Enterprise resource planning: the emerging
organizational value systems
Keywords
Resource management,
Information technology, Organiza-
tional change, Software use
Abstract
Enterprise resource planning
(ERP) is a set of applications that
automate finance and human re-
source departments and help
manufacturers handle jobs such as
order processing and production
scheduling. This paper attempts
to provide an overview of an ERP
system along with the real experi-
ences of its implementation. Re-
ports results of a survey of several
ERP companies and considers
factors such as future trends in
ERP including developments such
as Web-based procurement appli-
cations and outsourcing of ERP
applications. Suggests some
challenges for ERP, such as the
need to ensure global compatibil-
ity and flexibility.
Industrial Management &
Data Systems
100/3 [2000] 114±118
# MCB University Press
[ISSN 0263-5577]
[ 114 ]
Atul Gupta
Lynchburg College, Lynchburg, Virginia, USA
Enterprise resource planning (ERP) allows
companies to integrate various departmental
information. Enterprise resource planning
has evolved from a human resource
management application to a tool that spans
IT management. For many users, an ERP is a
``do it all'' system that performs everything
from entry of sales orders to customer
service. Others view it as a data bus with
data storage and retrieval capability. For
more than 30 years manufacturing
companies have maintained large databases
to manage information about their processes
and products. Systems such as material
resource planning (MRP) with master
production scheduling (MPS) were critical
components. MRP vendors expanded their
systems with capacity planning, leading to
MRPII (Menawat, 1999).
The shortcomings of MRPII and the need to
integrate these new techniques led to the
development of a total integrated solution
called enterprise-wide resource planning
(ERP). ERP attempts to integrate the
suppliers and customers with the
manufacturing environment of the
organization. The emergence of ERP in early
1990 led to the inclusion of other functions
such as accounting and sales management.
For example, a purchase entered in the order-
entry module passes the order to a
manufacturing application, which, in turn,
sends a materials request to the supply-chain
module, which gets the necessary parts from
suppliers and uses a logistics module to get
them to the factory. At the same time, the
purchase transaction shows up on a general-
ledger module as revenue. The myriad
interconnections ensure that information in
one part of the business can be obtained by
any other unit. That makes it simpler to see
how the business as a whole is doing, and
helps people eliminate redundant actions,
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analyze data, and make better decisions
(Sweat, 1998).
How does an ERP system make it
all happen?
The essence of it is the fundamental premise
that the whole is greater than the sum of its
parts. The traditional application systems,
which the organisations generally employ,
treat each transaction separately. They are
built around the strong boundaries of specific
functions that a specific application is meant
to cater for. For an ERP, it stops treating
these transactions separately as stand-alone
activities and considers them to be part of the
inter-linked processes that make up the
business.
Almost all the typical application systems
are nothing but the data manipulation tools.
They store data, process them and present
them in the appropriate form whenever
requested by the user. In this process, the
only problem is that there is no link between
the application systems being used by
different departments. An ERP system also
does the same thing, but in a different
manner. There are hundreds of such data
tables, which store data generated as a result
of diverse transactions, but they are not
confined to any departmental or functional
boundaries, rather, integrated to be used by
multiple users, for multiple purposes and at
multiple places.
It is not possible to think of an ERP system
without a sophisticated information
technology infrastructure. It is said that ERP
is the finest expression of the inseparability
of business and information technology. The
incremental improvement in the information
technology and the drastic reduction in
prices of computers have made it possible
even for the small organisation to think
about ERP systems. The earlier ERP systems
were built only to work with huge mainframe
computers. The new era of PC, the advent of
client server technology and scalable
Atul Gupta
Enterprise resource planning:
the emerging organizational
value systems
Industrial Management &
Data Systems
100/3 [2000] 114±118
relational database management systems
(RDBMS) all have contributed to the ease of
deployment of ERP systems. Read (1998)
points out that ERP has three key
components to assist the management of
manufacturing processes: client-server, real-
time planning and work flow. Most of the
ERP systems exploit the power of this three-
tier client server architecture. In a client
server environment, the server stores the
data, maintaining their integrity and
consistency and processes the requests of the
user from the client desktops. The load of
data processing and application logic is
divided between the server and the client.
