Benefits And Risks Of Implementing ERP Systems In Organizations

What are ERP systems and their advantages

Question:

Discuss about the Need of Enterprise Resource Planning.

Computerized packages and automated information systems are being used and implemented at a large scale. These software packages are being utilized in every business sector and business operation with accounts department being one of the prime applicants of the same. The demand in the current times is to have an integrated package that may provide an answer to all the business operations and activities. Enterprise Resource Planning (ERP) is one such package that allows the business units to carry out all of the business operations. SAP ERP is a package that was developed by a German company called SAP SE. It is software that comprises of the key features of an organization.

The document covers the advantages of ERP software to the organizations, trends in the area of ERP along with the case studies describing the success and failure of ERP implementation.

Many of the medium to large scale companies are making use of ERP packages in their business organizations. There are various reasons and advantages that are associated with it.

• There is a lot of competition in the market in every industry that has been set up. The business units that have implemented ERP packages and are successfully using these packages have a competitive edge over the others.
• The manual set of operations and activities involved in the business organizations are replaced with their respective automated counterparts. This leads to the enhancement of efficiency and adds to the overall productivity of the employees working in the organization leading to better organizational performance (Ovidiu, 2010).
• There are various estimations and predictions that the management executives need to carry out in a business environment. ERP packages include the information sets that are accurate and processed correctly. This leads to the ability to make predictions easily and also leads to better forecasting results (Panoramaconsulting, 2016).
• Collaboration and integration are two of the parameters that act as significant factors in the success of the medium and large scale business organizations. ERP packages allow enhanced collaboration and integration of the business activities and operations within the organization and in association with the external operations as well.
• There may be many changes that may be required in the business activities that are carried out in an organization. These changes may be in association with the addition of a new user, removal of a user, implementation of a new functionality, changes in the already implemented functionality and likewise. These changes can be easily done with the aid of the ERP systems and packages.
• The data and information that is associated with an organization is integrated accurately with the aid of ERP packages. These data and information sets can be combined with each other that lead to easier storage, processing and management. Also, there may be data sets associated with other systems and modules as well which can be managed in an integrated manner with the aid of ERP systems.
• There are various costs and expenses that are associated with the organizations. With the implementation of the ERP packages, many different costs such as administrative and operational costs can be eliminated. The return on investment (ROI) that is earned can also be enhanced through ERP.
• The business processes that are carried out in an organization are streamlined with the aid of ERP systems and packages. Real time information becomes available to the operational staff that leads to better accuracy and reduced complexity. The complex processes can be easily navigated leading to an overall smoother and streamlined process.
• Access to the centralized database from any of the remote locations becomes possible with the implementation of ERP. Remote management of the databases also becomes easier and possible.
• There are various reports that get generated with the aid of ERP packages and systems. These reports can be extracted on a daily, weekly or monthly basis as per the requirement and a clear picture of the business operations and activities that are being carried out in the organization can be obtained.
• There are many of the redundant processes and operations that are carried out in the organizations. These processes are eliminated after the implementation of the ERP packages leading to improved productivity (panorama-consulting, 2015).
• Medium and large scale companies involve many different components which enhances the number of regulations that need to be followed and adhered to. With the implementation of ERP systems, regulatory and legal compliance is maintained and becomes easier to follow.
• The ERP systems are also flexible and adaptable in nature which make sure that the changes and modifications in the technology do not have an impact on the business continuity.
• The primary motive of every business setup is to fulfill the needs and requirements of the customers. With the implementation of the ERP systems and packages, the customer relationship and the level of interaction with the customers becomes easier. There can be real time information provided to the customers along with the faster delivery of the products and services. The feedback process can also be executed with much ease.
• There are many occurrences of security risks and attacks that are witnessed with the involvement of the automated systems and processes. However, with the implementation of an adequate ERP package, such security risks and attacks can be avoided. There are many ERP packages that come equipped with advanced security controls and applications. These controls make sure that the occurrence of any of the security attacks is avoided and prohibited (Sadrzadehrafiei, 2013).

There are various industries that require the use and implementation of the ERP packages in the current times. The need and requirement of one industry differs from the other. The large industries that involve many different operations and components must make use of ERP packages to simplify and streamline their business operations and activities. Some of these industries include large scale investment banks, healthcare organizations, finance firms, real estate units etc.

There are also various processes and sub-processes that are carried out in the manufacturing and construction business units which enhances their need for the implementation of ERP packages.

Sarbanes-Oxley Act (SOX) was passed by United States Government in the year 2002. The act was passed to put a check and control on the fraudulent and malevolent activities carried out by the corporations in the area of accounting. There were strict reforms that were brought out in the area of financial disclosures and accounting activities after this act.

