What Organisations Should Know About Enterprise Resource Planning (Erp) System

European, Mediterranean & Middle Eastern Conference on Information Systems 2010 (EMCIS2010) April 12-13 2010, Abu Dhabi,
UAE
WHAT ORGANISATIONS SHOULD KNOW ABOUT ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM
Dr. Almahdi M. S. Ibrahim, Faculty of Economics, Sebha University, Libya. almahdielgadi@hotmail.com
Abstract
Purpose As a number of organizations in Developing Countries seek to implement ERP system, the aim of this paper is to review the literature and provide information concerning ERP system implementation. Design/methodology/approach This paper based on a wide literature review, focused on the identification of the information related to ERP implementation. The author professional experience on the topic provides the foundation for this paper. Findings The findings of this research can help ERP practitioners to predict possible strengths, weaknesses, opportunities and threats in their organisations ERP implementation plan, so leading to better planning and successful implementation. Research implications Implementing ERP systems requires commitment by top management. Participation by decision makers and executives from the acquisition phase to the end is essential to the successful implementation. Factors and implementation stages that organizations should consider outlined in this paper. Originality/value This paper contributes to enhancing the understanding of the ERP system, its provides useful information to both academicians and practitioners who are interested in ERP system. Keywords: Enterprise Resource Planning.
INTRODUCTION
Enterprise Resource Planning (ERP) system solutions are currently in high demand by both manufacturing and service organisations, because they provide a tightly integrated solution to an organisations information system needs. ERP allows professional people to manage their company in one system that integrates the entire business process and creates a wide-enterprise view of significant corporate information. Recently many organisations face a new challenge of increasing competition, expanding markets and enhancement in customer expectations (Umble et al., 2003). This issue needs to be considered in relation to the following potential and/or necessary operational improvements. Inventory reduction to a minimum Reduction of total costs of products and/or services Provision of more reliable delivery dates Making of assortment of production Providing higher service levels to customer Nowadays Information Technology (IT) and Business Process Re-engineering (BPR) are used together as important means of giving the organisation the leading edge. The increasing need for implementing a total business solution has already taken place in most organisations. ERP software has been developed to meet this need (Huang et al., 2001). In todays dynamic environment, there is a significant need for any organisation to develop their policies in order to become globally competitive (Beheshti, 2006). ERP is a strategic tool, which helps the organisation to obtain competitive edge by
DR. ALMAHDI M. S. IBRAHIM WHAT ORGANISATIONS SHOULD KNOW ABOUT ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM
European, Mediterranean & Middle Eastern Conference on Information Systems 2010 (EMCIS2010) April 12-13 2010, Abu Dhabi, UAE
integrating all business processes, optimizing the use of available resources, keeping up with technological changes and ensuring timely responses. Chen (2001) conducted research in planning for ERP systems. He suggested that companies introduce ERP for the following reasons: The use of multiple points of input with duplicated effort in the existing system The inability of the existing system to support organisational needs The requirements of extensive resource for maintenance and support The need of enterprise to reengineer their business process The growth of enterprise and subsequent incompatibility of several information systems. The inability of employees to respond easily to questions or information requested by key customers or suppliers. As ERP system being new concept in Libyan environment, the author wishes to review the literature on ERP related aspects. Firstly, there is a focus on historical information of the ERP system. Secondary there will be a definition of ERP system. Thirdly, the existing ERP software modules will be presented. Fourthly benefits and barriers of ERP system will be given in this section. Fifthly, there will be a review on major vendors of ERP systems is presented in this section. Finally, a discussion on the implementation of ERP in developed and developing countries will also be reviewed.
EVOLUTION OF ERP
Understanding the history and evolution of ERP is essential in order to understand its current and future application (Chen, 2001). Material Requirement Planning (MRP) was the earliest computerised information system. The focus of typical manufacturing companies in the 1960s was on inventory, in that period most of the software packages were designed to deal with that. MRP vendors expanded their systems to include more business functions. In the early 1980s, MRP expanded from a material planning and control system to a company-wide system capable of planning and controlling all the organisations resources. This expanded approach was fundamentally different from the original concepts of MRP (Kakouris and Polychronopoulos, 2005). Manufacturing Resource Planning (MRPII) meant to integrate primary services (i.e. customer ordering, inventory control and production control) and other services such as finance, accounting and distribution into the planning process (Chung and Snyder, 2000; Chen, 2001; Gupta et al., 2004 and Sheheb et al., 2004). The increasing need for integrating more and more function led to the development of a total integrated solution. In the early 1990s, MRP II was further extended to cover areas such engineering, finance, human resources, projects management, marketing etc. That led to the development of ERP systems. ERP is running on client-server architecture, and includes all the resource planning for the enterprise. Examples of these are product design, information warehousing, and material planning, capacity planning and communications system. In summary, MRP software dealt with production requirements in the manufacturing environment, MRP II was an extension of MRP to shop floor and distribution management activities, and it is still being used by manufacturers. ERP may be considered as the next generation of MRP II with other application areas (quality, maintenance, marketing, accounting and human resources) (Helm et al., 2003). ERP is a computerised system offering the integration of a number of areas and activities into one accounting information system.
