Historic Evolution of Enterprise Resource Planning - Coursework Example

Name: Institutional Affiliation: Enterprise Resource Planning Enterprise Resource Planning is an integrated and a partially complex information technology system that interconnects both the internal and external environment of a business for the sole purpose of managing information between various departments in an organization. The term enterprise resource planning is often abbreviated as ERP. It is basically automation software that links a number of hardware resources in order to facilitate exchange and sharing of information between departments in an organization and the outside world. These software programs run on various networks and computer hardware configurations thus they employ a common database to act as a repository for their information (Joseph & George, 2004, p 23). It integrates departments such as manufacturing, marketing, sales and services, accounting or finance departments and customer care management. On that note it is affirmative to state that the core purpose of ERP is to manage information and interconnection between stakeholders, customers, competitors, creditors and all the other pertinent factors that determine the ultimate performance of a firm. Historic evolution of Enterprise Resource Planning The term ERP first came into play in the 1990’s when a business group by the name Gartner used the acronyms to describe a planning process involving the use of materials in a firm. Later ERP was coined into manufacturing resource planning which later came to be widely known as a computer integrated manufacturing system. With the view of the whole organization in the mind, all the other terms could not suffice as suitable as suitable names for a system that dealt with so many components and was not limited to manufacturing as it was believed in the 1990’s. Given such discussions it became eminent that since the system represented more than the manufacturing section of the firm, the name was to be inclusive of a general term representing an evolving application was undeterred since it could be applied to the whole organization. Because of this reason, there emerged ERP software package developers who programmed accounting and human resource software packages in addition to the manufacturing software programs. Due to competition between vendors and the general growth and competitiveness in the software programming sector, there were tremendous developments on the ERP system. By 1995, most enterprise resource planning systems had the capability of addressing all the major functions of an organization. The areas captured by the software were not limited in scope or sphere by the nature and complexity of the organization because even corporations, non-profit making organizations and government agencies incorporated these ERP systems. The extensive use of ERP systems was fueled by the introduction of the Euro legacy system which came with controversies hence it was disregarded by most organizations. It is during the early and mid-1990’s that companies started using ERP leading to a widespread amalgamation of the systems components. Even though the Enterprise Resource Planning system was becoming a preferable choice, the first applications of the software program were hampered by its limited use since it had been initially developed for the back office operations. Given the fact that back office operations are mainly for backup functions and are not pertinent in executing customer related services, these limitations were a setback in the introductory forms of ERP systems. During the nineties, only front offices dealt directly with customer related issues in what is known as Customer Relationship Management (CRM). With time, the bottlenecks associated with a back office software system were upgraded into a generally executable software program whose development was aided by the technological evolution. The gist behind the evolution can be further elucidated using the S — curve of technological evolution which is driven or motivated by the presence characteristic. With the S-Curve knowledge in mind, it becomes evident that the ERP program was now at its second stage of growth which was evinced by more modifications to the formerly back office system. Today, the ERP system has been customized to perform multiple duties such as electronic commerce or electronic government, e- finance, e- telecom and other administrative purposes for instance Supplier Relationship Management (SRM). The system became more useful after being synchronized with the internet which made communication with the external business partners simpler. After the 1990’s version of ERP, there emerged another system called the ERP II in early 2000. It made use of the internet since it was web based software which allowed for real time communication between employees, partners, suppliers and customers. The improved version of ERP improved monitoring of resources hence promoting resource optimization efforts. In addition, the system had the capability of processing transactions thus leveraging information that enabled collaboration and interconnections between enterprises. In comparison to the first generation of ERP, ERP II was a spontaneous and extremely flexible software program that enabled a firm to exploit all the capabilities in the market (Fryling, 2010, p 11). It actually enlarged the scope of operation for the enterprises that embraced it since it opened up a business to the corporate world while at the same time it integrated with other systems which was essential in decision making. Management and decision making are very tricky sections of a firm and this calls for informed forecasting therefore with ERP II, the information collected was helpful in ensuring not only survival for those enterprises that used them but