Enterprise Resource Planning System - Research Paper Example

Enterprise Resource Planning System By Affiliation Table of Contents Table of Contents 1.Introduction 3 2.History 3 3.Enterprise Resource Planning: An overview 4 4.Ways of Implementing ERP 6 5.Importance of ERP 6 6.Benefits of ERP 7 6.1.Elimination of Expensive, Rigid Legacy Systems 7 6.2.Improvement of Work Processes 8 6.3.Improvement in Access to Data for Operational Decision Making 8 6.4.Upgrade of Technology Infrastructure 8 7.Disadvantages of ERP 8 7.1.Expenditure and Time in Implementation 8 7.2.Complexity Implementing Change 8 7.3.Complexity Integrating with Other Systems 9 7.4.Risks in Using One Vendor 9 7.5.Risk of Implementation Crash 9 8.Conclusion 9 Bibliography 10 1. Introduction At the present, the industries producing information technologies are the actual driver of the economic growth, since the innovation produced by the telecommunications, computing, and electronic media industries have modernized every corporation (small, medium and large). In addition, the use and implementations of the information technology tools and techniques such as information systems and enterprise resource planning systems have become as common as telephones, fax machines, and business cards in business management. Moreover, approximately every corporation at the present understands the importance of information technology in better serving customers, managing employees and business activities. Furthermore, with the implementation of information technology tools such as enterprise resources planning and decision support systems, the business practices have changed and improved, and now organizations are more competent in carrying out their business communications out there. This paper presents a detailed analysis of enterprise resource planning systems. This paper will outline the uses, benefits as well disadvantages of this technology. The aim of this paper is to analyze the role of enterprise resource planning systems in the development of corporations. 2. History In the past, the majority of organizations have developed information systems internally incrementally over several years. In addition, each system had its specific files and databases with movable and uncomfortable incorporation. However, throughout the nineteenth century, organizations struggled to combine their traditional information systems, which were not able to offer satisfactory results. In an ideal world, a corporation would have selected to renew its key business processes and operations such as finance, human resources human resources, from the initial stage as a single integrated information system; unluckily organizations were not having enough resources to implement this idea. However, by determining that the fundamental processes and applications required by the majority organizations were common, the software development sector offered a solution of this issue, enterprise resource planning (Whitten et al., 2000, p.23). 3. Enterprise Resource Planning: An overview An information system is a collection of structured elements that collect, process, store, and transfer processed information to uphold decision making and control in an organization (Laudon & Laudon, 1999, p.7; Hoffer et al., 2007, p.429). On the other hand, an enterprise resource planning (ERP) system is an entirely integrated information system that includes most fundamental tasks essential for a large size corporation. Additionally, an ERP system is built and run around a common database shared by the basic business activities. In addition, an ERP solution presents the facilities of an information system for the whole organization. However, a corporation must redesign its business processes to arrange with the ERP system. Furthermore, the implementation and integration of an ERP usually considered as a biggest information system project ever completed by a corporation (Whitten et al., 2000, p.23; Ehie & Madsen, 2005; Vlachopoulou & Manthou, 2006; Hitt et al., 2002). (Stair & Reynolds, 2003, p.22), discuss about the enterprise resource planning (ERP) system, according to them, an ERPS is accomplished for running a corporation’s fundamental business processes for whole multisite, international corporation. In addition, the range of activities performed by an ERP system differ from organization to organization, since, majority of ERP systems offer integrated software to facilitate the finance and manufacturing business processes of a corporation. However, in this scenario, a demand forecast is set up that determines the customer needs for a number of weeks. Thus, here the job of an ERP system is to verify what is by now available in completed product stock to fulfill predictable needs. In this way, it helps reduce deficiency. In addition, in creating the manufacturing timetable, the ERP system determines the unprocessed material and filler material stock as well as finds out what should be controlled to meet the scheduled manufacturing schedule. However, a lot of ERP systems also include a purchasing subsystem that decides for orders for the required products or material. Moreover, other than these key business operations, a number of ERP systems can be able of facilitating extra business operations for instance human resources, sales and purchase, and supply. In this scenario, (Stair & Reynolds, 2003) discuss the example of PeopleSoft, which currently initiated an internet-based ERP to support customer interaction. Thus, the main advantages of putting into practice an ERP system comprise facilitating implementation of better work operations and enhancing ways of accessing to appropriate data for organizational decision making. A payroll transaction processing system the inputs (numbers of employee hours worked and pay rates ) and then apply a change technique to present results (paychecks): Source: (Stair & Reynolds, 