Enterprise Resource Planning Essay

Enterprise Resource Planning is a term that describes a system of business management in which all facets of a business are integrated. These include sales, manufacturing, planning and marketing . EPR is about integrating all these different aspects of business in one software. Software develops of ERP software include the Carter Group (who originally came up with the term), Peoplesoft, Oracle and SAP. There have been several attempts of ERP implementation that have been unsuccessful. Most of these failures happened in 1999, in an attempt to manage Y2K issues. This suggests that companies at the time may have been compelled to implement ERP due to pressing needs. The success of company’s that adopted ERP later shows that these late adopters have benefited from mistakes made by other companies. Current research indicates most recent implementations to be successful Failure of ERP projects occurs at varying degrees. When a project is not fully utilized it can be considered to have failed. Forrester Research in April 2001 reported that about 6 percent of 500 companies that they had surveyed found their ERP systems to be work effectively. Another 79 percent found their ERP systems to be ineffective or somewhat effective. The complexity of implementing ERP projects has been cited as a common and major for ERP implementation failure. The process requires commitment from all divisions of the company to be successful. It consumes a lot of time and is difficult as well as expensive to implement. The tight integration characteristic of the project means that without commitment from all workers and a change in the way of doing business means that it cannot work. ERP projects have been known to cost upwards of $500 million for very large companies and to take years to be fully complete. This happens without a guarantee of the eventual outcome Hershey Food’s SAPAG’s R/3 implementation illustrates this point best. The company incurred expenses of about $113 million and took thirty months on their ERP project. Upon completion in July 1999 the company had large problems of ensuring orders were pushed through the system. The result of this was delays in shipping and loss of customers due to orders that were incomplete. Some of the reasons given for this failure include the haste in which it was done. The ERP project if it had gone according to schedule would have taken 4 years rather than the short 30 months it took. Additionally, the company was at the same time implementing two other packages a logistics and customer relations package. This only made things more complex and harder for employees to learn. The time at which Hershey Food ‘went live’ with the ERP project happened to be the busiest time of their year, Halloween. Consequently the delays that resulted cost the company dearly leading to a $ 151 million fall in profits compared to the year before Most managers try to work around the complexities of the process rather than take the time, money and effort to go through the complex configuring process to ensure the ERP system fits with a company’s specificities. Using process templates is a short cut to make implementation faster and leads to generalization. This in the end has an effect of limiting performance and lowering competitive advantage. Speeding up the process often means that critical testing and adequate training of the users will be compromised. Inadequate training and education of employees is a common problem because training needs are almost always, underestimated. The crucial nature of ERP training cannot be overemphasized. Employees have to learn new software interfaces and processes in the business end. All this affect the whole project and the company. Outside consultant issues are another feature of most ERP failures. Sometimes the consultants hired may be in experienced or overstaffed leading to an increase in operating costs for the ERP project. Where more than one consultancy firm is used conflict almost always ensues. A forestry products manufacturer based in Atlanta used four consultancy firms at various stages of implementing its SAP project. The CIO reported that the consultants were in constant conflict over the best approach to the project. Control of the project seemed to be the main issue rather than forming a partnership with the manufacturer for the project’s success. The company finally shelved the project. FoxMeyer, a $5 million drug company contracted two vendors for its SAP R/3 project. The warehouse automation was bought from Pinnacle while Anderson had the job of integrating and implementing the Delta III project and the SAPR/3. The ERP project drove FoxMeyer Drugs to bankruptcy. Though there were other reasons for their failure but the use of two consultancy firms contributed a lot to an already complex situation. Incompetence of consultants in implementing the ERP project is common. Peoplesoft and Deloitte & Touche were sued by W. L. Gore following ERP failure after the system they had installed went live and resulted in many problems. Gore alleged that Deloitte & Touche were unqualified since when the system went live, the company had to depend on the customer service hotline following system problems. The company had to find other consultants to correct the damage caused causing hundreds of thousands of dollars in losses. Deloitte & Touche paid referral fees to Peoplesoft, this lead Peoplesoft to recommend them despite the fact they had no expertise for implementation of the software. FoxMeyer had a similar problem with the CLO reporting that the company was more like training ground for inexperienced consultants. When software is over customized, a problem is usually created. McFarlane of Western management consultants claims that modification of software results in trouble. He suggests modifying business processes instead. When software is modified, upgrading and testing become a problem increasing the chances of failure of the subject. Many businesses find it easier to purchase software rather than identify weaknesses in business process and improve them. It is best for the business process to fit the software and where there is absence of fit or appropriateness, the business process should be modified. The commander of Military Sealift Command decided to reduce risk of ERP implementation by finding a package that closely mirrored the business practices of MSC so as to avoid software modification. In only about 11 areas did the software fail to match and even then, the commander changed the MSC processes so that they would fit the Oracle ERP software they were using. Application of technology as a solution to problems of business processes is another reason for failure of ERP. Many ERP initiatives are system driven; these have a higher probability of failure compared to those that are business driven. Most companies consider ERP implementation as a competency by itself that could serve as a fix to a problem. This should not be the case since technology is a vehicle by which competency can be obtained rather than a competency by itself. This was FoxMeyer’s mistake. By adopting ERP early the company took up software that was designed for manufacturing companies rather than distribution companies. With this major underlying problem there is no way the ERP project could have been a success. The software could not handle processing demands leading to FoxMeyer’s bankruptcy. Corporate culture also has great influence as far as the failure of ERP implementation is concerned. When top management is not seen to be backing up the project it is not very well recognized. In addition most ERP projects are rejected by employees who fear that their jobs will be lost. Failure to realize the benefits of the projects leads to a resistance to