. ERPs use their interoperability to connect with seemingly different programs and achieve integration. Before ERPs, all programs didn't "know" how to communicate with each other and so required databases to store their data. ERPs, on the other hand, have a single database where all the data is stored and shared.

Enterprise resource planning is a term derived from manufacturing resource planning that followed material requirements planning. ERP systems typically handle the manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting for a company. Enterprise Resource Planning or ERP software can aid in the control of many business activities, like sales, delivery, billing, production, inventory management, quality management, and human resources management.

ERPs are often called "back office systems", indicating that customers and the general public are not directly involved. This is contrasted with front office systems like customer relationship management (CRM) systems that deal directly with the customers, or the eBusiness systems such as eCommerce, eGovernment, eTelecom, and eFinance, or supplier relationship management (SRM) systems that deal with the suppliers. ERPs are cross-functional and enterprise wide. All functional departments that are involved in operations or production are integrated in one system. In addition to manufacturing, warehousing, logistics, and Information Technology, this would include accounting, human resources, marketing, and strategic management.

[edit] How can ERP improve a company's business performance?

ERP’s best hope for demonstrating value is as a sort of battering ram for improving the way your company takes a customer order and processes that into an invoice and revenue—otherwise known as the order fulfillment process. That is why ERP is often referred to as back-office software. It doesn’t handle the up-front selling process ,rather, ERP takes a customer order and provides a software road map for automating the different steps along the path to fulfilling the order. When a customer service representative enters a customer order into an ERP system, he has all the information necessary to complete the order (the customer’s credit rating and order history from the finance module, the company’s inventory levels from the warehouse module and the shipping dock’s trucking schedule from the logistics module, for example).

People in these different departments all see the same information and can update it. When one department finishes with the order it is automatically routed via the ERP system to the next department. To find out where the order is at any point, you need only log in to the ERP system to track it down. With luck, the order process moves like a bolt of lightning through the organization, and customers get their orders faster and with fewer errors than before.

With ERP, the customer service representatives are no longer just typists entering someone’s name into a computer and hitting the return key. The ERP screen makes them businesspeople. It flickers with the customer’s credit rating from the finance department and the product inventory levels from the warehouse. Did the customer pay for the last order yet? Will we be able to ship the new order on time? These are decisions that customer service representatives have never had to make before, and the answers affect the customer and every other department in the company. But it’s not just the customer service representatives who have to wake up. People in the warehouse who used to keep inventory in their heads or on scraps of paper now need to put that information online. If they don’t, customer service reps’ screens will show low inventory levels and reps will tell customers that the requested item is not in stock. Accountability, responsibility and communication have never been tested like this before.

People don’t like to change, and ERP asks them to change how they do their jobs. That is why the value of ERP is so hard to pin down. The software is less important than the changes companies make in the ways they do business. If you use ERP to improve the ways your people take orders and manufacture, ship and bill for goods, you will see value from the software. If you simply install the software without trying to improve the ways people do their jobs, you may not see any value at all—indeed, the new software could slow you down by simply replacing the old software that everyone knew with new software that no one does.

[edit] What will ERP fix in my business?

There are five major reasons why companies undertake ERP.

1. Integrate financial information—;As the CEO tries to understand the company’s overall performance, he may find many different versions of the truth. Finance has its own set of revenue numbers, sales has another version, and the different business units may each have their own version of how much they contributed to revenue. ERP creates a single version of the truth that cannot be questioned because everyone is using the same system.
2. Integrate customer order information—;ERP systems can become the place where the customer order lives from the time a customer service representative receives it until the loading dock ships the merchandise and finance sends an invoice. By having this information in one software system, rather than scattered among many different systems that can’t communicate with one another, companies can keep track of orders more easily, and coordinate manufacturing, inventory and shipping among many different locations simultaneously.
3. Standardize and speed up manufacturing processes—;Manufacturing companies—especially those with an appetite for mergers and acquisitions—often find that multiple business units across the company make the same widget using different methods and computer systems. ERP systems come with standard methods for automating some of the steps of a manufacturing process. Standardizing those processes and using a single, integrated computer system can save time, increase productivity and reduce headcount.
4. Reduce inventory—;ERP helps the manufacturing process flow more smoothly, and it improves visibility of the order fulfillment process inside the company. That can lead to reduced inventories of the materials used to make products (work-in-progress inventory), and it can help users better plan deliveries to customers, reducing the finished good inventory at the warehouses and shipping docks. To really improve the flow of your supply chain, you need supply chain software, but ERP helps too.
5. Standardize HR information—;Especially in companies with multiple business units, HR may not have a unified, simple method for tracking employees’ time and communicating with them about benefits and services. ERP can fix that.

