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Enterprise Resource Planning: the Usefulness, Benefits and Problems Essay

Enterprise Resource Planning: the usefulness, benefits and problems Introduction Nowadays when businesses are operating in a highly automated business environment they have to adopt any newly formed technologies in order to remain competitive (Al-Mashari, 2000). Enterprise Resource Planning systems (ERP) form part of these new technologies that businesses need to adopt. The nature of ERP systems, their benefits and the problems associated with them will be explained through the answers in the questions that follow. 1. What is Enterprise Resource Planning system and which functional areas of business does it typically support?

Enterprise Resource Planning system is an enterprise-wide information system designed to coordinate all the resources, and information needed to complete business activities such as stock updating, order fulfillment and/or billing. An ERP system is characterized by supporting a variety of business functions such as manufacturing and supply chain management. Supply chain management is the management of a network of interconnected businesses involved in the ultimate provision of products and services required by customers (Harlant 1996).

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Supply chain management spans all movement and storage of stock levels such as raw materials, work in progress and finished goods from the supplier to the consumer. An ERP system is based on a common database and a modular software design. The common database can allow every department of an organization to store and retrieve information in real time and whenever this information is needed without having to ask each department for the relevant information. The information should be reliable, accessible and easily shared.

The modular software design should result in the ability of businesses to choose the modules they need, mix and match these modules so that they can improve their performance. Ideally the data for the various business functions are integrated. In practice the ERP system may comprise a set of discrete applications, each maintaining a discrete data store within one physical database. The initials ERP originated as an extension of Materials Requirements Planning (MRP) which is software based production planning and inventory control system used to manage manufacturing processes, as well as the Computer Integrated Manufacturing (CIM) . CIM was introduced by research and analysis firm Gartner in 1990. ERP systems now try to cover all basic functions of an enterprise, regardless of the organization’s nature. ERP systems can now be found in non-manufacturing businesses such as retail stores, non-profit organizations and governments. In order for a system to be considered an ERP system, a software package must provide the function of at least two systems.

For instance, a software package that provides both payroll and accounting functions. Some examples of modules in an ERP which in other cases would have been individual applications include manufacturing, supply chain, financials, Customer relationship management (CRM), human resources, warehouse management and decision support system. Because of the wide range of application within a business, ERP software systems are typically complex and usually bring changes on staff work practices. In order to implement ERP software, is usually not a task that can be done by existing employees or the managers.

That is why even smaller projects are more cost effective if specialist ERP implementation consultants are employed. For this reason, to implement ERP systems companies often seek the help of an ERP vendor or of third-party consulting companies. These firms typically provide three areas of services which include consulting, customization and support. The client firm/organization has also the choice to employ independent program management, business analysis, change management and VAT specialists to ensure their business requirements remain a priority during implementation. 2.

How do businesses typically benefit from using ERP systems? It is argued and widely accepted that ERP systems bring many benefits to the businesses that adopt them and use them in their day to day activity. Real-time data sharing across the departments of an organization and consequently the integration and automation of business processes result in more effective and efficient operations which are crucial for business success, which of course passes through and is highly correlated with customer satisfaction (Gupta, 2000; Duff and Jain, 1998). ERP systems allow increased user-friendliness of information systems in addition to time eductions for account closure and preparation of financial statements which are also taken as benefits derived from ERP. Taking it a step further, in many cases the easy maintenance of databases allows increases flexibility in information generation which improves the quality of financial reports and statements which helps managers to take the optimal decisions to optimize the performance of the firm. Also due to the ability that managers now get from this real time information sharing, the improvement in decision making also results from the co-ordination between departments and the improved internal communication.

Furthermore ERP systems allow an improvement in the way logistics are carried out, since they can be carried out more effectively. There is an improvement in the delivery procedures and in the time needed to carry out these deliveries, both from the suppliers as wells as to the customers of the firm. There is an increase in the stock turnover which is the relationship between sales and stock (i. e. how many times stock is bought or updated) as well as a reduction in the stock levels and an increase in sales since customer satisfaction increases as previously mentioned.

