Transitioning from Legacy Systems to an Enterprise Resource Planning System: Essay Example

systems, such as human resources and financial functions. However, ERP applications typically target larger business platforms.

ERP systems consist of a single database that stores data for various modules. These modules include manufacturing, supply chain management, financials, projects, human resources, customer relationship management, and data warehousing.

History of ERP Systems

ERP systems originated from manufacturing systems like material requirements planning (MRP) and materials resource planning (MRP II). MRP systems were primarily used in the 1970s to schedule production processes and manage raw material purchases. In the 1980s, MRP systems were enhanced to coordinate the manufacturing process throughout the product development life cycle.

The concept of materials resource planning or MRPII emerged as a solution for product planning, parts purchasing, inventory control, and product distribution (Wikipedia, 2007). EPR systems gained popularity in the late 1990s and incorporated routing and capacity planning in their software architecture and organizational activities (Wikipedia, 2007). ERP software has since been used to integrate various business functions, including manufacturing, logistics, distribution, inventory, shipping, invoicing, and accounting.

The ERP System Design Process

Unlike traditional software development and implementation, which consists of 7 stages: Problem definition, Feasibility study, System analysis, System design, Detailed design, Implementation, and Maintenance, an ERP system implementation follows 6 stages: Planning, Requirements analysis, Design, Detailed Design, Implementation, and Maintenance and Continuous Improvement (Sumner, 2005).

This section examines the stages and activities involved in designing an ERP system. Planning is crucial in any system design or development process. Proper planning is essential for the success of the system design, while inadequate planning leads to failure. According to Sumner (2005), the planning stage of ERP system design is referred to as the business justification stage.

In the planning stage, the

need to implement an ERP system is defined. This stage evaluates the tangible and intangible benefits that the system will bring to the business, such as inventory reduction, operating cost reduction, overdue accounts collection, process improvement, and cycle times reductions (Sumner, 2005).

Requirements Analysis

After analyzing the benefits that an ERP system will bring to the business, the next step in the design process is requirements analysis. In this stage, the business process is analyzed and the processes that will be supported by the ERP package are specified (Sumner, 2005). It is important for organizations to select systems that tailor their specific goals and competitive strategies during this stage since they are adopting vendors' views of best practices. ERP software vendors also offer industry-specific best practices (Sumner, 2005).

For instance, industries such as chemical, oil, aerospace, and others. To ensure the selection of the appropriate ERP software for your organization, it is important to follow a checklist of activities. These activities consist of establishing a vision, creating a list of features or functions, compiling a list of potential software candidates, narrowing down the options to four to six serious candidates, drafting a request for proposal, revising the proposals received, choosing two to three finalists, selecting the winner, justifying the investment, negotiating the contract, conducting a pre-implementation pilot, and validating the justification (Sumner, 2005). Additionally, Sumner (2005) suggests considering technology factors including the cost of technology, installation, user interfaces, upgradeability, computing environment, and personnel requirements.

Design

The design stage involves deciding between re-engineering or customization. If re-engineering is chosen, the ERP software package is used as-is and the business process is redesigned to align with the package.

When using the customization approach,

the ERP software package is adapted to match the business process (Sumner, 2005). The design process is crucial as it can bring both advantages and disadvantages when deciding between re-engineering and customization approaches. By utilizing the re-engineering approach, the organization can achieve all the benefits and effects of an ERP package. However, this method may also cause business disruption as the organization needs to redesign its operations to align with the package.

Customizing the package may not disrupt the business, but it also won't bring about significant changes to the business process. However, customization can make it difficult to upgrade to newer versions of the package (Sumner, 2005). Other ERP system design approaches include vanilla, single-vendor ERP with customization, in-house with supplementary ERP modules, and application service provider (ASP).

