What are the major challenges in implementing ERP?

Abstract

ERP implementations is very difficult, several firms fail due to lack of proper

implementation. There are so many challenges, during the installation process of ERP

system in organizations. They are different critical issues that must be consider for the

successful implementation of the ERP which include commitment from top

management, reengineering or existing process, integration of the ERP with other

business information system, selection of ERP consultants, implementation time,

implementation costs, ERP Vendors, selecting the right employees, Training of the

employees and Morale of the selecting employees. Several organizations do not

understand the direct cost that associate to ERP system, when they firstly initiate to

implement the system. The ERP benefits are so clear, they are totally understandable

but the costs of implementation not clear before the implementation. Before

implementation vendor try to aware about the cost and difficulties when they try to

implement and sale to the organization.

Top management commitment

According to Johnson, J. Chaos (1995) the IT and ERP researches have clearly defined

that, for success of IT project and ERP system, the top management support should be

critically required. Implementation of ERP system is not a subject of software change;

it’s an issue of repositioning the company and transforming the business practices on to

the other system. Due to competitive advantage of the company top management

should be consider the strategic implications of implementing an ERP solution.

According to Devenport, T. Putting (1998) before implementation of ERP system the

management should ask various questions about the implementation, organization

positioning after implementation, affect of business cultural change. For example does

ERP system support to the company’s competitive position? Does it affect on the

organization competitive position? How does ERP change the organizational structure

and its culture? What is the scope of ERP implementation in term of organization

functions or on the entire organization, Is there any other platform that meet the

organization requirements as better the ERP system?

Management of the multinational firms concern about the system, should this system

improve the efficiency of the organization in term business performance. They should

concerns about they operate this system globally or regionally? Top management need

to follow up every activities concern about implementation. Some organization IT

departments sometime make some big mistakes of handing the proper implementation

of ERP system. This might be a risk to the entire organizational for their more survival,

because ERP systems carry all the business implications.

Implementation of ERP is on people, not processes or technology. Organization needs

to go among transformation, and the management needs careful planned and thru

implementation of this change. Top management not only funding the project, but also

take an active role in their implementation. Successful ERP implementation is a

complete turning point of the organizations; continuous commitment of the top

management is required. Infact result of the management commitment is the overall

commitment of the organization and overall commitment is ensure way of successful

implementation.

Reengineering

Accomplishment of an ERP system engages reengineering the existing business

practices to the best business process standard. Purpose of ERP system to built on

best performances that are followed in the industry. The major benefits of ERP system

appear from reengineering the organization existing way of doing business. All process

of the organization should appear to the ERP model. The cost and benefits of ERP

model might be high. In an organization it’s very difficult, every one agrees with the

same process, when an organization has a plan to go globally. For a while the business

process so unique that they need to be preserved and appropriate steps need to be

taken to customized the business process.

According to Melymuka, K. (1998) several time organizations also face some questions,

whether to implement the ERP system “AS IS” and take up the ERP built in practices or

modify the product to the exact needs of the company. Several researchers prove that

best application can only meet the 70 % need of the company but what happen with rest

of the company requirement. Organization need to change its process as per ERP

system and customize the system according to their needs. Due to this modification the

total implementation cost may be increase and the customization cost is greater than

their implementation cost. Due to increasing cost, organization try to continue their

system “AS IS” and try to reduce their customization cost as much as they can, and try

to maintain future upgrade expenses.

Integration

Several companies realize that having a single vendor means a “common view” that is

important to server their customer competently and took less effort to maintaining the

system in future. Unfortunately there is no single application that meets the customer

requirements. Companies might be needs any other product applications to meet the

unique requirement of their customers. Other specific applications are totally integrated

with the ERP system and are completely compatible. In this situation, in an organization

ERP serves as a backbone and all others systems working as a bolted on the ERP

software. In this context ERP working as a server and all other application working as

bolted on the ERP system. And other third party applications work as middleware, which

integrate the other product software with the ERP system. Sometime middleware

application does not compatible with the others product software. Vendor of the

middleware application need to more concentrate and focus on the technical aspect of

the application and on the inter-operability rather than connecting business process. In

appropriate integration might be effect the ERP system and as a result company may

be lost their customer.

Organization need to identify the nature of the integration and how it affects the entire

business. Before integration of the system, functional department need analyses the

whole system integration and try to find mistake and bug with the application, that made

by other department. If they find any error than need to correct them before they affect

the other department. With the tight integration, error real time affects the one business

units to other entire business units. For Example production department made an error

in the bill of materials, might it could not affect only on the operation in the production

department but also affect on the inventory department, accounting department and so

others.

ERP Consultant

ERP market has growing festally and the available competent consultant does not meet

the requirement of the ERP market. It’s impossible to fill this gap in the specific field

immediately. Major challenge is that, in current situation it too much hard to find the right

people from the market and them to achieve the desire goal. ERP implementation

requires multi skills functional, technical and interpersonal skills. It’s very difficult to find

number of consultants that have specific industry knowledge, multi industry knowledge.

The available consultant demands more money. It’s very hard to a firm to hire a number

of consultants for ERP implementation. For example in USA there are few consultants

that have approximately five year experience. Only few consultants that have three or

more years experience. SAP one year experience consultant demand $ 70,000 to

$80,000 annually, three to five year experience consultant demand up to $ 200,000

annually.

According to Schwartz (1998) employees and it firm even more difficult. The success or

failure of the project is determined on how well management meets these challenges.

Implementation time

It’s impossible to implement complete ERP system at once, because ERP system

comes in modular fashion and its implement phase by phase. A number of companies

follow phase by phase implementation process and move towards to complete one

module at a time. For Example SAP R/A is composed of number of components. The

implementation of complete modules depending on the organizations needs. Mainly

install modules are sales and distribution, materials management, production and

planning module, and finance and controlling module. The time requirement of one

ERP system is normally 14 month and more than 150 consultants are required.