Moreover data processing becomes more effective as there is a reduction of time in the process of transactions and a decrease in the cost of administration and operation of the organization. According to the survey carried out by C. Spathis and S. Constantinides the most important reasons from the ones mentioned above for implementing an ERP system in a business environment is the increasing demand for real time information which can be used for more efficient and effective decision making as well as the decrease in costs.

The benefits from implementing ERP systems are present in Bristow Group Inc, which have been provided with an ERP system by IFS Applications. Bristow Group Inc report that benefits include improved aircraft availability through better control of inventory which can be said to increase customer satisfaction, and the high value of investment has improved Bristow’s flight operations in the highly competitive market of offshore helicopter services. Information is now available to users and employees of the firm anywhere in the world so the operations are based on the most accurate and reliable information available.

ERP systems have improved the profitability and productivity of Bristow Group Inc, as according to Bristow the availability of aircraft has improved because of the maintenance and supply of aircraft to customers is better organized and planned. In addition inventory levels are in general lower and costs including administration costs have been reduced. Because the load of administrative duties has been reduced, this has enabled the redeployment of staff on other, more productive roles.

Moreover the benefits that arise from ERP systems can also be observed in the case of J & H Machine Tools where again ERP systems have allowed the firm to keep up to date financial information and reduce the time of transactions. Also because J & H Machine Tools sells machines, they can track what is going on with that machine, in terms of maintenance and how much the customer had spent on the machine that he bought so that customer service can be improved and thus s=customer satisfaction. Also ERP has allowed the firm to keep lower inventory stock. 3.

What disadvantages are sometimes associated with ERP systems? On the other hand there are some problems and/or disadvantages involved with ERP systems and their adoption by businesses. Firstly, when a business decides to implement an ERP system there could be delays in this implementation due to friction and disagreements with the ERP provider and delays in the installation of the system. The cost of an ERP system can be high as ERP systems are specialized and their provision can be limited by only few suppliers, in addition to the possible high cost of operating them.

In addition to this they can be difficulties in restructuring personnel and training personnel in using ERP which can be rooted from a possible resistance and/or inability of employees to change their way of work. This can lead to the rise of errors in the way procedures are carried out, at least in the first period of the implementation. Having said that, difficulties in transferring data from individual applications and integrating existing applications in a single application or system such as an ERP system, can arise due to difficulties in adapting the applications and using the system as such.

According to the survey carried out by C. Spathis and S. Constantinides, the most important of these problems as perceived by businesses, are the delays in implementing the ERP system, the employee resistance to change as well as the training of personnel in working in ERP environment and the high costs of operating the system. Conclusion All things and parameters considered, ERP systems are clearly becoming a necessary tool of both managerial and financial nature for companies to remain competitive.

Overall the benefits achieved by businesses and/or organizations that adopt ERP, are greatly influencing accounting information as well as the organizational planning and decision making at all levels. There is however the possibility for improvements which will come when more businesses adopt the system, since now not all businesses are using ERP. This can be the reason why the problems encountered so far by businesses that have adopted ERP, do not raise any concerns. As the survey by C. Spathis and S. Constantinides has shown ERP systems have been successful in fulfilling the needs of the businesses that have adopted them.

As mentioned before businesses in their majority will have to restructure their practices and perhaps change their management style and culture in order to make the implementation of the system as smooth as possible and neutralize any bad consequences as the ones already mentioned. Finally as can be deduced from the case of Bristow Group Inc and J & H Machine Tools , the benefits from implementing ERP systems is attainable and ERP systems can help organizations to improve their profitability and their supply of goods and services and be competitive in their respected market. The usefulness of ERP systems for effective management; C. Spathis, S. Constantinides •Esteves, J. , and Pastor, J. , Enterprise Resource Planning Systems Research: An Annotated Bibliography, Communications of AIS, 7(8) pp. 2-54. •Monk, Ellen and Wagner, Brett. “Concepts in Enterprise Resource Planning” 3rd. ed. Course Technology Cengage Learning. Boston, Massachusetts. 2009 •King. W. , “Ensuring ERP implementation success,” Information Systems Management, Summer 2005. •http://www. ifsworld. com/uk/ •LECTURE 7 ,Business Applications of Information Systems

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