Enterprise Resource Planning (ERP) is the process of integrating all the business functions and processes in an organization to achieve numerous benefits. First, a single point of data entry helps to reduce data redundancy while saving employee’s time in entering data, thereby reducing labor and overhead costs. Second, the centralization of information, decision-making, and control leads to increases in efficiencies of operations and productivity, as well as coordination between departments, divisions, regions, and even countries. This is especially true for multinational corporations (MNC), in which global integration could result in better communications and coordination around the world. The global sourcing and distribution of parts and services could also provide appropriate benchmarks for operations around the world. Third, the sharing of a centralized database provides business managers with accurate and up-to-date information to make well informed business decisions. Further, it reduces data redundancy while improving data integrity at the same time. Fourth, functional integration will consolidate all sorts of data, such as financial, manufacturing, and sales, to take advantage of bulk discounts. ERP is especially important for companies who are “intimately connected” to their vendors and customers, and who used electronic data interchange (EDI) to process sales transactions electronically. Therefore, the implementation of ERP is exceptionally beneficial to businesses such as manufacturing plants that mass-produce products with little changes. Nevertheless, the revolutionary and innovative ERP software system quickly expands into other business areas such as finance and retailing. ERP also provides companies with a competitive advantage over their competitors.
But despite these several benefits, there are also certain challenges faced by Enterprise Resource Planning (ERP), especially during the implementation phase. Some of the challenges faced during the implementation of an ERP system are explained in the following sections.
Typically Enterprise Resource Planning (ERP) systems are very costly, take a lot of time to implement and have a risk associated with implementation, and also affect the job profiles of many employees. Thus the three major dimensions involved are money, time and people involvement. In addition, there is also a requirement to re-engineer existing business practices to match the needs of the new ERP system.
ERP Implementation Plan
The following steps depicts several activities that must be performed before implementing an Enterprise Resource Planning (ERP) system.
- Step 1: Managers must conduct a feasibility study of the current situation to assess the organization’s needs by analyzing the availability of hardware, software, databases, and in-house computer expertise, and make the decision to implement ERP where integration is essential. They must also set goals for improvement and establish objectives for the implementation, and calculate the break-even points and benefits to be received from this expensive IT investment.
- Step 2: The second major activity involves educating and recruiting end users to be involved throughout the implementation process.
- Step 3: Managers form a project team or steering committee that consists of experts from all functional areas to lead the project.
- Step 4: After a decision is made to implement ERP, a team of system consultants will be hired to evaluate the appropriateness of implementing an ERP system, and to help select the best enterprise software provider and the best approach to implementing ERP. In most situations, the consultant team also recommends the modules that are best suited to the company’s operations (manufacturing, financial, human resources, logistics, forecasting, etc.), system configurations, and Business-to-Business applications such as supply-chain management, customer relationship management, e-procurement, and e-marketplace.
- Step 5: Adequate employee and manager training must be provided to all business, stakeholders, including managers, end users, customers, and vendors, before the system is implemented. Such training is usually customized and can be provided by either internal or outside trainers.
- Step 6: The system installation process will address issues such as software configuration, hardware acquisition, and software testing.
- Step 7: Data and information in the databases must be converted to the format used in the new ERP system and servers and networks need to be upgraded. A post implementation review is recommended to ensure that all business objectives established during the planning phase are achieved. Needed modifications are tackled during this phase too.
Issues Faced while Implementing an ERP
Although issues faced while implementing an Enterprise Resource Planning (ERP) are numerous, but this report classifies them majorly into selection related issues, technical issues, psychological issues, organizational change related issues and time and cost related problems.
Selecting an Appropriate ERP
The first and foremost challenge faced by many organizations is deciding what sort of an ERP system they should select to implement. The managers must decide on the size, type and scope of the ERP system they actually require and how to choose the best solution amongst the existing hundreds of systems in the market. This selection problem arises for all businesses without exception and should be considered as seriously as possible for the reason that ERP system choice defines a company’s strategy for at least the following 6 to 10 years and, no doubt, has a major impact on the future success of the entire business.
To decide on the implementation of a successful ERP program, the managers should have an in-depth understanding of the organization’s current business processes, organizational structure, culture, work environment and financial and economic strength.
Due to enormous impact on the competitive advantage of the company, top management must consider the strategic implications of implementing an ERP solution keeping in mind the size of the company and the modules installed. Management must ponder about several topics like:-
- Does the ERP system strengthen the company’s competitive position?
- How does ERP affect the organizational structure and the culture?
- What is the scope of the ERP implementation — only a few functional units or the entire organization?
- Are there any alternatives that meet the company’s needs better than an ERP system?
- If it is a multinational corporation, the management should be concerned about whether it would be better to roll the system out globally or restrict it to certain regional units?
Only when all these points have been taken care of, can an ERP system be selected for further implementation.
Once the appropriate ERP is selected, the arduous task of implementation has only begun. The next part of implementation issues are related to the technical aspects of the project – both hardware and software. These issues include the existing servers and workstations to be updated and new and modern ones to be ordered, purchased, and replaced. The internal network also has to be analyzed and modernized if required; the speed and bandwidth of the existing Internet access should be taken into consideration, along with possible technical concerns about the mobile devices being used.
If these questions are underestimated, they can dramatically impact the overall result of the project and easily result in slow performance in the first few weeks, or in some cases months of ERP implementation hence resulting in a slackening of the existing pace of business.
However the situation has been changed during the last few years, and plenty of software-as-a-service (SaaS) applications that have shown up on the market now allow the cost and headache of hardware problems to be minimized.
