Question:
Describe about the purpose of adopting an ERP system, Critical Success Factors and SAP Reflective Essay?
This assignment gives an in-depth understanding of various phases involved in an ERP system implementation and studies various challenges faced by Nike Inc when they decided to implement an ERP system in year 2000. Nike opted for an ERP system implementation in order to streamline their business processes and have a centralised system. Nike Inc. was founded by Bill Bowerman and Phil Knight in year 1964 at Beaverton, Oregon (Motiwalla & Thompson, 2011). Initially named as Blue Ribbon Sports (BRS) it was in year 1972 when the company introduced Nike as a new brand of athletic footwear. Nike witnessed rapid growth since then and by year 2005 Nike comprised of 26,000 employees working in facilities at Tennessee, Oregon, Netherlands and North Carolina, around dozen Nike women stores, 200 factories and 100 above sales and administrative offices (Motiwalla & Thompson, 2011). Nike reported revenues of $ 13.7 billion in year 2005 and since then has never looked back. Nike has a number of subsidiaries like Bauer Nike Hockey, Cole Haan Holdings, Hurley International LLC, Converse Inc, Nike IHM Inc and Execter Brands Group LLC. By year 2004 the company had around 137 factories in Americas, 252 factories in North Asia, 104 in EMEA and 238 factories in South Asia. The company was created 650,000 jobs for the local communities thus supporting the economy. Today Nike is recognised as world’s largest manufacturer and distributor of athletic footwear and apparels. It is also involved in the manufacturing of some of the world’s best sports equipments.
Nike initially started as a sneaker manufacturer however it was in early 1970s when the company started selling its products to different parts of the world thus becoming a global company. Nike’s supply chain as a sneaker manufacturer was highly centralised but as the company grew its global presence it was unable to run on 27 different order management systems that were highly customised and did not communicated well with each other and to the home office. Nike primary purpose behind adopting an ERP system was a need to increase reach, profitability and information availability.
Nike was focusing on rapid global expansion with facilities, factories, manufacturing plants and sales offices in different geographic locations. Their operations were organised in a manner that product designs, deliveries and factory contracts were managed through their headquarters in Beaverton, Oregon. Owing to this fact by year 1998 Nike had developed 27 different order management systems that were highly customised and hardly communicated to each other or to home office. Thus a centralised system was urgently required to increase Nike reach to different parts of the world. ERP systems are highly integrated thus can be used as a centralised system in multiple geographical locations.
Nike had a manufacturing cycle of nine month that lacked proper control. In order to increase their productivity and operational efficiency it wanted to have better control on their manufacturing cycle and eventually reduce it to six months. The integrated system architecture of ERP system help organisations integrate data and process from various departments and locations so that products are moved faster, orders are processed quickly, customers are invoiced accurately in time and shipments are reconciled rapidly. Thus, an ERP system owing to its high processing speed and data accuracy help increasing overall operational efficiency and productivity.
An inability to access real-time information from different order management system resulted in malfunctioning of Nike’s complete supply chain. Orders were missed and shipments delayed resulting in huge losses. Nike thus needed a system that could deliver real-time information with high accuracy; this requirement could be easily met by implementations of an ERP system.
ERP system implementation is a complex process and involves high risk thus it is very important to ensure that resources are effectively allocated and the chosen implementation strategy best suits the nature and type of organisation (E.O’Leary, 2004). The process starts with the assessment of organisation’s culture, environment, staff expertise and overall readiness. It is important to ensure that the assessment is carried out in an open and honest manner. The process involves selecting the most suited implementation strategy along with the identification and planning of various implementation components. Hardware, Software and Human resources are the three main ERP implementation components (Motiwalla & Thompson, 2011).
Hardware components comprises of all physical hardware used in the implementation process. An ERP system uses powerful set of servers for supporting production, development and testing environments. Key resources that are referred to as hardware resources include servers like high-end multiprocessor systems, main and secondary memory of several gigabytes and terabytes respectively, clients like end-users, developers and IT support accessing the system and peripherals like printers, networking hardware and print servers.