However, Sumner (2005) suggests that the most effective approach during the design stage is the vanilla approach, which is similar to the re-engineering approach. Sumner (2005) also mentions that there are multiple advantages associated with using this approach, such as easy implementation and better budget control. It's important to prioritize the business's benefits when choosing an approach. In other words, the decision should be based on how much a specific approach will benefit the business. For instance, if the customization approach offers more benefits compared to the vanilla or re-engineering approach, then it would be wise to consider using this approach.

Detailed Design

When the decision has been made on which approach is used in the ERP system design, it is now time for the detailed design. In this phase, the models, processes, and information supported by the system are selected. This phase involves interactive prototyping and extensive user

involvement in determining the elements of system design (Sumner. 2005). In this phase, the business process for each functional area is visited.

Sumner (2005) emphasized that best practices serve as models to support each functional area. According to Sumner (2005, p. 47), the process of implementing these best practices includes:

• Selecting applicable business processes
• Discarding inapplicable business processes, which can serve as a basis for re-engineering when not aligned with the system
• Identifying any areas not covered by the best practices that may require customized models for development.

Moreover, prototyping and extensive user involvement play a crucial role in the detailed design process to determine the elements of system design. Different ERP software vendors adopt distinct approaches to ascertain these elements.

For example, SAP uses the following design elements: organizational, master data, transactions, output, workflow, and reporting (Sumner, 2005).

Implementation

The implementation process mainly involves transporting data form the old system, building interfaces, implementing reports, test-driving the new systems and addressing design issues. This phase also address data ownership and security and end user training. As with other phases of ERP system design, the implementation phase also uses several different strategies. These strategies include: cut-over or big bang, mini big bang phased by module, phased by site (Sumner, 2005). The cut-over and mini big bang strategies use a more drastic implementation whereas the phased by module and phased by site use a less drastic implementation. There are several risk factors to consider during implementation.

The factors that determine the level of risk in an ERP implementation strategy and design consideration can

vary. For instance, using the phased approach may result in fewer risks compared to the big bang approach. Similarly, applying a vanilla design approach may entail lower risk than customizing an ERP package. Maintenance and continuous improvement are necessary for all ERP systems following successful design and implementation. During this phase, activities such as technical support, upgrades, and system enhancements are carried out. Additionally, enhanced functionality is incorporated into existing modules. The ease of maintenance is also influenced by the system design decision.

When designing a system, it is easier to maintain by using the vanilla approach instead of customization.

How ERP Benefits the Business

This section highlights the advantages that an ERP system provides to businesses. These benefits encompass connecting various business environments and decreasing IT support and cost. Within this section, we will delve into how ERP benefits specific functional areas within a business.

Three functional business areas, which are customer relationship management (CRM), materials management, and human resource management, are visited and discussed.

Customer Relationship Management (CRM)

The importance of maintaining good customer relations cannot be overstated in any business. Organizations must have the capability to not only attract new customers but also predict their buying behaviors. Additionally, they must have a centralized system for managing customer contacts, billing, and payments. Effective advertising strategies are also essential for expanding the customer base. When it comes to CRM, ERP can be utilized to integrate various aspects such as contact integration, product integration, quote and order management, as well as product, order, and invoice repository.

When CRM contact is integrated with ERP systems, it allows for seamless synchronization of customer contacts' billing and shipping information. This synchronization enables business analysts to

easily forecast customers' buying or investment trends. Additionally, integrating products simplifies the handling of part numbers, sales orders, and bill of materials. The integration of quote and order management streamlines the process of upgrading existing quotes or forecasts to orders (Smith, 2007). ERP also utilizes a central repository for all orders and invoices, which aids in tracking past sales and purchases.

Human Resource Management

ERP acts as a common link between human resources, finance, and information technology.

According to Wikipedia (2007), a human resource management system (HRMS) is made up of several modules that work together. These modules include payroll, time and labor management, benefits administration, HR management, and recruiting. The payroll module collects information on employee time and attendance and automates the payroll process. It also handles payroll calculations such as deductions and taxes, as well as generating paychecks and tax reports. The payroll module also integrates financial and time-keeping data to facilitate direct deposits and check payments. The time and labor management module is focused on analyzing cost and efficiency metrics within an organization.

