Benefit of ERP System Implementation - Myassignmenthelp.Com

Question: Discuss about theBenefit of ERP System Implementation. Answer: Introduction ERPs systems were once considered as the expensive systems that were used by the worlds big organizations that have huge IT budget however the trend is changing very fast. Now, the ERPs systems have become relatively cheap due to the advent of cloud computing, modularization where organizations does not has to buy the complete ERP systems infrastructure but they can use the platform and database by various cloud providers. Also, this is the era of digitalization, globalization and massive competition (Bernaert Poels, 2014). Due to massive competition, organizations are struggling to cut their costs and improve the bottom-line. ERP systems are known to optimize and streamline the complete business processes of the organization and thus reduce costs. Also, due to globalization, the operations of the companies has become complex, suppliers and customers are located across the world, lead time of material has become very high and thus efficient IT systems are become indispensable for mo st of the organizations because traditional approach of maintaining data in silos is highly inefficient when the scale of operations are vast and huge (Powell Riezebos, 2013). SAP and Oracle are the leaders in ERP products and there are many other vendors also. Once the company purchases ERP, it is not like that automatically their IT costs will come down; efficient ERP implementation is also needed. This is the reason that there are numerous companies that are reaping benefits of same ERP while there are also no dearths of companies that have failed with the EPR implementation and incurred the huge costs. GE, Emerson Electric, Schneider Electric, Philips have very good results after implementing ERP (Sar, Garg, 2012). On the other hand, there are case studies like Big brands Nike, FoxMeyer drug, Waste management that suffered huge losses after implementing ERP (Soh, Sia, 2004). This raises important questions that there must be something that differentiates the successful implem entation from the poor implementation. The purpose of this report is to looks at the various factors that contribute to the realization of benefits by the organizations and help them to reap the greater benefits of ERP implementation. This process will review the various literatures that are available and critically deep dive into them to understand what is it that is needed to achieve greater benefits. Also, this report will also study the case of one medium scale company in Ethiopia called Mesfine Industrial Engineering (MIE) Pvt. Ltd. that have implemented their ERP systems successfully and the case of another ERP implementation by French Multinational whose implementation for Chinese subsidiaries was on the verge of failure. These cases will bring out the contrasts between the activities and provide the deeper analysis why one company is having good experience and another bad experience with the same ERP product. It is expected that this report would help to understand and analyze the various intricacies involved in the implementation process of ERP. Analysis ERP selection is just one step of the entire process. Once the ERP is selected, there are numerous other important steps like selection of appropriate consulting partner like Accenture, Deloitte consulting, carving out of business processes, restricting the number of customizations, effective testing strategy, effective training strategy, appropriate Go-live strategy, like Phase wise or big bang, managing users resistance for new technology, change management and so on. All these factors have the potential of making or breaking the overall value and benefits that will be realized after ERP implementation. Some of the critical factors are as follows: Selection of ERP implementation partner There are numerous consulting companies that will help the organization to implement the ERP. Basically, these consulting companies have complete knowledge of the ERP product and if any of the process of organization is not supported by the ERP, these consulting companies assist the company in finding workaround like change in business process or designing customization. It is very important that organization should choose the correct ERP partner and must considered its past credentials also and cost should not be the sole criteria because the benefits of successful implementation will far outweigh the cost at this point (Aldammas, Al-Mudimigh, 2011). Also, good ERP consultants will definitely optimize the business processes and also ensure that this transformative journey of enterprise to ERP systems should be turbulence free. There are companies like Accenture, Cognizant business solution, Capgemini, Ernst Young, Deloitte that are very good credentials in implementing the ERP. In the case study also, MIE consider many things like success/failure ratio of vendor, history, financial situations, and experience in similar type of Industry and quality of consultants and finalized Syscorp. This was the first building block of successful implementation. Localized requirements With Globalization, organizations are working across borders and each country has their own policies, rules and compliances that each organization operating in that country has to abide by. These local policies and requirements are known as localized requirements. ERP systems are standard systems that do not cater to the local requirements and hence there can be the possibilities that ERP systems are not fulfilling the entire requirement of a particular geography (Chung, Ahmad, Tand, 2015). In such cases, workarounds should be dealt with in an effective manner. While implementing ERP for china business unit, French multinational faced the same challenge. For example, after the ERP implementation, it