The three-tier architecture adds a middle
stratum, embodying all application logic and
the business rules that are not part of the
application, enforcing appropriate validation
checks.
It is assumed that the companies
implementing ERP solutions have multiple
locations of operation and control. Hence, the
online data transfer has to be done across
locations. To facilitate these transactions, the
other important enabling technologies for
ERP systems are Workflow, Workgroup,
GroupWare, electronic data interchange
(EDI), Internet, intranet, data warehousing,
etc. A glossary of terms related to ERP is
provided in the following list:
. ADC ± Automated data collection.
Technologies that automate data
collection at the source such as barcode,
biometrics, machine vision, magnetic
stripe, OCR (optical card readers), voice
recognition, smart cards, and RFID (radio
frequency identification).
. API ± Application programming interface.
An interface that is used by one
application program to communicate with
programs of other systems. ERP vendors
provide APIs for integrating other
applications with their ERP systems.
. Bolt-on. A software application that
performs specific tasks and interfaces
with an ERP system. Examples of bolt-ons
that interface between Intermec solutions
and ERP systems include manufacturing
execution systems and warehouse
management systems.
. DLL ± Dynamic link library. A library of
core elements required by the Windows
architecture, a DLL contains all the
functions and definitions needed to
communicate with a program at run time.
. ERP ± Enterprise resource planning. The
current evolution of manufacturing
resources planning (MRP and MRPII)
systems.
. EAS ± Enterprise application software.
Applications designed to help
organizations to manage key processes
such as payroll etc.
. ERO ± Enterprise resource optimization.
Extends ERP solution by providing
strategic functionality that enables
companies to optimize assets and deliver
customized products worldwide, on time,
and at lowest possible cost.
. Modules. Stand-alone software
applications that manage a specific
business function ± for example,
Peoplesoft Payroll.
. OLAP ± Online analytical processing. The
multidimensional analysis of application
data, performed interactively.
. Year 2000 (Y2K). Refers to the inability of
software applications to handle dates
beyond 1999.
Benefits of ERP
Supply-chain capabilities of ERP increase
efficiency and productivity for their users.
By linking supply-chain applications with
other business systems, users can slash cycle
times and reduce inventory. They can also
reach beyond their own corporate walls to
better connect with suppliers, distributors,
and end customers. ERP also helps in cross-
enterprise application integration. This is
where companies link their ERP systems
directly to the disparate applications of their
suppliers and customers. The overall benefit
is to be able to share information with
customers and suppliers (see the following
list). For example, big suppliers are letting
their customers dial into their systems and
extract select information. Accessing and
delivering information in real time helps
companies to better react to customers'
needs. The incidence of stockouts are also
found to be significantly reduced and even
such incidences are largely due to extraneous
delays, rather than planning inaccuracies. In
the manufacturing sector, ERP
implementation has reduced inventories
anywhere from 15 to 35 percent.
The advantages and disadvantages are as
follows:
Advantages
. Y2K compliance;
. ease of use;
. integration of all functions already
established;
. suppliers and customers can be online
communications;
. customization is an option;
. improved decision making due to
availability of timely and appropriate
information;
[ 115 ]
Atul Gupta
Enterprise resource planning:
the emerging organizational
value systems
Industrial Management &
Data Systems
100/3 [2000] 114±118
[ 116 ]
. improved process times;
. feasibility of administering prae facto
control on the operations;
. Internet interface is an option;
. reduces planning inaccuracies.
Disadvantages
. organizational resistance to change may
be high;
. changeover may take a long time causing
cost overruns;
. data errors will be carried throughout the
system;
. maintenance is costly and time-
consuming.
Survey results of ERP
implementations
Several ERP companies were surveyed to
assess the implementation issues related to
ERP. The results of our survey indicate that
US companies are moving with the ERP
implementation in order to reduce lead times
and inventory levels and to increase
customer satisfaction. The ERP project teams
tackled a broad spectrum of issues and
problems, ranging from personal computer
compatibility issues to management
challenges such as selling an ERP plan to the
top management. The most common
problems centered on networking issues,
knowing when to allow users to modify the
packaged software and user training. The
main hurdle faced by all the companies was
resistance to change. Employees were
reluctant to learn new techniques or the IT
department was reluctant to change due to
attachment to its product; this was one of the
main hurdles faced during the ERP
implementations. Three elements which can
help reduce the resistance are tremendous
top management support; placement of best
people on implementation; and heavy
involvement of people from the field (Cissna,
1998). Cost and time overruns also proved to
be a pervasive problem with the ERP
implementation. Since most consultants
charge on a man-hour basis, project time
overruns substantially inflate incurred costs.
