APPLICATIONS AND BENEFITS OF ERP IMPLEMENTATIONS

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1 APPLICATIONS AND BENEFITS OF ERP IMPLEMENTATIONS Fadhili Kiyao School of Management Studies CUSAT, Kochi fkiyao@gmail.com Abstract: The Enterprise information system offers the service platform to improve the efficiency of enterprise work. Information systems are widely used in different areas and improve the efficiency of enterprise activities. The main purpose of this paper is to present the ERP systems implementation together with identifying the benefits from the implementation and economic effectiveness of ERP systems. Key words: Enterprise Resource Planning (ERP), ERP system, ERP implementation, Enterprise Information Systems 1.0 Introduction The development in global information technologies and the competitive market climate have pushed many companies to transform their businesses. An information system (IS) is a group of components which can increase the competitiveness and gain better information for decision making. Consequently, many organizations decide to implement IS in order to improve the effectiveness and efficiency of their organizations. However, a lack of awareness of numerous and varied challenging issues surrounding the implementation process could be problematic for the whole process. Furthermore, the problem of a lack of key success issues seems to be a serious obstacle for the information system implementation process. Additionally, IS implementation has effects on an organization and these effects are related to the consequences of the business processes. Consequently, this issue is critical and crucial for an organization to consider when they implement a new IS. 1

2 Implementation of IS makes significant changes to the management of business processes. The issue of assessing the effectiveness of implementation of IS is a very important issue, as any major costs would require support, especially from the leaders of the organization [1]. 2.0 Enterprise information systems Information systems (IS) are combinations of hardware, software, and telecommunications networks which people build and use to collect, create, and distribute useful data, typically in organizational settings [2]. Computers are the core component of information systems. Over the past decade, the advent of powerful, relatively inexpensive, easy-to-use computers has had a major impact on business. When we use the term information system, we are talking about computer based-information systems. Companies use IS to support their various business processes and activities for internal operations such as manufacturing, order processing, and human resource management. Companies can also use IS to support external interactions with customers, suppliers, and business partners. Enterprise information systems (EIS) are complex application software packages that contain mechanisms supporting the management of the whole enterprise and integrate all areas of its functioning. They promise the seamless integration of all the information flowing through a company financial and accounting information, human resource information, supply chain information, and customer information [3]. EIS evolved from material requirements planning (MRP) and manufacturing resource planning (MRP II) systems. Therefore, they started as the support for a variety of transaction-based back-office functions and were then called Enterprise Resource Planning (ERP) systems. However, they further evolved to include support for front-office and inter-organizational activities including supply chain management, customer resource management, and sales force automation. They started to offer solutions in an attempt to seamlessly link front-office (e.g., sales, marketing, customer services) and back-office (e.g., operations, logistics, financials, human resources) applications to enhance competitive advantages [4]. Because companies within certain industries operate their businesses differently, it is necessary to understand how it can use IS to support its unique internal business activities. Generally [5], the flow of information through a set of business activities is referred to as a value chain in which information flows through functional areas that facilitate the internal activities of the business (shown in Figure 1). Functional areas can be broken down into primary and support activities. Primary activities are functional areas within an organization that process inputs and produce outputs. Support activities are those activities that enable primary activities to take place [6]. 2

3 Fig. 1 Porter s Value Chain Model 3.0 APPLICATIONS OF ERP SOFTWARE Enterprise resource planning (ERP) is a category of business-management software typically a suite of integrated applications that an organization can use to collect, store, manage and interpret data from many business activities, including: product planning, cost manufacturing or service delivery marketing and sales inventory management shipping and payment ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track business resources cash, raw materials, production capacity and the status of business commitments: orders, purchase orders, and payroll. The applications that make up the system share data across various departments (manufacturing, purchasing, sales, accounting, etc.) that provide the data.[7] ERP facilitates information flow between all business functions, and manages connections to outside stakeholders.[8] Enterprise system software is a multibillion-dollar industry that produces components that support a variety of business functions. IT investments have become the largest category of capital expenditure in United States-based businesses over the past decade. Though early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP systems. [9] The ERP system is considered a vital organizational tool because it integrates varied organizational systems and facilitates error-free transactions and production. However, developing an ERP system differs from traditional system development. [10] ERP systems run on a variety of computer hardware and network configurations, typically using a database as an information repository. [11] 4.0 Benefits of ERP implementations 4.1 Integrated Information Instead of having data distributed throughout a number of separate databases, all information is now located in a single location. Data is also kept consistent and up-to-date. 3