change. Management has a role in this because if they were to communicate effectively to the employees, there would be increased ownership of the project. To foster buy-in and ownership, employee involvement should be as high as possible otherwise employees will back out or refuse to be cooperative leading to failure of the project. FoxMeyer had such a problem, most employees felt that their jobs were threatened by the ERP project and some of them even trashed the interfaces set up while others simply did not participate in training leading to delays in orders and general mismanagement of the whole distribution process. The aforementioned forestry manufacturing produces did not put into consideration the effect of ERP implementation on its Vice Presidents. The Vice presidents of the 12 divisions in the company would have lost their autonomy to a more centralized and integrated system. When the VPs realized the effect of the company’s long-term strategies they balked leading to scraping off of the subject. Testing of the ERP project requires time and effort. Whenever a red flag is raised, the system should be checked. Miscalculation of how much time and effort will be required leads to failure of the project. It is better to exceed the timeline rather than compress the time required for completion of the project and end up with system that is flawed. Sticking to a schedule despite the problems that have been identified will cause problems later. This is evident from the troubles experienced by Whirlpool following its SAP system implementation. The company went live in spite of the fact that problems had been identified in the testing phase. The decision not to change their schedule led to shipping delays with appliances in warehouses for upwards of six-weeks past their correct delivery time. Meritor experienced a similar problem. Believing they had adequate training, they began to roll out the ERP system in phases beginning with a manufacturing plant in Wales. It took another 30 days with more staff to ensure that manufacturing would not be delayed. To prevent a problem like that from occurring in the future, the Vice President added another two weeks to ERP deployment timeline. Though this requires extra time and consequently more expenses an attitude more like this is necessary for the ERP rollout to be a success. The mainframe at Cleveland State University could not handle the application by Peoplesoft necessitating a change to a Unix System. The problems created by this failure of infrastructure lasted for a year following the first rollout of the ERP project. Bio Rad Laboratories had a problem along the same line. The implementation of their ERP system led to WAN becoming very slow as a result of conflict between ERP and email traffic. Email alone was using up the greater percentage of the bandwidth available between locations. This had the effect of important data in the ERP system distribution and financial modules being left to languish at some sites. This caused stalling of orders and slowed product shipment. From the two examples cited above it is evident ERP failure can result from poor infrastructure. Infrastructure appraisal is therefore necessary to ensure that it can support implementation of an ERP system. If this is done early the infrastructure can be modified early to suit the desired ERP system. This will lead to reduction in costs due to problems or failure of initial rollout of the ERP system. The intellectual capital of the company as far as the ERP system is a significant factor that contributes to failure of ERP systems. Often when the project is complete and within months after the exodus of the consultants most companies are left in trouble. This is because most companies do not have their own person(s) who are capable of dealing with problems in the ERP system. This was the case in FoxMeyer where upon the departure of the consultant firm staff, the company was left without people who could manage the ERP system effectively. This brain drain effect happened to a semiconductor manufacturer in Silicon Valley. The manufacturer lost about 70-80 percent of the projects core-team in about three months following ‘go live’ after most members of the core-project team had left. This loss meant that there was no one familiar with the project to address issues concerning the system that came up. User expectations may also cause ERP systems to fail when users expect that the return on investment will be unrealistically high. Usually, the costs of planning, consultation, training and testing as well as data conversion, replacement staffing, documentation and the drop in learning performance are all factors that will reduce the benefits anticipated from an ERP system. Other expectations like expecting a really short time of implementation of the system will lead to failure. For instance if a company is late in finding a consultancy firm, and still unwilling to change it’s ‘go live date’ the company risks failure as the consultancy that agree to work with the company will do so in a short time ending up with a less than perfect system. The consulting company may fail to meet user expectations leading to shelving of the project. Sometimes when there are executives from other organization who have recently joined the company, they may be tempted to impose ideas from a previous organization that has already implemented ERP systems. This creates a problem because each organization has its own unique processes and often what is applicable for the ERP system of one company is not wholly transferable to another company. User expectations should be as realistic as possible and reflect an understanding of the business processes and the vision of the company. To avoid poor management of using expectations it is necessary to provide the clear expectations of what can be achieved. Failure to understand and prioritize user expectations will lead to problems and the best way to solve this is to ensure documentation of these expectations as well as validating deliverables of the projects to the expectations of the users. A desire to cut costs also contributes to a lot of ERP failure. The major problem with this is it creates more problems which result in more time and mistakes that have to be corrected making the date of completion further and the costs higher. Ill-advised cost cutting which attempts to avoid conversion costs, for example going live at a multi-plant simultaneously may lead to failure. This may cause all plants to shutdown if a false start-up occurs. Trying to make the schedule as short as possible so as to save expenses leads to overrunning both the schedule and budget. Return on Investments should be a last consideration when the company’s information system is being upgraded. An attitude like this will help in avoidance of cost cutting as far as ERP projects are concerned. This will ensure success of the organizations ERP implementation. Inexperienced project managers may cause ERP implementation to fail. When the core-team project members has no one from the company’s IT team or other members of the user community it becomes difficult to continually monitor the progress of the project. A southeastern electronics manufacturer due to poor management by inexperienced personnel almost closed a plant because they were unable to accept deliveries. To ensure the success of ERP projects, it is important to first redefine the measure of success. Success is currently measured by whether a project is finished on time within the budget. The ability for the system to be fully utilized is not considered. Measures for performance ought to be developed and undergo standardization so that companies have a better and clearer understanding of benefits of ERP implementation as well as the basic rules to avoid failure.