[edit] Limitations of ERP

Limitations of ERP include:

• Success depends on the skill and experience of the workforce, including training about how to make the system work correctly. Many companies cut costs by cutting training budgets. Privately owned small enterprises are often undercapitalized, meaning their ERP system is often operated by personnel with inadequate education in ERP in general, such as APICS foundations, and in the particular ERP vendor package being used.

• Personnel turnover: companies can employ new managers lacking education in the company's ERP system, proposing changes in business practices that are out of synchronization with the best utilization of the company's selected ERP.

• ERP systems can be very expensive to install.

• ERP vendors can charge sums of money for annual license renewal that is unrelated to the size of the company using the ERP or its profitability.Depending on market situation (competition), rates both for outsourcing partners as well as consultants can vary significantly. For example SAP is currently pursueing acquisition of small and medium sized enterprises very actively, since in this market there is still room to grow as opposed to the market for large caps. This is also to take advantage of the (currently) rather weak position of Oracle just having acquired Peoplesoft/JDEdwards.

• Technical support personnel often give replies to callers that are inappropriate for the caller's corporate structure. Computer security concerns arise, for example when telling a non-programmer how to change a database on the fly, at a company that requires an audit trail of changes so as to meet some regulatory standards.

• ERPs are often seen as too rigid, and difficult to adapt to the specific workflow and business process of some companies - this is cited as one of the main causes of their failure. Further, when companies are growing through acquisitions and the acquirer and target have different ERP systems there may be a huge cost involved with migrating and adapting the systems so that the merged entity has a uniform system. These costs arise due to the rigidity of the ERP systems and are often overlooked in business integrations.

• Systems can be difficult to use. Especially if they are replacing some solutions that had been developped and subsequently customized for a particular department.

• The system can suffer from the "weakest link" problem - an inefficiency in one department or at one of the partners may affect other participants. It is particularly important that master file data is updated by every department. Some critical data might be updated by a central data management department to ensure quality and consistency of the data. For the main part of the data it makes sense, however, that it be updated by the respective department (incentive: accurate data = smooth processes in that department). However, with the complexity of today's ERP systems the importance of certain data fields may not be obvious to the person responsible for updating.

• Many of the integrated links need high accuracy in other applications to work effectively. A company can achieve minimum standards, then over time "dirty data" will reduce the reliability of some applications. The growing size of the database makes more and more powerful

• Once a system is established, switching costs are very high for any one of the partners (reducing flexibility and strategic control at the corporate level).

• The blurring of company boundaries can cause problems in accountability, lines of responsibility, and employee morale.

• Resistance in sharing sensitive internal information between departments can reduce the effectiveness of the software.

• There are frequent compatibility problems with the various legacy systems of the partners.

• The system may be over-engineered relative to the actual needs of the customer.