Normally the roll out ERP plans its required ten of its specialized separate

manufacturing divisions and approximately five to eight years to rollout system.

According to Stedman C (1998) the implementation time only depend on the number of

modules that being implement. The time of implementation might be extending due to

the range of the module implementations and the amount of customization and the

number of interface with other applications. Implementation only depends on the

number of unites and the scope of the implementation grow up from a single business

unit to multiple units extensive globally and due to this implementation time is increase.

The main problem with ERP system is that it is very common and need to be configured

to a specific business. The customization of ERP depending on the specific

requirements of the business and they takes a long time. It varies business to business

requirements. For example SAP is so difficult and common that there are almost 8000

switches that need to be set properly to make it handle the business processes in a way

a company needs.

Implementation Cost

The price of prewritten software is economical as compared to in house development.

The total cost of implementation might be three to five time high as compare to the

application purchase price. The implementation cost depends on the customization

cost. If system customization is increase as per company requirements then

implementation cost also rise. The 30% of, the total implementation budget is only

consume on the consultants cost. For example as per Gartner Group, the total cost is

of an external SAP consultant is around $1600 per day. If we consider in-house

development, SAP trained technologist creates its own problem. Huge amount is

required to train the selected employees. After training the employee it’s also a

challenge to retain them in this competitive environment, which is hungry of skilled SAP

consultant. Due to competitive market, employees could demand salaries double or

triple of their current salaries and also requires extra bonus programs, company perks,

salary increase, frequent training and education. For the purpose of workers loyalty the

organization also put some other intangible strategic such as flexible working hours,

telecommuting options and also some opportunities to work with leading technologies

that are also provides.

ERP Vendors

Approximately 500 ERP applications are exists in the market and some companies are

more working on it and try to make more secure and strong. Selection of appropriate

products is particularly important in the competitive environment. For example Gartner

Group has purchase smart program, which has more than 1700 questions to help a

company to choose an appropriate ERP package. The role of the top management is

important when they selecting a vender.

Management need to focus on the company requirements, for this purpose they need to

ask various questions about the vendor. For instance market focus, track record, vision

etc. At global level implementation the design of the ERP is more important, because it

work in different countries. Top management also ensures that the ERP vendor has the

same version of the software available in all the counties, that company want to

implement.

Selecting the right employees

Those companies that they want to implement an ERP system. They needs to be

allocate some of their best employees for the successful implementation of the project.

Some companies assign this task of their internal employees and some companies’ hire

some outsources employees for monitoring of project. The general phenomenon is

that, internal company’s employees are more dedicated as compare to external people.

Internal employees are more willing in organization success. Mainly organizations just

provide inclusive guideline for selecting internal resources of the project. Companies

need to take work out seriously and select the right people of project implementation.

Some time lack of good understanding of the project need, Lack of ability, lack of

appropriates guideline regarding project. The company internal resources are a major

cause of failure of ERP system.

Training Employees

Continuously Training and updating the employees on ERP is a most important

challenge. People are hidden cost of ERP implementation. Without appropriate training

almost 30 % to 40% of frontline workers will not capable to handle the needs of new

system.

According to Koch, C (1996). “The people at the keyboard are now making important

decisions about buying and selling on the behalf of company .They need to understand

how their data affects the rest of company”.

Mostly earlier manager has responsible to the decision of front line staff. It need to the

manager to understand the changes and encourage their front staff in self decision

process. ERP employees training is not simple as such as excel training. For example

Company gives only some week training and then put into job. In this way it is totally

wrong. ERP system is much more complex as compare to other computer application.

ERP system demands appropriate training.

Employee Morale

ERP implementation takes long time. Mostly employees put long working on the

system, sometime 20 hours in a day and seven days in a week and even holidays. This

working style valuable for their career growth. Long hours working some time create

stress in their jobs and could decrease their moral gradually. Upper management

should needs to boost up employees morale of the project trough different ways. For

example Employees taking on field trip, give some extra bonus etc.

Conclusion

ERP solution is revolutionization of the manufacturing and services industries. Through

ERP system organization integrate their different units. ERP system help them of their

speedily flow of smooth information across the industries. Even though this system

bring several benefits of the company, but also bring sometime problem, when it does

not implement properly. Proper implementation required appropriate planning and their

execution. ERP systems is so much complex, they not simple software, they also affect

on the business process itself. Strong top management commitment is required for the

appropriate implementation, because its implementation involves considerable

modification in the existing business practices as well as huge investment amount is

required. In the integration process, top management plays a very important role to

bring some change for the proper implementation.

Finding and managing the appropriate consultants is also a big challenge in the

competitive market, where already have shortage of skilled consultants. Good ERP

vendors also help to reduce the time and cost of implementation, through specific

solution and new technique. Finding the right employees is also a critical challenge and

then continues training is also very important.

References

Stedman, C., "Global ERP Rollouts Present Cross-Border Problems," Computerworld, Vol. 32, No. 47, November 1998, p. 10.

Schwartz, K., "Putting Consultants on Your Team," Beyondcomputing, Vol. 7, No.6, August 1998.

Johnson, J. Chaos: “The Dollar Drain of IT project Failures, “Application Development Trends”, January 1995, pp. 41-48.

Devenport, T., “Putting the enterprise into the Enterprise system, Harvard Business Review”, July August 1998, Vol. 76, No. 4, PP. 121-131.

Melymuka, K., “ERP is Growing from being just an efficiency tool to one that can also help a company Grow”, Computerworld, September 1998.

Koch, C., “Surprise, Surprise,” CIO, June 15, 1996.