Understandung The Importance Of Enterprise Resource Planning Information Technology Essay

3737 words (15 pages) Essay in Information Technology

5/12/16 Information Technology Reference this

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The feasibility study is an analysis study, which helps to clarify the objective of the proposed systems development project and to better understand a business problem. The feasibility study presented here determines whether the proposed upgradation of the existing ERP system at Velogic Airlines Limited, can effectively meet the specified business requirements of the company. That is, it gives an idea of whether the system will be worthwhile. It involves the assessment of problems and challenges those are being currently experienced at the organization by taking into account the technical, operational, social and economic feasibilities. It also considers the costs of the project and the advantages that Velogic Airlines Limited may enjoy once the upgradation is executed.

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Introduction

Before migrating to the next level of the ERP (Enterprise Resource Planning) implementation, it is important to consider first whether it will be worthwhile and also whether it will really be a benefit to the company.

Organizations today confront new markets, new competition and increasing customer expectations. The efficiency of an enterprise depends on the quick flow of information across the complete supply chain. ERP (Enterprise Resource Planning) systems have been used by businesses today, in hopes of gaining a competitive advantage. Upgrading the existing ERP by including three more modules should benefit Velogic Airlines Limited significantly.

There are many ways that an ERP system can help an organization. First, an organization’s operating costs can be reduced. An ERP system integrates all parts of an organization. Hence it is possible to manage it efficiently. Also, an ERP system increases the organization’s time efficiency. Workers have faster access to their information, which improves the time and resources for decision-making. For now, having an ERP system means increased information availability for the organization that means that the organization can access information quickly and easily [1] 26.

To be able to determine if the system can effectively meet business requirements of the company, a feasibility study has been carried out and is presented here.

A feasibility study is an assessment of the proposed system to determine whether the system can effectively meet specified business requirements of the company and whether a business option exists for developing such a system.

If feasible, the feasibility study leads to requirements specifications, which takes the agreed business system option and develop it so as to add exact details of data, functions and events to be included in the future system.

It is a short-term analysis study, which helps to:

Clarify the objective of the proposed systems development project

Provide a better understanding of a business problem

Assess or recommend what course of action are taken against the proposed solution

Issues to be addressed

This part is already discussed in previous section.

The feasibility study comprises of the following sections of the study:

a. The Technical feasibility

b. The Operational feasibility

c. The Social feasibility

d. The Economic feasibility

Technical feasibility

The main aspect at this stage is to assess whether the ERP system being proposed is technically feasible. This means to assess if the system is capable of being implemented using available hardware, software and other equipment.

The aim is also to find out whether the level of technological advancement needed for the purpose is in a position to fully support the proposed application.

As Velogic Airlines Limited has already implemented the ticketing, the administration and the customer care modules, its existing ORACLE based application needs to be upgraded by adding the three additional modules namely:

Finance and accounting

Human Resource and Payroll

Inventory

To implement the ERP system, Velogic Airlines Limited shall need to upgrade its existing server as its capacity may not be as such powerful to accommodate the three new modules for the expanding of the ERP system. Also, the actual Oracle 8i installed on the server shall be upgraded to Oracle 9i standard Edition. In addition, appropriate network cablings should be put in place for the 60 users of the system since each department consists of 20 employees.

The existing server will be upgraded to the following configurations:

Server configuration

The Sun Fire x4540 server:

27

SUN graphics card

Solaris Media Kit

Backup device

Solaris 9 server license

Compared to the current system (described in previous section), ERP attempts to integrate all departments and functions across Velogic Airlines Limited onto a single computer system that can serve all those different departments’ particular needs. ERP is an enterprise wide system that integrates primary business applications, including all areas and levels of an organization. All the applications in an ERP suite share a common set of data that is stored in a central database. [3] 26

In this way, various departments can more easily share information and communicate with each other. This integrated approach can have a tremendous payback if companies install the software correctly.

Therefore, on technical grounds the project seems to be feasible as a reason of the benefits mentioned above. Moreover, Velogic Airlines Limited will just have to buy the additional modules and upgrade its existing server for the new system.