[edit] Experience with ERPs

• My impression as a user of SAP is that the system is not user friendly. The command and buttons are somehow hidden from users. There was once I needed to print a page from SAP system, and I just couldn't find the function. When I asked my more senior colleague, she couldn't help me either. The system is also very rigid. One must do things in a step by step manner. For example, one cannot leave a page blank and go to the next page. With these difficulties, users try to avoid using SAP when they can, making SAP a very expensive white elephant.
• My impression as an application designer is that sometimes it is almost impossible to replace all your legacy systems with one ERP package,causing you a lot of interfacing/integration problems. (Especially, when your company is operating globally) For examples, suppose you are running your business all across Asia. All countries have their unique billing requirements to comply with their countries' accounting law. In this case, it is impossible for one ERP billing module to replace legacy billing systems because one standardized ERP system just can not meet all country specific business requirements. Not replacing legacy billing system means you need at least two interface systems (for example) to integrate sales/distribution system to legacy billing system and legacy billing system to accounting system. Remember no ERP package can meet your all business requirements without building new interfaces and customized modules.
• SAP was incredibly difficult to implement in our Company. With six separate divisions, each having their own way of reporting, standardization was a major challenge. Each division wanted to customize according to their specifications, and there was significant competition between divisions for IT dollars. Insufficient communication of the IT vision from senior management led to significant resistance across the company. Since ERP's restructure the business in every way, getting everyone on board and having the cooperation of all employees is critical.
• SAP is a huge and complicated system. This generates most of the issues mentioned above. One of the big mistakes companies incur when implementing SAP is believing that SAP is just another piece of software one can install and customize as any other office productivity tool. The truth is that SAP can deliver great operational improvements in terms of efficiency but also big enhancements in the quality of the information gathered for decision making. But this is no easy and there are no shortcuts, an ERP implementation is a long an expensive project which requires hiring external knowledge. Trying to save costs in an ERP implementation is not cost saving, but cost postponing (and growing) as the costs will show up right after the system is put into production.
• Implementing SAP requires that the company knows what information will be put in the system and what information will be available (output). For instance, as a consultant, I had to map all procurement expenses from my client. According to the annual report based on the accounting module of SAP, these expenses were €300m. When we asked the Procurement Director for the total purchasing expenses, he told us €250m (including the expenses he was not in charge of) based on the Purchasing module request. The company was not able to track €50m of expenses because it has not defined clearly what should be put in the Purchasing module.
• For insights on how to teach ERP systems I recommend this reading: "Using a Simulation Game Approach to Teach Enterpr ise Resour ce Planning Concepts" by Pier re-Major ique Léger, Journal of Information Systems Education, Vol. 17(4)
• The ERP experience that I would like to share is from the functional implementation perspective. In my former job, I was part of a team that implemented a web-based employee expense report system in a multinational bank. Prior to the implementation, employees prepared spreadsheets to list their business expenses and attach the related receipts. After their supervisors approved the expense reports, the accounting department would book the accounting entries and issue the checks. This method of claiming reimbursements changed after we implemented the web-based system. Employees now need to log on to a secure website, enter required details of their expenses, submit the expense report online, print a hard copy of the report, attach the related receipts and forward these to their supervisors. After the expense reports were approved online by delegated approvers, the accounting department would quickly review the documents, scan the bar codes on the reports and checks will be issued soon after. Obviously, the ERP system benefited the accounting department because the accounting staff no longer needed to book entries one-by-one. However, bank employees were unhappy with the new system because preparing an online expense report took much longer (more fields to fill up, no copy and paste feature) than a spreadsheet. Also, if employees had selected the wrong expense item, the accounting department would reject the expense report and so they have to go through the whole process again. To address employee complaints, our team organized sessions to educate the employees on how to use the system and select the right expense items. We had to prove to everyone that if they filed their expense reports correctly under the new ERP system, they can get their reimbursements much faster than before.
• In my former company, I was an IT analyst and participated in the implementation of ERP systems for the middle to back office. I agree with most of the risks, pitfalls and mistakes identfied above. I believe what pulls organization through these projects is solid governance (steering commitee ensuring clear responsibility) , communication between IT and BU and a commitment from the BU to change process if need be. If the BU is resistant to change or leaves all the functional specification to IT, the project can easily descend into chaos where BU blames IT and vice versa. Creating a platform for "Partnership" between the two halves of the organization is perhaps the most important aspect of such projects. The second most important aspect for me is managing the change. IT effects the culture, process and organization - good change management is vital.
• I definitely agree with the importance of change management highlighted above; every good ERP consultant should have a soul of a change manager! But that aside, many of the pitfalls mentioned above could also be alleviated somewhat by having a good project methodology, applied with the right mix of discipline and flexibility. Furthermore, I have seen projects fail after 2 years, because the changing business environment overtook the project, as it were. (The company had acquired another company in the meantime, and having to halfway through such a huge ERP implementation take on changes and new integration tasks was the death knell of the project.
• The implementation of SAP makes sense only when the organization is ready for it because it requires reengineering of many processes and setting up new organization, often with new reporting lines and functions, especially of people who are entering information into SAP.
• My experience with ERP has been terrible. My former employer has been working on implementing Oracle for the whole and it has been a very costly project so far, with no tangible results. The main reasons for that in my opinion, are:

- Lack of preparation and unprecise specifications and requirements to the supplier and the consultants.

- Lack of internal teamwork prior to decision. Unclear definition of responsibilities between IT and Finance function.

- Lack of best practice sharing before writing specifications. Reluctance of each subsidiary to adapt the way they work, leading to too much demand for customization.

- Poor project management, leading to costs overrun and delays.

After four years, it is still far from being implemented.

[edit] List of ERP vendors

Vendors of popular ERP software include (sorted roughly according to worldwide ERP related revenue):

• SAP: a global software company headquartered in Walldorf, Germany
  
• Oracle Applications: one of the major companies developing database management systems (DBMS), tools for database development, middle-tier software (Fusion Middleware), enterprise resource planning software (ERP), customer relationship management software (CRM) and supply chain management (SCM) software.
  
• Infor Global Solutions: held U.S. software company that specializes in enterprise software primarily for small and medium businesses. It is headquartered in Alpharetta, Georgia.
  
• The Sage Group: a leading UK based supplier of accounting, CRM and business management software (including manufacturing and construction-specific ranges) as well as related services to small and medium-sized enterprises (SME).
  
• Lawson Software: an international provider of enterprise resource planning (ERP) software. The company is based in St. Paul, Minnesota.
  
• Microsoft Dynamics: Formerly Microsoft Business Division, the division focuses on developing financial and business management software for companies.