The Importance of Implementing an Enterprise Resource Planning System - Research Proposal Example

The importance of implementing an Enterprise Resource Planning System Table of Contents Table of Contents 2 Introduction 3 Selecting Business Problem5 Background information of the problem 8 Presentation of alternatives 11 Advantages and Challenges 13 Solutions and Recommendations 14 References 17 Introduction The term Enterprise Resource Planning was first introduced by The Gartner Group in the year 1990. The group used the term to define the MRP II Software. ERP could be defined as a “business management process which integrates all the large software packages”. SAP and Oracle constitutes some of the most popular ERP vendors (Barton, 2001). Organizations implementing ERP packages in their business processes have achieved greater excellence in their operations, thereby providing them with a sustainable competitive advantage. ERP implementation helps in integrating the business processes of a firm. The age of competition and globalization has necessitated the need for organizations to show flexibility in their attitude as the business climate is considered to be highly turbulent which requires constant changes in the business model of an organization. ERP packages help in providing solutions in manufacturing, supply chain, Customer Relationship Management and E-commerce. The popularity of ERP packages could be gauged from the fact that even public sector organizations have started implementing ERP solutions in their business processes (Nah, 2002, p.1). Figure 1: Enterprise Resource Planning in Organizations (Source: Intertz, n.d.) The figure above shows the integration of various business processes using ERP. ERP packages help in integrating the various functions or business processes of an organization. This helps organizations in aligning their business processes which helps in maximizing the efficiency of an organization. The enterprise mode considers an organization as a single system in which all its departments are its sub-systems. This helps every department to keep a track on what is happening in other departments. ERP focuses on three major aspects namely, relevancy, accuracy and timeliness. ERP packages attempt to authenticate that the information served is accurate and relevant for the decision making body of the organization. It also ensures that proper timing is maintained so that decision making is not delayed. Organizations implementing ERP in their business processes have ability to provide accurate and timely information to its customers or employees (Leon, 2007 p.5-8). Organizations like Wal-Mart have implemented ERP packages in supply chain management which has helped it to gain sustainable competitive advantage. ERP has helped Wal-Mart to access real time information of the stock of its products which in turn ensures that the shelves of its stores never run out of stock for a particular item or goods. ERP packages have also been implemented in the field of Human Resource Management. Human Resource Management Systems are a part of The ERP package that is used by organizations to integrate their HR functions with other departments. ERP packages in Human Resources mainly focus on transforming the HR data into information systems which have a centralized control. The main function of the Human Resource Management Systems is to integrate the HR functions like payrolls, work duration, administration, recruitment, and training and performance record. ERP packages tend to link these sub systems to a single unit which enables faster decision making by the organizations (Sharma, 2009, p.294-295). Selecting Business Problem Organizational communication is one of the most important aspects that are being faced by modern organizations. This type of communication occurs between the customers and the employees as well as between the employees of the organization within themselves or with the top management. Figure 2: Organization Communication Process (Source: Baker, 2002, p.4) The figure shown above depicts the communication process. Communication is developed to convey ones feelings and thoughts which are encoded and transmitted by using various channels. The receiver receives the information from the sender and decodes the message. Organizational communication problems arise when the information is not properly decoded by the individual. Often while the information is passing through these intermediaries, it is manipulated to suit ones purpose thereby leading to distorted information. This results in a chain of misinformation which has emerged as a major problem in most of the corporations across the world. This type of misinformation results in communication of wrong information among the employees. This problem occurs both within the organization as well as between two separate organizations. The problem of organizational communication is more profound in case of large organizations with tall organizational structures. In these organizations, information from the top management passes through a series of individuals which often results in the distortion of information. Large organizations are characterized by the presence of a large number of employees and suppliers which again compounds the problem of organizational communication. Grapevine communications also pose as a matter of concern for organizations across the globe. Grapevine communication implies the process by which information is spread among the peers. This type of communication is basically unofficial in nature, with the organization having little control over the spread of this kind of information. Organizational communication issues arise when employees misinterpret the information to the customers resulting in poor service quality. This leaves the customer in a state of dissatisfaction. Organizations like Mc Donald have reported these kinds of errors in which the order takers have misinterpreted the information given by the customers. This results in faulty service delivery to the customer (Aamodt, 2009, p.432). The major issue to be discussed in the study is the mode of communications in large organizations which are characterized by a large number of employees and suppliers. Such organizations generally have multiple levels of communication in between the top management and the ground level employees. The firm selected for study is Wal-Mart. Wal-Mart is one of the largest retailers of the world, having a considerable market share in the retail market. The company also operates in multiple regions across