Enterprise Resource Planning

This essay investigates enterprise resource planning (ERP) and ways that ERP systems are being used in today's complex business environment. There are two critical requirements in the ERP process: identification of key business processes and functions and implementation of ERP software that will serve as the architecture for those processes. ERP systems can greatly enhance organizational effectiveness by connecting a company's business units internally as well as externally to customers and vendors. Many organizations have benefited greatly from implementing ERP systems, and some best practices are reviewed. In other cases, organizations have under-utilized their ERP systems or have struggled with successful deployment. The next generation of ERP systems is web-based, indeed even cloud-based (Shukla, 2012), and highly customizable as ERP continues to be adopted by an even more diverse industry base.

Keywords Business Intelligence (BI); Business Process Reengineering; Core Business Processes; End-to-end process automation; Enterprise Resource Security; Extended ERP; Identity Management; Knowledge-based Management; Middleware; Role-Based Access Control (RBAC); Service Oriented Architecture (SOA); Supply Chain Management

Business Information Systems > Enterprise Resource Planning

Overview

The rise of global corporations has meant that organizations need to implement enterprise-wide systems for linking core operations and business units. Organizations have learned that their business units often need access to the same information but at different times during the product/service lifecycle. ERP systems are large, integrated software packages that offer solutions for administrative (back end) and core business processes (Fuβ, Gmeiner, Schiereck, & Strahringer, 2007).

ERP systems allow for integration on the data and functional levels in a way that aims to avoid data redundancy. In today's global economy, companies can also benefit by allowing partners, vendors, and customers access to some internal information; ERP systems lend themselves well to this capability.

"An ERP system is [defined as] an integrated, configurable, and tailorable information system which plans and manages all the resources and their use in the enterprise, and streamlines and incorporates the business processes within and across the functional or technical boundaries in the organization. With ERP, an enterprise can automate its fundamental business applications, reduce the complexity and the cost of the collaboration, force the enterprise itself to take part in the Business Process Reengineering (BPR) to optimize its operations, and finally result in a successful business" (She & Thuraisingham, 2007, p. 152).

ERP systems have their roots in the manufacturing sector of the 1960s, when centralized computer systems for inventory control were being developed. By the 1970s, MRP (materials resource planning) systems were being designed to define manufacturing requirements and production planning; throughout the next decade they were optimizing the manufacturing process.

In the 1990s the ERP concept was introduced and referred to enterprise-wide (cross-functional) systems that included core operations and processes such as

• Accounting and finance

• HR

• Project management
• Inventory management
• Product distribution

Early ERP systems were expensive to implement and maintain, but the cost has come down as service oriented architecture (SOA) and web services have helped to ease implementation. The majority of all Fortune 1000 manufacturing companies have implemented ERP systems. ERP systems have now been adopted in many diverse industries, such as banking, insurance, health care, and higher education. ERP is considered to be "the price of entry for running a business" (Kumar & van Hillegersberg, 2000). Comprehensive reviews of later ERP implementation were conducted by Shaul and Tauber (2013) and by Nazemi, Tarokh, and Djavanshir (2012).

Applications

Why Implement an Enterprise Resource Planning System?

Companies do not take lightly the decision to implement major software applications such as ERP. The following list can serve as a sanity check for companies who are thinking of implementing an ERP system. Research indicates that many companies purchase ERP systems and then fail to fully use the application. One of the best things that senior executives can do before authorizing the purchase of an ERP is to realistically determine if the system will meet the following objectives.

Some of the documented benefits of implementing ERP systems (Fuβ, Gmeiner, Schiereck, & Strahringer, 2007):

• increased revenue and market share
• product differentiation
• shortening of post-merger integration by twelve to eighteen months
• substantial cost saving
• data transparency
• interaction with satellite systems

Some challenges to implementing ERP include

• substantial costs (licensing fees and consulting fees)
• danger of eroding competitive advantage processes
• possible lower flexibility (ERP not customizable)
• vendor dependence for maintenance support
• tisk and complexity of replacing legacy systems
• no good industry option for ERP ( available options are too generic)

ERP Solutions in Today's Organization

ERP has been a widely accepted business practice since the 1990s. Vendor ERP systems allowed for enterprise integration of many core functions that are a part of many organizations, regardless of industry. Companies in industries as different as manufacturing and insurance share common functional areas, such as human resources, accounting, and project management. Generic administrative (back office) functions are one part of an ERP system that has been successfully implemented by companies. The other part of the ERP system handles the core-business processes and is highly dependent upon the nature of the specific industry.

