Success and Failures of ERP Implementation
This paper will discuss will discuss how to be successful and avoid failure when implementing an ERP system. I will define ERP, present the significant benefits of implementation, and identify the missteps (which may lead to failure)/steps to success in implementing an ERP system. THE ERP SYSTEM DEFINED
Enterprise resource planning (ERP) is an enterprise-wide information system that integrates and controls all the business processes in the entire organization. According to Muscatello and Chen, “a typical ERP system integrates all of a company’s functions by allowing the modules to share and transfer information freely.” The information is centralized in a single relational database accessible by all modules, eliminating the need for multiple entries of the same data. An ERP system allows management to understand what is happening with customers, suppliers, and employees.
There are four components to an ERP system: ERP software, business processes, the users, and hardware/operating systems. The ERP software is the first component and core of the ERP system. The ERP software consists of modules and each module provides unique functionality for a specific business process. Some of the modules are accounts payable, asset accounting, financial accounting, general ledger, human resources, material management, plant maintenance, project systems, and travel management. Business processes is the next component to an ERP system. There are three levels to business processes: management control, operational control, and strategic planning. ERP streamlines and supports business processes at all three levels. The users are an important component because they input data into the ERP and use the information to make decisions. Hardware/operating systems are another vital within an ERP system. The appropriate and sufficient operating systems and hardware are necessary to support and run the ERP software efficiently; without it the ERP software would not be able to support the expected workload. SIGNIFICANT BENEFITS OF ERP
ERP systems provide significant benefits, and companies adopt them with the goal of replacing inefficient stand-alone legacy systems, increasing information processing efficiencies, improving customer relations, and improving overall decision making. “Owens Corning claims ERP software helped it save $50 million in logistics, materials management, and sourcing.” (Umble and Umble, 2002) Some of the significant benefits are access to real-time data, an audit trail, online availability, and integrated modules. Real-time is where information is updated immediately in the system as the data is saved. Operations costs are reduced and improved access to real-time, integrated information. Transactions can be tracked to the person entering or changing data by their User ID. Online access displays information and reports as needed, reduces the need for off-line spreadsheets, and enables faster monthly and year-end financial closings. Integrated modules allow information input into them to be communicated to other modules. They also eliminate the duplication of data and increases data accuracy. Integrated modules increase the coordination between offices and supply standard of data for all users. IMPLEMENTING AN ERP SYSTEM
Implementation of an ERP does not come without significant technical and managerial challenges, huge financial investments, and a great deal of organizational change. “The cost of a modest ERP implementation can range from $2 million to $4 million, depending on the size of the organization and the specific products and services purchased from vendors. The cost of a full blown implementation in a large organization can easily exceed $100 million.” (Umble and Umble, 2002)
Corey Eaves states, “…more than 40% of ERP implementations fail to achieve even half the planned business benefits.” ERP systems take a lot of time and money...
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Eaves, C. (2010). General Atlantic. Retrieved July 16, 2010 from: http://www.generalatlantic.com/en/news/article/1223
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Muscatello, J., & Chen, I. (2008). Enterprise resource planning (ERP) implementations: theory and practice. International Journal of Enterprise Information Systems, 4(1), 63-78.
Umble, E., & Umble, M. (2002). Avoiding ERP implementation failure. Industrial Management, 44(1), 25-33.
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