Software components refer to the set of operating instructions and logical programs that are used to direct and control the activities of system hardware (Finney & Corbett, 2007). It includes system software/ operating system platform, database management system and application software.
People resources for an ERP implementation include end-users like clients, employees, vendors and anyone who uses the system (J.Morris, 2011). IT specialists like trainers, database administrators, developers and change management. Project Manager is an important human resource who ensures that the complete implementation team works in coordination with each other to achieve desired business goals.
Once the hardware, software and people resources are identified it is important to decide over important aspects of virtualisation, use of third part products, database requirements and governance. Governance is an important part of ERP implementation that is concerned with defining and outlining committees and workgroups that will be responsible for different components of implementation, how they interact and making decisions related to those components (Motiwalla & Thompson, 2011). Different components of implementation include technical development, functional components, hardware and software installation, communications and reporting, project management, change management, budget management, project owners and sponsors and escalation process. Roles and responsibilities of implementation are divided among owners, project executive, steering committee, application steward, chairperson, project management office, project teams; project team leads and cross functional teams
Vanilla implementation and Chocolate implementation are the two most commonly used implementation strategy (Addo-Tenkorang & P.Helo, 2011). Vanilla implementation strategy is one in which organisations prefer to make considerable changes to their business practices in order to fit the system instead of modifying or customising the ERP system (E.O’Leary, 2004). This strategy is best suited for businesses that have simple and common business practices. It is good for businesses that lack the needed resources to build and change systems. Changing business practices also serves as a competitive advantage in some situations. Chocolate implementation is one in which organisations chose to customise or modify the ERP system in a way that fits with the existing business practices (Finney & Corbett, 2007). It is a single-system instance thus is easy to maintain and support. It also help in accessing organisational change as resistance to change and risk is greatly minimised by customising the system so that it fulfils business needs. Modify the ERP implementation strategy however require considerable focus on effective knowledge transfer.
The case depicts use of chocolate implementation strategy by Nike to implement a purchased single-instance ERP system. It helped in effective change management and handling resistance to change. Business process re-engineering helped them define performance based goals which was one of the driving force behind successful ERP implementation.
Vendor selection is a crucial step in ERP implementation as it is essential to ensure that the selected vendor fulfils needs and goals of the organisation. It is important to have a well-defined vendor selection process in place in order to ensure successful implementation. There are a number of consulting firms that help businesses select most appropriate vendor. Two most important criteria for evaluating an ERP vendor is the degree to which the ERP fits the business functions and the ERP product performance in the market (Motiwalla & Thompson, 2011). A high level ERP purchase process involves following predefined series of steps starting from vendor research and information gathering, evaluation of vendor demonstrations, assessment of needs and requirements, request for bid development, analysis and selection that include evaluation of bids, technical and functional evaluation, detailed demonstrations from vendor, reference checks and development of total cost of ownership. Next step is vendor negotiation where contracts are reviews and changes done if needed and prices for software, maintenance, support and consulting are finalised. Once all the above steps are completed the ERP system is purchased from selected vendor.
ERP systems are afforded by number of vendors in the market however some of the most recognised ERP vendors are; SAP is the market leader of world’s ERP market with 24% market share and provide solutions for industries of all types and sizes. SAP faces competition from other vendors like Oracle, Microsoft, IBM, Lawson, SSA Global, Infor Visual, Epicor, Great Plains and Plex Online (Motiwalla & Thompson, 2011). It is important to review vendor documented processes to identify their system functionality. The two main documents to be views are data and functional flow of business processes and table of functions performed in each department also presenting priorities assigned to each function.
The case does not give enough information about the vendor selection process followed by Nike. No specific ERP vendor is named in the case. It is important that management of the organisation give enough time to evaluate the system, review detailed demonstrations and communicate effectively with references and other organisations using the system. As Nike was looking for a single-instance ERP system which would centralise their operations SAP would have been the best choice for them.
