Discuss About The Theoretical Applied Information Technology.
ERP or Enterprise Resource planning is an application (enterprise level) that helps to customise and analyse business critical data that handles upgrades and deployment. To replace the old home grown system and legacy systems, more and more companies are adopting the new ERP systems (Developing 2013). Cloud based ERP systems are the latest version of the ERP system and are slowly getting traction. Other types of ERP systems include the hosted ERP system and the on premise ERP system.
In the given report, the various types of ERP systems are provided and the pros and cons of the mentioned systems have been assessed with real life case studies.
The purpose of the report is to understand the various types of ERP systems with respect to their usage in companies and assess their pros and cons based on mentioned case studies.
Three sections have been differentiated in the report. In the introduction section, the different types of ERP systems have been assessed with respect to their implementation in organizations. The advantages and disadvantages of every system has been discussed and evaluated. The next section of the report demonstrates different experiences of companies in reinforcing the pros and cons of different ERP systems. Two case studies reinforce the advantages of the ERP system and two case studies reinforce the disadvantages of the ERP system.
Three types of ERP systems have been mentioned in the following section. Their advantages and disadvantages have been mentioned with respect to their implementation in organizations.
The on premise ERP system physically maintains the ERP system in a backend office and functions from within the company. Instead of getting a vendor supplied ERP system or ordering the service over the internet, the on premise ERP system physically provides the service from the office through a physical server. The cost of implementing the technology may be higher but in time, the ownership cost reduces.
It involves various systems such as payroll and accounting to help the company in a number of business processes like inventory control and management of supply chain efficiently (SMALL 2016). This ERP system allows the organizations to make customizations as per the requirements.
The on premise ERP system provides several advantages such as proper control over social security numbers, accounting expenses, supply chain management logistics, business intelligence and accounting expenses (Peng and Gala 2014). The company using the technology can enjoy lesser dependency from the vendors. Moreover, they can change certain aspects of the ERP technology according to their requirements. The cost is initially high during the implementation phase but that cost is justifies in the long run.
The drawbacks of using this technology is its extra hardware costs and the lengthy implementation procedure. Also, for certain organizations, the onetime payment may be too much to bear.
In the 1990s, Hosted ERP systems was introduced first. This type of ERP system needs to be bought from a publisher or vendor. Then the system is implemented in a data or hosting cetre and the organization’s physical and virtualized servers are installed and leased. The company using the softwsre needs to pay a huge software payment and for the hosting services, extra rental fees are charged.
The benefit of using a hosted ERP system is that the company using the software gets to use the software as their own due to the indefinite licensing agreements. During the implementation phase, around 17% is paid as maintenance fees (Singh and Nagpal 2014).The data is also securely saved in a multi redundancy data centre in case of a disaster scenario. Using VMware and Microsoft Hyper V, the application controls can be brought tin house with little interruption.
The drawbacks of using hosted ERP systems is due to depending variables that may result in the surpassing of the monthly budget. Non hosted solutions can be a depending variable. If the internet connection shuts down, the system can shut down automatically. The hosted applications are tough to integrate with local applications. The system also needs to be installed at the host centre and should be able to sync with the ERP system. To run the hosted ERP system, a lot of bandwidth is needed.
The cloud ERP system hosts the system in a cloud ecosystem rather than hosting the system from the data centre of a company. The cloud ERP system helps to coordinate information among various departments in real time and increases its accessibility via the internet. In this system, separate modules are used with different business processes such as finance management system and human capital management.
There are several advantages in adopting a cloud based ERP system. The system helps an organization from diluting its efficiency of enterprise and business objectives. It increases the user’s bargaining power and enhances the system flexibility (Zhong and Rohde 2014). It reduces the need for incorporating extra IT infrastructures. It provides mobility in work by allowing the business to run globally. The cloud based system allows the organization to shift from capital expenses to operational expense. Due to resource provisioning, the low initial cost of the system allows the system to expand dynamically (Saini, Khanna and Peddoju 2014). It also allows the company to reduce the investment on expert technical staffs. As the services are managed centrally, it provides easier access to the IT system provider.
The drawbacks of the cloud ERP system is that the system enhances the dependability on the vendor and result in the loss of governance on certain business functions. Due to the shift of core applications from the company’s control, the loss of important resources and capabilities are evident with the adoption of a cloud system (Johansson et al. 2014). In the contract, some hidden costs may be included. Other drawbacks of the system are inefficient integration with the legacy system, improper application interoperability, inability of developing customised functions, more cyber security risks and unscalable service uncertainty
In 1946, the Shaw Industries was found. Berkshire Hathaway privately owned the organization. It was involved in the manufacturing business of carpeting, building materials and flooring. It has over 2000 employees. The company earned a total revenue of around $5 billion. The headquarters of the company are situated in Dalton, Georgia (Flooring from Carpet to Hardwood Floors 2018).
