Change Management Models in the ERP Era: The Comparison
“Prof. Jimmy Thakkar� [ Ahmedabad, India ] jimmy_thakkar@gmail.com
Abstract : Enterprise resource planning (ERP) is business management software—usually a suite
Businesses over the past decade. Though early
of integrated applications—that a company can
ERP systems focused on large enterprises,
use to collect, store, manage and interpret data
smaller enterprises increasingly use ERP
from many business activities, including:
systems.
Product planning, cost
Manufacturing or service delivery
Marketing and sales
Inventory management
Shipping and payment
ERP provides an integrated view of core business processes, often in real-time, using common databases maintained by a database management system. ERP systems track
The ERP system is considered a vital organizational tool because it integrates varied organizational systems and facilitates error-free transactions and production. However, ERP system development is different from traditional systems development. ERP systems run on a variety of computer and network configurations, typically using a database as an information repository.
business resources—cash, raw materials, production capacity—and the status of business commitments: orders, purchase orders, and
II. Characteristics
payroll. The applications that make up the system share data across the various
ERP (Enterprise Resource Planning) systems
departments (manufacturing, purchasing, sales,
typically include the following characteristics:
accounting, etc.) that provide the data. ERP facilitates information flow between all business
near) real time without relying on periodic
functions, and manages connections to outside stakeholders.
I. Introduction
E
nterprise system software is a multi-billion
An integrated system that operates in (or updates.
A common database that supports all applications
A consistent look and feel across modules
Installation of the system with elaborate application/data integration by the
dollar industry that produces components that
Information Technology (IT) department
support a variety of business functions. IT
provided the implementation is not done in
investments have become the largest category
small steps.
of capital expenditure in United States-based
III. Functional Areas
A
n ERP system covers the following common
Supply chain management: Supply chain planning, supplier scheduling, product
functional areas. In many ERP systems these
configurator, order to
are called and grouped together as ERP
cash, purchasing, inventory, claim
modules:
processing, warehousing (receiving, putaway, picking and packing).
resource planning, project costing, work
Financial Accounting: General Ledger,
breakdown structure, billing, time and
Fixed asset, payable including
expense, performance units, activity
vouchering, matching and payment
management
receivable cash application and collections, cash management, financial
Project management: Project planning,
Customer relationship management: Sales and marketing, commissions, service,
consolidation.
customer contact, call center support - CRM
systems are not always considered part of
Management Accounting: Budgeting,
ERP systems but rather Business Support
costing cost management, activity based
systems (BSS).
costing.
Human resources: Recruitment, Training, Payroll, Benefits, retirement, separation.
Manufacturing: Engineering, bill of
Data services : Various "self–service" interfaces for customers, suppliers and/or employees
IV. Best Practices
materials, work orders, scheduling, capacity, workflow management, quality control, manufacturing process, manufacturing projects, manufacturing flow, product life cycle management
Order Processing: Order to cash, order entry, credit checking, pricing, available to promise, inventory, shipping, sales analysis and reporting, sales commissioning.
Most ERP systems incorporate best practices. This means the software reflects the vendor's interpretation of the most effective way to perform each business process. Systems vary in how conveniently the customer can modify these practices. Companies that implemented industry best practices reduced time–consuming project tasks such as configuration, documentation, testing, and training. In addition, best practices reduced risk by 71% compared to other software implementations.
V. Connectivity to plant floor information Database integration—ERP systems connect ERP systems connect to real–time data and
to plant floor data sources through staging tables
transaction data in a variety of ways. These
in a database. Plant floor systems deposit the
systems are typically configured by systems
necessary information into the database. The
integrators, who bring unique knowledge on
ERP system reads the information in the table.
process, equipment, and vendor solutions.
The benefit of staging is that ERP vendors do
Direct integration—ERP systems have
not need to master the complexities of
connectivity (communications to plant floor
equipment integration. Connectivity becomes the
equipment) as part of their product offering. This
responsibility of the systems integrator.
requires that the vendors offer specific support
Enterprise appliance transaction
for the plant floor equipment their customers
modules (EATM)—These devices communicate
operate. ERP vendors must be experts in their
directly with plant floor equipment and with the
own products and connectivity to other vendor
ERP system via methods supported by the ERP
products, including those of their competitors.
system. EATM can employ a staging table, Web Services, or system–specific program interfaces (APIs). An EATM offers the benefit of being an off–the–shelf solution.