4 ERP collects, manages and distributes information across functional boundaries and helps break down information silos those barriers that stand in the way of full cooperation between production, materials, planning, engineering, finance and sales/marketing. The resulting higher quality, reduced time-to-market, shortened lead times, higher productivity and lowered costs can help improve customer service and increase sales and market share as well as margins. Measurements, analysis and simulation capabilities can help companies plan better and react sooner and more effectively to changes in demand, competitive actions, and supply chain disruptions. Modern ERP systems are built for the internet-enabled world with e-commerce capabilities and provision for integration and collaboration with supply chain partners, customer portals, and enhanced tracking of incoming material and outgoing product to extend the visibility and control. Many companies are challenged by the continually changing requirements of Internet-based business processes and find that their current ERP system is not able to take them where they need to go. It s hard to put a value on the ability to take advantage of new and evolving e-business imperatives or the cost of not being able to keep up with (or perhaps even lead) the competition [12]. 4.2 Improved visibility and Reduced operating costs Due to the centralized nature of ERP systems, organizations can track inventory levels on a daily basis, including inventory in transit and future consignments to be received. This visibility can enable organizations to control their working capital requirements to a great degree. This visibility also enables organizations to run their enterprise in accordance with their strategy, while empowering them to make quick decisions to pursue opportunities. One of the most immediate benefits from implementing an ERP is reduced operating costs: such as lower inventory control costs, lower production costs and lower marketing costs. By avoiding duplication of information but not reinventing the wheel for common business processes, an ERP provides opportunities for cost reduction and value-added tasks, leading to increased margins [13]. 4.3 Standardized business processes and Improved compliance Most ERP vendors design their products around standard best-business processes, which are based on industry best practices. Organizations can use these business processes to standardize their own processes. This process consistency allows a consolidated view of the business across the distributed enterprise, enabling organizations to drive continuous improvements, as operations are streamlined and there is healthy synergy between departments and functions. The improvement also comes from transparency and reduction in human errors due to automation of inter-company transactions. With ERP, organizations can enforce compliance related to different regulations such as Sarbanes-Oxley or industry specific initiatives such as 21 CFR part II [14]. 4.4 Global Adoption of Best Practices, Compliance and Risk Management The ability to more quickly close the books and provide much more timely financial results to corporate management is a great benefit to global organizations. Global ERP solutions provide much greater visibility to individual global entities and the ability to view the entire enterprise with multiple currencies and multiple locations; this positions organizations to quickly grow and expand as the market dictates. Global visibility and control of compliance-related processes and activities are key factors in enforcing effective compliance and risk management practices. A Global ERP solution can enable your 4

5 organization to streamline and comply with a variety of global and local compliance requirements and customer mandates, including financial, legal, and environmental. By utilizing a single solution for policies and procedures, process documents, database logs, reports, charts, and key risk indicators, global organizations can see the whole picture, take control of processes, mitigate risks, and ultimately reduce the cost of compliance [15]. 4.5 Reduced Operating Costs Organizations that successfully adopt global systems and processes see reduced operating costs in a number of areas. With a single global ERP system, companies benefit from reduced IT costs, including staff, support, infrastructure, and applications.â Standardized processes also enable organizations to continuously improve efficiency, productivity, and decision making enabling volumes to increase without needing an equal increase in operating costs [16]. 4.6 More Benefits of ERP implementations The following are more benefits that can be obtained by ERP implementations in an Organization [17]. i) Complete visibility into all the important processes, across various departments of an organization (especially for senior management personnel). ii) Automatic and coherent workflow from one department/function to another, to ensure a smooth transition and quicker completion of processes. This also ensures that all the inter-departmental activities are properly tracked and none of them is missed out. iii) A unified and single reporting system to analyze the statistics/status etc. in realtime, across all functions/departments. iv) Since ERP is a modular software system, its possible to implement either a few modules (or) many modules based on the requirements of an organization. If more modules implemented, the integration between various departments may be better. v) Since a Database system is implemented on the backend to store all the information required by the ERP system, it enables centralized storage/back-up vi) of all enterprise data. ERP systems are especially helpful for managing globally dispersed enterprise companies, better. vii) It is possible to integrate other systems (like bar-code reader, for example) to the ERP system through an API (Application Programing Interface). 6.0 CASE STUDY OF A SUCCESSFUL ENTERPRISE RESOURCE PLANNING SYSTEM [18] ERP solutions are great, but successful implementation requires careful thought, consideration and engagement from all stakeholders. This article discusses two examples for ERP solution of different scenarios, scales and requirements. Covered examples include existing challenges, selection criteria of implemented solutions and benefits achieved thereof. 6.1 LG implementation of HRMS When the global giant - LG Electronics (LG) - having 114 subsidiaries, more than 82,000 employees across 40 countries - tried to harmonize its HR functions, the challenges were of a similarly giant scale. High maintenance costs, local controls lacking transparency, 5

