ERP System
The main aim of ERP system is obtain the optimum utilization of its resources. This can be archived by standardization and integration of business operation. ERP systems have the following characteristics:
1. ERP systems are packaged software designed for a client server environment,
2. ERP systems integrate the majority of a business’s process.
3. ERP systems process a large majority of an organization’s transactions.
4. ERP systems use an enterprise-wide database that typically stores each piece of data
5. ERP systems allow access to the data in real time.
In some cases, ERP calls for an integration of transaction processing and planning activities (e.g., production planning) Support for multiple currencies and languages (critical for multinational companies) Support for specific industries (e.g., SAP supports a wide range of industries, including oil and gas, health care, chemicals, and banking) Ability to customize without programming
Why ERP implementation’s success is critical
The definition and measurement of success are thorny matters. First, success depends on the point of view from which one measures it. Even within a single company people will have different ideas.
For example, implementation specialists often define success in terms of completing the project plan on time and within budget while the user and adopter tend to focus on the transition from old systems and stable operation.
ERP systems are commercial software packages that enable the integration of transactions-oriented data and business process throughout an organization. Beginning with the manufacturing and financial systems, ERP systems may eventually allow for integration of inter-organizational supply chains. Because these systems touch so many aspects of a company’s internal and external operations their successful deployment and use are critical to organizational performance and survival.
Implementing an ERP system is not an inexpensive or risk-free venture. In fact, 65% of executives believe that ERP systems have at least a moderate chance of hurting their business because of the potential for implementation problems. Most organizations have extensive experience managing traditional MIS projects but these new ERP projects may represent new challenges and present new risk factors that must be handled differently.
Critical success factors in ERP implementation
A critical success factor is something that the organization must do well to succeed. In terms of information system projects, a critical success factor is what a system must do to accomplish what it was designed to do. The methodology of studying CSFs behind ERP implementations is very similar to the approach used in a variety of studies in Information Technology (IT) implementation research. Some of these factors are the one that have been found to be significant in other IT implementations.
Three factors consistently appear as critical success factors for information systems projects:
- Top management support,
- Client consultation (user involvement)
- Clear project objectives.
1. Strategic factors:
Top management supports have shown that the ERP implementation was in general a top-down decision and the success of such an implementation depended on the alignment of the ERP adoption with strategic business goals.
2. Tactical factors:
Effective project management – in order to successfully accomplish the decision to implement an ERP system, the effective project management comes into play to plan, coordinate and control such an intricate project Re-engineering business processes – it is very important to consider the extent to which the company needs to re-engineer its current business processes in order to be compatible with the ERP software. Suitability of software and hardware – management must make a careful choice of an ERP package that best matches the legacy systems, e.g. the hardware platform, databases and operating systems.
3. Operational factors:
Education and training – when the ERP system is up and running it is very important that the users be capable to use it, hence they should be aware of the ERP logic and concepts and should be familiar with the system’s features. User involvement – participating in the system development and implementation, the users go through a transition period that gives them time to better understand the project’s consequences.
Critical success factors in ERP implementation are as follow:
?Project Champion ?Project Management ?Business Plan and Vision ?Top Management Support and Executive Commitment ?ERP Team and Composition ?Project Support and Effective Communication ?Legacy Systems and Informaion Technology ?Business Processes ?System Integration ?System Testing ?A Vanilla ERP Approach ?Software Selection and Support ?Strategic Initiatives ?Human Resources ?Training ?Data Quality ?Vendor Resources ?Organizational Culture ?Competitive Analysis of Enterprise Integration Strategies ?Organizational Knowledge Management ?Risk Management ?Readiness
Core Modules Of ERP:
ERP software is made up of many software modules. Each ERP software module mimics a major functional area of an organization. Common ERP modules include modules for product planning, parts and material purchasing, inventory control, product distribution, order tracking, finance, accounting, marketing, and HR. Organizations often selectively implement the ERP modules that are both economically and technically feasible.
Different ERP Vendors provide ERP system with some degree of speciality……………..
But the core modules are almost the same for all of them. Some of the core modules found in the successful ERP system are the following:
- Accounting management
- Financial management
- Manufacturing management
- Production management
- Transportation management
- Sales & distribution management
- Human resources management
- Supply chain management
- Customer relationship management
- E-Business
Literature Review:
Critical Success factors have been cited in IT research. There are a great number of articles on CSF. In this literature review section the only focus is on the CSF in ERP implementation. The difficulties and high failure rate in implementing ERP systems have been widely cited in the literature, but research on critical success factors (CSFs) in ERP implementation efficiency is still fragmented. Most literature combines the CSFs with different ERP characteristics. Here I choose some classic literature examples and review them by chronology.
Larsen and Myers (1997) found that an ERP experience could be an early success and a later failure. This result is supported by a case study - a BPR project involved redesigning the main accounting process within one organization in the New Zealand financial services industry.
