In response to the growing global competition, many manufacturing companies have embarked upon enterprise resource planning (ERP) implementation. Organisations that have successfully implemented ERP systems are reaping the benefits of integrated working environment, standardized processes and operational benefits to the company. Although not all ERP implementations have been successful and this proven by the number of horror stories of ERP implementation.
ERP system projects are difficult and high cost proposition s, as it places tremendous demands on organisations time and resources. Companies could spend millions of pounds and may take many years to implement the ERP solution within the organization. Formerly when an ERP solution is implemented going back can be extremely difficult as it is too expensive to undo the changes. Improper implementation has taken companies to bankruptcy and in several cases; organisations have decide to abandon ERP implementation projects. T.R Bhatti 2005
ERP systems have been criticised for being inflexible and not meeting specific organization and industry requirements (Davenport, 1998; Scapens et al., 1998; Booth et al., 2000)
Many organisations have successfully implemented a change and likewise, have also failed. Partington, (1996) has brought upon the question "What are the successful factors to implement EPR system?" There have been lots of research and several critical success factors have being identified. For example, Kuang et al (2001) and Wagner & Poon (2001) have identified some major factors which involve Top Management support, Project Management, Vendor support and business process reengineering. This essay aims to identify and discuss some of these key factors, and show understand by drawing comparison with an organisation that have experienced a failed ERP implementation. The essay will be concluded by a person reflection of lesson learnt from undergoing this study.
Many reasons lie as to why companies might decide to buy and implement a new business system. The decision is not made over night and is carefully planned and scheduled in advance. This process is sometimes forced by customer demands, external pressures or by corporate change. 'If organisations want to continue surviving, they must change in order to survive' Partington, (1996)p14
Expanded global competition has become the norm rather than the exception, with an unprecedented number and variety of products available to satisfy consumer needs seamless computing system. A successful ERP can be the backbone of business intelligence for an organization, giving management a unified view of its processes. A. Parr, G. Shanks 2000
Enterprise Resource Planning systems integrate all information and processes of an organization into a coalesced system that concerns how people and organizations access, collect, store, gather, summarize, interpret, and use information. "ERP systems are configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization" (Kumar & Van Hillsgersberg, 2000).
As packaged software, ERP is designed by vendor organizations but used by customer organizations, two sets of players who are independent of each other (Soh and Sia, 2004).
An ERP system can be thought of as a companywideinformationsystem that integrates all aspects of a business. It promises one database, one application, and a unified interface across the entire enterprise. Many companies that fail to utilize ERP systems find themselves using a variety of different software packages that do not function well with one another, which makes the company unstable. This then makes the company less efficient than it should be.
Another reason ERP solutions are so critical is their ability to increase information consistency and accuracy. Many companies still suffer from "multiple versions of the truth" incorrect and inconsistent information across the business. For example, if the accounting department and the contact centre access two different databases which aren't integrated, a customer with a billing question will likely get an inaccurate answer if they call the contact centre for assistance. These problems, although they may appear small on the surface, can add up, leading to bigger customer satisfaction and retention issues that can negatively impact revenues and market share.
Nah, F. and Lau, J. 2001 stated that most ERP systems now have the functionality and the capability to facilitate the flow of information across all business processes internally and externally. Furthermore, ERP systems have the capability to "reach beyond their own corporate walls to better connect with suppliers, distributors and customers to engage in e-business". Nah, F. and Lau, J. 2001. p285-296.
Success & Failure of ERP systems
Large companies tend to invest great huge amount of money into implementing and maintaining a large scale of enterprise resource planning systems, yet not knowing what their main objectives are in implementing such a system.
The essential stepping stone are discarded such as risk assessment, benefit analysis, performance objective and cash flows; the expenditures are substituted on nave assumptions that the computer will magically transform the company into an efficient smooth running model. Although this is a misguided approach and sets up sequence of events that lead to failure of objectives. This then results to a conclusion of the ERP system being a bad investment decision.
Companies sometimes do not understand why they are in need to implement an ERP system, but its sometimes harder to consider an ERP solution as the vendors motive is to close the deal as soon as possible, but often companies jump straight in without validating the software vendors understanding of the business requirement or the project plan. If this is done before hand then less time is spent fixing the problems at a later stage. If the company clearly understands the business objectives and what they are trying to accomplish, then an appropriate decision is made on which route to take, which sometimes does not involve an ERP solution.
