ROI on ERP System Implementation

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Introduction

This report is intended to demonstrate how Farwest Steel Corporation, a midsize processor, fabricator, and distributor of carbon steel products, based in Oregon, USA, evaluated the return on investment on implementation of a Saas ERP system.

The following points will be addressed as well:

  • A description of Farwest Steel Corporation
  • The needs of implementing the ERP system
  • A brief description of the evaluation method the organisation used
  • How the application operates within Farwest Steel Corporation, including Saas ERP technology, business processes and people involved.
  • A critical assessment of the success of Saas ERP system

A Description of Farwest Steel Corporation and the Case Obtaining

The Farwest Steel Corporation is a leading processor, fabricator, and distributor of carbon steel products, having about 750 staff. The company is located in Eugene, Oregon, in the Pacific Northwest of the United States, and has main facilities in Medford and Portland (Oregon), Renton (Washington), and Boise (Idaho) with branches serving the Western US (Farwest Home page, 2007).

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Farwest Steel distributes a complete set of carbon steel products, focusing on quality and services; they provides the following services:

  • Smooth out the clients' production processes.
  • Eliminate work-in-process inventory.
  • Decrease inefficiencies stemming from vendor logistics costs.
  • Free capital tied up in underused equipment.

Farwest has exclusive steel processing capabilities, on the quality of its products, and on the excellent services it can supply to its customers. They comprise flame cutting, plasma cutting and punching; saw cutting, and shearing, as well as in-house steel fabrication facilities and steel distribution capabilities. Farwest is comparable with bulk steel suppliers globally, even those from low-cost areas like China and Eastern Europe. The company keeps its market share by continuing to offer a high degree of service and that allows it to fend off its price cutting low-cost rivals.

The Initial Needs for Implementing the ERP System

The initial drive for implementing an e-business system was simply a need to upgrade the existing tailored application that was inapplicable any longer. However, Farwest's management quickly determined that the basis to establishing their market strategy was a modern e business system that could assist them in streamlining their processes and reacting faster to customer requests, therefore providing high levels of service with low process costs (Manenti and Parker, 2009).

Regarding the management decision to make ICT a source of competitive advantage, Farwest began to develop its e-business strategy with the main challenges to its business in mind. The company strived to find solutions for the attribute intensive nature of steel products which makes ordering from customers a big challenge. The numerous steel grades, dimensional options, and value-added services supplied by the company produce a great deal of diverse product variants that a customer can purchase. The ability to rapidly meet particular product needs and to provide value-added services differentiates the company from competitors.

Therefore it was critical for Farwest to satisfy customers' requirements fully and then to perform the relevant production processes appropriately. Furthermore, Farwest's major competitors were already deploying Network-based tools to enable online purchase readily to their customers and Farwest had to implement such innovations to increase its service availability.

Overview of Techniques Used at Farwest

Farwest compared various software choices that involved industry-specific applications and cross-industry applications from major ERP providers. The company had chosen Oracle Corporation's E-Business Suite due to the following main reasons:

Oracle had particular experience in the steel industry and integrated accepted industry practices in its E-Business Suite products. An open and expandable platform on the basis of Oracle's software-as-a-service (SaaS): SaaS runs on a remote sever which Oracle hosts, rather than on a server located at Farwest. Farwest links its facilities to Oracle through the Internet, based on an enterprise-specific standard network protocol called Multi-Protocol Label Switching (MPLS). This protocol is intended to manage crucial e-business applications that operate on remote servers and need to have higher priority than other non-critical applications (e.g., email).

The Oracle Platform for SaaS comprises Oracle Database (Oracle, 2009), Oracle Fusion Middleware, Oracle Enterprise Manager, and Oracle VM, an open and integrated set of technologies that enable ISVs to build, implement and manage SaaS and cloud-based applications. The Oracle Platform for SaaS supplies Independent Software Vendors (ISVs) a single, entire platform for both local and cloud-based implementations; allows ISVs to offer their customers an option in where to run their software. Moreover, the Oracle SaaS program provides business and technology support to ISVs, hosting service providers and system integrators.

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The move to SaaS or On-Demand causes numerous technical challenges for software vendors and hosting service providers. The ISVs need to support multi-tenancy, integration and customization. The hosting service providers have to support scalability, performance, security, patching, service level management and billing. The Oracle Platform for SaaS, including database, middleware and system & application management technologies, forms a comprehensive platform to dispose these challenges. This platform allows working with experts to design and host new application or migrate an existing on-premise application into SaaS platforms with minimal work. Oracle provides technology support, training, technical resources and proof of definition.