was found that there are 64 workarounds and deviations. Though some of them are harmless, some are critical and can affect the accuracy of the data and the companys overall financial health. Chinese subsidiary is using another Chinese tax system and that information is completely missing from the ERP systems. Due to limited functionality of ERP, there was no other processes however it was decided by the management all the spreadsheet should be uploaded into ERP systems to ensure that data should also be part of ERP systems (Su Yang, 2010). In some cases, it was also found that users are manipulating systems to keep them in good books of management and not feeding the actual data to ERP. In some cases, they are just using ERP for the sake of doing it and in parallel using Microsoft excel to keep the track (Vieru, 2015). Thus, once these mismatches and localized requirements were identified, it is very important to resolve them using proper methodology either by defining formal process so that it become business process or by customization. Clear Bifurcation of Project in project phases and entry and exit criteria of each phase ERP implementation projects are very big projects and thus it is very important to split them into various phases with the goals and deliverables of each phase (Conteh, Akhtar, 2015). Unless this is not, implementation will not be successful. MIE divide the ERP implementation project into seven phases and each phase is having the start date and end date. Besides, each phase has clear cut goals and objectives, entry and exit criteria and designed so that the overall transformation journey will be turbulence free and no one will feel a sudden change. Doing various phases, testing and user training were also included so that users also get used to new system and their resistance levels should come down during actual go live and their acceptance level should increase (Cereola Wier, 2012). Minimizing Customizations ERPs products come loaded with standard business processes however each business is different and may have different requirement which is not directly supported by the standard ERP systems. In such cases, either customization has to be build or change in business process should be advised. While business users will prefer to have customization because they are in their comfort zone of following the traditional business processes and resist any change but there are huge downsides of customizations. Customizations are quite expensive and require extra maintenance (Beatty, williams, 2006). Also, during upgrade of ERP systems, customizations may get lost and thus needs to be build again which increases the cost for the organizations. It is the role of business consultants to educate the business users about the downside of customization and advice customization only when it is absolutely necessary or change in business process seems impossible (Dittrich, Vaucouleur, Giff, 2009). Also, if the particular business process is the core competency of the organization and separating itself from competitors, such processes should also be preserved using customization. However, it must be ensured that total number of customization should not exceed for more than 15% of the business processes else the ERP systems have risk of becoming unstable and become quite expensive to maintain and require continuous IT support (Light, 2001). Take example of French multinational, many of the business processes were not directly supported by SAP ERP systems and hence the organization has identified a workaround for them. These workarounds must be judged by the process owners or subject matter experts who are having the visibility of the processes around the globe and know the impact of these workarounds. Testing strategy ERP systems have multiple modules like BOM (Bills of Material), Inventory, Purchasing, Order Management, Project, Account Payables and General Ledger and many more. Each module has various options and each module has to be configured before it is actually used. For example, in purchasing, suppliers, items, currency exchange has to be defined. Thus, It is very important that business users test the data before the production so that they may not face surprises during go live (Kumar Bala, 2013). Also, during the design phase, users and business team share their requirements and then system is configured according to their requirements. There can be issues of poor communication; difference in understanding of partner and user and thus it is possible that the actual process, which is configured in the system, is not what is required by the user. To ensure the minimal occurrences of such systems, it is very important that users should thoroughly test the system and asks partner team to m odify or reconfigure the system if the business requirements are not met (Kumar, Maheswari, kumar, 2003). Through multiple rounds of testing, team can ensure that their requirements are rightly designed and configured. Also, once users successfully tested the requirements, they should sign off and give their approval otherwise users can come back anytime saying their requirements is not fulfilled. Training strategy Training is very important in any project, as it will equip the people to use the new system confidently. Organization must understand the task of each end user and must ensure that every person is trained on new ERP systems. It is because end users often shows resistance for the changes because they feel that what will happen if they would not be able to learn new system (McAlary, 1999). Thus, it is very important to educate them and once they started feeling comfortable with the new system, their resistance will come down and acceptance level will rise. MIE also has a dedicated project phase called end user training in which all the users will be trained on the new system so that they will