Enterprise resource planning (ERP) systems combine methodologies with software and hardware components to integrate numerous critical back-office functions across a company (Business-Software.com, 2011). They are generally made up of a series of modules, or applications that are seamlessly linked together through a common database. This is confirmed by Wailgum (2007) who explains that the role of ERP software is to integrate all departments and functions across a company onto a single computer system that can serve all those different departments particular needs.
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The key goal of ERP is to automate core corporate activities by integrating software functions such as manufacturing, accounting, finance, human resources, production, supply chain management and fulfilment (Clarity Group, 2011), and by doing so facilitating rapid decision-making, reducing costs and allowing greater managerial control (Holland & Light, 1999). Furthermore, Kumar and Thapliyal (2010) state that, by integrating all these separate systems into a single software package it allows for great transparency, information to be shared more easily, increased communication, more efficient business operation, and access to greater amounts of accurate and up-to-date information by all staff members, specifically management .
2.0 ERP Comparison
2.1 SAP Business One
The SAP Business One solution is designed for small-to-medium businesses and integrates all core business functions across the organisation. It includes financials; sales; customer relationship management; human resources; warehousing and production management; inventory; operations and reporting. SAP Business One also has a focus on manufacturing and includes bill of materials, work orders, kits and assembly, material requirements planning (MRP) and back flushing (180° Systems, 2010).
The benefits of a SAP solution over and above the advertised advantages, which seem to just promote the vanilla advantages of ERP, such as improve efficiency, make faster decisions and work seamless with subsidiaries and business partners is the fact that SAP is a market leader in software architecture, with 43,300 customers worldwide, with 105,000 installations in 120 countries (Business-Software.com, 2011). As well as that SAP is quoted as having teams of dedicated developers and business managers supporting, evaluating and making improvements to the product all the time (Wailgum, 2008). Furthermore, SAP has had more experience in the manufacturing sector and therefore has stronger functionality and support for manufacturing operations (Sawyer, 2009).
SAP’s solution seems to be simple and easy to use, and is quoted to integrate well and be very stable (Sawyer, 2009). It allows for management of inventory across multiple warehouses, tracking stock movements, and management of production orders based on material requirements planning as well as automating procurement process from purchase order to vendor invoice payment, along with all the other features relating to core business functions such as account, finance, operations and reporting. The system is stated to look good and be relatively easy to use. Features such as drag and relate make it easy to find additional information about anything, it is even possible to add fields or tables of information. The advantage of this feature over competitors is that with SAP Business One the changes are outside of source code so upgrades will not require you to redo the customizations (180° Systems, 2010). SAP also promotes that its software is easy-to-use, allows for customization and has over 550 add-on solutions, which would allow for increased capability and usability (SAP, 2011). One of these solutions, SAP B1UP created by Boyum IT, allows for the SAP solution to became a smoother and easier to use platform. It allows for consultants to carry out configuration tasks that were previously only possible for developers (Boyum IT, 2011).
SAP Business One is extremely compatibility solution at all levels. The solution supports the Microsoft SQL Server database, the Microsoft Windows operating system – even the latest version Windows 7 – and soon will also support IBM’s DB2 database (180° Systems, 2010). SAP users also have the ability to integrate seamlessly with crystal reports. Even with the basic version, small and medium businesses are given the opportunity to conveniently connect data from multiple business functions and can generate visually appealing reports (SAP, 2011).
The costs for SAP Business One are competitive with those offered by other vendors competing in the SMB marketplace with a list price of $4,250 per user. The average cost of an implementation, including licence and services, will be between $50,000 and $75,000 – depending on the number of users (180° Systems, 2010).
Business requirements outlined by Aldridge Traffic Systems mean it is necessary to include a 25 concurrent user licences however as SAP only provides user licenses by name it is necessary to purchase at least 35 licences to ensure all necessary users have access to the system. With those requirements the SAP Business One solution would cost about $193,750 with a price breakdown of $148,750 for software licensing and about $45,000 for consulting and installation. Price is based on a consultation and installation period of 30 days which SAP recommends.
2.2 Sage ERP X3
Sage ERP X3 provides midsized companies with a highly adaptable and cost-effective solution for accounting, finance, sales, CRM, inventory management and operations. It is explained by Business-Software.com ( 2011) that it provides a multi-audit system which is supported by Sage and its business partners across 35 countries. The software suite is simple however designed to meet the functionality requirements of mid-to-large distributors and manufacturers. Furthermore SAP X3 has additional components that can be activated and allows for more functionality with distribution, architecture, CRM, business intelligence and most importantly manufacturing.
Benefit listed for X3 by Sage include:
– A singular system design to streamline business processes across all operations
– Embedded BI for real-time, better informed decision making and reduced risk
– A Web-native management system for enhanced collaboration and interoperability
– Scalable, flexible technology to quickly adapt to change and grow
– Reduced IT costs and fast return on your investment
Over and above the standard benefits is the improved functionality for manufacturing businesses with the manufacturing component activated. The component enables a huge amount of features and functionality including comprehensive product data, technical data management, replenishment, cost accounting, planning, order release, decision-making tools, inquiries and automatic processing (Sage, 2011).
AXSAPT (2010) outlines that Sage X3 is easy to implement and use, highly configurable, flexible, and very adaptable to local and international business changes. Sage X3 is also stated to be not only deployable onto the desktop environment but is also web native (Sage, 2011). This allows users to be able to connect via a web browser and have all the functionality that client/server user have access to.