The benefits administration module functions as a centralized system for managing and tracking employees' participation in benefits programs, such as insurance, compensation, and profit sharing and retirement. It ensures that employees are tracked throughout their employment life cycle, from applying for a position to retirement. This module collects an array of information including demographics, addresses, selection, training and development, capabilities and skills management, and compensation planning records (Wikipedia, 2007). ERP enables online and automated recruiting, allowing HR to gather potential candidates for open positions by integrating talent management. Talent management offers numerous benefits to the recruiting module (Wikipedia, 2007), including analyzing personnel usage

within the organization, identifying potential applicants, recruitment through company-facing listings, and recruitment via online recruitment sites or publications that target both recruiters and applicants.

Materials Management

ERP improves materials management by offering visibility into inventory throughout the direct and raw materials activities.

The main functionalities of materials management modules in ERP systems include inbound, receiving, order processing, storage, shipping, and billing. These modules provide various benefits such as inbound and outbound visibility to inventory, a broad view of products for both shop floor workers and top executives, tracking of inventory levels at all locations, centralized supplier information and maintenance, and user interfaces that simplify procurement, inventory, and billing.

Challenges Faced with Implementing and Maintaining an ERP System

While ERP systems offer numerous benefits to businesses, research has shown that a considerable number of ERP projects have faced failure. This section examines the challenges associated with the implementation of ERP systems.

According to Maurer (2006), the challenges associated with implementing an ERP system can be classified into three categories: human, finance, and technological. In general, people are resistant to change, which can be a significant hurdle during ERP implementation if project leaders fail to engage users. Maurer (2006) noted that because ERP replaces old processes with new ones, users may feel they are losing control. This leads to resistance as people become comfortable and skilled in using their existing systems and are reluctant to let go of them. Additionally, financial considerations pose another challenge to ERP implementation. These projects often require substantial capital investment, ranging from $500,000 to hundreds of millions of dollars.

The more time it takes to finish

an ERP project, the more money is likely to be spent. Some ERP projects fail because the budget runs out before the project is completed. Champy (2005) mentions in an online article a project that was abandoned after investing $200 million into it. From a technological standpoint, ERP projects tend to fail due to a lack of skilled technology personnel and system compatibility issues. ERP projects heavily rely on technology and therefore require a significant amount of technical expertise.

Success Factors for Implementing an ERP System

Even though the success rate for ERP implementation is low, there are several factors that contribute to successful implementation. This section discusses these success factors.

Kimberling (2006) outlines and elucidates a set of 7 critical success factors pertaining to an ERP project: prioritize business processes and requirements, strive for a favorable ERP return on investment (ROI), ensure strong project management and resource commitment, secure commitment from company executives, invest time in upfront planning, ensure sufficient training and change management, and comprehend the reasons behind implementing ERP. According to Kimberling (2006), companies often become engrossed in evaluating the technical capabilities of ERP software and lose sight of the business benefits. The success of an ERP project hinges on prioritizing the benefits it will bring to the business. Additionally, emphasis should be placed on quantifying the returns on investments. Kimberling (2006) contends that a successful ERP project entails establishing key performance measures, setting baseline targets for those measures, and tracking performance post implementation. In conclusion, Kimberling (2006) argues that companies should develop a clear understanding of their business objectives and ERP goals as a basis for determining whether or not to embark on an

ERP project.

Conclusion

ERP systems are gaining popularity in today's businesses as they offer modules that integrate functional and operational business processes.

In the 1990s, ERP gained popularity as a concept that was developed based on manufacturing systems like MRP and MRP II. Similar to other system development and design processes, ERP follows a systematic design methodology. The phases of an ERP system design process involve planning, requirements analysis, design, detailed design, and implementation.