also maximization of profits. The in house name for ERP II software program was the Enterprise application suite (Yusuf & Thorpe, 2004, p 21). After ERP II there came a two tier enterprise resource planning system which involved the integration of hardware and software components that allowed companies to run two ERP systems at one time. For example while one of the ERP systems could be used at a subsidiary level the other would simultaneously be used at a corporate level (Walsh, 2009, p 43). In such a circumstance, a company conducting manufacturing services could comfortably use an ERP system for management as well as coordinating manufacturing activities. With such an extended coverage portrayed by ERP II, an organization now had all the essential tools necessary to circumvent global and regional production centers, suppliers and service providers thus increasing their market share which led to growth of many multinational corporations in 2000. Apart from minor software programming developments done to modify ERP II, the main ideologies behind the functional features of this system are still intrinsic in the enterprise tool kit also known as the ERP II. The two tier ERP system is also a modification of the ERP II in order to increase its applicability in running business operation. Market need for ERP With the reality of globalization and market liberalization, Multi-National Corporations (MNC’s) especially the Small Scale Industries (SSI’s) have been entwined in heated competition (Vollman & William & Clay & Robert, 2005, p 96). There is competition for resource utilization, technological implementation, labor and all the other resources necessary to facilitate production activities in a business. Furthermore, globalization has opened up marginalized market to excruciating needs of the vast world markets that enjoy economies of scale at various levels of operations. This situation became destructive to any enterprise that assumed the need for ERP in the early 2000 and because of this there was a need for ERP in the market. With the help of Enterprise Resource Planning (ERP) toolkit, organizations can now organize their workforce in order to facilitate efficient use of resources basing on the information collected from the ERP information systems (Vilpola, 2008, p 301). Moreover, business enterprises also use ERP to evaluate possible strategies that would optimize their regional dominance in terms of making product based strategies appertaining manufacturing functions. The two tier ERP system, businesses can gain competitive advantages based on differentiation and customer focus due to improved customer care services hence improving the profitability margin of a business enterprise. Also, the competitors might fail to implement a similar ERP system because it basically a transformational system that converts the old working strategies of a business into a more competitive and cost effective business system (Murielle, 2001, p 9). Courtesy of the two tier system, businesses can therefore polish up their manufacturing processes as well as responding to the business needs posed to them by their customers at multiple locations in the market. How ERP provides value for a business We can combatively concur that an ERP system incorporates best practices which help a business to perform its business processes. Such companies that implement automation software programs such as ERP modify their business processes and reduce time spent on configuring, testing, training and documenting business files. Research conducted by business experts reported that best practices cuts down on business risks to a minimum level of 29% as compared to other software programs. Best practices also add value to businesses by easing compliance with legal requirements for example IFRS and electronic funds transfer because the procedures can be codified within an ERP system and interconnected with multiple businesses. From the description given above, it therefore stands out that a correctly integrated ERP system could be the solution to saving on paper work and increasing efficiency thus adding value to an enterprise. In other words, ERP facilitates access to various databases in an organization thus saving on time consumed locating documents or processing financial materials. In addition to fostering best practice, ERP systems offer solution that replaces the obsolete and autonomous systems that were mainly applied in the finance and manufacturing departments. The older system could not allow for systems personnel of one department to access data from other departments but with ERP systems all the departments are networked through a convenient information technology database. ERP software selection criteria There is need to seek the right balance between software essentials that help facilitate the working of ERP programs. The selection should be pegged on a rigorous exercise which determines areas that are of utmost importance to the organization in comparison to the desired functions of an organization. In addition, the software program should be analyzed in terms of complexity or simplicity in relation to project risks. There are four main cornerstones that complements a good ERP selection procedure in order to enable a business achieve its vision and mission. The points have been represented in the table below (Edmund, 2000, p 20). The selection process of an ERP software should be based on some main components as those stated in the table below but care should be taken to ensure that the emphasis on the selection criteria is structured approach which is the first step on the table. It is represented by the software product fit. The idea behind the selection of an ERP system is that most staff members need to demonstrate that they understand something about the system being picked upon. The stage