EXPLANATORY DEFINITION OF ERP
The American Production and Inventory Control Society (1995) defines ERP as an accountingoriented information system for identifying and planning the enterprise resources needed to take, make, ship and account for customer orders.
It also states that ERP is the latest enhancement of MRP II with the added functionality of finance, distribution and Human Resource Management (HRM) integrated to handle the global business needs of an integrated and networked enterprise. Anther definition of ERP given by Huang et al., (2001) states that it is an industry term which is used for a wide set of activities sustained by multi-module compliance software that helps manufacture ring and service organisations to deal with the significant sections of their business. ERP software provides organisations with a set of integrated applications that run the following business functions: Human Resource (HR), accounting, controlling, project management, production, materials management, and sales and distribution. These applications are linked by a common database, which allows them to share data (Davenport, 1998; Shtub, 1999; and Gupta, 2000). Figure 1 shows ERP system.
Production
Materials
Financial
ERP
Manufacturing Distribution
Human
Figure 1. Framework of EPR System. Adapted by Ibrahim (2007, p. 6)
Considering the above definition, ERP systems have some key characteristics such as: Common access to a single set of data: the objectives of ERP system are to have a single set of data across all business processes within a company (Davenport, 1998). Standardised data definitions: the ERP business process shares the same data definition across all ERP application modules. System flexibility: an ERP system should be flexible to the changing needs of an enterprise. The client/server technology enables ERP to run across various database (Yen et al, 2002). Beyond the company scope: ERP system should not be confined to a companys boundaries. Instead, it should support the companys online communication with external entities.
MAJOR VENDORS OF ERP SYSTEMS
At this point it is reviewed as imperative to develop the understanding of different ERP software and their capabilities. Currently, SAP, Oracle, PeopleSoft, Baan, and J D. Edwards are the major competitors in the ERP market (Yen et al., 2002, pp. 340), which provide solution based on companies requirement. SAP, accounts for roughly 33 per cent of the total market. Other major players include Oracle, PeopleSoft, Baan, and J D. Edwards account collectively for roughly 36 per cent of the total market (Mabert et al., 2001).
4.1
SAP
Established in Germany, SAP initiated operations in 1972 (Gupta et al., 2004). SAP with 33 per cent market share, is the major ERP vendor and currently supports the business of more than 12,000 customers (Ekanayaka et al., 2000). SAP is one of the largest software companies in the world (Davenport, 1998), as they spend 20-30 per cent of their annual revenues on research and development (R&D) (Scott and Kaindl, 2000). SAP applications are in use in more than 107 countries and are available in different languages and currencies (Gupta et al., 2004). SAPs first two products operated on mainframe hardware; R/1, but in 1981 was replaced by R/2, an online system. In 1992, SAP introduced R/3, a powerful client/server architecture product, which quickly gained dominant market share (Shehab et al., 2004, pp.366). This application is an integrated suite of programs which has been created for specific type of business data processing such as financial, manufacturing, distribution, logistics, quality control, logistic and human resources (Al-Mashari and Zairi, 2000 and Al-Mashari and Al-Mudimigh, 2003). SAP is currently expanding its product line to supply chain management, sales force automation and data warehousing (Yen et al., 2004). 4.2 Oracle
Oracle is the second-largest supplier of ERP software in the word (Shehab et al., 2004), its database is offering the most popular repository of Enterprise Systems Data (Davenport, 2000). Oracle was found in 1977 in the USA (OLeary, 2000). Oracle offers ERP applications designed to work with their database software. Oracle is a leading database software provider that sells most of its applications to manufacturers and consumer goods companies (Yen et al., 2002). Oracle 8i, its latest version of the database for internet computing, it has developed an Internet enabled suite of software modules for customer relationship management (CRM), supply chain management, financials, projects, and human resource (Gupta et al., 2004). Oracles applications are used in over 76 countries and are available in 29 languages. It consist over 45 software modules falling into the following categories: financial, human resources, projects, manufacturing, supply chain, and front office (Gupta et al., 2004). 4.3 PeopleSoft
PeopleSoft is the latest of current Enterprise Systems vendors. It initiated operations in 1987 and went public in 1992 (OLeary, 2000). Its product offerings are divided into two categories: PeopleSoft Business Process Solution and PeopleSoft Industry Solutions. PeopleSoft Business Process Solutions include materials management, supply chain management, service revenue management, complete suite of enterprise for finance, supply chain planning, manufacturing and human resources. While PeopleSoft Industry Solutions include industry-specific solutions designed to serve customers communications, financial service, healthcare, manufacturing, higher education, public sector, retail, services, transportation, government, and utilities. (Jacobs et al., 1998). Currently, it aims at the service sector with products designed to help the relevant organisations handle their intangible costs (Yen et al., 2002). PeopleSoft is appropriate for the service industry, in particular higher education, healthcare and public sector organizations. In these sectors, PeopleSoft systems are able to deploy a unique solution to inventory processes, which allows inventory counts, orders to be automatically placed, purchase orders to be created, and invoices to be produced and payments to be processed. 4.4 Baan
