Erp System And Alignment Of Business Strategy

ABSTRACT

An Enterprise Resource Planning (ERP) System serves as a cross-functional enterprise backbone that integrates and automates many internal business processes and information systems within the manufacturing, logistics, distribution, accounting, finance, and human resource functions of a company. Large companies throughout the world began installing ERP systems in the 1990s as a conceptual framework for reengineering their business processes1. They have come to realize the importance of having such system in place to help them sustain their competitive advantage and to be ahead of other players in the market. It is true that the benefits that comes with successful implementation are great but if not handled carefully, the risks involved are equally great.

The focus of this paper is to investigate the ERP functionality in an air-conditioner manufacturing company, ABC Sdn. Bhd., how the ERP system helps the company to align with its business strategy through the benefits achieved, how the company has succeeded in the implementation, highlighting the problems faced during and after implementation and recommendations on how these problems can be overcome.

LITERATURE REVIEW

Success Failure Dynamics of ERP implementation.

William R. King, 2005 wrote in his article 'Ensuring ERP Implementation Success' that the 2 important measures that proved highly predictive of ERP implementation project success were the "arduousness of the consultant-client relationship" and the degree of the "shared understanding" i.e. the similarity in work values, norms and problem-solving approaches between consultant and client team members.

Problems faced with ERP implementation arise because the software purchased from vendors are usually a 'one size fits all' solution that does not allow companies to achieve a desired level of functional interoperability with in-house developed systems. This is not only expensive but also disruptive to the company's operations.

In order to overcome the obstacles, most companies will employ consultants to assist in the customization and the implementation of the vendor-supplied systems. Project teams consisting consultants and client representatives have to be created.

Client representatives should be those who know the most and who have the least to learn. This most knowledgeable people will work with the consultants in implementation and then serve as trainers for other employees.

King emphasized 'people' in the implementation of the ERP system. This means choosing the right people, especially those who are self-motivated who can perform well even in the absence of rewards or recognitions.

Companies should interview individual consultants to ensure that they have the required communication and teamwork skills and that they will be compatible with client team members.

The critical factors in ensuring ERP implementation a success include communications, compatibility, shared understanding, adequate one-to-one relationships and choosing the right consultants and the right people for each task.

Thomas H. Davenport, 1998 mentioned in his article 'Putting the Enterprise into the Enterprise System' that the biggest problems are business problems and not the technical challenges. Companies fail to reconcile the technological imperatives of the enterprise system with the business needs of the enterprise itself. The scope of an enterprise system pushes companies toward full integration even when a certain degree of business unit segregation may be in its best interests. It also pushes a company toward generic processes even when customized processes may be a source of competitive advantage.

Companies must first have a clear understanding of the business implications and the problem the system is designed to solve. The system should be defined by the customer rather than the vendor, it should be customized to fit business processes rather than the business being modified to fit the system. An understanding of how the system will have impact on the organization and culture contributes to a successful implementation.

Selecting the right modules to install to achieve the best possible fit with company's processes is another crucial step i.e. balancing the way you want to work with the way the system lets you work. Companies need to know whether are there other alternatives for information management that might actually suit them better than an enterprise system. A well-planned and phased implementation i.e. one business unit at a time is wiser in order to minimize the risk involved in cost, disruption and possible weakening of competitive advantage. The implementation team should include both business analyst and information technologist and assisted by the users representing the business units and corporate functions. The users must have the broadest possible understanding of the business and how the system will work to help ensure decisions about the system's configuration meet their business needs and requirements. After which, these users will explain the new system to their respective departments and training people in use.

There is an importance to have top management directly involved in planning and implementing an enterprise system. Only a general manager is equipped to act as the mediator between the imperatives of technology and the imperatives of the business.

If the development of the system is not carefully controlled by management, they may soon find itself under the control of the system. Davenport stressed on the right people to manage and select the right technology to fit in the right business processes.

A P Kakouris; G Polychronopoulos, 2005 in his research ERP System: An Effective Tool for Production Management said that production management (Neely, 1991) is essential to cope with the demanding nature of the business and in order to be successful; it must successfully manage the manufacturing of the saleable products by understanding how planning, scheduling, shop floor control and stock affect manufacturing. Besides, integrating manufacturing with other functions, such as supply chain and having an effective and efficient manufacturing set up in place are equally important.

ERP systems are some of the technologies that support towards this direction (Muscatello, et al., 2003). The correct selection and implementation of the system are the key drivers that will certainly lead to success.