Operational feasibility

It is a key concern dealing with human organization. It concerns the way the organization does business. It involves a change in management responsibilities, status, training and reorganization.

The aim of evaluating the operational feasibility of the proposed system is to find out whether the manpower will be able to cope with the ERP system as this means a transition from the current system to the proposed system.

However, training would be needed to make the users adapt to the new system.

Employees have to be trained as ERP involves the Business Process Reengineering (BPR). The reengineering aspect is very important. ERP provides a generic business model for the company to follow. Since the ERP software can only be customized so much, Velogic Airlines Limited needs to try to fit the model of the ERP. To properly balance and align real-world business processes with ERP functionality, executives and ERP teams have to engage in an important process known as a “GAP Analysis.” Gap Analysis is critical not only to determine the overall ERP implementation strategy, but also to pinpoint the new requirements for the ERP system. Gap Analysis helps to find what the missing links are in the current system and the ERP system.

When a company tries to match its total functionality requirements with the ERP Oracle application, it notices that some functionality of the ERP application needs to be customized so that the ERP application satisfies the criteria of the company functionality.

Gap Analysis will clearly identify those requirements that are not fully met by Oracle ERP Applications and will arrive at changes to be incorporated in the system to cater fully to the requirements.

Requirements for ERP:

This part is already discussed in previous sections

Hence, the project should be operationally feasible as the employees of Velogic Airlines Limited shall be interested with such a new system as consequently they would be provided with training in order to use the system properly.

Social feasibility

It examines the social impact of the system on its users.

The switch from the current system to the ERP system introduces new methods of thinking and working. Since people tend to resist changes, they may be against the development and implementation of the ERP system as this involves redrawing of job specifications. That is the employees will work in a different way from that of the current system. The new system will create new roles within the company. However, Velogic Airlines Limited staff should be aware of the improvements and benefits they will get once they are used to it. They should have the expected skill requirements to operate the new system and for this training shall be provided.

In the present system, the three departments Finance and accounting, Human Resource and payroll, Inventory runs on three distinct and separate databases resulting many times conflicting, elements in all three systems. Finance and accounting department use the Sun Accounting System, Inventory and HR department use Ms Access and Ms Excel to do their work. Therefore, there is no coordination between Velogic Airlines Limited’s business processes in the existing system.

ERP will combine the three departments all together into a single, integrated software program that runs off a single database. So, compared to the present system, different departments can more easily share information and communicate with each other. Consequently, the employees working in these departments will face changes in the way they work.

Velogic Airlines Limited can become more flexible and productive by coordinating its business processes more closely and integrating these processes so that it focuses more on efficient management of resources and customer service. For this, a powerful type of organization change should be brought forward – the business process reengineering (BPR) also known as Business Process Improvement (BPI) or business process redesign. Refer to section 4,’business Process Reengineering at Velogic Airlines Limited’.

After carrying out the social feasibility study, it seems that the project is feasible due to the fact that the employees shall react positively to the ERP system since training would be given to them so that they could acquire the skills needed to use the system.

Economic feasibility (evaluation of cost)

This concerns the returns from the investment with respect to ERP implementation. This means that the project must be “a good investment” that is whether it is worthwhile to invest money in the implementation.

For example the equipment and software costs, the expertise costs and the training costs of the ERP system shall be evaluated. These figures are shown below.

Economic Assessment

This section considers the costs for the upgrading of the ERP system as well as its benefits to Velogic Airlines Limited.

The costs involved:

Equipment and software costs

Expertise costs

Training costs

Equipment and software costs:

It includes the cost of putting the system into place. It consists mainly of the cost of computer peripherals, hardware and software infrastructure. Although the company is already computerized, there will be some equipment cost for the ERP system.

The server, which already exists at Velogic Airlines Limited, shall be upgraded to support the other three modules. In addition, there should be necessary network infrastructure such as cabling. It also consists of the cost of operating the system once it has started.

The costs that will be incurred once the system is in operation are:

Support costs

Licensing costs

Maintenance costs

To implement the new ERP modules, Velogic Airlines Limited will choose once again Oracle as ERP vendor as it was the same for the previous ERP modules already implemented.