Baan was found in the Netherlands in 1978, it has roughly 3000 clients in 5000 sites worldwide (OLeary, 2000). Its software was primarily manufacturing oriented. Then the company targeted the public sector (Davenport, 2000). The Baan approach is to conduct concurrent business processes re-
engineering during the ERP implementation. Its aim is to shorten the total implementation time frame, help to improve the Internet security problems (Yen et al., 2002). Baan provides a scalable architecture making it possible for different size of business to cost-effectively implement the software. It is also Web enabled, giving enough flexibility to the organisations to gain a competitive advantage through its implementation (Yen et al., op.cit.). 4.5 J.D. Edwards
J.D. Edwards provides ERP applications for managing enterprise and supply chain (Yen et al., 2002). The J.D.Edwards Enterprise Systems package give customers control over their front office, manufacturing, logistics and distribution, human resources and finance (Shehab et al., 2004). Recently the companys software runs on many different kinds of systems. The different modules that are available from J.D.Edwards are: foundation suite, service suite, manufacturing suite, financial suite, energy and chemical suite, customer service management suite, government/education not-for-profit solutions and utility and energy solutions (Yen et al., 2002, pp. 594). ERP systems have common characteristics, such as, they are based on central relational database, they are built on client/server architecture, and they consist of various functional modules. Moreover, there have invariably modules for financial, sales order management, customer service management, purchasing, and inventory management. As most ERP vendors have many similarities, they also have substantial differences. Most ERP software vendors make assumptions regarding the business philosophy and business practices (Umble et al., 2003). A company that need to implement ERP must accept those vendors assumptions about the organisation and change existing processes and procedures (Langenwalter, 2000; and Ptak and Schragenheim, 2000). Moreover, the implementation of such packages is too expensive; a company plans to invest into these packages needs to have a clear strategy and idea about the cost (Yen et al., 2002) as ERP system customisation is costly and time consuming. ERP packages are primarily proprietary systems as opposed to open system architectures (Umble et al., 2003). This might be limited the flexibility of the enterprise that implements a particular ERP package. Standardised processes such as SAP R/3 and PeopleSoft require the adopting organisation to adapt its processes to the requirement of the software. In contrast, Oracle is more accommodating and allows organisations to tailor the software to existing processes (Umble et al. op.cit.). This approach supports the two case study organisations for selecting Oracle database. In similar way J.D. Edwards requires some customisation to suit the business requirements (Gupta et al., 2004). SAP designed to help organise manufacturing and accounting processes and its system support all areas of business on a global scale. Similarly, Oracle provides most of its application to manufacturing and consumer goods company. In contrast Baan offers manufacturing software to companies that are wary of SAP products (Shehab et al., 2004), and it continues to develop enterprise systems in areas that SAP and Oracle are less competitive (Yen et al., 2004), like project and distribution module. Since J.D. Edwards sells software for managing the enterprise and supply chain (Shehab et al., 2004), Baan is noted for its flexible manufacturing and PeopleSoft has the lead in human resource software and several software for service environment. SAP and Oracle were found suitable for manufacturing environment. Their financial and supply chain systems are very strong (Davenport, 2000).
ERP MODULES
The names and numbers of modules in an ERP system provided by different software vendors may differ. Most vendors ERP software is flexible enough that an organisation can install some modules without buying the whole packages, organisations brook down ERP packages in modules that handle several functional departments including accounting, finance, human resource and material module and they left the rest of the functions to be installed in future. However, these modules interact as the business processes require information exchange among different departments.
5.1
Human Resource
This Module integrates human resources management for guiding personnel-related tasks between managers and individual employees. There are many tasks, including personnel planning and development, human resources administration, automated personnel management, and business travel. In addition, the following areas are covered: payroll-handling accounting and preparation of checks related to employee salaries, wages, bonuses, employee benefits and self-service Human Resource (HR) that allow employees to change their personal information and beneficial allocation online (Yen et al., 2002). 5.2 Finance
These modules refer to bookkeeping and making sure that the bills are paid on time. Enterprise Resource Planning (ERP) can facilitate the following finance functions: General ledger: ERP can keep centralised charts of accounts and corporate financial balances, payments to suppliers and distribution. Accounts receivable: tracks payments due to a company from its customers. Fixed assets: manages depreciation and other costs associated with tangible assets such as buildings, property and equipment. Treasury management: monitors and analyses cash holding, financial deals and investment risks. 5.3 Manufacturing and Logistics
