ERP Systems and Integration - Essay Example

Introduction With organizations increasing size, the need to integrate different business processes has become vital for their smooth functioning.Besides, the amount of information flowing through an organization is also continuously increasing. Therefore, to manage the flow of information amongst different functional entities, an integrated system is required. This requirement is fulfilled by ERP or Enterprise Resource Planning. Prior to ERP, there were various computer systems which were restricted to a specific function. Integrating and coordinating these different computer systems and their data was complex and cumbersome, and the compatibility of the systems was also a major issue. This problem is overcome by ERP, which encapsulates the entire spectrum of business processes, including sales management, production management, accounting, human resources, maintenance management, quality management etc. ERP uses a single database in which information from different functional domains is stored. As a result, the information needs of different entities can be met from a single location. This integrated approach can, for instance, allow the production department located in one geographical area to send financial information to the head office and the marketing information of one location can be accessed by the production department at another location, so that the market patterns can be identified and the appropriate responses can be designed. Proper implementation of ERP ensures that the management has relevant and timely information at its disposal for effective decision-making. The effectiveness of the ERP system in business can be judged by the fact that in spite of its high cost of implementation, many organizations have adopted ERP systems. Business modeling is a precursor to business process reengineering, ERP implementation etc. A business model is a diagrammatic representation of different business systems and processes, and their interconnections and interdependencies. The purpose of business modeling is to provide a general overview of the operations of a business without going into the technical details of the processes and systems. It defines the activities performed and workflow structure in a broad manner. A good business model should be comprehensible, coherent and complete. It should define clearly the different systems and subsystems of a business system. A business model is developed on the basis of organization’s goals, objectives and strategic plans. Further, the model illustrates how various business processes exchange information among themselves and underlying database. The following figure illustrates the basic components of a business system. Business as a system Money People Facilities Material Information Information An ERP system is implemented to provide requisite information to individuals to enable them to perform business process more efficiently and effectively. Evolution of ERP ERP as a concept has been around for approximately fifty years now. Though the idea of integrating all the business units to improve productivity has always been a goal of managements, the tools to achieve such integration were not available. With the increasing sophistication of software, the dream of integrating different functional units took shape in the form of software packages that allowed timely information sharing. ERP’s history can be traced back to 1972 when five IBM employees left IBM and established SAP (Systems, Application and Products in Data Processing) in Walldorf, Germany. SAP was the first company to develop and maintain ERP software. ERP as a concept has not changed over the years, but its implementation has changed due to the advances in software and hardware technologies. The roots of ERP development can be traced back to the concepts of MRP and MRP II. MRP systems are used in manufacturing to automate the various aspects of inventory management and production processes, for instance, automating the ordering process, scheduling operations, etc. MRP II is an extension of MRP; it was conceived with the objective of automating all manufacturing functions and providing an interface with other functional domains (Johnson, 2003). As a result, it is able to achieve a high degree of integration with other automated processes in organizations. ERP extends the functionality of MRP and MRP II systems to provide complete business solutions. Because of its wider scope, ERP is concerned not just with internal issues but also takes into account external factors like competition, demand, etc. The key aspect of ERP is its ability to integrate different business entities without being constrained by geographical and functional differences. ERP Implementation ERP implementation is a long process that involves considerable investment in the form of time and money. Besides, it requires the involvement of different functions, people, procedures, and ideologies, and results in comprehensive changes throughout the organization. Due to the complexity and time constraints of organization-wide implementation of ERP, the risks involved are considerable. To guarantee its success, organizations need to concentrate on the following three issues. Functionality The functionality of an ERP package should complement the prevailing best business practices in the company’s field of operation. This allows the company to take full advantage of the functionalities provided by the package in achieving its objectives and goals. If the package needs customization to support the business practices of the organization, it results in delays and budget shortfalls. Therefore, it is important to analyze the compatibility of the package with the desired business processes to ensure smooth and efficient implementation. Let us consider this aspect with relevance to a healthcare business see how the requirements of that sector call for customization of functionality. Most ERP applications are developed to satisfy the requirements of the manufacturing sector. As there are no standards for clinical procedure, ERP applications for clinical integration do not exist. But ERP can help healthcare organizations in improving processes and functions such as patient scheduling, human resources management, work load forecasting and work flow management. Since ERP packages are receiving increasing attention from large health care organizations, ERP vendors are developing administrative and logistical solutions that satisfy the requirements of such organizations. Unlike manufacturing, where there are a few standard processes with largely predictable outcomes, healthcare