VI. Implementation
ERP's scope usually implies significant changes to staff work processes and practices. Generally, three types of services are available to help implement such changes—consulting, customization, and support. Implementation time depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. Modular ERP systems can be implemented in stages. The typical project for a large enterprise takes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years. Customization can substantially increase implementation times. Besides that, information processing influences various business functions e.g. some large corporations like Wal-Mart use a just in time inventory system. This reduces inventory storage and increases delivery efficiency, and requires up-to-date-data. Before 2014, Walmart used a system called Inforem developed by IBM to manage replenishment.
VII. Process preparation
VIII. Configuration
I
C
mplementing ERP typically requires changes in
onfiguring an ERP system is largely a matter
existing business processes. Poor understanding
of balancing the way the organization wants the
of needed process changes prior to starting
system to work with the way it was designed to
implementation is a main reason for project
work. ERP systems typically include many
failure. The problems could be related to the
settings that modify system operations. For
system, business process, infrastructure,
example, an organization can select the type of
training, or lack of motivation.
inventory accounting—FIFO or LIFO—to use;
It is therefore crucial that organizations thoroughly analyze business processes before they implement ERP software. Analysis can identify opportunities for process modernization.
whether to recognize revenue by geographical unit, product line, or distribution channel; and whether to pay for shipping costs on customer returns.
It also enables an assessment of the alignment of current processes with those provided by the
IX. Extensions
ERP system. Research indicates that risk of business process mismatch is decreased by:
ERP systems can be extended with third–party software. ERP vendors typically provide access
Linking current processes to the
to data and features through published
organization's strategy
interfaces. Extensions offer features such as:
Analyzing the effectiveness of each process
Understanding existing automated solutions.
Archiving, reporting, and republishing
Capturing transactional data, e.g.,
ERP implementation is considerably more difficult (and politically charged) in decentralized
using scanners, tills or RFID
organizations, because they often have different
such as syndicated marketing data and
processes, business rules, data semantics, authorization hierarchies, and decision centers. This may require migrating some business units before others, delaying implementation to work through the necessary changes for each unit, possibly reducing integration (e.g., linking via Master data management) or customizing the system to meet specific needs.
Access to specialized data and capabilities, associated trend analytics
Advanced planning and scheduling (APS)
Managing resources, facilities, and transmission in real-time
X. Two tier enterprise resource planning
Factors that affect enterprises' adoption of two-
Two-tier ERP software and hardware lets
tier ERP systems include:
companies run the equivalent of two ERP systems at once: one at the corporate level and
of sourcing in emerging economies
one at the division or subsidiary level. For example, a manufacturing company] uses an
Manufacturing globalization, the economics
Potential for quicker, less costly ERP
ERP system to manage across the organization.
implementations at subsidiaries, based on
This company uses independent global or
selecting software more suited to smaller
regional distribution, production or sales centers,
companies
and service providers to support the main
Extra effort, (often involving the use
company’s customers. Each independent center
of Enterprise application integration) is
or subsidiary may have its own business
required where data must pass between two
models, workflows, and business processes.
ERP systems Two-tier ERP strategies give
Given the realities of globalization, enterprises continuously evaluate how to optimize their regional, divisional, and product or manufacturing strategies to support strategic goals and reduce time-to-market while increasing profitability and delivering value. With
enterprises agility in responding to market demands and in aligning IT systems at a corporate level while inevitably resulting in more systems as compared to one ERP system used throughout the organization.
two-tier ERP, the regional distribution,
XI. Customization
production, or sales centers and service
ERP systems are theoretically based on industry
providers continue operating under their own
best practices, and their makers intend that
business model—separate from the main
organizations deploy them as is. ERP vendors
company, using their own ERP systems. Since
do offer customers configuration options that let
these smaller companies' processes and
organizations incorporate their own business
workflows are not tied to main company's
rules, but often feature gaps remain even after
processes and workflows, they can respond to
configuration is complete.
local business requirements in multiple locations.