Sage X3 is compatible with all current windows desktop environments and integrates with MS SQL and Oracle server.
Sage ERP X3 list price is $3,750 per concurrent user and Chinsky (2010) states that he believes it will be the most cost effective ERP on the market next year.
Business requirements outlined by Aldridge Traffic Systems mean it is necessary to include a 25 concurrent user licence which will allow for up to 25 users to connect to the ERP system at the same time. With those requirements the SAP ERP X3 solution will cost $168,750 with a price breakdown of $93,750 for software and licensing and about $75,00 for consulting and installation (as X3 is a newer software and the consulting cost will be higher as there is less supply and more demand).
2.3 ERP selection
The recommended solution for Aldridge Traffic Systems to implement is Sage ERP X3 as it is an advanced software suite that is simple to use simple (and web enabled), more cost-effective then SAP Business One ($168,750 versus $193,750) and is more suited to meet the requirements of mid-to-large distributors and manufacturers when the added functionality is enabled.
3.0 ERP Benefit attained through the use of ERP
As outlined by Spathis and Constantinides (2003) enterprise resource planning (ERP) systems offer distinct advantages for businesses in today’s environment and suggest that managerial benefits are the most prominent where rapid decisions need to be made using accurate information. Shang and Seddon (2000) investigate further and suggest that organisational benefits from ERP can be divided into five categories which include operational benefits, managerial benefits, strategic benefits, IT infrastructure benefits and organisational benefits. Finally Hawking, Stein and Foster (2004) outline the findings of their study and state that the top ten benefits from ERP include improved management decision making; improved financial management; improved customer service and retention; ease of expansion/growth and increased flexibility; faster, more accurate transactions; headcount reduction; cycle time reduction; improved inventory/asset management; fewer physical resources/better logistics; and increased revenue. When comparing these findings it is easy to see some commonality between the benefits of ERP, most importantly managerial benefits such as better decision making ability through access to better information about finances, inventory, resources and operations; and operational benefits including labour cost reduction through automation and redesign of processes and inventory cost reduction through warehouse relocation and process changes (Shang and Seddon, 2000). It must be stated however that even with all the benefits that ERP can bring to a business the ability for an organisation to align ERP functions with business processes is essential to ensure success. It is also important for management to recognise its flaws and make improvements which relies heavily on the organisations ability to change (this includes both day-to-day operational activities as well as strategic business processes) .
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4.0 ERP Implementation Issues and Recommended Approach
As identified by Parr and Shanks (2000) there are many problems that occur while implementing ERP systems. It is noted that even after spending millions on ERP packages considerable problems occur, particularly during the actual implementation. This is supported by evidence from Holland and Light (1999) who outline that although there is a large shift towards ERP and there have been some notable success stories approximately 90 percent of ERP implementations are late, over budget or are complete failures leading to bankruptcy or litigation proceedings.
Although there are many different planning and implementation strategies, this report suggests using the project phase model (PPM) and critical success factors (CSF) approach outlined by Parr and Shank (2000) with influences from Holland and Lights (1999) skeleton implementation. The PPM approach sets out the planning, project and enhancement phases. As outlined by Parr and Shanks (2000) the planning phase looks at forming project groups, steering committees and determination project scope and budgets. The project phase identifies ERP modules being used through to implementation and project cutover. The enhancement phase may extend over a long period looking at repair, extension and continuous improvement. Because the project focus is on implementation the project phase is split into a further five sub-phases of setup, re-engineering, design, configuration, testing and installation (Parr and Shanks, 2000). The advantage of using this approach is that the ERP installation can be implementation in a module fashion. As outlined by Holland and Lights (1999) this skeleton approach means that functionality can gradually be added to the system and means that the initial system is installed and running in a much fast timeframe and more importantly gives the user time to become familiar with the system before full functionality is added. This approach also gives users fewer opportunities to replicate old business processes from legacy systems on the new and continuously evolving ERP system (Holland and Light, 1999). Furthermore, to ensure the greatest level of success for an ERP implementation critical success factors (CFS) must be identified during the planning stage of the PMM process. Both Holland and Light (1999) and Parr and Shanks (2000) agree this is true and state that some factors must be outlined to ensure the success of the ERP implementation which include level of management support, deliverable dates, definition of scope and goals, ERP strategy and business vision.
4.1 Recommended ERP implementation diagram
PPM/Skeleton approach with CSF
5.0 Importance of ERP in business
As outlined earlier in this report ERP offers many distinct benefits in the modern business environment such as increased automation, lowering of operating costs (including headcount), reducing cycle-time, increasing the amount of information available management and some even say increasing the level of customer satisfaction (Spathis and Constantinides, 2003). The point here is that businesses today need to be competitive on a global scale and remain economically, socially and environmentally sustainable, and ERP aids businesses in doing this. Businesses have realised the need for a more integrated approach to business systems and the advantages of having a system that employees at all levels of the organisation can use, empowering them to do more. This integrated approach allows business users a single point of access for all the information pertaining to the business and can include customer account status, stock on hand, order status, production status, or even company financials allowing management to access to more accurate information about any area of the business in any part of the globe. This is what is important for businesses and what makes ERP so relevant. It allows for businesses to remain competitive through decisions making by leveraging the power of information.
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