systems have to deal with cost structures that are difficult to forecast. Further, the service requirements for each patient vary with regard to processes, staffing and facility usage. ERP implementation for effective resources utilization in clinical processes is difficult as these processes vary with each individual physician and patient. But ERP systems can provide comprehensive advantages in integrating non-clinical and supplementary healthcare activities. Non-clinical advantages which can benefit from ERP implementation include patient scheduling, supply chain management, accounting, human resources, laboratory and pharmacy services and management information systems. ERP can handle the requirements of such processes because they are similar to activities in manufacturing. ERP systems can assist healthcare organizations in managing their purchase and distribution functions and in gathering the information required for billing and payments. As most of the healthcare processes are labor dependent, the focus of ERP system for healthcare organizations is on managing staff and administrative activities. Technology The package selected should be scalable and should support open and non-proprietary technology standards. These characteristics reduce risk and ensure the compatibility of the systems with other IT solutions. The technology should be adaptable to any future changes in business processes without excessively large investment in up gradation. Implementability The ERP package should be easy to configure and use, and flexible enough to accommodate the optimization of business processes. Ease of use would ensure efficient storage and retrieval of information. Problems in Implementation of ERP The problems encountered during a typical ERP implementation process are as follows: Poorly defined business process: ERP implementation in an organization with poorly defined processes may not yield the desired results. In order to improve the performance of the ERP system, the business processes should be well-defined and consistent throughout the organization. Rushed deadlines: The time span for implementing ERP is long as t requires comprehensive information gathering about the present processes. Therefore, the implementation process should not be hurried just to meet a specified deadline. Many complex tasks: ERP implementation involves many complex tasks. So proper planning is needed to execute all these tasks along with the integration of the planned aspects. Only one major milestone: As the duration for the implementation of a typical ERP project exceeds one year, many experts suggest setting up several “deliverables” or milestones. Organizations should implement the project in a phased manner. Communication breakdown: Keeping an open communication channel is important throughout the implementation process. The employees should be kept informed about the changes, the reasons for the changes and how the changes are going to affect the organization (Mendel, 1999). Net weaver – SAP’s Solution Stack With the SAP Net Weaver platform, it is possible to align IT with business requirements. SAP combines composition technologies and application functionality to reduce IT complexity and increase business flexibility. With SAP Net Weaver, it is also possible to compose applications using enterprise services, orchestrate business processes and events, manage enterprise information, and deliver applications and content to users more quickly and cost-effectively (SAP, 2007). SAP Net Weaver is the technical foundation for enterprise SOA. Enterprise SOA is a standards-based blueprint for composing innovative applications and extending existing systems, while maintaining flexibility to make future process changes cost-effective (SAP). Enterprise SOA extends service-oriented design fundamentals to an enterprise level by supporting business requirements through the use of enterprise services. Because they are based on open standards, enterprise services are more flexible than proprietary software and technologies. By using enterprise services, it is easy to respond more quickly to changing business requirements and reduce costs by taking advantage of functionality in the currently existing IT landscape of the organization (SAP). ERP is different from other IT systems in that its implementation is not restricted to a single functional domain. In order to take full advantage of the benefits of the ERP system, organizations need to follow certain guidelines. Deploying enterprise SOA with SAP Net Weaver allows you to decouple your business processes from underlying IT systems, so you can add, remove, or change steps in a business process – without interrupting your operations. By making use of the SAP Net Weaver, an organization could extend the reach of those processes to new communities inside and outside the organization – without adding undue costs to existing investments (SAP). IT practices are identified by SAP as ways to map business requirements to specific IT projects as a means of bringing order to your existing IT infrastructure. Let us say, an organization wants to bring in a new process that would ensure the sales team to submit orders directly to the order management system from remote locations. In order to get this done, a new IT practice for user productivity enablement with SAP Net Weaver is an appropriate choice. With the help of the SAP Net Weaver, a variety of IT activities can be explored to make the sales team more productive. For example an external link can be created on the Web site, using the SAP Net Weaver Portal component to link to the order entry system. This will let salespeople enter data from their customers’ offices which in a way will enhance customer intimacy, the new mantra in customer satisfaction. Or advantage can be taken of the SAP Net Weaver Mobile component to let the sales team submit orders wirelessly from wherever they are even from their hand phones. ERP - Implementation The organization should be aware of the required changes in business processes, and skills and attitude for ERP implementation. It may have the willingness to adopt changes but may not be able to assess the implications of the changes. Therefore, the organization should undergo a brief business process redesign exercise before the actual implementation. The redesigning exercise should be carried out on the basis of the structure of the ERP package, so that there is no mismatch between the required functionalities and the functionalities provided by the package. Communication allows different entities involved or affected by ERP implementation to be aware of its effects on their jobs. Proper