SOX had a lot of impact on the ERP packages that led to a series of modifications and enhancement. Some of these impacts and modifications are as discussed below.

• Compliance and regulation is association with the ERP packages started to be done in the business blueprint phase itself. It is the phase in which the roles and responsibilities, authorization and other duties are defined. After the SOX act, it was required to analyze and present all of these decisions in the initial phase only. This led to the increased regulation and compliance levels.
• The release of SOX act enhanced the security associated with the ERP packages. It was now required to maintain security right from the design phase so that the secure and authorized functionalities were present in the package. The authorization and access control of the users and the members was made mandatory to be applied (Kimberling, 2012).
• The organizations were informed about the fiscal limits, constraints and regulations which enhanced the fiscal transparency between the organization and the government. The same rules were required to be integrated and implemented in the ERP packages as well.
• Auditing was made mandatory during the implementation of the ERP packages in all the phases. The internal and external auditors carried out the auditing processes and mechanisms so as to make sure that the auditing process was done correctly and accurately.
• Definition of the tolerance levels on the basis of the industry type, industry size and similar factors was done (Brown, 2005).
• The reporting and inquiry structure was also improved with the release of the SOX act. The industries were now required to send the compliance reports to the legal authorities and the same was to be implemented in the ERP package as well.

ERP implementation has been successful in various organizations and business units. There are various success stories that are defined and are available in this area.

One of such success story of SAP ERP implementation is of Cadbury. It is a confectionery brand that is based out of Birmingham, United Kingdom.

Industries that require ERP implementation

Cadbury was under the phase of its vertical growth and there were many operational and administrative issues that were being witnessed by the management and leadership of the organization. This led to the production and distribution issues impacting the brand image and reputation in an adverse way.

In order to overcome these issues, the management decided to come up with SAP ERP implementation in the organization. There were various sub-systems that were identified that were required to be included in the SAP ERP implementation for Cadbury. These primary sub-systems included warehouse management system, planning and human resource management system, supply chain and inventory management system and many more.

The SAP ERP package brought in many advantages for the organization as it led to the enhancement of the productivity and processing speed lead to better production and distribution. There were many enhancements done in the warehouse management and the operations executed at the branch office also improved. There was considerable time that was spent in the initial implementation phase that led to decreased time in the successive implementation.

There were many different reasons that were involved with the successful implementation of SAP ERP at Cadbury.

• The estimations and planning that was involved in the implementation of SAP ERP at Cadbury was adequate and as per the requirements and specifications.
• The ERP vendor selection process that was adapted was apt and the final choice of the vendor was as per the requirements and needs of Cadbury.
• A separate portal called vendor connect was developed in order to maintain the required level of interaction with the vendor (Singh, 2017).
• The process of implementation that was adapted by Cadbury was cross-functional in nature. It led to the ability to experience higher levels of efficiency and productivity by the members of the staff.
• The management made sure that the monitoring and control processes that were being used and applied in the implementation of the SAP ERP system at Cadbury were extensive. The regular monitoring and auditing was carried out by the senior management with an active reporting channel as well.

The primary reasons of the successful implementation of SAP ERP at Cadbury were the adequate planning, estimation and monitoring processes that were involved. The management and resources that were assigned for the accomplishment of the objectives were also selected correctly so as to make sure that the goals and aims of the implementation were met and the overall process was smooth and successful.

SAP ERP has been successful for many organizations which have led to several benefits and advantages for the organizations. However, there have been many cases that have taken place in the past which were not successful and the organization had to experience many negative outcomes as well.

One such example of a failed SAP ERP implementation is of Hershey’s. It is an American company that is one of the world’s largest manufacturers of chocolate.

The company decided to upgrade its legacy systems as per the latest technology and decided to go ahead with the ERP implementation by making use of SAP’s R/3 ERP software. The implementation time that was estimated and demanded for the project was 48 months. However, Hershey’s demanded an overall time period of 30 months for all the activities for quick release. To meet these demands, some of the necessary testing processes were eliminated that led to the inability to process $100 million worth of Kiss and Jolly Rancher order in spite of the availability of the products in the stock.

Impacts of SOX on ERP systems and their modifications

The primary reasons of the failure of the implementation at Hershey’s are as listed below.  