In expanding the business internationally, the company was facing some challenges with the ERP implementation. The existing systems of the company were heavily customized for North America. The hesitation to adopt a new cloud based system was another challenge for the prospective organization (Mijac, M., Picek and Stapic 2013).
The company finally added the NetSuite ERP system for technological innovation and to facilitate IT consumerization. It additionally supported the two tier ERP (Gupta and Misra 2016).
From this analogy, it is clear that the company will benefit from the advantages provided by cloud ERP system rather than on premise ERP system. Initially during the implementation phase, the cloud based ERP system will provide more flexibility to the industry and will be cheaper than on premise ERP system. Instead of investing a lot of money at the initial stages, Shaw industries can benefit from the yearly payment system for its subscription services via NetSuite. This allowed the mentioned organization to spread its annual payment. Also the annual payment was treated like tax deductible amount.
Secondly, the cloud ERP system allowed Shaw Industries to become much more flexible. In other words, it allowed the mentioned organization to process all the central data via a common platform (Johansson et al. 2015). This provided Shaw industries to decrease the mismanagement of data and increase the company function collaboration considerably. The cloud environment of the ERP system allowed the company to use business intelligence among all the processes. The company was able to choose which reports and dashboards were relevant to the company environment due to the flexibility of the ERP system.
With some prior external research and assessing the benefits of the cloud ERP system, it is quite evident that the integration of NetSuite with Shaw Industries provided the company with enough agility to expand its business internationally. As the system was cloud base, it helped the company to save millions of dollars in implementing a central server similar to on premise ERP systems (Sharma and Keswani 2013). It prevented the company from reducing the operational costs of its Asian pacific staffs.
Due to the benefits provided by cloud based ERP systems, the move to the cloud system was inevitable. Due to quick implementation of the IT system, the deployment quality is reduced. The system also gets regular or periodic updates that comes out every year. Agile cloud service providers sometimes provide monthly updates (Salim 2013). It also reduces the upgrading issues. The system’s rich user experience and flexibility allowed Shaw Industries to move to the cloud based ERP system (NetSuite).
Due to the benefits of cloud based ERP systems, the company was able to save a lot of money in the initial implementation cycle. The system provided the organization with enhanced agility. The two tier system helped the company to not only expand in the North American markets but also expand internationally (Flooring from Carpet to Hardwood Floors 2018). It allowed the company to reduce the operational costs of its staffs. Shaw industries also did not have to hire additional technical staff for maintaining a physical server unlike on premise ERP solutions.
In 2000, VINSUN infra engineering was found. It provides engineering as well as civil services. The managing director of the company (Sunil Satav) found a serious flaw in the business procedures (Vinsun Infra Engineering Pvt. Ltd 2018). The issue was the lack of a data compilation software and a storage system. This cased daily misplacement of data and led to system inefficiencies. The CIO of the company (Ruchira Kulkarni) proposed a solution of implementing either on premise ERP system or a cloud ERP system (Vinsun Infra Engineering Pvt. Ltd 2018). The senior managers of the management team immediately disagreed with the decision by highlighting one drawback of the system (that the workforce will not accept the new system, business processes will change and implementation costs will be high).
VINSUN organization had to face number of challenges. The traditional methods of data collecting was not working for the company. Due to overloading of information, mismanagement of data was common. A lot of work was needed to transfer all the information for MS Excel manually as well compile them which was very cumbersome (Alajbegovic, Alexopoulos and Desalermos 2013). Due to no backup systems, there was no data security. Data analysis was not possible a historical data was limited.
Moreover, the organization was a small scale organization and implementing the cloud ERP system was logical due to the low initial implementation cost.
On premise ERP system has its pros as well as cons. Some advantages of ERP system is that could be used by VINSUN was the data security factor and that the system continued to run even when internet connection was not present (Parthasarathy 2013). On premise ERP systems usually work on intranet system and does not get affected by connectivity and speed issues. As the company will have its own firewall technology, the data will be perfectly secured .VINSUN organization can even customize the on premise software as per its own requirements as the access controls are handed over from the buyer to the vendor.
VINSUN even considered the disadvantages of the on premise ERP systems such as the high maintenance cost and the high investment cost. The bug clearing and testing phases could easily disrupt the company’s business processes (Mezghani, K., 2014).
As stated in the discussion part above, cloud based ERP system has its own share of advantages such as low business disruption, low initial cost, higher accessibility, no need for extra maintenance crew and tried and tested features. VINSUN also kept in mind about its disadvantages such as need for internet connection, data security and high recurring costs.
The company decided to adopt either a cloud based ERP system provided by Codeautomations or on premise ERP system provided by Bluechip or Codeautomations corporations. VINSUN organization conducted a cost analysis as well as initial investment and recurring annual cost comparison. After evaluation, it was decided that on premise ERP solution by Codeautomations will be apt for the company due to its long term as well as customization benefits. Though the on premise ERP system has its own set of drawbacks such as high initial cost, the cost can be recovered because the maintenance cost for the technology is constant. Whereas cloud ERP systems has a low investment cost initially, over the years the maintenance cost starts to grow significantly.