The following two factors would lead to failure:
1. Inappropriately cutting project scope
2. Cutting end-user training
Their finding show the different measures of success are appropriate at different points in the ERP experience cycle and that the outcomes measured at one point in time are only loosely related to outcomes measured later. This occurs because the experience cycle is a process (actually a set of processes) and not a mechanical connection between starting conditions and final results. Some suggestions on implementation are proposed such as the decomposition of the project into manageable parts, the level of budget to be allocated to the project and shakedown phases of each part, an appropriate project leader and/or implementation partner, and so forth.Bancroft et al. (1998) provided critical success factors for ERP implementation including top management support, the presence of a champion, good communication with shareholders, and effective project management. This is derived from discussions with 20 practitioners and from studies of three multinational company implementation projects. Before implementing ERP it is important to develop key IT capabilities.
Willcocks and Sykes (2000) propose several scenarios and use cases to prove these scenarios. Unlike the development of new simple software applications the main target of ERP is to fulfill BPR (business process reengineering). Many companies failed on this aspect of ERP implementation. This failure was driven by the need for major change in human, culture, and organization relationships.
Willcocks and Sykes emphasize Feeny and Willcocks (1998) nine core IT capabilities and believe these nine core IT capacities must be retained in-house, since in come cases the companies have to outsource human resources to work closely with the in-house team and ensure that a transfer of learning takes place.
In order to obtain necessary IT capabilities, Willcocks and Sykes suggested some strategies to manage the ERP implementation:
1. User versus technology
With business requirements changing rapidly, further learning and innovation is required. As IT becomes more organizationally pervasive, development will not rely on IT specialists or external IT suppliers. Users themselves will approach IT through multifunctional teamwork, personal relationship, and business goals.
2. Governance and staffing
Effective business innovation requires high-level support and a project champion. An efficient team combination is recommended including: Full-time, high-performing users In-house IT specialists People with bridge-building interpersonal skills Fill-in external IT staff and knowledgeable users/managers
3. Time-box philosophy
They recommend decomposing implementation into smaller projects. This approach can help reduce project risk. This is also known as converting “whales” (large unmanageable projects) into “dolphins” (smaller and more manageable projects).
4. Supplier/ consultant role in ERP
First, consultants fill in the in-house shortage of skills. Secondly, the company may choose to outsource the entire IT project to decrease the risks. Nah, Fiona Fui-Hoon, et al. (2001) propose 11 factors as being critical to ERP implementation success: ERP teamwork and composition, a change in management program and culture, top management support, business plan and vision, business process reengineering with minimum customization, project management, monitoring and evaluation of performance, effective communication, software development, testing and troubleshooting, project champion, appropriate business and IT legacy systems
Elisabeth J. Umble, et al (2003) point out that commercially available software packages promise seamless integration of all information flows in the company-financial and accounting information, human resource information, supply chain information, and customer information. However, managers have struggled, at great expense and with great frustration, with incompatible information systems and inconsistent operating practices.
They divide CSFs into 10 categories:
1. Clear understanding of strategic goals.
2. Commitment by top management
3. Excellent implementation project management
4. Great implementation team
5. Successfully coping with technical issues
6. Organizational commitment to change
7. Extensive education and training
8. Data accuracy
9. Focused performance measures
10. Multisided issues resol
Among them some are already pointed in past literatures”. But some factors were new…..
1) Data accuracy.
2) Focused performance measures.
3) Successfully cope up with technical issues.
4) Extensive education & training.
According to Majed Al-Mashari(2003), et al the measuring and evaluation of performance are very critical factors in ensuring the success of any organization. It is suggested in the taxonomy that measurement take place in a balanced perspective and for the purpose of proving useful information that can facilitate the decision making process, deliver the corporate objectives and forward the business competitively. To obtain this system, the authors advise that regular auditing and benchmarking should be considered for optimization of the potential available to all aspects of business. Furthermore, external benchmarking may bring new ideas, knowledge and better practices on dealing with deficiencies in ERP systems, de-bottlenecking, streamlining the processes, optimizing and redesigning for more extensive benefits.
After extensive research on CSF (Critical Success Factors) , generally factors are divided into 3 main categories:
1. Strategic factors:
Top management supports have shown that the ERP implementation was in general a top-down decision and the success of such an implementation depended on the alignment of the ERP adoption with strategic business goals.
2. Tactical factors:
Effective project management – in order to successfully accomplish the decision to implement an ERP system, the effective project management comes into play to plan, coordinate and control such an intricate project Re-engineering business processes – it is very important to consider the extent to which the company needs to re-engineer its current business processes in order to be compatible with the ERP software. Suitability of software and hardware – management must make a careful choice of an ERP package that best matches the legacy systems, e.g. the hardware platform, databases and operating systems.
3. Operational factors:
Education and training – when the ERP system is up and running it is very important that the users be capable to use it, hence they should be aware of the ERP logic and concepts and should be familiar with the system’s features. User involvement – participating in the system development and implementation, the users go through a transition period that gives them time to better understand the project’s consequences
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