History of ERP
ERP or Enterprise Resource Planning evolved from MRP or Materials Resource Planning in the 1960’s. The first MRP systems didn’t integrate financial applications because it focused on the creation of a system that can manage a company’s demands and orders. It basically focused on inventory and raw materials control. In 1970 and with the help of the continuous evolution of relational databases systems which is a major component of the system, ERP evolved to MRPII and became more and more standardized and provided capability of data sharing. Financial applications were incorporated to the system to provide a complete solution to the companies’ transactions. (erpandmore.com)
Top three companies in ERP Market
SAP tops the companies in the ERP market with 22% market share while Oracle and Microsoft completed the top three lists with 16% and 10% market share, respectively. (ERPNews, 2012)
Companies with highest selection rate
ERPNews reports that although SAP is the most short-listed ERP Company at 35%, Oracle and Microsoft are still selected by companies over it. Possible reasons for the non-selection are “SAP’s reputation for being expensive and complicated to implement scares potential buyers.” (ERPNews, 2012)
Core components of ERP Packages
ERP focuses on the integration of processes in a company. In particular, it seeks out to integrate the financial, manufacturing, sales and management, human resources and performance management of a company. (Bortulus, 2013)
ERP’s Purpose in a Company
ERP’s purpose in a company is to fix and integrate the financial information by creating single file for everyone to use to avoid having “personal” versions of sales or other values that are integral to the company. In addition, it also seeks to have integrated customer order information to increase efficiency in providing services. It is also ERP’s purpose to come up with standardized manufacturing processes that are automated to increase productivity and reduce manufacturing time. In turn, this will reduce inventory which will eventually lead to work-in-progress inventory which would be beneficial to the company for timeliness and quality of deliveries. Lastly, ERP can produce a standard HR system where the company can immediately identify their employees, skills etc from their different departments of subcompanies or branches. (Wailgum, 2013)
ERP Project delays
Four major reasons are identified by Eric Kimberling as the main reasons why ERP Systems are delivered late contrary to what the vendors project. The first reason is due to unrealistic expectations. The ERPs project team might have skipped some major activities that must be done during the project implementation resulting to the delays as everything should also be adjusted based to insert the new activity. Inadequate accounting of the companies’ business activities is another common reason why an ERP is delivered late. Sometimes, only those activities that are directly affected by the system are taken into consideration during the planning process, missing out the small business details that are also crucial to the success of the ERP implementation. The lack of resources is another factor. It is important that before pushing through with the ERP project, required resources will be clearly outlined between the vendor and the company. Lastly, software customization is one major factor since almost all companies have their own business rules, everything must be aligned to the companies set of rules or else the software cannot be used by the company. (Kimberling, 2009)
ERP Cost
ERP migration is not cheap. Regardless of the size of the company, at least $3 million is needed for the hardware, software, and personnel involved in its development including the first two years of its implementation. Along the years, its hardware requirements also grow along with the company. However, benefits can only be seen with at least eight months of implementation while long term benefits incudes “cost reductions, schedule performance, headcount reduction or redeployment, and quality improvements.” (Wailgum, 2013) However, aside from the initial cost, the company may still need additional budget for the training of its employees because the system will be nothing if the users do not know how to use it. Likewise, the company may still need additional budget for integration and testing of the new system with existing systems that are used by the company. It will result to failure if the new system does not suit with other transaction system of the company. Data migration is another aspect where budget would be required and the last but not the least is customization or add-ons of the system. (Wailgum, 2013)
Reasons for ERP Failure
It takes more than the system itself to successfully implement an ERP System of a company. If the company is willing to migrate to ERP systems then it is also a must that each employees and middle management will also be willing to adopt the new system. One major reason for ERP failure is because the people who are supposed to use the system do not want to use it. This has by far the most challenging part of any ERP migration. (Wailgum, 2013) Problems with bugs and customization can be easily fixed as experts and technical team can address these however, if users don’t agree with the methods or modules of in the ERP, then this can be another reason for failure. Other possible reasons for ERP failure are when it is not delivered on time by the vendor, when actual costs exceeds the budget and when the management fails to manage the necessary organizational changes to implement the ERP.
References:
erpandmore.com (2013). ERP History. Retrieved from http://www.erpandmore.com/erp-reference/erp-history/
Bortulus, Dennis (2013). ERP Core Components. Retrieved from http://www.ehow.com/info_8196731_erp-core-components.html
ERPNews (2012). Comparing SAP, Microsoft and Oracle. Retrieved from http://www.erpnews.net/157/comparing-sap-oracle-and-microsoft/
Kimberling, Eric (2009). Four Reasons Why ERP Projects Take Longer Than Expected. Retrieved from http://it.toolbox.com/blogs/erp-roi/four-reasons-why-erp-projects-take-longer-than-expected-31967
Wailgum, Thomas (2013). ERP Definition and Solutions. Retrieved from http://www.cio.com/article/40323/ERP_Definition_and_Solutions?page=6#fail