communication also leads to the proper integration of the system. Also, communication lead with integration optimizes the implementation process, as the employees are aware of what is required of them. Besides, feedback provides the management with information needed to allay the concerns of the employees. Communication should not overstate or understate the functionalities of the system. Overstating the functionalities would raise employees’ expectations unrealistically, while understating them may leave employees unprepared for the changes required for ERP implementation. In order to implement an ERP system successfully, a complete overhaul of the business organization is needed. Organizations should assess their readiness for change and the possibility of implementing change in the organization. The level of difficulty in bringing about change depends on the amount of change involved. Project leaders should assess the level of difficulty they are likely to face. The top management should provide complete support for the implementation of the ERP package. Implementing an ERP system involves the redefinition of the roles of different functional departments, and the authority and responsibility of individuals throughout the organization. Business Process reengineering is one more aspect that helps in the integration. Business Process reengineering advocates the complete overhaul of the existing systems and processes in an organization in order to increase productivity, reduce costs and improve business practices. To understand the reengineering processes better, we have to see what constitutes a business process ((ICMR), 2003). A business process is believed to be a set of logically related tasks performed to achieve a defined business outcome. It can also be stated as a structured and measured set of activities designed to produce a specified output for a particular customer or market. It implies a strong emphasis on how work is done within an organization. Organizations can improve these processes by analyzing the existing processes and identifying the scope for improvement. Another way is to completely rethink the process, which is the core concept of business process reengineering. The relationship between a company and its customers is not limited to just the buying and selling of a product or service (M. Kalwani, 1995). It has gained new dimensions and expanded from the buying and selling of products and services to a whole range of business practices from customer service, consulting and pricing to production and distribution. Customers have become increasingly selective due to the availability of a wide range of products and services. These changes in the marketplace have forced companies to rethink about their business processes. The reengineering of the existing business processes leads to integration of the various activities of the company and makes the companies more customer-focused and responsive to changes in the market place. These results are achieved by reshaping the corporate structure around the business processes. Business process reengineering achieves this transformation, not by automations of the business processes, but by rethinking the company’s tasks in a holistic and process-oriented manner. Integrated Data Model Organizations function through the coordination of different departments, functions and levels of management (Monks, 1996). So, one of the critical steps of ERP implementation is the development of an integrated data model. The model ensures that the ERP system is able to integrate and provide the connectivity needed between different departments, functions and levels of management. Integration allows smooth flow of information, which helps in the decision-making process. Besides, integration minimizes data redundancy and ensures the availability of the right information to all concerned. The integrated data model reflects day-to-day transactions and is updated regularly to maintain its effectiveness. A well-designed data model for the ERP system should integrate information from various processes and functions. When integration is undertaken, issues such as security, confidentiality, accuracy, completeness and reliability should be given utmost importance. Once these issues are looked after appropriately, the organization generates a data model that represents the entire organization with an integrated data flow structure. The E-commerce revolution took ERP vendors by surprise. The notion that ERP packages are complex and the only users would be well-trained employees of organizations, is changing. The increasing demand from customers and suppliers for access to information has forced ERP vendors to rethink their approach. As a result, many ERP vendors are integrating e-commerce applications with their packages and providing an interface for customers and suppliers to gather information through the Internet. ERP systems provide information at two levels. They are business-to-customer and business-to-business interfaces (Hennel, 2002). The business-to-customer interface provides information like order status and billing information to customers. The business-to-business interface provides comprehensive operational information to the suppliers. Integrating ERP with the web is a complex process. ERP applications are large and complex. As a result, they require regular maintenance. Websites are shut down periodically for maintenance. Most ERP players are making the links between ERP and e-commerce flexible so that e-commerce applications keep running when the ERP application is shut down for maintenance (Hennel, 2002). And last but not least, business modeling is one of the first activities in any ERP project. A business model consists of organizations goals, objectives and strategic plans. ERP implementation is an event that involves the complete organization. As discussed in the earlier parts of the paper, there are three key issues that determine the success of the ERP implementation: functionality, technology and Implementability of the solution. The steps involved in ERP implementation are identifying the need for ERP package, evaluating the “as-is” situation of the business, decisions about the desired “would-be” situation for the business, reengineering of business processes to achieve the desired results, evaluation of available ERP packages, installation of the requisite hardware and networks, and the implementation of the ERP packages ((ICMR), 2003). Bibliography (ICMR), I. C. (2003). Operations Management. Hyderabad: ICFAI Center for Management Research (ICMR). Hennel, M. J. (2002). 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