the globe. The major issue that is faced by Wal-Mart is maintaining a proper co-ordination with regards to real time information sharing between various departments like purchase, logistics as well as the suppliers so as to ensure that its shelves are never empty. This study would also try to analyze the organizational communication problems in Wal-Mart using ERP programs. This would also include suggestion of various solutions along with possible strengths and weaknesses of each of the strategies. Background information of the problem The issue of organizational communication has gained widespread acceptance among the organizations operating in today’s business market. Hargie & Tourish conducted a study on the various aspects of organizational communication. They stated in their work that most of the managers in large organizations spent a majority of their time in office conducting formal and informal meetings with individuals. Communication is very important in these meetings as the information needs to be conveyed properly to the employees. An efficient manager uses an open forum for communication where the information conveyed is for official reasons rather than for personal reasons. The authors also stated that organizational communication occurs both horizontally, diagonally and vertically. Horizontal form of communication takes place between individuals working in the same hierarchical levels, diagonal communication occurs between the non-managerial employees with the managers of an organization. Vertical communication could be defined as the communication flow that takes place between the managerial and the non managerial employees of an organization (Tourish & Hargie, 2004, p.6). The authors also quoted Clegg (2000) in their work who stated that irrespective of changes in organizations and business environment, the organizational culture has retained its autocratic form. This has given rise to various issues in organizational communications. The authors also stated that organizations have given less priority to upward communication which is the communication that takes place from the subordinates to the managers (Tourish & Hargie, 2004, p.188). The study conducted by Tourish and Hargie (2004) also stated fear of feedback as one of the possible issues faced by organizations with regards to organizational communications. The authors stated that fear of a negative feedback often leads to a situation in which the employees get discouraged to seek it from their supervisors. It has also been observed by the authors that managers and supervisors often resort to hide negative outcomes of the organizations in an attempt to distort both the upward and downward communication flow. Negative feedbacks affect the ego of an individual; secondly it affects the public image of the individual in the organization. The negative effect of lack of feedbacks has much deeper implications as they tend to create a situation in which the employees start creating their own feedbacks. This creates various forms of illusion among the employees where they seek to distort information which leads to rationalization of various activities where the employees often relate their failures in the workplace to external factors. All this results in a vicious circle which often leads to poor quality of decision making as individuals often try to change facts. This again leads to the rationalization of various activities. Finally the supervisors also resort to a situation where they deter from providing feedback to their subordinates (Tourish & Hargie, 2004, p.190-192). The problem of organizational communication is more profound in larger organizations which are characterized by the existence of a large workforce. In such organizations the flow of information takes place through a larger number of intermediaries which often enhances the risk of distortion of the information. Organizations having a tall organization structure often face this issue as the information from the top management often takes a long time to reach the ground level employees. This is in quite contrast to organizations to smaller organizations where the top management is able to convey its message directly to its employees in a single meeting. Large organizations also face problems in tackling rumors as it takes a long time to identify the area from where information was distorted (Gillis & International Association of Business Communicators, 2006, p.60). All this have prompted organizations to take up active steps to resolve the issues of organizational communication. Large organizations are also characterized by presence of groups which are often present in a hierarchy of levels. Managing the flow of information within the group as well as outside the group remains one of the most import challenges faced by such organizations (Ferguson & Ferguson, 1988, p.594). The issue of organizational problems in case of groups assumes importance as the groups operate as distinct units in an organization. Distortion in the message or information may either be diagonally, horizontally or vertically. Large organizations which have different business process also face issues of lack of information about the other departments. This problem assumes greater significance where different departments or groups have to work in close co-ordination. It has been observed many times that lack of information often leads to delays in project execution which ultimately hampers the image of the organization as it fails to deliver projects on time. Retail stores also face similar issues. Lack of sharing of real time information among the suppliers and retailers often leads to a situation where shelves of the retail store often remain empty. This leads to customer dissatisfaction as they do not find the products of their choice. The customers in such cases are forced to go to other stores which results in a loss of business opportunity for the organization. The positioning of the organization also gets a huge beating in such cases as the customers perceive the store as unreliable. Wal-Mart faces the problem of organizational communication as it has a large number of different departments like purchase, logistics. It also has to deal with a large number of suppliers as well. The popularity of Wal-Mart has also created considerable pressure on the retail outlet to ensure that its shelves never run out of stock. The organization also needs to ensure that its suppliers are well informed about the present stocks present in the stores. Any distortion in the message would