2003, p.22) Enterprise resource planning (ERP) is the most useful and functional tool for organizing business processes or activities. In addition, at the present, thousands of large size and medium size corporations make use of ERP systems to manage their business processes. With the progress of enterprise wide client/server computing appears a modern issue that is how to manage all key business operations using single software application in real time. However, this issue is resolved by an integrated software solution that is acknowledged as enterprise resource planning (ERP) or in simple form enterprise systems. As its name indicates, it is a method of planning and systemizing all the processes and resources and their utilization in the whole corporation. In most simple words, an enterprise resource planning is software, which consists of a number of applications that computerize process back-end activities, for instance monetary system, stock management, and business arrangement, to assist corporation manage operations like that order taking, order completion, and maintaining record (O’Leary, 2000). In addition, ERP system comprises a unit for cost management to deal with the processes such as accounts payable and receivable. ERPs offer a number of benefits to the organizations, which vary from augmented performance to better business support, higher output, and greater profits (Turban et al., 2005, pp.369-70; O’Leary, 2000, pp.3-7) (these benefits will be discussed in detail later). (Stair & Reynolds, 2003, p.396), discuss the case of ERP implementation at Michael Angelo’s Gourmet Foods, by which it radically decreased the time it consumes to build up, test, and supply new products. Additionally, with the implementation of new ERP system, Michael Angelo’s is capable to work using a just-in time development process. In addition, it is able to make ingredients, cook, package, and deliver to customers within 24 hours. Also, approximately 85 percent orders of Michael Angelo are organized through EDI. The reception of orders starts the entire operation. Since, when a customer places an order, it is checked against inventory in immediately, as a result the firm recognizes whether it has items readily available to finish that order. Moreover, the receiving of an order also initiates a number of data exchanges with the additional processes in the ERP system, changing customers what to buy and manufacturing managers what to arrange (Stair & Reynolds, 2003, p.396). 4. Ways of Implementing ERP The organizations that desire to make use of ERP have three choices; one choice is to self-develop an incorporated system by making use of available serviceable tools or by programming their own systems. On the other hand, they can also make use of commercially offered integrated ERP software. In this scenario, the SAP R/3 is leading ERP software however Oracle, Computer Associates, PeopleSoft, and J.D. Edwards can also be used for the development of similar products (web components, supply chain management systems). Moreover, corporations can also use third choice, which is to rent systems from application service providers (ASPs). The basic benefit of this choice is that even a small size firm can also use ERP because the firm can rent simply those components that are necessary to them, instead of purchasing a complete package, since a lot of ERP vendors now sell simply appropriate components (Turban et al., 2005, pp.369-70). 5. Importance of ERP The implementations of ERP systems have turned out to be more and more common over the last 10 years, since, in 1998, ERP sector earned license/maintenance profit of approximately $17.2 billion dollars, and in 2000, it was approximately $24.3 billion dollars. In addition, more than 60% of worldwide corporations have implemented ERP systems. Moreover, this market is divided into industries such as, two of the world’s most popular software corporations, Microsoft and IBM, currently manage most of their business processes on software, the SAP R/3 ERP package that is developed by SAP AG. The quick response and the flexibility are features of business competitiveness. In addition, the access to appropriate information within the feasible time can facilitate corporations hand out clients in a better way, improve products standards, and determine market environment. Thus, in this scenario, enterprise resource planning (ERP) is a main element in immediate access. However, various researchers suppose that ERP systems are useful for large size corporations, but it is not true. Since, the small and medium size organizations, which normally earn from $50 million to $500 million in a year, show the maximum development for ERP organizations. In addition, the users of ERP systems are manufacturing firms, professional service organizations, colleges and universities, retailers, healthcare organizations, and so on. Overall, this suggests that indeed ERP systems yield substantial benefits to the firms that adopt them, and that the adoption risks do not exceed the expected value, although there is some evidence (from analysis of financial leverage) that suggests that firms do indeed perceive ERP projects to be risky (Hitt et al., 2002; Stair & Reynolds, 2003, p.395). A few leading vendors of ERP systems are listed: (Stair & Reynolds, 2003) Software Vendor Name of Software Oracle Oracle Manufacturing Oracle Manufacturing SAP America SAP R/3 Ross Systems iRenaissance QAD MFG/Pro Lawson Software ERP Solutions 6. Benefits of ERP ERPS offer a number of benefits wwhich will be discussed in below headings: (Weston, 1998; Arif et al., 2005; Davenport & Brooks, 2004; Spathis & Constantinides, 2004; Stair & Reynolds, 2003, pp.395-97) 6.1. Elimination of Expensive, Rigid Legacy Systems The implementation of an ERP system helps a corporation to get rid of dozens or even hundreds of detach systems and substitute them with a single, integrated system for the whole corporation. In this way, an organization can reduce cost as well as resources. 