Manufacturers have employed ERP software to streamline their processes and to respond dynamically to the competitive marketplace. Moreover, they use ERP for improving the decision making process by enabling high level of integration, improved information accuracy and improved information flow through out the company. The use of ERP application in manufacturing has also been found to be critical in improving customers satisfaction, reducing the total cost of manufacturing and increasing the speed of order processing. ERP has also been found to be effective in reducing inventory costs, and it has also been credited with reducing manufacturing lead times (Shehab et al., 2004). 5.4 Sales
This area of application of ERP consists of order management, pricing, sales management, and sales planning (Umble et al., 2003). Customer service management, which is another significant aspect of sales and distribution related applications of ERP, administers installed-base service agreements and checks contracts and guarantees when customer call for help. 5.5 Controlling
ERP can facilitate overhead costs control through analyses corporate costs. Moreover, this function can also manage products and manufacturing cost controlling, activity-based costing, sales and profitability analysis and project control (Sheikh, 2003). 5.6 Distribution
An important area under the distribution application is transportation management which includes scheduling and monitoring and delivering products to the customers by tracking of order status. Other areas of related ERP application also include billing, electronic data interchange, address control,
shipping, and transportation management, which arrange, schedules and monitors delivery of production. 5.7 Quality Management
Quality management department may use an ERP system for: quality control, inspection processing, quality certificates, and quality notifications. In addition, this application can use ERP for manufacturing and purchasing quality tracking, test result entry in shop floor control, repetitive realtime notification of out-of-tolerance conditions and unlimited quality comments on each test. 5.8 Materials Management
ERP supports all materials management processes, including controlling of purchase of raw materials needed for building products, order entry and processing, and warehouse management that can keep track of goods and process movements in corporate warehouses.
ERP IMPLEMENTATION STAGES
The implementation of an ERP system in an organisation is a very complex project. The implementation of such systems is difficult and involves a high costs, as well as considerable time and resources. Organisations contemplating such a project must be aware of the necessary commitments. Many researchers have proposed stage models of ERP implementation(Bancroft et al.1998; Davenport, 2000; Langenwalter, 2000; Mandal and Gunasekaran, 2003; Umble et al., 2003; Gupta et al., 2004; Yusuf et al. 2004 and Kakouris and Polychronopoulos, 2005) in order to provide guidelines for successful implementation. This reviews seven of these models. Langenwalters (2000) and Davenports (2000) models have been chosen as they are the most referenced models related to implementation success. Bancroft et als. (1998), Mandal and Gunasekarans (2003), Umble et als. (2003), Gupta et al. (2004) and Yusuf et al. (2004) models have been chosen as they have empirical support and cover different case studies. It is thus argued that the stages of ERP implementation can be characterised as a journey with six stages. The first stage conducts feasibility studies. At this stage, it is vitally important to examine the practicability of introducing an ERP system into an organisation. The second stage in implementing ERP in an organisation is to plan for the system; this stage should be conducted in an early stage. Selecting the appropriate system is the third stage. Organisations should select the right ERP package that supports their business needs. This is very important in the early stages of ERP implementation. As no ERP package is completely suitable for any specific business. In fourth stage of pre-implementation, the whole project is planned out along with schedules and deadlines, resources are allocated and all business is restructured to fit an ERP package (Gupta et al., 2004). The final stage is to the post-implementation process. Following the implementation of the system, an organisation should engage in a post-implementation review. Nicolaou (2004) classified post-implementation activities for ERP systems into three major tasks. In the first task, a company may experience a 3 to 6 month productivity decline, which is overcome by redefining jobs, establishing new procedures, fine-tuning ERP software, and taking charge of the new streams of information created by the ERP system. The second task, which lasts from 6 to 18 months, involves skills development, structural changes, process integration, and add-on technologies to expand ERP functionality.
ERP IMPLEMENTATION FACTORS
In this section theories and frameworks that consider factors related to ERP implementation are discussed. In particular, two frameworks developed by Huang and Palvia (2001) and Holland and Light (1999) are considered in detail and are used as the basis for further discussion. The work of other researchers is also reviewed in order to develop the researcher understanding of an ERP implementation factors that are follows: ERP strategy. companies should have a clear communicated business strategy and an IS/IT strategy aligned to it. Clear goals, focus and scope. Organizations should have a clear definition of goals and expectations, and should carefully define the reason for implementing ERP system and what critical business needs the system will address (Umble et al., 2003; Soja, 2006). Legacy systems. Through evaluating existing legacy systems companies can define the nature and scale of problems that they will be likely to encounter. This approach should then influence their choice of ERP strategy (Holland and Light, 1999; Soja, 2006). Top management commitment. Companies should have a top management who provide the leadership and the necessary resources to implement an ERP system smoothly and successfully. In addition, they should look beyond the technical aspects and consider the organisational requirements for successful implementation (Chen, 2001). Training and education. Training should