Strategic and operational opportunities and challenges that ERP systems may bring to an organisation

Résumé du document

In the nineties, most of the large companies in the world have installed ERP (enterprise resource planning). Indeed with ERP system they are expecting to a decreasing total cost of ownership. They want to drop the risks as well, to increase control and transparency, to have rapid returns on Investment and the ability to exploit new business opportunities. But firms that implement ERP system especially expect a sustainable creation of value. What is really an ERP system? One can delimit it as a set of integrated business applications or modules which carry out common business functions and are usually purchased from a software vendor. To sum up, it is one single integrated system, focused on internal value chain with one data storage: that is the main point. The main software vendor today is called SAP. This company has been founded in 1972; it is the first business application software vendor. It has more than 10 000 customers spread in nineteen countries and control around thirty percent of the total market for ERP systems. Enterprise resource planning system is the product of a long evolution.
It is important to know that between the fifties and the nineties there is no integration, that is to say no communication between systems. Companies have a functional organisation. It means that they are separated in divisional departments; there is no "legacy system" (individual programs and different vendors), and there is no integration of applications and data as a result. So, systems do not communicate because of a separate functional information system structure. In the fifties, financial "payroll" systems are developed. In the sixties there is I.S. (Information system) for the major corporate functions and functional information systems. In the seventies it is the beginning of the Material requirement planning procedures (MRP) that is delimited as "a software based production planning and inventory control system used to manage manufacturing processes". Then the MRP evolves to the manufacturing resource planning system (MRP II) which is "a method for the effective planning of all resources of a manufacturing company" . Eventually, the ERP system is created in the nineties and then the ERP II which is an extended ERP. So we can wonder what are the strategical and operational opportunities and challenges that ERP systems may bring to an organisation.
First, we will focus on the opportunities that such a system can bring to an organisation, then to the challenges it raises, and then we will wonder if this system can be implemented everywhere.

Extraits

[...] Indeed there are many internal challenges bound to the implementation of an ERP system. ERP are very risky because of many factors. First, one of the main risks is the high rate of implementation failure, thus only 10% of the implementations are done on time, and almost 35% of the projects are cancelled. There are also functionality problems, some expectations from the software and some software processes are often inappropriate. Thus, some firms are disappointed because the functionality of the software is below their expectations. [...]

[...] The total setting up cost is very high, because the implementation of such a system in a firm involves many changes in the working organisation. So, ERP systems are not only expensive to purchase but they are also expensive to customize and to parameterise. This system is very elaborate and anyone cannot use it without any qualification. Thus, the enterprise has to train employees in order to make the system work in the right way or to pay consultants. But this formation is very expensive. [...]

[...] So, Rolls Royce needs to develop a system to centralize the data. But in so global a firm, planning and controlling the production is obviously very complex. That is why Rolls Royce ordered an ERP system to the German firm SAP. Even for Rolls Royce, the implementation of such a system was a big deal; it was the biggest and most elaborated system the company had ever undertaken. Thanks to a four year preparation and training and to the championing of the product by a senior director, the implementation was a success and every department felt the positive impact of Enterprise resource planning system. [...]

[...] This system enables firms to minimize their costs, to have more coherent information and makes the internal and external communications easier. But many ERP implementations have been setbacks. Indeed these programs are very challenging because of very high implementation costs and for it is a risky program. Indeed the implementation of ERP systems questions the whole organisation of a firm. Thus many ERP implementations have failed because both deadlines and budgets were not respected, and some firms went to bankruptcy because of a failed ERP implementation. [...]

[...] So, ERP systems raise many challenges and opportunities but one can wonder if these systems can be implemented everywhere. First we will study the case of ERP systems in developing countries and then in small firms. Enterprise resource planning systems cannot be used in the same way in each country, and especially in developed and developing countries where cultural gaps are huge. Thus, in China states of mind about ERP and companies in general are altogether different. By the end of 2001, about 1000 Chinese sites had ERP systems[8] and many other implementations are expected in the following years. [...]