While ERP installations often help small and midsize manufacturers to improve their strategic and competitive capabilities (Smith, 1999; Jenson and Johnson, 1999), there are several reasons why some firms are not rushing to install the systems. First, the ERP implementation efforts of many of their larger counterparts have resulted in partial failure, and in some cases total abandonment. Trunick (1999) reports that 40 percent of all ERP installations only achieve partial implementation and that nearly 20 percent are scrapped as total failures.
In order for an ERP to be successful within an organisation it must have the full backing of the project management and project champion. The project manager will be in charge of managing the project life cycle from initiating to the closing phase. It will be the project manager's sole responsibility to endure the planning, controlling and the project scope to meet the deliverables in the given time frame and budget. Remus (2006) noted that project champion is one of the most important factors in the implementation of ERP systems. Project champions should own the role of change champion for the life of the project and understand the technology as well as the business and organizational context. Furthermore, project champion must attempt to manage resistance towards positive change in the old system (Loh and Koh, 2004).
Critical Success factors
Top Management Support
Top Management Support is an important factor for an ERP Project to be successful, as the role entails, developing and understanding of limitations and capabilities of a proposed system, having set goals, and communicating with the corporate IT strategy to all employees. (Somers T.M., and Nelson K. (2001)).
Al-Mashari et al. (2003) argued that top management support does not end with initiation and facilitation, but must extend to the full implementation of an ERP system. Furthermore, top management support should provide direction to the implementation teams and monitor the progress of the project.
Another important success factor for an ERP is to have a project manager. The project manager will be in charge of managing the project life cycle from initiating to the closing phase. it will be the project managers sole responsibility to endure is the planning, controlling and the project scope to meet the deliverables in the given time frame and budget.
The project manager must also attempt to manage resistance towards positive change in the old system (Loh and Koh, 2004).
Having the right composition of the ERP implementation project team is very important (Umble et al., 2003; Nah et al., 2001; Bingi et al., 1999; Buckhout et al., 1999; Laughlin, 1999; Ross, 1999) but may be difficult to have. Team members should be technologically competent, understand the company and its business and come from Critical success factors 435 the departments affected by the new system. This team should contain the best people in the organisation (Bingi et al., 1999, Buckhout et al., 1999), and be cross-functional (Nah et al., 2003) to reflect the cross-functional nature of ERP systems.
Selection of the appropriate package:
In order for the organisation to optimize and function properly it is important that the appropriate software package is chosen as it is the managerial decision. The organisation needs to ask itself why they need this software package and needs to evaluate the needs and process in picking the right choice that best suits the business environment. By choosing the right package the results are due in course as minimum modification is required and marks a successful implementation. On the other hand, selecting the wrong software may mean a commitment to architecture and application that do not fit the organizational strategic goal or business process. ( Somers T.M., and Nelson K. (2001).
User training and education:
Poorly trained employees can derail a quality implementation of the system as they do not know how to operate the EPR system. It is important that companies should consult to run training sessions on how the system works, so they relate to the business process.
Business Process Re-engineering:
Business Process Reengineering is a pre-requisite for going ahead with implementing ERP system. An in depth BPR study has to be done before taking up ERP. Business Process Reengineering brings out deficiencies of the existing system and attempts to maximize productivity through restructuring and re-organizing the human resources as well as divisions and departments in the organisation.
Ongoing Vendor Support:
An important factor is the ongoing vendor support as it represents any software package because an ERP system requires ongoing vendor support to keep organisations up to date with the latest modules and versions. Furthermore vendor support provides technical assistance and maintenance.
Clear goals and objectives:
Setting clear goals and iIdentifying the oObjectives of the ERP Project is the third most critical success factor. The initial phase of any project should begin with a conceptualization of the goals and possible ways to accomplish these goals. It is important to set the goals of the project before even seeking top management support. ( Somers T.M., and Nelson K. (2001).
Teamwork and Composition
A key element of a successful ERP is related to knowledge, skills, abilities and experience of the project manager and team members. If these criteria are not met then the project will fail. The project team should work in coordinated ways to achieve one goal. Members of the project team should have technical and business skills to complement their work
The sharing of information between the implementation partners is essential and requires partnership trust (Loh and Koh 2004). Moreover, the team should be familiar with the business functions and products so that they know what needs to be improved to the current system (Rosario 2000).