is majorly informative and it is then that all stakeholders are made to understand the need for the enterprise to invest in a new ERP system. The second stage thereafter is the focused demonstration stage. It is represented by the project approach segment (Monk & Wagner, 2009, p 71). During this stage, potential vendors avail themselves with their software programs. The software programs have to be relevant and in line with the desired future goals of an organization. Failure to achieve this requirements then the project might be deemed as inefficient or not good enough to facilitate the achievement of a firms goals. The vendors need to be treated with courtesy and where possible the company has to employ them as consultants. From that stage the selection process is pushed over to the objective decision process which is focused on mitigating and concurrently hedging a firm against business risks. The process of choosing a suitable ERP system is a complex decision making process hampered with many potential pitfalls that might not be visible in the initial stages of ERP selection process therefore the best system should be selected based on the one that will have the most significant economic consequence with the least possible risk factor. The final decision on a software selection should be made by all the stakeholders within the enterprise and it requires a lot of guided leadership and participation by personnel. After selection is made the final stage entails involving all the employees fully so that the software is utilized to the best advantage of an organization. The process of involving other personnel demands efforts such as training, appraisal and developing a reward scheme that will facilitate the implementation of the ERP software requirements (Khosrow, 2006, p 856). ERP Implementation The implementation of an ERP system should be focused on what matters to the firm. This is assessed in terms of the firm’s vision, mission and objective statements. It is during the implementation stage that absolute control should be exercised over the supply and operations chain of the enterprise. The implementation has to be in line with the core of the business that deals in delivery, productivity and profitability. The ERP system should thus be designed to combat the complexities encountered in practicing the use of a modern manufacturing supply chain (Oyku, 2005, p 19). On the side of ERP software, proper implementation of the software can help the management in decision making through provision of the required information and report analysis. Implementation of an ERP therefore provides manufacturing intelligence software that is much needed during lean and agile times to keep and organization ahead of competition. The implementation process of real time ERP software is more often than not market changes in staffing through consulting, support and customization. The time taken to implement may be dependent on the size of the business, number of modules selected for implementation, customization, readiness of the client or business to own the project and finally the scope of change in an enterprises processes. Specifically, modular ERP systems are installed in stages. A typical modular ERP software installation process for a big firm can take 14 months and requires 150 consultants while that of an SSI may take a much shorter time (Frederic, & David, 2004, p 6). Customization of ERP software programs to suit the specific needs of the customer could lead to more implementation time. ERP modules There are other functional areas covered by an effective ERP system whose benefits are countless to an organization. Benefits accrued to these systems revolve around major functional areas known as ERP modules. While looking at these modules from a value addition point of view, there is need to describe the benefits accrued from financial resource management, supply chain management, human resource management, customer relationship management and manufacturing resource planning. The table shown below is a ERP systems interconnection model indicating how the five modules interplay in providing value to a business enterprise (Montgomery, 2010, p 99). The model is a general representation and may be applicable to firms at various levels for example both the Small Sale Industries (SSI’s) and Multi-National Corporations (MNC’s) Financial Resource Management (FRM) encompasses all activities involved in collecting revenues and making payments on behalf of the company. With the help of an ERP system, an organization becomes better placed to generate general ledgers for its creditors, fixed asset management for its shareholders, prepare accounts payable and accounts receivables for balancing their books of accounting and maintaining an updated cash management register for the sake of financial consolidation (Sheilds, 2001, p 11). Supply Chain Management (SCM) involves such practices that incorporate inbound logistics, sales and marketing (Escalle & Cotteleer, 2000, p76). Human Resource Management (HRM) is a module in the ERP that represents the workforce and employees of an enterprise. It covers all activities ranging from appraisal of workers, recruiting, training, retrenchment, retirement and payroll management. Customer Relationship Management (CRM) deals directly with commissions, after sale services, customer care, call centers (Turban et al, 2008, p 88). All this services can be offered through an ERP system embedded in the CRM support system for instance; telecom service delivery scenario. Manufacturing Resource Planning is an ERP enabled system which monitors engineering practices, billing of production materials, work orders, capacity, scheduling, quality control, manufacturing projects, manufacturing flow and management of the product life cycle (Paul & Finlay, 2009, P 55). Case study