show employees why an ERP is important and why it will be implemented. Employees should understand how their jobs are related to other functional areas within organizations (Zhang et al., 2003; Soja, 2006). Employee attitudes. Organisations should aware about how employees feel about the technology and how they will behave (Helm et al., 2003). Users involvement. Companies should design an implementation process that aims to have an important level of user participation and acceptance. Empowerment. Companies should have a high level of transparency in their implementation process and policy that empowers all employees involved. Project team. There should be an implementation project team that consists of employees representing different views and perceptions of the companies. Organisational culture. This is an important determinant of the success of implementation was defined by Huang and Palvia (2001). Implementation of ERP implies a huge change in the organisations business processes that can be very radical. Therefore, it is convenient to have a business culture that focuses on the importance of learning, knowledge, and past experience to enable these sorts of changes (Al-Mashari et al., 2003; Ferrario and Montagna, 2004; OKane, 2004; and James, 2004). Communication. Companies should have a detailed communication plan and strategy, which makes sure that the project plan is communicated successfully. Computer culture. Computer culture refers to employees attitudes towards computers, and organizations computer infrastructure. Computer culture may also influence organizations in adopting and deploying ERP systems. IT maturity. The successful implementation of ERP depends on the degree of IT maturity within the organization, as it encourages the organizations towards the adoption of ERP system. Process management. ERP implementation involves reengineering the existing business processes to the best business process standard (Bingi et al., 1999 and Holland and Light, 1999); therefore, organisations should have explicit guidelines for process management and great level of process maturity. Effective project management. Companies should have a formal implementation plan which includes a realistic timeframe. It should involve periodic project status meetings, an effective project leader and appropriate project team members (Gupta, 2000; Krammergaard and Rose, 2002;
Al-Mashari, 2002; Remers, 2002; Al-Mashari, 2003; Marble, 2003; Umble et al., 2003; Al-Mashari et al., 2003 and Soja, 2006). The researcher highlighted a number of requirements in making ERP projects successful in an organisation and, thus, contributing to the change process within organisations. It can therefore be argued that both hard and soft issues should be stressed in implementing ERP projects. As technical knowledge is required, strategic, organisational and people-related factors are significant in the success of an ERP project. Strong top management commitment is a most important issue in successful ERP implementation, as it involves of a lot of changes in the organisation. Also effective communications, effective project management, training and implementation team are essential throughout an ERP project in order to bind the various activities together. It can be seen that soft issues are much more demanding in ERP projects compared to many more conventional projects.
BENEFITS OF ERP IMPLEMENTATION
An ERP system being a computer based system for planning and controlling can deliver significant benefits. ERP can help to improve customer services, reduce inventory, reduce purchased materials cost, and reduce lead time. ERP can also aid to reduce overtime, improve return on investment and improved decision making due to availability of timely and appropriate information. Moreover, ERP systems assist to reduce the requirements of employees and help organisations reduce data transfer time (Gupta et al., 2004). ERP systems offer benefits in terms of strategic, operational, managerial, organisational and technical related issues. In the table 1 the author has critically summarised the benefits from ERP implementation under the five key main headings, discussed above, in order to facilitate the processes of ERP implementation.
Type Strategic Benefits Benefits of ERP Support business alliance Building external linkages Build business flexibility for current and future changes Suppliers and customers can be online communication Integration of business operations and processes Improve the labor productivity Quality of information Improved delivery times Reduction of total operation and administration costs Reduction of stock levels Reduction of real-time information Literature support (Shang and Seddon, 2000; and Shanks et al., 2003). (Shang and Seddon, 2000; Shanks et al., 2003; Mabert et al., 2003; and Yen et al., 2004). (Shang and Seddon, 2000; and Shanks et al., 2003). (Gupta, 2000; Shang and Seddon, 2000; Shanks et al., 2003; Mabert et al., 2003; Hawking et al., 2004; and Gupta et al., 2004). (Ahmed et al., 2002; Spathis and Constantinides, 2003; and Yen et al., 2004). (Shang and Seddon, 2000; Mabert et al., 2003). (Ahmed et al., 2002; Shanks et al., 2003; and Spathis and Constantinides, 2003). (Gupta, 2000; Shang and Seddon, 2000; Ahmed et al., 2002; Spathis and Constantinides, 2003; Gupta et al., 2004; and Hawking et al., 2004). (Gupta, 2000; Shang and Seddon, 2000; Ahmed et al., 2002; Spathis and Constantinides, 2003; Shanks et al., 2003; Mabert et al., 2003; and Shehab et al, 2004). (Tudawe, 1999; Spathis and Constantinides, 2003; and Gupta et al., 2004). (Spathis and Constantinides, 2003; Mabert et al., 2003; Gupta et al., 2004; and Shehab et al, 2004).
Operational Benefits
Organizatio nal Benefits
Support organisational changes Improved co-ordination between departments Replace legacy systems
(Shang and Seddon, 2000; and Shanks et al., 2003). (Spathis and Constantinides, 2003). (Mabert et al., 2003). (Gupta, 2000; Shang and Seddon, 2000; Ahmed et al., 2002; Shanks et al., 2003; Spathis and Constantinides, 2003; Gupta et al., 2004; Shehab et al, 2004; and Hawking et al., 2004). (Spathis and Constantinides, 2003; and Hawking et al., 2004). (Spathis and Constantinides, 2003; and Hawking et al., 2004). (Gupta et al., 2004). (Gupta, 2000; Hawking et al., 2004). (Shang and Seddon, 2000; and Shanks et al., 2003). (Tudawe, 1999; Shang and Seddon, 2000; Ahmed et al., 2002; Shanks et al., 2003; Spathis and Constantinides, 2003; and Hawking et al., 2004). (Shang and Seddon, 2000; and Shanks et al., 2003).