ERP system vendors (such as SAP and Oracle) are facing challenges in several areas as their products evolve to serve ever more specialized industries with their more generic applications. Some of the challenges that ERP system vendors have faced face include (Katz, 2007) the following:

• Vendors struggled to make their suites web serviceable.
• Service oriented architecture relegated ERP systems to a component of system architecture rather than a core application.
• Vendors faced growing pressure from cheaper offshore vendors who could develop cheaper, more customized options (commodity pieces of ERP)
• Vendors offered split models of ERP systems
• Generic offerings, such as accounting or human resources, became available.
• Specialized services were offered via middleware applications

ERP systems have been most threatened by SOA, which have been introduced in large organizations. Large companies have more money and resources to implement middleware solutions and build sophisticated applications on top of their ERP backbone. Small companies still use vendor ERP systems and rely on vendor upgrades to add functionality at the functional level. As more small and medium enterprises (SMEs) adopt ERP systems, vendors will offer more middleware to allow for customization.

The Future of ERP Systems

The high cost of implementing the ERP processes and systems is well documented. The purchase of the application, maintenance costs, upgrade costs, training, and IT support are just a few of the costs associated with implementing an ERP system. ERP systems serve as the core process infrastructure for many companies; in other companiess, the ERP system will serve as a process backbone for a larger service-oriented architecture system. In either case, the investment in ERP systems is significant for companies, but should provide a high return on investment in improved business results.

Kugel argues that companies would be well advised to "establish steering committees with senior-level authority to ensure that they are examining the IT dimension of their pressing business issues, finding opportunities to improve business processes through technology initiatives and setting priorities for implementing these solutions. This sort of collaborative effort could go along way toward identifying opportunities and implementing innovations that will improve a company's results" (Kugel, 2007, p. 46).

As business needs evolve and core processes are connected through automation, the following have become components of the next-generation of ERP systems (She & Thuraisingham, 2007).

Systems are now

• heterogeneous (components from different vendors will coexist in the system; components and integration are necessary).
• collaborative (the systems include enterprise-centric processes and collaborative [partner/vendor] processes, and interfaces are web accessible).
• intelligent (ERP systems hold more confidential information that is used for analysis, strategy planning, and investigation).
• knowledge-based (analytics from the system support daily business decision-making, including knowledge-based operations, management, and communication).
• wireless (web-based ERPs are accessible from mobile locations).

Next generation ERP systems have been designed with an emphasis on flexibility and scalability. Fast changing business needs, industry consolidation, and rapidly evolving technology all play a role in the design of future enterprise-wide systems. Companies aredeveloping tools to increase productivity, decrease product time to market, and encourage collaborative processes within their supply chains. Companies are anxious to implement systems that will meet their business needs for a decade or more.).

Web Services & ERP

The relentless march of software applications to the web has included the migration of ERP systems to web-based platforms. Today's large organizations are likely to continue to build layers of web-based applications and middleware applications on top of ERP backbones.

"With ERP systems progressively making use of web service technology and their transformation into systems based on service oriented architectures, they turn into open application backbones that can flexibly be extended and integrated" (Fuβ, Gmeiner, Schiereck, & Strahringer, 2007, p. 169).

One of the biggest motivations for moving ERP systems interfaces to the web is that web services help to reduce integration complexity and costs. Clients (vendors, customers, suppliers) can also access some information without having to go through ERP software. ERP vendors are introducing middleware solutions that act as a "broker between Web services and the ERP software" (She & Thuraisingham, 2007). The key point is that these business processes have to be connected across organizations for a business to succeed in supply chain management. These processes are interorganizational.

Web-based access to ERP systems allow a company's vendors and partners to access company data. One example of the value of web-based access is documented by Volkswagon Corporation. Volkswagon provides millions of users (internal and external) across its supply chain with access to its corporate data.

Issues

Fully Utilizing ERP Systems

ERP systems represent a significant capital investment for most organizations, but too often companies are not leveraging the full capability of the applications. Most companies have achieved only simple process efficiencies and have not fully tapped the full power of their ERP systems. “The Hackett Group found that the cost of running the average finance organization shrank by nearly half during the 1990s; this achievement can be attributed largely to the nearly universal adoption of ERP systems over that period” (Kugel, 2007, p. 45).

Accounting modules have long been a core function of ERP systems and are widely used by many different organizations. The capture of specific operational data is not as widely recorded within ERPs, and this represents a missed opportunity for many organizations.