More specifically, ERP systems need a Graphical User Interface at the front end, and are based on a client-server technology. They require the ability to access and share data across all applications across different platforms. Some servers and equipment might have a need to be custom built, and that can also cause a time lag in ERP implementation.
In short, it can be said that the unique hardware and software needs of an ERP system, along with the continued use of pre existing applications in an organization can prove to be tricky and are a major consideration while implementing an ERP.
Data Quality and Consistency Issues
This issue is common in companies that are implementing ERP for the first time and transferring their legacy data into the new system from Excel spreadsheets, manual records, or old disparate applications. Basically, the question is that old data that have been used and stored for years can for many reasons appear approximate or even incorrect in the new ERP system.
Integration of data from other older systems with the new ERP system is a major concern while implementing the system. A particular company might have accounting and finance systems operating on different mainframes (say IBM 370 architecture), MRP systems on a high end VAX, and a logistics system on an AS 400. The legacy systems of this company might be coded in COBOL. Thus, the implementation of a new ERP system for such a company needs to be done very carefully and requires technical judgement for the implementation of this new system.
People Related Psychological Issues
This is the most difficult type of issue to resolve. These are the questions and issues that originate from the aspect of human nature that never accepts any change without seeing the visible advantages of it.
People-related issues such as corporate philosophy and leadership style can play an important role in the ERP implementation process. Active top management support and commitment are essential to the success of any system implementation. Frequently, executive councils and steering committees consisting of top managers are developed to plan and manage the IT initiatives.
Employees can be quite wary of any kind of change in the business processes, particularly during periods of economic downturn. Ill-trained employees who fight the changes in the business process tend to be poor performers. Therefore, to increase the chance of a successful ERP implementation and to reduce users’ resistance to change, employees, especially those who are very knowledgeable with the operations, must be involved in all stages of the implementation process. Employees must also be educated about the ERP installation. Such educational endeavors should include a concise introduction to the basic concepts and architecture of ERP systems, including actual screen shots of the function modules. During these training sessions, it is important to discuss the managerial issues involved and to build a basic understanding of the integration concepts prior to the actual installation of the ERP system. Further, any Business-to-Business initiatives, reengineering projects, alliances, and the introduction of new technologies should also be addressed.
Project managers must take charge of the implementation process at all times. They must oversee the reengineering of the key business processes, reassign job responsibilities, restructure the organization’s chart, and redefine work relationships. Further, they must also learn how to manage the software vendors and any outside consultants.
Employees working on an ERP implementation project put in long hours (as much as 20 hours per day) including seven-day weeks and even holidays. Even though the experience is valuable for their career growth, the stress of implementation coupled with regular job duties could decrease their morale rapidly. Leadership from upper management and support and caring acts of project leaders would certainly boost the morale of the team members. Other strategies, such as taking the employees on field trips, could help reduce the stress and improve the morale.
ERP implementation brings significant changes into a company’s conventional business model and the day-to day practices it has been using for years or even decades.
ERP implementation requires organizations to reengineer their key business processes in fundamental ways, revamping old ways of conducting business, redefining job responsibilities, and restructuring the organization. For major multinational corporations (MNC), the ERP systems must be customized to address global issues where different countries have different ways of doing business, and to incorporate country-specific business practices pertaining to accounting, tax requirements, environmental regulations, human resources, manufacturing, and currency conversion into the integrated systems.
While integrating the information systems across various countries, three types of misfits (relating to data, process, and output) can occur due to incompatibilities between software functionality and organizational requirements as well as differences in cultural and regulatory environments. The unique context of each country in which an organization operates must be carefully included into the traditionally Western-biased business practices inherent in the ERP systems.
Implementation Cost and Time
Implementation Cost: Even though the price of prewritten software is cheap compared with in-house development, the total cost of implementation could be three to five times the purchase price of the software. The implementation costs would increase as the degree of customization increases. After training the selected employees, strategies such as bonus programs, company perks, salary increases, continual training and education, and appeals to company loyalty work to retain them. Other intangible strategies such as flexible work hours, telecommuting options, and opportunities to work with leading-edge technologies are also being used.
Implementation Time: ERP systems come in modular fashion and do not have to be implemented entirely at once. ERP packages are very general and need to be configured to a specific type of business and may follow a phase-in approach with one module implemented at a time. Some of the most commonly installed modules are sales and distribution (SD), materials management (MM), production and planning, (PP), and finance and controlling (FI) modules. The length of implementation is affected by the number of modules being implemented, the scope of the implementation, the extent of customization, and the number of interfaces with other applications. The more the number of units, the longer the implementation time. Further as the scope of implementation grows from a single business unit to multiple units spread out globally, the duration of implementation increases.
An Enterprise Resource Planning (ERP) implementation is a huge commitment from the organization, causing millions of dollars and can take up to several years to complete. However, when it is integrated successfully, the benefits can be enormous. A well-designed and properly integrated Enterprise Resource Planning (ERP) system allows the most updated information to be shared among various business functions, thereby resulting in tremendous cost savings and increased efficiency. When making the implementation decision, management must considered fundamental issues such as the organization’s readiness for a dramatic change, the degree of integration, key business processes to be implemented, older applications to be included, and whether or not new hardware needs to be acquired. In order to increase the chance of user acceptance, employees must be consulted and be involved in all stages of the implementation process. Providing proper education and appropriate training are also two important strategies to increase the end user acceptance rate. The organization is also going through a drastic change, with changes in the way businesses are conducted, the organization being restructured, and job responsibilities being redefined. And finally, the cost and time of implementation of an ERP system also are a major challenge faced during the implementation process.