6.2. Improvement of Work Processes Competition demands organization to arrange their business operations to be as effectual and customer supportive as probable. In this scenario, ERP vendors carry out substantial research to identify the most excellent business activities and ways. Moreover, they collect information from top organization within the same sector and merge them with results from researchers. Thus, by implementing an ERP system a organization can be able to take benefit from vendor’s research. 6.3. Improvement in Access to Data for Operational Decision Making ERP systems use an integrated database, in other words one set of data to facilitate all corporation’s departments and functions. Thus, the decisions on most favorable foundation or cost accounting can be taken throughout the corporation from the beginning, instead of analyzing detach operating departments. 6.4. Upgrade of Technology Infrastructure An ERP system offers a corporation with the chance to make simpler and upgrade the information technology it uses. However, an organization must find out appropriate hardware, operating systems, and databases in order to implement ERP system effectively. 7. Disadvantages of ERP There are also few limitations of ERPs such as: (Stair & Reynolds, 2003) 7.1. Expenditure and Time in Implementation The implementation of ERP is time-consuming, complicated and costly. Moreover, a lot of corporations have invested tens of millions of dollars and years in implementing ERP systems. 7.2. Complexity Implementing Change Sometime an organization needs to drastically transform or modify its ERP’s work processes to its most excellent practices. However, these transformations can affect the organization’s internal structure for instance, long-time workers can retire or quit instead of going through the change. 7.3. Complexity Integrating with Other Systems An organization can have various other systems that need to be combined with the ERP system, for instance, financial analysis programs, internet processes, and additional applications. However, a lot of organizations have faced problems in combining these systems with the ERP systems. 7.4. Risks in Using One Vendor The higher expenditure to adopt different vendor’s ERP system makes it tremendously doubtful that an organization will do this. Thus, just the once an organization has implemented an ERP system, the vendor has less motivation to pay attention and take action to customer issues. 7.5. Risk of Implementation Crash The process of implementing an ERP system is very complicated and demands incredible resources, for instance, the most experienced IS staff, and management support. Moreover, unsuccessful ERP implementations frequently result from implementation issues instead of defects in the software itself. 8. Conclusion This paper has discussed a detailed analysis of enterprise resource planning system; this is a large size information system that an organization can implement. This paper has discussed a number of uses and capabilities of enterprise resource planning systems, such as how it can be used in accounting, human resource and orders management. This paper has discussed various cases and examples of medium size and large size organizations that have implemented enterprise resource planning systems and getting benefits from this technology. In this last this paper has presented main benefits and limitations of implementing enterprise resource planning systems. In many case, the implementation of enterprise resource planning system is beneficial to the organizations. But there are many instances where this implementation was not useful. The implementation of ERP takes investment of millions of dollars thus the careful planning and analysis is necessary to implement ERP successfully. Bibliography 1. Arif, M., Kulonda, D., Jones, J. & Proctor, M., 2005. Enterprise information systems: technology first or process first? Business Process Management Journal, 11(1), pp.5-21. 2. Davenport, T.H. & Brooks, J.D., 2004. Enterprise systems and the supply chain. The Journal of Enterprise Information Management, 17(1), pp.8-19. 3. Ehie, I.C. & Madsen, M., 2005. Identifying critical issues in enterprise resource planning (ERP) implementation. Computers in Industry, 56(6), pp.545-57. 4. Hitt, L.M., WU, D.J. & Zhou, X., 2002. Investment in Enterprise Resource Planning: Business Impact and Productivity Measures. Journal of Management Information Systems, 19(1), pp.71-98. 5. Hoffer, J.A., Prescott, M.B. & McFadden, F.R., 2007. Modern Database Management, Eighth Edition. New York: Pearson Education, Inc. 6. Laudon, K.C. & Laudon, J.P., 1999. Management Information Systems. 6th ed. New Jersey: Prentice Hall. 7. O’Leary, D.E., 2000. Enterprise Resource Planning Systems. London: Cambridge University Press. 8. Spathis, C. & Constantinides, S., 2004. Enterprise resource planning systems’ impact on accounting processes. Business Process Management Journal, 10(2), pp.234-47. 9. Stair, R.M. & Reynolds, G.W., 2003. Principles of Information Systems, Sixth Edition. Toronto : Thomson Learning, Inc. 10. Turban, E., Leidner, D., McLean, E. & Wetherbe, J., 2005. Information Technology for Management: Transforming Organizations in the Digital Economy, 4th edition. 4th ed. New York: Wiley. 11. Vlachopoulou, M. & Manthou, V., 2006. Enterprise Resource Planning (ERP) in a construction company. International Journal of Business Information Systems, 1(3), pp.339-51. 12. Weston, R., 1998. ERP users find competitive advantages. (enterprise resource planning systems) (Technology Information). Computerworld, 32(3), p.9. 13. Whitten, J.L., Bentley, L.D. & Dittman, K.C., 2000. Systems Analysis and Design Methods 5th Edition. New York: Irwin/McGraw-Hill. Read More