Evaluation of SaaS ERP Operating Within Farwest

Evaluation of the new system has been conducted; the company believes the system has improved its performance. The following impacts are among those which the company particularly addressed:

  • Improved ordering and delivering processes by viewing data associated with clients' purchases.
  • More accurate inventory visibility that ensures various processes operate concurrently that request inventory management activities.
  • Improved tracking of costs, through the automatic recognition of cost elements related to any in house process or purchase.
  • Reducing Inventory Levels and Optimizing Production Capacity Use: The operational processes involving customer order management, production management, shipping, and procurement are more automatic and consistent. The deployed ERP system introduced a comprehensive method to business processes and data which was a big improvement from the segmented and dispersed nature of the previous system. Presently with the deployment of the customization order management application, the product variants ordered by the customers are distinctly specified and linked to an exclusive serial order number. The firm now has an overall overview of the customer order performance status across the whole order-to-delivery process. Taking account of the huge amount of customer orders and product variants, this allowed Farwest to greatly decrease inventory levels while improving the utilization of its production capacities.
  • SaaS Benefits: The new system's software-as-a-service architecture enhanced the company's IT system support. The new system is available anytime through the hosted delivery model, and this better serves the company's operations therefore it meet the need to deal with urgent customer requests out of normal working hours. Furthermore, the IT components such as servers and database administration have been outsourced to Oracle experts, which optimize the use of these IT tools to fit the company's processes.
  • Another significant improvement was the support of very reliable and credible data to which users can readily access. The deployment of the new e-business solution reduces isolated information which was put together by the new system.

Internal Process Changes over Customizing the Software

Farwest changed internal processes while customizing the software. With their legacy system, Farwest made developments to the processes with negative results, such as total implementation time, maintenance costs, and upgrade efforts. Farwest ensured that upfront management decisions were disciplined about process changes, which was crucial to the successful and timely deployment. Moreover, the differences between business processes and the e-business system were observed and a high standard was set for making software changes, as there are many difficulties and risks involved with customizing a system as sophisticated as ERP.

Considerable Change Management Requirements

Farwest evaluated appropriately the management changes in an IT system deployment like the one undertaken. The company came through a phase of complete diffidence from many of its employees in implementing the E business system, basically because they were worried that the deployment of the new system would cause huge operational change. Furthermore gaining approval for the deployed system was a challenge, especially from the shop floor employees, who were not confident in the system due to their lack of computer experience. Therefore, a series of training programs were conducted, demonstrating how to use the system and showing the advantages it will bring. Through this the employees improved their confidence in the ERP system.

A Critical Assessment of the Success of the Saas ERP System

as hosted and managed alternatives to on-premise applications.

Grid Computing is the basis for the Oracle Platform for SaaS; Oracle Platform provides cost-effective and highly scalable and available software architecture for both public and private clouds. Oracle also allows enterprises to implement Oracle technologies in public clouds like the Amazon Web Services environment.

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Overview of Cloud Computing

Cloud computing can definitely produce strategic, transformational, and even revolutionary effects to enterprise computing, and it also provides direct and practical ways to enhance efficiencies in setting the stage for strategic change. And in many cases, the technology supporting cloud computing works to help the design of a migration path that decreases initial investment and advances returns from each stage. Cloud computing provides huge opportunity for more flexible, readily-scalable and cost-effective IT applications. But the real impact of cloud computing platforms is the potential over time to basically re-think and re-design enterprise business and IT architectures. There is forecast for emergent innovation and extended capabilities of a cloud-based business environment, although today's cloud provisions are only just beginning. With so much technological innovation going on, the biggest achievement will be realized by those who first form business practices to leverage and differentiate this perspective.

Risks Involved in Cloud Computing

The most crucial cloud computing risks are:

Loss of governance: when using cloud infrastructures, the client essentially abandons control to the Cloud Provider on numerous issues which may impact security. At the same time, SLAs may not offer a commitment to supply such services on the part of the cloud provider, therefore leaving a gap in security protection.

Lock in: there is currently little on offer regarding tools, procedures or standard data formats or services interfaces that could ensure data, application and service portability. This can make it difficult for the customer to transform from one provider to another.

Isolation failure: multi-tenancy and shared resources are defining features of cloud computing. This risk category covers the failure of methods separating storage, memory, routing and even reputation between different tenants.

ERP Overview

Enterprise integration as a competitive advantage is considered to have great strategic value. ERP is a strategy to handle integration problems in organisations. In the past companies would deploy information systems regarding the way business was done. Nowadays, with ERP the strategy is turned round, that is, the business processes must often be justified to fit the system.

Organisations benefit the most from ERP by perceiving the system in strategic and organisational terms; especially those companies that emphasize the enterprise, not the system, attain the greatest benefits (Jonsson and Pernbro, 2004).

Apart from having important strategic implications, ERP systems also have a direct impact on a company's culture. Furthermore, through supplying universal, real time access to operating and financial data, the systems enable an organisation to simplify the management structures, creating a flexible and democratic organisation.