To avoid this the management must plan
ahead of project implementation. One issue
common to all implementation is of changes
in specification after freezing. Most do allow
changes as and when required under the fear
that otherwise costs and project
implementation time may go up.
Another problem faced by the ERP
implementers is the decision to customize or
not (see the following list). The problem is
that with every major upgrade of ERP
systems come the application programming
interface (API) changes because the
databases are different. So the companies
which customize will end up writing more
code to deal with the new API every time an
upgrade comes out. Our respondents feel that
it is better to use options than customizing.
Options include features such as choosing
how results will appear etc. Although there is
no support for customizing APIs, options are
fully supported and do not often break. If the
options are not suiting an organization's
needs and cost/time is a factor in not writing
code for customization, then they should opt
for custom modules. These modules reduce
the cost risk in case of upgrades. One
problem that is common to all
implementation is poor end user training.
The ERP system is installed and ready to go,
but no one in the organization knows how to
use it, and personnel also lack training in
maintenance aspects of the system. The keys
to successful implementation of ERP are as
follows:
. commitment from top management;
. form a task force with personnel from all
functional areas to foster ties between
project management and business units;
. take an assessment of hardware
requirements;
. step-by-step introduction rather than all
at once;
. start early planning on user training and
support;
. streamline decision making so that
implementation work can move quickly;
. be patient because ERP implementation
takes time.
Future trends in ERP
Key future developments in enterprise
resource planning are:
. Web-based procurement applications. The
next frontier in ERP is incorporating
Internet in its applications. New ERP
packages let users browse product
catalogs online, check availability, and
order supplies directly through the
system. This desktop access reduces the
purchase and delivery times. Browser
interface allows ERP to reach more users
and helps vendors to generate more
licensing revenue. In the future, external
parties ± customers, partners, and
suppliers ± will have access to ERP
applications. This will require the
addition of sophisticated security
capabilities, such as public key
infrastructure (PKI) and digital
certificates, to the ERP Web interface.
Atul Gupta . Outsourcing of ERP applications. The
Enterprise resource planning: major vendors of ERP are offering
the emerging organizational
value systems outsourcing programs to small and mid-
size organizations that are unable to
Industrial Management &
Data Systems implement the systems themselves.
100/3 [2000] 114±118 Instead, the applications, as well as the
servers and databases needed to support
them, are hosted and maintained at a
remote data center. Users connect to the
software via a Web browser and pay a flat
monthly fee for the service. Outsourcing
allows small and mid-size companies
access to the best talent available in ERP
systems management. It comes really
handy in implementing, hosting,
maintaining and upgrading the system. A
number of issues need to be worked out
between customers and outsourcing
providers, ranging from the fees paid for
the services to operational issues such as
security, backup, and the exact nature of
end-user support.
Need for speed
A key issue when implementing ERP is
performance. Tying such an array of decision
support logic to a single database engine
process can generate huge amounts of load on
conventional systems. It gets worse if you are
talking about a company that already had
early versions of ERP in place. The real
ancestry of ERP goes back to material
requirements planning (MRP) and master
production scheduling (MPS). These systems
came up with the original idea that there
needed to be a system in place to order the
proper amount of materials for prebooked
orders. Although they were revolutionary in
their day, these systems are almost always a
roadblock when implementing a new ERP
system. The problem is that MRP and MPS
systems are neither fast enough nor scalable
enough to incorporate a Web paradigm.
Modern businesses need a much faster and
more dynamic decision structure ±
something that ERP supports but these
earlier systems cannot. To combat this, ERP
vendors are creating new versions of MRP
and MPS under a single umbrella dubbed
advanced planning and scheduling (APS).
Though some of these engines are still being
tested, they promise drastically faster
response times and much better business
results in the form of accurate inventory
planning and precise delivery schedules.