6 inefficient decision making, under-utilization of resources, manual processes, etc. made it difficult for LG to operate as a global company, which then decided to take the ERP route. 6.2 The challenges for LG: Location specific multiple systems leading to unclear top-level reporting, lack of optimum resource utilization Location specific processes lacking transparency and automation needs for a global reporting Disengaged employees, limited outlook, no room for information or best practices sharing Limited localized resources for employee learning & training Challenges with decision making, with significant business impact 6.3 Selection criteria for ERP solutions: LG s familiarity with Oracle technology due to earlier Oracle usage made it easier to finalize a solution. It offered large data hosting, seamless migration of old data, easy scalability, multiple modules addition as needed and centralized access and control. LG hired Oracle Consulting to build a single centralized system which integrates available Oracle HR modules for uniform use at global level, thereby replacing location specific system dependency. 6.4 Achieved benefits: The ERP solution, which included a data mart, performance management system, staff portal, and e-learning application, enabled the following benefits for LG: Centrally managed a single system with minimal maintenance costs Transparency in the recruitment and employee appraisal processes which enabled hiring, engaging and rewarding performance based on the right competencies and proven performance Real time reporting for higher management and tracking of set goals and objectives Informed decision making due to readily available real time reports Centralized control over HR processes, with region level flexibility to implement localized changes Efficiency improvement for HR functions and processes Cost savings due to not having to maintain multiple systems Easy sharing of best practices across the various centers Easy access self-service function made available for employee self-help Easy learning facilitated for common tasks through document sharing and online tutorials, resulting in time and cost savings Increased employee morale, productivity and engagement 6.5 Timeframe Benefits surely look attractive, but it was not a cakewalk, given the large and distributed scale of ERP system implementation. Spanned over 5 years ( ) in five planned phases with clearly set objective, the ERP solution enabled LG to mitigate the challenges posed by vastly spread global centers, for its Human Resource Management System requirements. Today, LG continues to benefit with the automated ERP solution, and continues to enhance it further as needed. 6

7 6.0 CONCLUSION ERP Systems make it easier to track the workflow across various departments. They reduce the operational costs involved in manually tracking and (perhaps) duplicating data using individual & disparate systems. In this article, let us have a look at the advantages and dis-advantages of implementing ERP (Enterprise Resource Management) Software Systems. Although ERP systems may seem complex and costly, even small businesses are increasingly finding it necessary to invest in such technology in order to remain competitive. "ERP systems are being implemented today to provide a stable foundation for a growing number of businesses across all segments, from dot-coms to major automotive manufacturers. 7

8 7.0 REFERENCES 1. Andrejs Tambovcevs and Tatjana Tambovceva, 2013, ERP system implementation: benefits and economic effectiveness, 2. Huang, K.K. and Y.G. Kim., 2002, The Critical Success Factors for ERP Implementation: An Organizational Fit Perspective. Information & 3. Management, 40:1, , 4. Andrejs Tambovcevs and Tatjana Tambovceva, 2013, ERP system implementation: benefits and economic effectiveness, 5. Andrejs Tambovcevs and Tatjana Tambovceva, 2013, ERP system implementation: benefits and economic effectiveness, 6. Anonymus, 2015, E-COMMERCE AND SUPPLY CHAINS, pdf, 7. Andrejs Tambovcevs and Tatjana Tambovceva, 2013, ERP system implementation: benefits and economic effectiveness, 8. Margaret Rouse, 2015, ERP (enterprise resource planning), 9. Bidgoli, Hossein, (2004). The Internet Encyclopedia, Volume 1, John Wiley & Sons, Inc. p Rubina Adam, Paula Kotze, Alta van der Merwe Acceptance of enterprise resource planning systems by small manufacturing Enterprises. In: Proceedings of the 13th International Conference on Enterprise Information Systems, edited by Runtong Zhang, José Cordeiro, Xuewei Li, Zhenji Zhang and Juliang Zhang, SciTePress., p , 8

9 11. Shaul, L. and Tauber, D CSFs along ERP life-cycle in SMEs: a field study. Industrial Management & Data Systems, 112(3), , accessed on Khosrow Puor, Mehdi., 2006, Emerging Trends and Challenges in Information Technology Management. Idea Group, Inc. p Anonymous, 2015, Companies Investing in New Tools or Equipment Want to Know the Investment Will Pay Off, accessed on Anonymous, 2016, ERP creating the foundation for an efficient organization, Anonymous, 2016, ERP creating the foundation for an efficient organization, accessed on Josh Richards, 2013, Top 5 Benefits of Global ERP Systems and Processes, Rajesh K, 2011, Advantages & Disadvantages of ERP (Enterprise Resource Planning) Systems, Shobhit Seth, 2014, LG As A Case Study Of A Successful Enterprise Resource Planning System, accessed on