Before the Go-live it is important to ensure that proper training has been delivered to end-users and the knowledge transfer process is almost complete (E.O’Leary, 2004). Once the ERP system goes live the organisation needs to undergo a stabilization process of 60-90 days. It is important to ensure that there is well-defined and continuous process in place which works effectively so that knowledge and skills are transferred to employees and team members during the implementation as well as stabilisation process. Development of a knowledge transfer plan is important to ensure that knowledge is transferred effectively as implementation proceeds from one phase to another. It helps ensuring that knowledge is retained, cost of support is reduced by reducing number of support calls, faster learning is facilitated, system capabilities are enhanced and that system is used correctly.
Ineffective knowledge transfer and lack of proper end-user training was the main reason behind the failure of demand planning system at Nike. They realised their mistake and so in case of ERP implementation they ensures that employees are not allowed to work on systems until they undergo a mandatory training for 140-180 hours. End-users were completely trained before the go-live which made them use the system properly.
Apart from choosing a perfect implementation strategy, effective vendor selection and focused knowledge transfer it is also important to ensure that effective human resources and leadership team is allocated to handle different activities of ERP implementation (E.O’Leary, 2004). Some other factors that are critical for overall success of the project are:
Decision making process: It is important to have a well-defined decision making process which minimises risk related to scope, productivity and efficiency (Finney & Corbett, 2007). Nike had a strong decision making process that helped them identify faults and according plan improvements in demand planning system.
Project Scope: It is essential to identify what is actually expected from the project. Nike wanted ERP system to achieve business goals and was not at all concerned about getting the systems running. They focused on performance which helped them make the process successful
Teamwork: Project team comprises of internal employees and external consultants who need to work in coordination with each as a team. Effective team work helped Nike achieve desired business goals.
Change Management: Effective change management is important for handling resistance to change shown by employees. Business process reengineer helps Nike in defining performance based goals and accessing organisational change in an effective manner.
It is important that implementation and executive team work in coordination and provide full support to the project.
Organisational commitment refers to the unwavering commitment and will of senior management and team members to see the implementation process deliver desired results (Motiwalla & Thompson, 2011). It is important that the project team members and leaders believe in their strategies and plans and always face all challenges with a can-do spirit. A well-define communication plan and Organisational Project Management Model is two main approaches that help ensuring organisational commitment. OPM3 is a continuous improvement process that is divided into three steps of knowledge, assessment and improvement. Nike showed high organisational commitment which lead to successful ERP implementation. Business process reengineering helped them in effective change management which further ensured strong organisational commitment.
Nike opted for single instance ERP system with a phased roll out over six years. They adopted modify the ERP (chocolate) implementation strategy which proved out to be successful as their goal was to achieve desired business goals and not to get the systems running. Nike learned from their mistakes which resulted in failure of demanding planning system implementation thus gave due importance to knowledge transfer in case of ERP implementation. Nike lacked required expertise and resources for an effective ERP implementation as presented in the case thus vanilla implementation strategy could have been a better choice for them. Vanilla implementation strategy is best suited for companies whose business practices are not unique and all are followed in same manner across different locations. Hiring an external consultant with expertise in ERP implementation would have helped them complete their project within the allocated budget. As Nike comprised of large number of employees working in different geographical locations they needed a centralised ERP system with integrated functional modules that provided high cross departmental visibility and real-time information instead of two different systems. Also one of the best advantage of vanilla implementation is that it involves almost no customisation of the ERP system, lesser the customisation less are the risks involved in implementation and so cost and time involved is also comparatively less. Highly customised systems are relatively very difficult to manage and call for a reimplementation every time business processes are altered. The changes made in the business practices during vanilla implementation also serve as a competitive advantage in today’s dynamic marketplace.