lead to disastrous consequences for the organization. The problem becomes more compounded as Wal-Mart deals with a large number of suppliers. Presentation of alternatives The main issue in this study is to deal with the real time information sharing between the different departments and suppliers at Wal-Mart. ERP packages provide unique solutions to such problems. Wal-Mart has effectively used ERP packages to integrate various departments as well as the suppliers in an attempt to enhance its operational efficiencies. ERP implementation has enabled real time information sharing among its suppliers which has ensured that its stores never run out of stock. One such technology which is commonly used by organizations is RFID. RFID is an acronym for Radio Frequency Identification Device. RFID is a short range technology that is operated using radio waves. The information from the RFID is stored in a central database which is connected with all the departments of the organizations (Landt, 2005, p.1). This helps organizations to keep a track on the actual stock of goods on a real time basis. The unique aspect of this ERP package is that all the departments can have instant and real time information without the use of word of mouth communication. This kind of automation enables organizations to minimize the errors that may have occurred due to distortion or error in receiving or sending a verbal message. Large organizations like Wal–Mart have a large number of suppliers as well as internal departments where real time information sharing is considered virtually impossible without the use of ERP packages. RFID systems use an electronic code and an electronic tag which helps in generating a huge database. The data is stored in a central database which is connected to all the departments (Singh, 2004, p.7-8). This helps organizations in getting real time information on the stock of its products. In case of Wal-Mart this technology would track the number of a particular good that is being sold in the store. This information would be available to all the departments who could keep a track of the information on the actual number of goods present in stock at any point of time. This would help the logistics department to send the stock of a particular good that is depleting in number. This would finally ensure that the stores never run out of stock. This form of real time information sharing would be quite impossible without the use of ERP. Traditional communication practices would increase the chances of error in the system as dealing with such a large number of departments would increase the chances of the information getting distorted. The use of ERP functions like RFID also helps in reducing and managing idle inventory. The use of traditional word of mouth communication leads to situations where demand forecasting becomes a troublesome issue as sometimes there is over stock of materials and sometimes goods are not present in adequate numbers. The use of ERP functions like RFID helps in making an accurate demand forecasting which helps organizations in maintaining an optimum level of inventory. A study shows that retail giant AT Kearney reported a total reduction in inventory costs by about 5 percent and labor costs by about 7.5 percent after implementing RFID at its stores (Singh, 2004, p.16). Cross Docking is another aspect that has been used by Wal-Mart to improve its supply chain function. The use of RFID has made the process more efficient. Cross Docking is an operation that is performed using ERP techniques. This technique is basically aimed at reducing the inventory holding time wherein the goods are directly transported from the supplier or its point of origin to the shelves of the retail stores without keeping them in hold at any point of time. The success of cross docking depends entirely on real time information sharing among the various departments, suppliers and the transporters. Real time information sharing requires a high degree of efficiency in organizational communications. The efficiency of organizational communication could be achieved by the use of ERP functions like EDI. EDI stands for Electronic Data Interchange where real time information is passed on to the various departments and suppliers using a computer network (Singh, 2004, p.36-37). The use of RFID and EDI would help in getting real time information from the retail stores. Suppliers could easily keep a track on the amount of goods sold and could take immediate steps to replenish the goods. Advantages and Challenges The use of ERP packages help in creation of a system which makes the process of organizational communications more efficient. The following are some of the possible advantages that would be offered by the use of ERP packages. Firstly it ensures an enhanced level of co-ordination among the members of the supply chain. This again leads to a situation of better levels of co-ordination between the members of the supply chain as well as between the different departments of the organization. Secondly the use of ERP packages helps organizations in getting an increased control of various operations including the aspect of supply chain management. Thirdly, these techniques help in tactical management by the organization (Singh, 2004, p.37). An example of this kind is the real time information sharing. The use of computer aided technology has enables organizations to reduce or minimize the chances of errors in the communication process. Large organizations like Wal-Mart are characterized by a large number of suppliers and departments. ERP helps in integrating the various business processes as well as the external stakeholders like suppliers. The integration of such a mammoth scale of business operations would be considered impossible without the use of ERP techniques like EDI and RFID. Finally the use of ERP techniques would help in managing the inventory levels. The use of techniques like cross docking helps in reducing the holding time for inventories. This helps organizations in reducing their inventory standing costs. Organizations could also save on the labor and maintenance charges that are otherwise spent on maintaining a large inventory base. Cross docking techniques ensure that inventory is immediately transported to its final destination. The coupling of RFID, EDI and cross docking helps in managing a magnanimous flow of information across a large number of varied departments spread at different corners. The use of ERP helps in coordinating and managing the organizational communication process in large