Managerial Benefits
Improved decision making
Improve financial management Faster and more accurate transactions Reducing the requirements of manpower Improved inventory/asset mgt Technical Benefits IT costs reduction Increased flexibility in information generation
Increased IT infrastructure capability
Table 1.
Benefits of ERP Implementation
BARRIERS AND DIFFICULTIES OF ERP IMPLEMENTATION
Despite the significant benefits that ERP software packages provide in managing and integrating cross-functional business processes there are several difficulties and barriers that relate to such an implementation. The major challenge is to integrate existing legacy systems and other applications with the ERP system to provide a common interface. Moreover, ERP systems are complex and implementing one of them can be a challenging, time consuming and expensive project for every organisation (Davenport, 1998). For example, SAP installation for some companies costs roughly $30 million in licence fees and $200 million in professional services (Ekanayaka et al., 2002). Addressing the difficulties of ERP implementation helps to plan better and facilitate a more successful ERP implementation. The following table (table 2) summarises the main problems and difficulties related to a potential ERP application. The supporting literature is identified in the third column of the table. Based on the literature the difficulties have been categorized to organisational, managerial and technical.
Type Organisational Barriers ERP Barriers Lack of change management Lack of communication Different business culture Language barriers Literature Support (Hawking et al., 2004; Corbitt et al., 2004 ; Al-Mashari and Al-Mudimigh., 2003) (Sheikh, 2003; Al-Mashari and AlMudimigh., 2003; Yen et al., 2002) (Huang and Palvia, 2001; James, 2004) (Huang and Palvia, 2001; James, 2004)
10
Spending long time to implement ERP ERP is too expensive Managerial Barriers Lack of technically knowledgeable staff Under performed project team Lack of strong support from top management Lack of well-trained employees Poor of implementation project management Inadequate process engineering Poor business performance Employee resistance to change Technical Barriers Poor Software functionality Poor prioritization of resources Poor reporting procedures Upgrades performed poorly ERP is too complicated Poor IT infrastructure Difficulties in integrating existing applications with ERP
(Sheikh, 2003; Davenport, 1998; Spathis and Constantinides). (Cupta, 2000; Spathis and Constantinides; AlMashari et al., 2003; James, 2004; Davenport, 1998). (Sarket and Lee, 2003; Hawking et al., 2004; Corbitt et al., 2004; Shanks et al., 2003; Yen et al., 2002) (Hawking et al., 2004; Corbitt et al., 2004) (Huang and Palvia, 2001; Sarket and Lee, 2003; Umble et al., 2003 ; Al-Mashari and AlMudimigh., 2003; Yen et al., 2002). (Hawking et al., 2004; Corbitt et al., 2004; Sheikh, 2003; Spathis and Constantinides; Umble et al., 2003 ; Yen et al., 2002). (Hawking et al., 2004; Corbitt et al., 2004; Huang and Palvia, 2001; Umble et al., 2003) (Hawking et al., 2004; Corbitt et al., 2004; Huang and Palvia, 2001; Shanks et al., 2003) (Hawking et al., 2004; Corbitt et al., 2004 ; Al-Mashari and Al-Mudimigh., 2003) (Spathis and Constantinides; Cupta, 2003; Umble et al., 2003; Shanks et al., 2003; Yen et al., 2002) (Hawking et al., 2004; Corbitt et al., 2004) (Hawking et al., 2004; Corbitt et al., 2004) (Hawking et al., 2004; Corbitt et al., 2004) (Hawking et al., 2004; Corbitt et al., 2004) (Ekanayaka et al., 2002; James, 2004; Davenport, 1998 ; Shanks et al., 2003) (Huang and Palvia, 2001; James, 2004) (Spathis and Constantinides; Umble et al., 2003).
Table 2. The Barriers of ERP Implementation From the analysis of the various literature it should be noted, that not all companies that have adopted ERP are satisfied with the results of using such systems. Many companies consider their adoption attempts to have failed (Langenwalter, 2000; and Umble et al., 2003). Examining the barriers encountered in adopting ERP systems may help to explain why the related benefits have not been fully realised by the organisations, and it may also provide an understanding of the potential of using such systems. A number of criticisms have been made about the implementation of these systems. The major challenges of ERP systems implementation are: Firstly, the implementation of such systems is very time consuming and too expensive. Secondly, people related difficulties consist of organisational resistance to change, lack of top management support, and lack of well-trained employees. Finally, the most important thing is that the implementation of ERP projects is a major event in the life of an organisation. An ERP system is expected to change a lot of business, processes, and activities within the organisation and often initiated with much expectation about the benefits and the transformation that the project would bring to the organisation.
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10
ERP IMPLEMENTATION SUCCESS
The success of an ERP implementation depends on how quick the benefits can be reaped from it. This necessitates rapid implementations that lead to shortened ROI periods. In supporting that, Ptak and Schragenheim (2003) identified that ERP implementation is considered to be a success if it achieves the level of ROL identified in the project approval phase. Hong and Kim (2002) claims that an ERP implementation success refer to the degree of deviation from project goal in terms of expected cost, time, system performance and benefits. Similarity, Rosemann and Wiese identified that the success of an ERP project is often reduced to: the ERP system is configured and running and the whole project is more or less on time and within budget. In contrast, Gupta (2000) claims that the keys for successful implementation of ERP can be attributable to: Commitment from top management, form a task force with personnel from all functional areas to foster tier 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, and be patient because ERP implementation takes time. It is amazing that the success of an ERP implementation project is often reduced to tow facts, the ERP system is configured and running, and the whole project is on time and within budget (Rosemann and Wiese, 1999). It is likely that a variety of measures will be appropriate to determine the overall success of ERP project.