SAP or Systems, Applications and Processes in Data Processing is a German multinational software corporation started in year 1972 in Mannheim, Germany by five former IBM employees that develops enterprise software and solutions to help their clients manage customer relations and business operations (SAP SE, 2015). SAP is the market leader of worldwide ERP software market with a market share of 24% and sale value of $6.1 billion. SAP develops products for businesses of all sizes and types helping them streamline their business activities and increase market share. SAP faces tough competition from Oracle, Microsoft and IBM as their main competitors (Forbes, 2014). Innovation is the key behind the remarkable success of SAP across the globe. Reflective practice is a step involved in self-managed learning which enable users to review their own actions and plan improvements accordingly. SAP software can be evaluated against five end-user criteria of response time, usability, flexibility, business insight and transactional efficiency.
SAP scores high on usability and is highly user-friendly software (Addo-Tenkorang & P.Helo, 2011). Users can easy move from one process to another using simple T-codes and navigation paths. It is self explanatory software that gives complete information about itself. The production and the testing environment called sandbox is completely separated in order to ensure that operational activities are carried out effectively without any interruption. The Easy Access screen serves as a guide to the system and menu bars are easy to understand. Almost all possess are carried out in an identical manner making it convenient for end-users to understand process flows.
SAP allows end-users to save T-codes that are very commonly used as favourites; it creates a log of recent activities performed and keeps a track of searches thus scores a high on transactional efficiency. SAP provides scripting option for repeated tasks that help saving time spent on performing exactly similar tasks. Thus, it is very easy to perform common and repeated tasks using SAP software.
SAP scores a high on flexibility and supports businesses of all sizes and types. It is a highly integrated ERP system that brings almost all functional modules on a single platform. It allows extensive customisation thus can fit in all business processes. End-users can easily navigate from one process to other using simple T-codes.
SAP scores a high on business insight as it allows end-users to access comprehensive reports, real-time data and cross departmental data visibility. SAP reports are executable programs that read information from the database and deliver real-time data of activities performed in different business modules based on the selected filter criteria. They can be standard SAP reports, Ad hoc queries and customised reports. For example sales order report not only inform the end-user about the sales orders entered within specified timeframe but also other related information like customer, pricing, shipment etc. These reports can be easily accessed using specific T-codes or navigation paths.
SAP is recognised worldwide for its high processing speed and quick response time. Single searches and activities are performed very quickly however response time for reports depend on the volume of data desired. Greater the time frame greater is the time consumed to extract reports. SAP reports present accurate, real-time data that present visibility to cross departmental data thus consume comparatively more time than single searches and activities.
All the factors make SAP a highly user friendly software that helps organisations achieves their desired organisational goals and performance objectives.
References
Addo-Tenkorang, R. & P.Helo, (2011) Enterprise Resource Planning (ERP) : A Review of Literature Report. Proceedings of the World Congress on Engineering and Computer Society, 2(1), pp. 1-10.
E.O’Leary, D., (2004) Enterprise Resource Planning(ERP) Systems: An Empirical Analysis of Benefits. Jounal of Emerging Technologies in Accounting, 1(1), pp. 63-72.
Finney, S. & Corbett, M., (2007) ERP implementation: a compilation and analysis of critical success factors. Business Process Management Journal, 13(3), pp. 329-347.
Forbes, (2014) 2013 Business Intelligence And Analytics Market Share Update: SAP Continues Market Leadership. [Online]
Available at: https://www.forbes.com/sites/louiscolumbus/2014/04/29/2013-business-intelligence-and-analytics-market-share-update-sap-continues-market-leadership/
[Accessed 2015].
J.Morris, J., (2011) The Impact of Enterprise Resource Planning (ERP) Systems on the Effectiveness of Internal Controls over Financial Reporting. Journal of Information Systems, 1(129-157), p. 25.
Motiwalla, L. & Thompson, J., (2011) Enterprise Systems for Management. Essex: Pearson Education.
SAP SE, (2015) SAP at a glance: company information. [Online]
Available at: https://www.sap.com/corporate-en/about/our-company/index.html
[Accessed 2015].
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