be no issues after Go live. There is a very famous example of Nike which faces a massive loss of 1 billion US dollars after the GO live of their ERP systems (Wong, Scarbrough, Chau, Davison, 2005). As a result of this, New ERP systems were rolled back and the legacy systems were restored. The re ason for this failure is that Nike was too aggressive for the go live that it didnt focus on the user trainings phase and when the system went live, end users do not know how to use the new system and other simple tasks like how to create purchase orders or book customer orders and so on. Go live strategy and Timing There can be multiple go live strategies like big bang approach, rollout by business unit, rollout by module or business process. Each approach has its own pros and cons. For example, In Big bang approach, all the business units worldwide will go live together and thus there is increased risk however return on investment is also quick. If there are not much changes in various business processes across geographies and business unit, then this approach can be suggested however it is quite a risky approach (Davis, 2005). In rollout by business unit, each business unit is go love successively and thus the weak points of 1 go live can be countered in another go live and so on. This is risk free but takes much time and cost. Apart from strategy, timing is also important. Take example of Hershey that receives maximum number of orders during the month of July and August for Christmas (Murray, Coffin, 2001). It decided to go live during the same time and this peak demand is not handled by al l the users across geographies because they were not trained to use systems quickly and efficiently. And hence Hershey decided to roll back its new systems. Thus, it is recommended that organizations should go live during the low season period. MIE has 2 phases Go live preparation and Go live and carefully planned all the key activities data migration, data reconciliation, live database initialization and so on. Overall, MIE had very smooth and successful go live and in just 10 days, complete transition has taken place. Effective Change Management strategy Change management is also very important and higher management and middle management should be totally committed else project will be a failure (Aslam, Coombs, Doherty, 2012). MIE considered all sorts of cultural problems and also devised a strategy to address the challenges. It has a separate change management committee and change management agent throughout the program. Change management committee had carve out the entire training plan for the users to limit the resistances and also restructure the organizations like breaking the traditional segregation of departments so as to unite the whole company and eliminate the working in silos structure. In case of French multination project in China, there was limited employee involvement and people do not consider themselves as part of this project due to poor communication (Mekawie Elragal, 2013). They had a feeling that this implementation is part of agenda of top management and it has nothing to do with them. Thus, unless management should change the attitude of the people, People will not cooperate and the project will be heading towards failure. Maintaining risk register MIE management has identified all the risks associated with the project and their likelihood of occurring and based on the impact of the risk, appropriate action is suggested. Not only this, based on various risks, Characteristics analysis method (CAM) is carried out by the management to suggest what are areas that have high exposure to risks and where project team should focus on. As part of this, project team is advised to focus on quality management, cost management, communication, scope, Integration and so on. Thus, Project team was prepared in advance in dealing with risks and this strategy has kind of empowered the project team. Conclusion With the above discussion it can be said that two people with same symptoms can consume the same medicine however the result of same medicine will be different on different medicine due to multiple other factors like lifestyle of individual, food habits and so on. Same is the case with ERP systems. Companies can decide to use the same ERP product however the value and benefits realized by each company is different due to lot of other factors. To conclude, this report discusses about the key factors that differentiate the return on investment in ERP projects by various companies and also lead to success or failure of ERP implementation project. Two case studies are also used to elaborate and analyze the case. Not only this, some of the things that may look unimportant have very important part in the overall value realization from EPR implementation process and must be dealt carefully. It is important that the organizations should learn from the successful implementation of the ERP. Th ere is a lot of learn from the failed cases also. The learning from the failed case would help the organizations to have certain measures of check in place. It is expected that the findings of this report would help the organizations to avoid the ERP failures that can happen. At the same time, it is suggested that the organizations must analyze their internal and external environment before making any decision towards ERP implementation. It is important to mention that every organization is unique in itself and the IT needs of every organization is different. Therefore, it is important that the organizations should have customized strategies to implement the ERP in their environment. This would ensure that the chances of failures are minimal and would ensure that organizations are able to get early benefits from ERP implementation. Reference Aldammas, A., and Al-Mudimigh, A. S. 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