With faster background engines like APS
combining with ubiquitous front-end Web
browser access, you have the foundation to
build self-service business systems like the
insurance example cited earlier. Companies
that set up limited self-service functions
today will have a competitive edge (Stein,
1999).
Conclusion
The ERP not only provides an accurate view
of an organization, but also allows for a more
efficient response to the increasingly
competitive manufacturing environment.
The ERP is expanding beyond manufacturing
into industries such as utilities, retail and
education. ERP might limit the technological
choices a company makes; it can also
broaden its business horizons. ERP systems
provide managers with real time information
to make better decisions. Implementing ERP
offers some unique challenges for the
managers. One of the primary challenges is
selecting an appropriate plan for end-user
education. Inadequate training has doomed
many ERP systems to failure (Crowley, 1998).
Managers must avoid this mistake by looking
at various options for end-user ERP training
at the beginning. One of the possible options
is custom training. They should either go for
in-house training labs or hire consultants to
conduct the training. Intranet-based or CD-
ROM training applications can also be used.
The goal of ERP training should be not only
to teach all users the rudiments of inputting
data and processing reports, but also to help
them understand the business processes
behind the ERP applications (Crowley, 1998).
Another challenge is to make sure that the
ERP system has global compatibility. The
obstacles one can face in achieving
globalization range from bridging cultural
differences to balancing corporate standards
against the need to tailor software for
different plants. Another problem one can
face is synchronization across multiple
servers and databases in different regions.
One solution is to use custom coding to cover
differences among plants, such as order-
entry procedures.
Another challenge is to make sure that the
ERP system is flexible. With mergers and
acquisitions occurring on almost a daily
basis, flexibility should be the watchword. A
manufacturer will not have the luxury of
taking years to integrate a newly acquired
business into its data processing center.
Hence, enterprise applications need to be
dynamically reconfigurable. When this is the
case, the manufacturer is able to define new
business models and processes; the
enterprise resource planning package can
itself generate, nearly automatically, the
reconfigured software that in turn executes
those processes (Stedman, 1999). It is also
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Atul Gupta
Enterprise resource planning:
the emerging organizational
value systems
Industrial Management &
Data Systems
100/3 [2000] 114±118
[ 118 ]
important to have commitment from top
management. Top management commitment
helps in streamlining difficult decisions with
regard to integration of business processes
such as potential customization, future needs
etc. The final challenge in implementing ERP
is to meet an aggressive time line. Many
projects in the past have failed because of
loss of focus, lack of funding, and minimum
business participation. Therefore it is
essential to have a project completion
deadline. With a set deadline, sometimes non-
essential standardization and process change
might be delayed. The steering committees
setting up ERP implementation must make
trade-off decisions for implementing as much
change as possible without sacrificing the
deadline. Implementing ERP is only part of
the solution to creating a seamless
operational environment. The complete
solution involves making a business
commitment, implementing truly global
systems, and investing in training as part of a
continuous change process.
One tremendous asset to conducting future
research would be the development of a
benchmark performance test that would be
applicable to ERP software vendors. This
would provide users with comparisons in
terms of objective criteria, not just the
information provided by the vendors, as is
the case right now. This study should offer
the analysis of the following best practices
for ERP:
. focus on capabilities and benefits;
. post implementation commonality;
. define metrics and measure them;
. build and leverage process expertise.
References
Cissna, T. (1998), ``ERP software implementation
brings pains with its gains'', Electric Light &
Power, Vol. 76, pp. 43-4.
Crowley, A. (1998), ``Training treadmill'', PC
Week, Vol. 15, pp 121-2.
Menawat, A.S. (1999), `` ERP: today and
tomorrow'', Silicon India, pp. 33-6.
Read, J. (1998), ``ERP's manufacturing strength ±
its ability to tie things together'', Computing
Canada, pp. 32-3.
Stedman, C. (1999), ``Tracking changes ± a must in
ERP projects; business users sometimes fail
to realize importance'', Computerworld,
pp. 41-2.
Stein, T. (1999), ``Big strides for ERP ± with core
applications in place at most large companies,
users are exploring what can be done with
ERP software'', Information Week, pp. 67-8.
Sweat, J. (1998), ``Enterprise application suites are
becoming a focal point of business and
technology planning'', Information Week,
Vol. 704, pp. 42-3.