• Testing activities are extremely necessary to be executed so that the defects, bugs and deviations can be highlighted and resolved before the final release. However, in case of SAP ERP implementation at Hershey’s, some of the critical testing processes were not carried out. This led to the presence of some major and critical defects which could not be resolved after the release (Gross, 2011).
• There were incorrect decisions that were taken by the management in the project. The implementation approach that was selected was the Big Bang implementation that led to the presence of many risks and problem areas. These risks led to the project failure as there were too many changes that were introduced at the same time which could not be handled and managed.
• There was a critical scheduling mistake that was observed in this case. The schedule that was stated and specified by the vendors was 48 months which was cut short to 30 months by the management units at Hershey’s. This led to a critical scheduling error that disturbed the overall project activities.

The reasons of failure of the SAP ERP implementation process at Hershey’s could not be successful due to incorrect and inadequate planning along with poor management decisions. There were scheduling errors, missing testing processes along with the incorrect selection of the implementation approach that were involved.

The difference between the success at Cadbury and failure at Hershey’s can be understood by analyzing the reasons associated with each project. The projects need to be carried out in specific phases and there shall be equal importance given to each of these phases. There shall be adequate planning, management, monitoring and control along with proper testing practices carried out.

Conclusion

Automated accounting systems refer to the packages that carry out automated accounting operations and activities in an organization. There are various automated systems and packages that are being implemented by the organizations all across the globe. Instead of standalone applications, the organizations are now making use of integrated packages and software in the companies. Enterprise Resource Planning (ERP) packages make it possible for the organizations to carry out integrated activities and business operations. SAP ERP is one of the most popular and widely used software for this purpose. There are several advantages that are offered to the organizations after the successful ERP implementation in terms of increased productivity and ROI, streamlining of operations, reduced errors, increased collaboration and many more. There are various legal policies and regulations that the ERP systems and the organizations must abide by. There have been many successful and failure stories of ERP implementation that are present. The difference between the success and a failure story is mainly associated with the accuracy and correctness of the phases and activities involved in the project. The phases, such as, planning, testing, control and monitoring shall be executed correctly without missing out on any of the functionality.

References

Brown, W. (2005). What ERP systems can tell us about Sarbanes-Oxley. [online] Available at: https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.512.1177&rep=rep1&type=pdf [Accessed 3 Oct. 2017].

Gross, J. (2011). A Case Study on Hershey’s ERP Implementation Failure– Driving successful enterprise software projects. [online] Pemeco.com. Available at: https://www.pemeco.com/a-case-study-on-hersheys-erp-implementation-failure-the-importance-of-testing-and-scheduling/ [Accessed 3 Oct. 2017].

Kimberling, E. (2012). What You Should Know About ERP Systems and SOX Compliance. [online] Panorama Consulting Solutions. Available at: https://www.panorama-consulting.com/what-you-should-know-about-erp-systems-and-sox-compliance/ [Accessed 3 Oct. 2017].

Ovidiu, S. (2010). The Advantages and Risks of Using ERP System in the Context Globalization. [online] Available at: https://modtech.ro/international-journal/vol2no22010/Ovidiu_Sava.pdf [Accessed 3 Oct. 2017].

Panoramaconsulting (2016). Clash of the Titans 2016: An Independent Comparison of SAP, Oracle, Microsoft Dynamics and Infor. [online] Go.panorama-consulting.com. Available at: https://go.panorama-consulting.com/rs/603-UJX-107/images/Clash-of-the-Titans-2016.pdf?mkt_tok=3RkMMJWWfF9wsRoluKrLZKXonjHpfsX57OwsWqO%2BlMI%2F0ER3fOvrPUfGjI4CS8ZiI%2BSLDwEYGJlv6SgFTLDGMbVqwrgMWxY%3D [Accessed 3 Oct. 2017].

Panorama-consulting (2015). 2015 ERP Report: A Panorama Consulting Solutions Research Report. [online] Go.panorama-consulting.com. Available at: fsX57OwsWqO%2BlMI%2F0ER3fOvrPUfGjI4CTsNjI%2BSLDwEYGJlv6SgFTLDGMbVqwrgMWxY%3D [Accessed 3 Oct. 2017].

Sadrzadehrafiei, S. (2013). The Benefits of Enterprise Resource Planning (ERP) System Implementation in Dry Food Packaging Industry. [online] Ac.els-cdn.com. Available at: https://ac.els-cdn.com/S2212017313003381/1-s2.0-S2212017313003381-main.pdf?_tid=77abbd6a-a846-11e7-b678-00000aab0f01&acdnat=1507040806_f9052d1931fe40f04bef070a3b30da63 [Accessed 3 Oct. 2017].

Singh, V. (2017). Enterprise Resource Planning Implementation Success and  Failure Stories |. [online] Sapyard.com. Available at: https://www.sapyard.com/enterprise-resource-planning-implementation-success-and-failure-stories/ [Accessed 3 Oct. 2017].