Since the cost of the Human resource and Payroll module is $ 90, it is equivalent to Rs 2700. ($ 1 = Rs 30)

As Velogic Airlines Limited has 2691 employees, the licensing cost for this module will be Rs 7 265 700. (2700*2691)

The cost for the Finance and Accounting and Inventory modules is $ 4000, which is equivalent to Rs 120 000.

As there are 20 employees in each department, it makes a total of 40 users.

Therefore, the licensing cost for these modules will be Rs 4 800 000. (120000*40)

The total licensing cost will be Rs 12 065 700.

The support cost will be 20% of the licensing cost and the maintenance cost will be 15% of the licensing cost.

The costs are as follows:

Rs

Upgrade Server 500 000

Networking cabling 10 000

Support costs 2 413 140

Licensing costs 12 065 700

Maintenance costs 1 809 855

The total equipment and software cost is approximately Rs 16 798 695

Expertise Costs

They include costs of measuring and analyzing the existing system and costs of looking at the new system. They include software/consultancy work, hardware and software equipments for development, Integration and testing costs and Data conversion costs.

The cost of consultancy is very high as a consultant roughly charges Rs 100 000 to the time of one month.

Data conversion also costs money to move corporate information, such as customer and supplier records, from the old systems to new ERP homes.

It is assumed that the implementation of the system will consume six months and that one consultant and one system administrator are required. They will be paid Rs 100 000 each per month.

Therefore, for six months, the salary of the consultant will be Rs 600 000. As for the system administrator, he will take five months for the customization, testing and data conversion and one month for training. So, his salary for the five months will be Rs 500 000.

The costs are as follows:

Rs

1 Consultant 600 000

1 System administrator for customization,

Testing and data conversion 500 000

The total expertise cost is approximately Rs 1 100 000.

Training costs

These costs will include staff training. Training expenses are high because workers almost invariably have to learn a new set of processes, not just a new software interface. With ERP, finance people will be using the same software as people working in the Inventory department and they will both be entering information that affects the other. To do this accurately, they should have a broader understanding of how others in the company do their jobs than they did before ERP came along.

As the system administrator will give training to the 60 users of the ERP system within one month, his salary will be Rs 100 000.

The cost is as follows:

Rs

Staff training 100 000

The training cost is approximately Rs 100 000.

Quantity

Rs

Equipment and software:

16 798 695

Upgrade server

1

500 000

Networking cabling

60 data points

10 000

Support costs

2 413 140

Licensing costs

12 065 700

Maintenance costs

1 809 855

Expertise costs:

1 100 000

Consultant

1

600 000

System Administrator for customization, testing and data conversion

1

500 000

Training costs:

100 000

System Administrator

1

100 000Below is a table showing all the costs of the ERP system.

The total cost involved in the ERP implementation will be approximately Rs 18 000 000

Benefits of the ERP implementation to Velogic Airlines Limited

Elimination of Costly, Inflexible Legacy Systems

Prior to the selection of an ERP system, Velogic Airlines Limited may be running many separate older systems. Elimination of those costly to maintain systems and implementing one single integrated and updated system for the organization can be very cost effective.

Upgrade of Information Technology Infrastructure

The complete IT infrastructure gets a facelift. ERP systems will require a new configuration of hardware and software. The old and multiple hardware and software configurations usually supported by many vendors are now eliminated. Fewer technologies and vendors create a more conducive infrastructure environment as relates to maintenance, support, and training costs.

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Improved Work Processes

A new ERP system incorporates many new and improved “best of practice” business processes. Vendors conduct industry-wide research to define the best business practices. The research information then becomes part of their ERP system. Customers are then ensured of effective and efficient workflow processes when implementing their ERP system.

Increase in Access to Data for Business Decision Making

Data from all areas of the organization integrate into one complete database shared by all members of the organization. An ERP system eliminates the many databases members have to access to acquire necessary business decision information.

Reduced Paper Documents

Paper documents are reduced, as there are online formats for data entering and retrieving.

