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Avoiding ERP Implementation Failure
 

Enterprise resource planning systems appear to be a dream come true. They are designed to enhance competitiveness by upgrading n organization’s ability to generate timely and accurate information throughout the enterprise and its supply chain. The latest generation of commercially available software packages promise seamless integration of
all information flows — financial and accounting, human resource, operations, supply chain, and customer
information. This provides for a unified view of the business, encompassing all functions and departments by
establishing a single enterprise-wide database in which all business transactions are entered, recorded, processed,
monitored, and reported.A successful ERP implementation can shorten production cycles,increase the accuracy of demand forecasts,improve customer service, trim fat from operating expenses, and may lead to a reduction in overall information technology costs by eliminating redundant information and computer systems.

 

Owens Corning claims ERP software helped it save $50 million in logistics,materials management, and sourcing.
It also led to inventory reductions because material planners had access to more up-to-date and accurate data
that improved the company’s ability to track and control system-wide inventory and forecast future demand.
For managers who have struggled with incompatible information systems and sub-optimum operating practices,
the promise of ERP to solve the problem of business integration is enticing.But the price of securing the benefits
of ERP may be high. The cost of a modest ERP implementation can range from $2 million to $4 million,depending on the size of the organization and the specific products and services purchased from vendors. The cost of a full-blown implementation in a large organization can easily exceed $100 million.
 

Why ERP implementations fail

 

In a recent survey, information technology managers identified three primary reasons for the failure of all IT-related projects: poor planning or poor management (cited by 77 percent), change in business goals during the project
(75 percent), and lack of business management support (73 percent). Since ERP is an IT-related project, the above are valid reasons for explaining ERP implementation failures.

 

Questions

 

1. In your own words,what is an ERP system? How do ERP systems relate to stand-­‐alone functional business systems? (8
points)
 

2. What are the typical financial costs of an ERP system?Based on the text, what are the activities behind these
costs (data conversion,training,etc.)?Why do companies attempt to implement ERP systems even when the costs and
risks of such systems are well known?(15 points)
 

3. In your own words (no long quotations from the articles or text), describe the main reason ERP implementations
are prone to failure. While the article and book may list reasons, look for a common thread that exists across all of the examples the provided in the article or book.(15 points)
 

4. In your own words (no long quotations from the articles or text), describe the things that help ensure successful ERP implementation. The book and article may list specific reasons, but look for one or two common threads that exist across all of the examples. (12 points)
 

1. Why ERP?
 

The business environment is dramatically changing. Companies today face the challenge of increasing competition, expanding markets, and rising customer expectations. This increases the pressure on companies to lower total costs in the entire supply chain, shorten throughput times,drastically reduce inventories, expand product choice, provide more reliable delivery dates and better customer service, improve quality, and efficiently coordinate global demand, supply, and production [25].
 

As the business world moves ever closer to a completely collaborative model and competitors upgrade their capabilities, to remain competitive,organizations must improve their own business practices and procedures. Companies must also increasingly share with their suppliers, distributors,and customers the critical in-house information
they once aggressively protected [17]. And functions within the company must upgrade their capability to generate and communicate timely and accurate information. To accomplish these objectives, companies are increasingly turning to
enterprise resource planning (ERP)systems.ERP provides two major benefits that do not exist in non-integrated departmental systems: (1)a unified enterprise view of the business that encompasses all functions and departments; and (2) * Corresponding author.
 

An enterprise database where all business transactions are entered, recorded, processed, monitored,and reported. This unified view increases the requirement for, and the extent of, interdepartmental cooperation and coordination. But it enables companies to achieve their objectives of increased communication and responsiveness to all stakeholders
[9].
 

2. The evolution towards ERP The focus of manufacturing systems in the 1960
s was on inventory control. Companies could afford to keep lots of ‘‘just-in-case’’ inventory on hand to satisfy customer demand and still stay
competitive. Consequently, techniques of the day focused on the most efficient way to manage large volumes of inventory. Most software packages (usually customized)were designed to handle inventory based on traditional inventory concepts [23,25].
 
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In the 1970
s, it became increasingly clear that companies could no longer afford the luxury of maintaining large quantities of inventory. This led to the introduction of material requirements planning (MRP)syste ms. MRP represented a huge step forward in the materials planning process.For the first time, using a master production
schedule, supported by bill of material files that identified the specific materials needed to produce each finished item, a computer could be used to calculate gross material requirements. Using accurate inventory record files, the available quantity of on-hand or scheduled-to-arrive materials could then be used to determine net material requirements.
 

This then prompted an activity such as placing an order, canceling an existing order, or modifying the timing of existing orders. For the first time in manufacturing, there was a formal mechanism for keeping priorities valid in a
changing manufacturing environment. The ability of the planning system to systematically and efficiently
schedule all parts was a tremendous step forward for productivity and quality [21,23,25].
 

Yet, in manufacturing, production priorities and materials planning are only part of the problem. Capacity planning represents an equal challenge. In response, techniques for capacity planning were added to the basic MRP system capabilities.Tools were developed to support the planning of aggregate sales and production levels (sales and
operations planning), the development of the specific build schedule (master production scheduling),forecasting, sales planning and customer order promising (demand management), and high-level resource analysis (rough-cut capacity
planning). Scheduling techniques for the factory floor and supplier scheduling were incorporated into the MRP systems. When this occurred, users began to consider their systems as company-wide systems. These developments resulted in the next evolutionary stage that became known as closedloop MRP [21].
 

In the 1980
s, companies began to take advantage of the increased power and affordability of available technology and were able to couple the movement of inventory with the coincident financial activity. Manufacturing resources planning (MRP II)systems evolved to incorporate the financial accounting system and the financial management
system along with the manufacturing and materials management systems. This allowed companies to have a more integrated business system that derived the material and capacity requirements associated with a desired operations
plan, allowed input of detailed activities, translated all this to a financial statement, and suggested a course of action to address those items that were not in balance with the desired plan [23].
 

By the early 1990
s, continuing improvements in technology allowed MRP II to be expanded to incorporate all resource planning for the entire enterprise. Areas such as product design, information warehousing, materials planning, capacity planning, communication systems, human resources, finance, and project management could now be included in the plan. Hence, the term, ERP was coined. And ERP can be used not only in manufacturing companies, but in any company that wants to enhance competitiveness by most effectively using all its assets, including information
[23,25].
 

3. The promise and pitfalls of ERP––why the implementation process matters Enterprise systems appear to be a dream come true. The commercially available software packages promise seamless integration of all information flows in the company––financial and accounting information, human resource information, supply chain information, and customer information. For managers who have struggled, at great expense and with great frustration, with incompatible information systems and inconsistent operating practices, the promise of a quasi ‘‘off-the-shelf’’ solution to the problem of business integration is enticing.Fig. 1 illustrates the scope of an enterprise system.Fig.
 
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