11
ERP IN DEVELOPED AND DEVELOPING COUNTRIES
ERP is undoubtedly widely adopted by organisations in developed countries. Meanwhile, ERP is beginning to appear in many organisations in developing countries (Huang and Palvia, 2001). The aim of this section is to provide an overview of the level of influence and development of ERP both in developing and developed countries. 11.1 ERP in Developed Countries
ERP systems have received a great deal of attention in the last couple of decades. Most researchers have examined the effects of ERP philosophy and practice in developed countries. In this section the North America (USA, Canada), Europe (UK, Germany, France) and Japan are selected for subsequent discussion, because they represent the largest ERP market (Huang and Palvia, 2001). 11.2 ERP in North America (USA, Canada)
The USA and Canada are the primary ERP markets, they represent (66%) of ERP market (Huang and Palvia, 2001). Organisations in these countries seem to have richer experience in this kind of software, and have used integrated software solutions for many years. From the national and environmental perspectives, there are a number of significant aspects for the USA and Canadas ERP market, they have excellent IT infrastructure, strong economic, and government IT policy. From organisational perspectives, they have high IT maturity, favourable computer culture, and qualified personal to adopt advanced technologies. 11.3 ERP in Europe (UK, Germany, France)
Europe represents 22% of the world market (Huang and Palvia, 2001). There are a number of important factors for Europes ERP market. First, Europe has a sound and strong economy with a solid industrial and manufacturing base. Second, the information infrastructure is well established. Third,
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qualified personnel are available to use and implement advanced and sophisticated technology. Many companies implemented ERP systems. In a survey of 2647 companies, across all industry types, it has been found that 13% of these companies used ERP software in just one functional area, whereas 70% used it in several functional areas (Mabert et al., 2003). 11.4 ERP in Japan
The sales of ERP in Japan represent a very small (comparing with other developed countries) proportion of the global market, because ERP use is not widespread in Japan. According to Huang and Palvia (2001) the reasons for the low acceptance and diffusion in Japan are the regional environment and organisational culture in Japan. Japans economy is highly linked to its neighbours for manufacturing and distribution. Under such circumstances, implementing ERP systems that link with suppliers and customers in other countries is difficult and facing challenges because multiplelanguages (Huang and Palvia, 2001). 11.5 ERP in Developing Countries
Studies on implementation of ERP are mainly focused on developed countries, however, only little attention has been given on developing nations (James, 2004). Wile there is wide acceptance of ERP in developed countries, developing such as the USA and the UK, developing countries like China, India and Brazil lag far behind (Huang and Palvia, 2001). Because the economic growth in developing countries ERP vendors such as SAP, Baan, Oracle, PeopleSoft, and J.D Edwards- account for 9 percent of Asia/Pacific, and 3 percent of Latin America ERP market (Huang and Palvia, 2001). This section focuses on India as it is rapidly expanding its exports of software development operations to developed countries, China because it has been vigorously promoting IT and Internet as tools for the advancement of the whole country and Brazil as a growing of ERP market. 11.6 ERP in India
India is the largest developing country base for software to communicate effectively with counterparts in other parts of the world (Huang and Palvia, 2001). Some banks and financial organisations in India have realised the huge power of the Internet and have adopted the web (Internet) platform (Kumar, 2001). ERP in India is being offered by small-localised players to small and medium sized organisations customising it to the needs and their budgets (Cupta et al., 2004). As India is being the largest developing country in implementing ERP systems, its ERP has been slow in adopting due to many reasons such as lack of a high implementation costs, and a lack of computer culture as a pervasive way of doing business. Also the common belief ERP that systems are only for larger companies, because of high costs of acquisition, implementation, and maintenance. 11.7 ERP in China
Chinas investment has been in both the public and private sector. However, there are only a handful of companies using ERP systems in China. China was in transit from a planned economy to more open market economy (James, 2004). Chinas development including Internet access and electronic commerce depends on the infrastructure and industrys ability to reform and to adapt to world trends. The overall outlook is positive, since China continues to reform policies to enter the world trade organisation (Rosen, 1999). ERP implementation is facing many difficulties to companies and to developing countries, as the vast majority of enterprise in these countries is small and medium in size (James, 2004). Consequently, the high cost of ERP implementation is by far the biggest problem. In addition, as the top five ERP vendors such as SAP, Baan, Oracle, PeopleSoft, and J.D Edwards play vital role in ERP market in China (Zhang et al., 2001), technical complexity of ERP implementation is
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the second biggest problem (James, 2004). Qualified staff with IT project experience, and the language causes communication barriers between Chinese users and international ERP vendors are other obstacles (Huang and Palvia, 2001). Moreover, lack of training, lack of incentives to state-owned enterprises, and a corporate culture different from that in the west (James, 2004). 11.8 ERP in Brazil