Milton Snavely Hershey was the founder of The Hershey Chocolate Company in 1857 in the heart of Hershey Pennsylvania. Hershey is now the leading chocolate, confectionaries and beverages in the US. Hershey chocolate company began producing flat bottomed milk chocolate candies in 1907 and was given the name of Hershey's Kisses as they were individually wrapped up in silver foil. As of World War II, Hershey's company started producing a survival ration bar for the military to use. As the years had gone by Hershey chocolate was renamed as Hershey foods cooperation the company witnessed an expansion of its confectionary product lines, and acquiring of related companies and diversification into other products. Hershey is now amongst the leading manufacturers of chocolate and non chocolate confectionery and grocery products in North America. H. History
Implementation of ERP:
The implementation phase of the ERP system for Hershey food cooperation took place in 1997, prior to this Hershey had started to revamp its hardware and software infrastructure. Hershey had selected three vendors which were SAP AGAG's, Siebel systems and Manugistics for the project as some modules were implemented as per schedule in January 1999.
"ERP (enterprise resource planning systems) comprises of a commercial software package that promises the seamless integration of all the information flowing through the company-financial, accounting, human resources, supply chain and customer information" (Davenport, 1998).
In June of 1999 Hershey and IBM decided to speed up and have the system comprising three modules in place by October. The company aimed at being ready for the increased demands of candies for Halloween and Christmas.
Hershey food cooperation decided to take the big bang approach and this entailed unexpected problems. The company enforced many new functions over trained their employees, but simultaneously unveiled software bugs, this asked too much of the software engineers. The company failed to meet demands of candies during the festive season as inaccurate inventory was only one issue, as the company saw itself unable to accommodate even the smallest portion or its orders.
Problems Implementing ERP System:
Hershey cooperation had chosen to implement SAP ERP, so had invested large sum of money into completing the solution for more than three years. The business process went on during peak periods when business was expected to do its best. The company had chosen to implement ERP by using a popular method whereby the whole process was brought into action at a stretch. The implementation and the business process which followed it proved to be a major setback for the company. There was a heavy loss in profits and sales.
The ERP vendor that was led by Hershey cooperation were prompt in doing things and Hershey's did not resort to any move of disturbing the plans of the vendor, as full cooperation were given in all aspect. There was really nothing to complain from the vendor's point of view or from technical point of view, although several issues had led to the downfall in an unexpected manner of the ERP system.
The first and foremost reason for the downfall of the ERP failure is choosing the wrong time for implementation. The company cannot expect to change their way of business or to restructure at this point of time. Competitors at this period of time will strive with each other to become market leaders as well as defeat rivals. As the company must fully focus and concentrate on its core activities to generate income.
The company had spent their efforts and time in implementing the Enterprise resource planning, whilst making a blunder of not restructuring the business process and changing it. This then disrupted the normal functioning of the business as well as creating confusions among the staff. As the company gave full attention to the ERP system this diverted uncertainties that emerged within the business which could have been rectified.
The attention paid to ERP was low and as a result the business faced a tragedy. Firstly they could not make any good come out of the sudden changes to the damages caused and as a process to this they were not able to concentrate on ERP which was nearing to its completion. The company again had a massive shock as they learned that the ERP system were not working in full capacity as there were some final touches which were not done.
Hershey company had a rough rollout of its ERP system, as experts would call it the "Big Bang" approach to implementation, in the huge pieces of the system are implemented all at once. Companies rarely use this approach because it's so risky. Simultaneously implemented a customer-relations package and a logistics package even, without testing some of the modules. This increased the overall complexity and employee learning curve
The primary reason an ERP solution is so vital to a company's success is efficiency. Cumbersome, error-prone, labor-intensive manual processes can drain both time and money. Businesses must operate as lean as possible in order to keep the bottom line in check, and failing to automate critical, yet routine business activities makes it nearly impossible to do that
ERP represents a major investment. But the failure rates are high, with Griffith, Zammuto, and Aiman-Smith (1999) reporting that three quarters of ERP projects were judged as unsuccessful by the implementing firms.
"Enterprise software isn't just software. It requires changing the way you do business."
Hershey food cooperation could have avoided the failure of ERP if they only remained focused, and could have set an example of success story instead of failure. Many companies fail to learn from ERP failure stories whereby organisations usually make the mistake like not cooperating with the vendor or not changing the business process. We use this case study as evident that ERP implementation is a long drawn process which needs to be implemented meticulously as it is an intricate process even minute mistakes will ruin the purpose of a project.
Hershey Company was rushing to meet deadline, as it was trying to get off legacy systems that might not continue work correctly as of January the 1st 2000. The project had been planned to go live in April as this was an inactive month in candy business. Inevitably, there were slippages leading to postponement until October. The system went live at the busiest month which was October; this certainly is a bad time to bring major changes.
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