Unified Customer Database

Customer information is stored and maintained in one database. This allows all sites to utilize the same customer information. Redundant record keeping is reduced or eliminated.

Web Based Applications

ERP systems have increasingly been designed to effectively utilize the internet to apply many of the ERP system solutions. Web interfaces offer easy access to a wide range of information.

Information is Received on a more Timely Basis

Information is processed daily and at real-time which allows for immediate access to timely information resulting in better and more responsive decision-making.

Greater Accuracy of Information with Detailed Content

Data is entered once, which eliminates the human error effect in a multiple system environment. Transactions in an ERP system can be maintained at a high level of detail, excellent for reporting and auditor satisfaction.

Increase in Customer Response Time

The customer service at Velogic Airlines Limited could respond more quickly to customers since information would already been collected and processed.

Improved Monitoring and Quicker Resolution of Queries

Data can be accessed quickly and questions and answers regarding operations can be address promptly.

Improved Information Access and Management throughout the Organization

An ERP system accumulates detail information in a data warehouse through which management can access from any location in the world. Standard and/or customized reporting can select necessary information to support business decisions.

Provides Functionality to Interact with other Modules

Since the main heart of an ERP system is to integrate the entire operations of an organization, it is designed to interact seamlessly with all modules.

Feasibility of ERP implementation

Finally, I may say that the project should be feasible towards an upgrading of the existing ERP system at Velogic Airlines Limited. Even though the costs of Rs 18 million may appear to be heavy, the ERP system would certainly bring much benefit to the company.

Here are some examples of companies that have benefited from the ERP implementation:

Data Exchange Corp., a provider of high-tech repair services in Camarillo, Calif, implemented Oracle’s suite of manufacturing, HR, and financial applications.

Since starting to use Oracle less than a year ago, the company has been able to cut 10% to 15% from its total cost structures to improved processes, reduced error rates, and increased customer service. For example, if a customer has a defective copier and needs a replacement part, Data Exchange can satisfy that request the next day 98% of the time. That’s because the software has a master scheduling module that lets the company anticipate failure rates in the field and better manage inventory by having the right replacement parts on the right shelves at the right.

Pitney Bowes Inc., a $4 billion maker of fax machines, copiers, and mailing systems in Stamford, Conn has seen several tangible improvements since it began using ERP. The company says it has slashed the cost of its overall operations by 28%, resulting in an annual savings of $3.4 million. Sales productivity has soared because sales reps can configure and price a product right in front of a customer in less than 15 minutes, as opposed to the hours it used to take. Sales reps are averaging a 3.8% increase in overall sales, and order accuracy has jumped 41%, which means the right products are going to the right customers more often. As a result, Pitney Bowes no longer has to waste money handling returns from customers [4] 28.

A proper implementation of the system could provide benefits, based on the company integrating the system with its own processes to make it unique, and the cost and time put in should be offset by the benefits of the system mentioned above. The first step in a successful implementation project would be a proper and adequate training leading to a complete and solid understanding of ERP systems and benefits in relation to the company’s own business expectations [5] 26.

Velogic Airlines Limited will benefit greatly from the ERP system, as with the current system it would be difficult for the company to take the load of the work in the future. For example, with the advent of new flights towards new destinations, increase in the number of customers and aircrafts, information will be processed at real-time which will allow for immediate access to timely information resulting in better and more responsive decision-making. ERP will help to break down barriers between departments within the company. Eliminating the stand alone systems and implementing one single integrated and updated system will be very helpful to Velogic Airlines Limited as the different departments will all have access to the up-to-date information that is needed to operate smoothly in the company. All information will be entered only once into the database, which will allow for greater accuracy and will eliminate redundancy of information. In this way, the transactions can be maintained at a high level of detail, excellent for reporting and auditor satisfaction. Since data can be accessed quickly, time will be saved and thus Velogic Airlines Limited will be able to offer a better quality service to customers. Therefore, it will attract more and more customers and hence maximize profit.

By upgrading the existing ERP, many changes will take place at Velogic Airlines Limited but the rewards can be huge if a properly designed plan is followed through from the beginning to the end.

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