What is Enterprise Resource Planning?
Enterprise resource planning is a company-wide computer software system used to manage and coordinate all the resources, information, and functions of a business from shared data stored. It is an electronic resource planning of an enterprise. It is highly safe as data is protected in a particular server. Only individuals authorized to edit and save any data within the Enterprise resource planning system can do it. The current business environment is largely characterized by extensive use of information technology systems that were not there initially. Many companies now face the challenge of changing customer needs and rising competition. This compels modern organizations to reduce costs are they try to efficiently coordinate production, supply, and demand in the global business environment (ERM Initiative Faculty, 2014). As the market become increasingly competitive, there is great need for companies to improve their business practices. In addition, organizations need to share critical information with their customers, distributors, and suppliers. Moreover, all departments within an organization must upgrade their systems in order to communicate accurate information on a timely manner. In order to achieve all these objectives, companies are implementing enterprise resource planning systems (Umble, Haft and Umble, 2003).
Enterprise Resource Planning software aids and controls the ERP management system, which is a system that integrates and automates all facets of business operations. This includes planning, manufacturing, and sales, while more recent ERP software products encompass marketing, inventory control, order tracking, customer service, finance and human resources as well.
What are the major purposes of an Enterprise Resource Planning System?
Therefore, enterprise resource planning has two major purposes. First, a company implements an enterprise resource planning system in order to have a unified enterprise view of the business that integrates all departmental function. Second, companies that implement enterprise resource planning systems are interested in having an enterprise database where it can enter, record, process monitor, and report all business transactions (ERM Initiative Faculty, 2014). According to Umble, Haft and Umble (2003), a unified view of an enterprise requires a high level of coordination and cooperation among all departments in a company, which can best be achieved through effective enterprise resource planning.
Companies that are planning to implement enterprise resource planning systems should consider a number of critical success factors. Umble, Haft and Umble (2003) point out that implementation of an enterprise resource planning is a very expensive process that is characterized by numerous risks. It is therefore important to examine factors that will ensure successful implementation. One of the critical success factors for enterprise resource planning implementation is clear understanding of strategic goals. The key people in the organization must define the specific needs that the enterprise resource planning will address as well as specific goals that the company needs to achieve. In addition, for implementation of enterprise resource planning to be successful, the top management in the company must demonstrate commitment. An executive management committee needs to be formed to support and champion the projects (Umble, Haft and Umble, 2003).
Successful implementation of enterprise resource planning also requires a company to focus on effective project management. Effective project management includes clear definition of project’s objectives, creation of a work plan, and establishment of methods to assess the progress of the project. Furthermore, proper organizational change management is very critical for successful enterprise resource planning implementation. This is because already existing organizational structure may not be compatible with the new system that is yet to be implemented (Umble, Haft and Umble, 2003).
Again, successful implementation of an enterprise resource planning requires a great implementation team that consists of experienced and flexible individuals who are ready to steer the organization forward. The implementation team will play the role of creating the original project plan and of ensuring that all resources required for the implementation are available. In addition, for an enterprise resource planning system to work properly, there must be high level of data accuracy. Data accuracy is a critical success factor in an enterprise resource planning implementation because any wrong data is likely to affect all departmental functions in an organization. Other factors that must be considered by companies that are willing to implement an enterprise resource planning system include focused performance measures, extensive education and training of implementation teams, and high degree of consistency in the way all implementation activities are carried out (Umble, Haft and Umble, 2003).
Risks In Implementing An Enterprise Resource Planning System
Implementation of an enterprise resource planning is a vast process that poses numerous risks to companies. Such risks affect the outcome of business processes, and this calls for the great need of mitigating them. The first risk in enterprise resource planning implementation is associated with inappropriate project scheduling (O’Leary, 2004). Many companies underestimate the resources and time required for successful completion of enterprise resource planning implementation. For this reason, they experience problems in projects planning which makes the implementation process to experience a setback. In addition, organizations find it difficult to meet timelines thereby interfering with departmental functions. According to ERM Initiative Faculty (2014), the best method to mitigate risks associated with project scheduling is to establish targets that can be accomplished on time by every individual member of the implementation team.
The second risk in enterprise resource planning is associated with data management, specifically data conversion and validation. Risks associated with data conversion and validation occur as a result of poor timing and improper resource allocation. In order to avoid data management risks, companies should conduct comprehensive data risk assessment and test programs used in mapping of data structures (O’Leary, 2004). Technical risks form the third type of risks that pose a big challenge to companies implementing enterprise resource planning. Customization is a very important aspect that must be considered when implementing an enterprise resource planning system. However, many organizations implement enterprise resource planning with very little customization. Managers often pay little attention to customization to an extent that they end up increasing the costs of implementation. The best way to mitigate risks associated with technical issues is to align customization with the life cycle of system development (O’Leary, 2004).
The fourth risk faced by companies implementing enterprise resource planning is associated with lack of involvement from the functional areas that are charged with the responsibility of ensuring successful implementation. For instance, implementation teams may fail to play their roles in ensuring that all project activities are effectively performed. This may affect decision making and even prevent completion of the implementation process. In order to mitigate risks associated with functional area involvement, managers must use effective employee motivation strategies in order to retain talented teams who can perform their functions effectively (ERM Initiative Faculty, 2014).
Suppose a company succeeds in implementing an enterprise resource planning, it must ensure that its software is always stable to allow constant flow of operations. In addition, the company needs to be very careful when adding any new software and hardware in future. Again, an organization that has successfully implemented an enterprise resource planning must be patient to see the system bring about positive impacts to departmental functions (Umble, Haft and Umble, 2003).
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