The use of ERP systems have been grew in Brazil, vendors like SAP, Been, and PeopleSoft have began to invest in small companies (Huang and Palvia, 2001). Brazil is the most technology-saturated in Latin America; it has implemented a high technology in its businesses. According to Huang and Palvia, (2001) Brazil in the positive side, has started privatising its telecommunications and vastly expanded the telecommunications network, this will encourage the ERP market. However, aged and weak basic and telecommunication infrastructure, low BPR experience, and low IT maturity can be detrimental to the entire IT industry. In summary, many developed countries have implemented ERP systems due to the many reasons, which include strong national information in infrastructure, strong economic, government IT policy, qualified personal to implement advanced technology, and integrated information system. Compared with developed countries, the most important issue to be successful in ERP in developing countries need to have an IT infrastructure that is capable to supporting and enabling the execution of ERP. ERP infrastructure in general comprises network infrastructure, security infrastructure, application server environment, data and content management tools, application development tools, hardware and operating systems, and system management platform. The organisations do not have the necessary infrastructure, and this can be attributed to the poor economy or the public-sector arrangements. There is wide acceptance of ERP in developed countries such as the USA, the UK, Canada; Germany, and France, developing countries lag far behind. At present, North America occupies 66 percent of the ERP market; Europe takes 22 percent, wile the all of Asia and Latin America is only 12 percent. However, due to economic growth, developing countries in Asia and Latin America are becoming major targets of big ERP vendors.
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CONCUSSIONS
In todays dynamic environment, there is a strong need for organisations to become globally competitive. ERP has been widely used to integrate a number of activities across functional areas in an organisation in order to plan, co-ordinate, and control enterprise resources (Davenport, 1998). It is a useful solution for organisations that have a need to integrate their information across functional areas (Helm et al., 2003). Organisations are forced to keep up to date with new technological solutions in order to maintain good performance. Many companies have made considerable investments in ERP installation systems (Chen, 2001) to further automate crucial back-office operations and to replace ageing applications, with the aim of integrating information processes across the company using the best generic business practices. Currently, SAP, Oracle, PeopleSoft, Baan, and J D. Edwards are the major competitors in the ERP market (James, 2004; Xue et al., 2005). SAP accounts for roughly 33 per cent of the total market and it serving more than 12,000 customers. Other major players include Oracle, PeopleSoft, Baan, and J.D. Edwards, who account collectively for roughly 36 per cent of the total market (Mabert et al., 2001; Kim et al., 2006). From the analysis of the literature, it has been noted that one of the most widely-cited factors related to ERP implementation is top management commitment. Top management support appears to be an important characteristic in the process of ERP implementation. Despite the significant benefits that ERP software packages can provide in managing and integrating cross-functional business processes, ERP implementation faces many difficulties and barriers. The
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major challenge is to integrate existing legacy systems and other applications with the ERP system in providing a common interface. Moreover, ERP systems are complex and implementing one of them can be a challenging, time consuming and expensive project for any organisation (Davenport, 1998). The high failure rate of ERP implementation calls for a better understanding of its success related factors (Beheshti, 2006). Evaluating the different reasons for failures can be by studying the factors that make an implementation successful (Ferrario and Montagna, 2004). There is wide acceptance of ERP in advanced countries such as the USA, the UK, Canada, Germany, and France, but developing countries are now also striving to adopt and apply ERP systems.
Managers in organizations should consider ERP acquisition and implementation as a capital investment decision with the following expectations (Beheshti, 2006).
The ERP system is a business solution and not another IT project. There is a degree of uncertainty with ERP acquisition and implementation because (a) it is hard to estimate the savings, and (b) it is difficult to anticipate developments because of constant changes. . The ERP has a greater impact on the organization than traditional system changes. . Intangible benefits of an ERP system are difficult to put into monetary terms. . There is a definite emotional element in the implementation of an ERP system because of the drastic organizational changes involved.
. .
Further research may focus on comprehensive studies of the implementation stages, factors, benefits and barriers affecting the introduction of ERP in organisation are needed.
References
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What Organisations Should Know About Enterprise Resource Planning (Erp) System

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European, Mediterranean & Middle Eastern Conference on Information Systems 2010 (EMCIS2010) April 12-13 2010, Abu Dhabi,

EXPLANATORY DEFINITION OF ERP

Figure 1. Framework of EPR System. Adapted by Ibrahim (2007, p. 6)

MAJOR VENDORS OF ERP SYSTEMS

ERP IMPLEMENTATION STAGES

ERP IMPLEMENTATION FACTORS

BENEFITS OF ERP IMPLEMENTATION

Organizatio nal Benefits

Improved decision making

Increased IT infrastructure capability

Benefits of ERP Implementation

BARRIERS AND DIFFICULTIES OF ERP IMPLEMENTATION

ERP IMPLEMENTATION SUCCESS

ERP IN DEVELOPED AND DEVELOPING COUNTRIES

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