Despite the benefits provided by the ERP systems, some companies have faced negative experience due to the weaknesses of the ERP systems.
In 1957, Nike was founded. The organization has been dealing with the business of sport shoes and apparels (Nike. Just Do It. Nike.com 2018). Nike decided to invest on a technology that can efficiently forecast the conditions of the market as per its needs. The company decided to adopt a cloud based ERP named SAP ERP system due to its forecasting advantages. But the forecasting data turned out to be incoherent so Nike decided to adopt another ERP system called I2..
Lack of expertise and proper resources can turn out as a serious disadvantage during the implementation of cloud based ERP. Moreover, the proper cloud based ERP system needs to be chosen carefully for efficient task management (Weng and Hung 2014).
As the SAP ERP failed to produce conclusive statistics, Nike decided to integrate the existing ERP with the I2 ERP system quickly. As cloud based ERPs ha a limited number of product suites, this proved to be a huge disadvantage. The cloud based ERP system faced a lot of issues while integrating with the existing system such as additional costs, loss of functionality and complex processes. Moreover, the employees were not trained properly and careful analysis was not conducted.
The ERP system failed as the marketers and designers failed to check a product’s demand after 6 years. Another disadvantage that led to the failure of the ERP system was the lack of customization. After every release the cloud systems become configurable. Customization and functionality are considered as benchmark presently. Nike could have considered the possibility of a cloud based ERP system as the company dealt with a lot of customizable products. The I2 software failed to detect the supply and demand statistics by mapping the need-to-be manufactured products due to lack of customization and highly rushed implementation phase. Moreover, I2 should have been integrated with other back end processes (Navaneethakrishnan 2013). The motive was to decrease the number of extra shoes that was created during the peak demand seasons which would have decrease the raw material (canvas and rubber) utilization considerably.
As Nike had a particular process for supply chain management, it gave out orders six month in advance. Moreover, the lack of training among the personnel proved to be a massive disadvantage during the ERP implementation (Duan et al. 2013). The wrong interpretation costed the company around $100 billion. The stock price reduced by 20%. Inadequate training resulted in the failure of the ERP solution even after investing 450 billion dollars on it.
A lot of technical issues was faced by the company due to the Software as a service or SaaS nature of the ERP system. Without other analytics, the glitch caused the software to slow down and accept wrong integration. As I2 was a demand planning engine, instead of Air Jordans, it processed thousands of orders of Air Garnetts. The excess number of wrong shoes created a lot of problems for the company.
The company has adopted ERP, CRM and SCM technologies since then and has switched back to SAP ERP due to its predictive algorithms. The I2 system was also improved by collaborating with other industries, proper training was imparted and inventory levels were decreased.
Another disadvantage of ERP system is reinforced in the next case. One of the renowned chocolate manufacturers is Hershey. Milton Hershey founded the company in 1894 (HERSHEY’S Candy & Recipes – Introducing HERSHEY’S GOLD, 2018). As Hershey priced its products low, it decided on reaching a target sale of 5 billion dollar by selling a huge number of products. For efficiently managing the supply chain management, the company urgently needed an IT system.
At that time, Hershey ran the old legacy system and was in a rush to move to the cloud ecosystem due to the Y2K issue (Carutasu and Carutasu 2016). For proper forecasting and scheduling transportation, the company used the advantages provided by the SAP ERP system.
The company forgot to take into account one disadvantage of the cloud ERP system. The company neglected that integrating the legacy systems with the SaaS architecture takes up a lot of considerable cost. In the business scenario, unwanted bugs are often brought up during the integration phase (Sahin 2013).
There were other failure reasons such as big bang approach and wrong timing of implementation which are not related to the weaknesses of the ERP system. Also the lack of training among the personnel was a big issue.
The processing and shipping stages were delayed and the stock price of the company fell.
Conclusion
To conclude the report, it can be stated that proper analysis of various companies experiences in reinforcing the pros and cons of different ERP systems have been evaluated conclusively. The report has mentioned the advantages and disadvantages of various ERP systems. The technology has been discussed. In the next section, two different cases of companies have been taken that have used the advantages of the ERP System to succeed in managing their business processes effectively. Following are two other case studies that have failed in implementing the ERP solution effectively due to their disadvantages. The implication on the industries due to the ERP system has been evaluated and explained. To end the report, it can be stated that despite the disadvantages of ERP system, it has a lot of advantages that can be utilized by a company if the implementation is carried out carefully.
References
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Carutasu, N. and Carutasu, G., 2016. Cloud ERP implementation. FAIMA Business & Management Journal, 4(1), p.31.
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Flooring from Carpet to Hardwood Floors, 2018. [online] Available at: https://shawfloors.com/ [Accessed 15 May 2018].
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HERSHEY’S Candy & Recipes – Introducing HERSHEY’S GOLD, 2018. [online] Available at: https://www.hersheys.com/en_us/home.html [Accessed 15 May 2018].
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