ERP customers have several options to reconcile feature gaps, each with their own pros/cons. Technical solutions include rewriting part of the delivered software, writing a homegrown module to work within the ERP
Changes to fundamental data structures) are overwritten during upgrades and must be reimplemented. Customization advantages include that it:
system, or interfacing to an external system. These three options constitute varying degrees
Improves user acceptance.
of system customization—with the first being the
Offers the potential to obtain competitive
most invasive and costly to
advantage vis-à-vis companies using
maintain. Alternatively, there are non-technical
only standard features
options such as changing business practices or
Customization disadvantages include that it:
organizational policies to better match the delivered ERP feature set. Key differences
between customization and configuration include:
Increases time and resources required to implement and maintain
Inhibits seamless communication between suppliers and customers who
Customization is always optional, whereas
use the same ERP system un-
the software must always be configured
customized
before use (e.g., setting up cost/profit center structures, organizational trees, purchase approval rules, etc.).
The software is designed to handle various configurations, and behaves predictably in
XII. Comparison to special– purpose applications
any allowed configuration.
The effect of configuration changes on
Advantages
system behavior and performance is
The fundamental advantage of ERP is that
predictable and is the responsibility of the
integrated myriad businesses processes saves
ERP vendor. The effect of customization is
time and expense. Management can make
less predictable. It is the customer's
decisions faster and with fewer errors. Data
responsibility, and increases testing
becomes visible across the organization. Tasks
activities.
that benefit from this integration include:
Configuration changes survive upgrades to new software versions. Some
optimization.
customizations (e.g., code that uses pre– defined "hooks" that are called before/after
Sales forecasting, which allows inventory
Chronological history of every transaction
displaying data screens) survive upgrades,
through relevant data compilation in
though they require retesting. Other
every area of operation.
customizations (e.g., those involving
Order tracking, from acceptance through fulfillment.
Revenue tracking, from invoice through cash
or less comprehensive solutions.
receipt
Matching purchase orders (what was
ERP can cost more than less integrated
High ERP switching costs can increase
ordered), inventory receipts (what arrived),
the ERP vendor's negotiating power,
and costing (what the vendor invoiced)
which can increase support, maintenance, and upgrade expenses.
ERP systems centralize business data, which:
sensitive information between
Eliminates the need to synchronize changes
departments can divert management
between multiple systems—consolidation of finance, marketing, sales, human resource, and manufacturing applications
attention.
Facilitates standard product naming/coding
Provides a comprehensive enterprise view (no "islands of information"), making real–
dependencies.
systems are not well suited for production planning and supply chain
decisions multiple security systems into a single structure.
Due to ERP's architecture (OLTP, OnLine Transaction Processing) ERP
anywhere, any time to make proper Protects sensitive data by consolidating
Extensive training requirements take resources from daily operations.
time information available to management
Integration of truly independent businesses can create unnecessary
Brings legitimacy and transparency to each bit of statistical data
Overcoming resistance to sharing
management (SCM).
Harmonization of ERP systems can be a mammoth task (especially for big companies) and requires a lot of time,
Disadvantages
Customization can be problematic. Compared to the best-of-breed approach, ERP can be seen as meeting an organization’s lowest common denominator needs, forcing the organization to find workarounds to meet unique demands.
Re-engineering business processes to fit the ERP system may damage competitiveness or divert focus from other critical activities.
planning, and money.
XIII. CONCLUSION We can conclude that All the ERP modules have their own benefits and can be used by any company depending upon the change requirements to be implemented. They are easy to use, motivate people and makes sure to help the organization to achieve its goals by continuous change for the technology, efficiency, customer satisfaction and above all satisfy their own people working for the benefit of themselves as well as for the organization.
XIV. REFERENCES http://www.webopedia.com/TERM/E/erp_module.html
Thomas H. Davenport, "Putting the Enterprise into the Enterprise System", Implementing Peoplesoft Financials: a guide for success By Early Stephens
ASAP implementation at the speed of business: accelerated sap -By stewart S. Miller, McGraw-Hill Computing, New-York 1998 http://en.wikibooks.org/wiki/ERP_Internals/Modules
http://en.wikipedia.org/wiki/Enterprise_resource_planning