The worst case scenario of ERP system failure was encountered by the Nike Corporation – show making company with international recognition. After the management made spirited efforts to invest in the 400 million dollar upgrade to their formerly manual supply chain processes, the process was a disappointment given the fact that it did not work as it was meant to. This was a malfunction that led to losses that were approximated at 100 million dollars because of botched functionality. A lot of sales were lost to competing firms which caused a 20% loss to the company in the year 2000. The after events were not pleasing because ERP had to undergo a series of lawsuits since none of the two parties was willing to back-down on the effects caused by the malfunctioned ERP system. On the other hand the defendant who were ERP accused the plaintiff; Nike Corporation of shady implementation strategy which led to malfunctioning of the system of their entire supply chain (Bidgoli, 2004, p 107). The failure occurred at the implementation stage even though the real reason for the failure has been withheld up to today for security reasons. The project was meant to promote efficiency at the Nike Corporation and consequently increase their value. Part B The ERP market is currently dominated by three companies and this are SAP, Oracle and Microsoft Corporation. Other rivals have either been amalgamated by the big three or they are at the verge of collapse. SAP has been accredited as the founder of ERP business ideas. Gartner discloses that SAP has roughly a 40% share of the market with over 20billion annual sales around the globe. Its software is fairly priced depending on the complexity and willingness to spend (Kovacs, & Paganelli, 2003, p 165). They offer an enterprise suit composed of HR, procurement, treasury, full financial and other business functions. The SAP software is a real time technology unlike its competitors who use a batch posting technology. It is easy to install, implement and making it the most preferred ERP system. On the other hand, oracle e-business suite has numerous versions of ERP options covering all departments in an industry. These modules are offered through a Fusion Application that is designed using the latest technology and incorporate best business management practices. At the moment it is the second in terms of ERP market share ranking. Microsoft has not been left behind in the struggle for market dominance. They take the third position by providing the Microsoft Dynamics Redmond which is specialized in four main products (Chang & Guy, 2000, p 495). Basing on the information provided above, I would comfortably decide on SAP because of its being a market leader. This is based on the assumption that the system has been accredited for years and it is likely to be well customized and it will not be bugged frequently or portray signs of malfunctioning. In addition the software is fairly priced. Given the small size of my firm, I would opt for an off the shelf ERP system developed and marketed by SAP. For that reason, I will not need customization but to use the functional entrepreneur suite features relevant to my organization. References Bidgoli, H. (2004). The Internet Encyclopedia, Volume 1. John Wiley & Sons, Inc. Chang, S. & Guy, G. (2000). A Delphi examination of public sector ERP implementation issues. International Conference on Information Systems. Atlanta: Association for Information Systems. Edmund, O. (2000). Enterprise resource planning systems: systems, life cycle, electronic commerce, and risk. Michigan: Cambridge University Press Escalle, M. & Cotteleer, R. (2000). Enterprise Resource Planning (ERP), Harvard Business School, Cambridge, MA, USA. Frederic, A. & David, S. (2004), the enterprise resource planning decade. Boston: Thomson Course Technology. Fryling, M. (2010). Total Cost of Ownership, System Acceptance and Perceived Success of Enterprise Resource Planning Software: Simulating a Dynamic Feedback Perspective of ERP in the Higher Education Environment. Dubai: Pro Quest Dissertations and Theses database. Joseph, O. & George, W. (2004). Material requirements planning. Boston: Thomson Course Technology. Khosrow, P. (2006). Emerging Trends and Challenges in Information Technology Management. New York: Idea Group, Inc. Kovacs, G. L., & Paganelli, P. (2003). "A planning and management infrastructure for large, complex, distributed projects - beyond ERP and SCM. Hawaii: Computers in Industry. Monk, E. & Wagner, B. (2009). Concepts in Enterprise Resource Planning, 3rd.ed. Course Technology Cengage Learning. Boston, Massachusetts. Montgomery, N. (2010)."Two-Tier ERP Suite Strategy: Considering Your Options. Gartner Group. Murielle, G. (2001). E-Business and ERP: Rapid Implementation and Project Planning. New York: John Wiley and Sons, Inc. Oyku, A. (2005). 'ERP Selection using Expert Choice Software. Honolulu, Hawaii, Paul, N. & Finlay, T. (2009). Financial Packaging Systems. Michigan: Thomson Course Technology Sheilds, M. (2001). E–Business and ERP: Rapid Implementation and Project Planning. New York: John Wiley and Sons, Inc. Turban et al, B. (2008). Information Technology for Management, Transforming Organizations in the Digital Economy. Massachusetts: John Wiley & Sons, Inc. Vilpola, I. (2008). A method for improving ERP implementation success by the principles and process of user-centered design. Michigan: International Benchmarking Study. Vollman, E. & William, B, & Clay, W. & Robert, J. (2005). Manufacturing Planning and Control Systems for Supply Chain Management. New York: Idea Group. Walsh, K. (2009). The ERP Security Challenge". Illinois: CXO Media Inc. Yusuf, Y. & Thorpe, N. (2004). Enterprise Information Systems Project Implementation: A Case Study of ERP in Rolls-Royce. Washington: International Journal of Production Economics. Read More