organizations like Wal-Mart. The unique aspect of ERP is that it not only manages the flow of information but also uses the same information to derive sustainable competitive advantage for the organization. The use of ERP techniques also presents certain limited shortcomings. The main shortcomings of the ERP packages are the high costs associated with the implementation of the packages. Hence it becomes difficult for organizations to implement such techniques due to paucity of available funds. Secondly the implementation of ERP packages requires business organization to change their business processes. Organizations may face numerous hurdles while making a major change in their existing business process. A tremendous effort is required by organizations to convince its employees about the benefits of ERP (Boston College, n.d.). The problem becomes more compounded when the ERP process also involves integrating the suppliers. The suppliers maybe quite reluctant to change their business structure to fit in an ERP program as the perceived benefits may not be immediately visible to the suppliers. Moreover the costs associated with ERP implementation often discourage suppliers from implementing ERP in their business process. ERP packages and solutions would be incomplete if suppliers are not willing to participate in the process. This requires tremendous efforts by the organizations to persuade the suppliers in implementing ERP in their business processes. Solutions and Recommendations The study conducted above shows the various issues related to organizational communication. The study specifically deals with Wal-Mart which has used ERP packages to utilize the information system needed for attaining competitive advantage. Wal-Mart is a large organization having many suppliers and departments. Managing organizational communication is a key issue in the firm. The study shows that the implementation of ERP techniques can help the organization not only to manage various aspects of organizational communication but also to derive sustainable competitive advantage. The use of ERP packages like RFID, EDI help in integrating different departments of the organization in order to have access to real time information. The process of implementing ERP also presents certain challenges for the organization. The main problem associated with ERP implementation in Wal-Mart lies in convincing the numerous suppliers about the perceived benefits of ERP implementation. ERP implementation requires organizations to change their style of business operations. The suppliers may not be willing to change their business processes as it incurs in huge cost. The high costs of implementing ERP packages make it difficult for the small suppliers to implement it in their business processes. In spite of various shortcomings ERP presents a great advantage to Wal-Mart. The implementation of ERP helps the organization to manage the critical flow of information. Implementation of ERP helps in keeping a check of the stock available in the stores. Real time information sharing ensures that all the departments and suppliers get regular information about their stock of products. ‘Cross Docking’ would ensure that goods are transferred to their final destination without any holding time being wasted. It would also ensure that the shelves of the stores never run out of stock. Cross Docking can only be achieved by the organization if it implements ERP in its business process. This would uphold a good image of the organization in the minds of the customers. The implementation of ERP packages would also enhance the efficiency of operations thereby creating entry barriers for the competitors. This factor assumes importance considering the extent of competition prevailing in the global markets in this age of globalization. The large scale operations of Wal-Mart make it virtually impossible to have real time information sharing without the use of sophisticated technologies like ERP. The fact that huge cost is incurred in the ERP solutions is far overshadowed by the long term benefits that it promises to achieve. Various studies have shown that implementation of ERP has led to a situation where organizations have saved their valuable resources which would otherwise be spent on processes that do not add value for the organization. ERP implementation also helps in reducing the cost of storing inventories. The organization must make comprehensive efforts in making its suppliers understand the benefits of implementing ERP in their business process. The real benefits of ERP implementation lie in the fact that these techniques and packages not only help in sorting out the colossal problem of organizational communication but also use redirect it to derive sustainable competitive advantage for the organization. References Aamodt, M.G. (2009). Industrial/Organizational Psychology. Cengage Learning. Baker, K.A. (2002). Organizational Communications. Retrieved October 18, 2010 from http://www.au.af.mil/au/awc/awcgate/doe/benchmark/ch13.pdf Barton, P. (2001). Enterprise Resource Planning Factors Affecting Success and Failure. Retrieved October 18, 2010 from http://www.umsl.edu/~sauterv/analysis/488_f01_papers/barton.htm Boston College. (No Date). Supply Chain Management (SCM) and Enterprise Resource Planning (ERP). Retrieved October 18, 2010 from http://www2.bc.edu/~heimgr/md240f02/takeaway/md240f02chap06.ppt Ferguson, S.D & Ferguson, S. (1988). Organizational communication. Transaction Publishers. Gillis, T,L & International Association of Business Communicators (2006). The IABC handbook of organizational communication: a guide to internal communication, public relations, marketing, and leadership. John Wiley and Sons. Inertz. (No Date). Enterprise Resource Planning (ERP). Retrieved October 18, 2010 from http://inertz.org/2008/01/enterprise-resource-planning-erp/ Landt, J. (2005). The history of RFID. Retrieved October 18, 2010 from http://autoid.mit.edu/pickup/RFID_Papers/008.pdf Leon, A. (2007). Enterprise Resource Planning. Tata McGraw-Hill. Nah, F, F, H. (2002). Enterprise resource planning solutions and management. Idea Group Inc. Sharma, S,K. (2009). Human Resource Management: A Strategic Approach to Employment. Global India Publications. Singh, K.D. (2004). Meeting the RFID Mandate: Options for Wal-Mart Suppliers and an Evaluation Methodology. Retrieved October 18, 2010 from http://mit.dspace.org/bitstream/handle/1721.1/28518/57349787.pdf?sequence=1 Tourish, D & Hargie, O. (2004). Key issues in organizational communication. Routledge. Read More