“ Many companies are not using nonfinancial metrics to improve performance, either because they ignore data they already collect or they fail to collect the data their ERP system is capable of delivering” (Kugel, 2007, p. 45).

Perceptions by executives as to the value that ERP systems bring to an organization may be one of the biggest obstacles to successful full-scale ERP system optimization. Without complete support and buy-in from C-level executives to drive organizational effectiveness through ERP implementation, the systems will never realize their full potential. “If there is no attempt to make better use of ERP software because executives do not believe it will produce results, then it cannot deliver those enhancements” (Kugel, 2007, p. 45). If the deployment of ERP systems is not made a strategic initiative within an organization, individual business units could see it as “someone else’s job to find new and better ways to use the software to improve the effectiveness and productivity of their organization” (Kugel, 2007, p. 45).

There is certainly an opportunity for IT departments to play a more strategic role in showing the value of optimizing software applications such as ERP systems. Business leaders may not even be aware of the value that such a powerful software application can have for solving critical business issues. Leaders in the IT department can use such opportunities to position themselves and their departments as key business partners.

Using IT to Drive Innovation & Implementation for ERP Systems

Some Organizations' Operations are Too Complex for One Unified ERP System

Mergers and acquisitions within industries can pose challenges to companies who desire to customize their existing ERP systems. In 2006, Mittal Steel merged with one of its competitors, Arcelor, to form the world's largest steel company. Corporate mergers offer opportunities for companies to evaluate organizational practices, and consolidate systems and processes. One of Mittal's core applications was an ERP system by SAP. The company initiated a project to standardize business processes into one world-wide ERP system.

After nearly a year of analysis, Mittal Arcelor decided that trying to organize all business processes into one ERP system would actually be too difficult to implement in a reasonable time frame. Executives at the company realized that resources put into such a huge project might actually pose a threat to the company's ability to deliver on its core business objectives.

"We have dropped the idea of having one process model at group level because it was too complex and there was too high a diversity in business models and intrinsic complexity in the different segments," said Patrick Vandenberghe, group CIO at Arcelor Mittal (Clark, 2007). Mittal Arcelor decided to standardize the company's business processes into ten distinct business units (by market and geography). Instead of integrating the ten distinct business units into one single ERP system, the company maintains seven global SAP competency centers. The smaller ERP systems share experiences, resources, and applications across the company.

Vandenberghe said "Arcelor Mittal's goal was to buy the entire supply chain for steel manufacturing, from raw materials to finished products, but these processes could not always be integrated" (Clark, 2007). The idea of deploying a single ERP system was a worthy one, but had been described as a "mammoth one." AMR research director Jane Barrett stated "Companies such as Arcelor Mittal, which grow through acquisition, change their structure as they go along and are rarely able to put in a single instance of SAP because it takes too long. The managing value chain overtakes the advantage of having a single system."

Security for ERP

Increased user interaction, storage of more confidential information, and a move toward web-based services all add to the complexity of managing security across enterprise applications. Security control will continue to be increasingly difficult and time consuming to maintain and update; system administrators will spend much time trying to keep up. In addition, the more detailed the security information is, the higher the cost and the worse the performance for the system. Detailed user information will be logged in reports. The double-edged sword of security can be summed up in the following statement: "Usually better [security] solutions will bring higher cost and lower performance to a system" (She & Thuraisingham, 2007).

Today's security solutions are primarily based on role-based access control. RBAC components are

• permissions: Allows access to one or more objects within the system.
• roles: Assigned typically by job function within an organization.
• users: The person (employee) who is assigned one or more roles.
• constraints: The role-to-permission assignment.

As the complexity of enterprise systems grows, so will the need to implement more complex security solutions for managing user access to key data.

Extended RBAC (ERBAC) is the next iteration of role-based security permissions. Two additional parameters have been added to the traditional RBAC predicates:

• obligation: The mandatory requirements required by user.
• condition: The environmental or system requirement (for example, time, date, location).

She and Thuraisingham explain that "In this ERBAC model, an extra decision manager is added since obligation and condition predicates will be taken into account. In the decision process, condition requirements will be checked first; if all the environmental conditions are met, the checking procedure for the obligations will be triggered; and, at last, the decision process will check whether the user is intended to access the information" (She & Thuraisingham, 2007, p. 160).

Conclusion

This discussion of ERP and systems implementation reveals that ERP systems are being implemented across many organizations as standard enterprise applications. Companies see the necessity of linking internal processes and capturing relevant data and statistics at critical links in order to assess operational efficiencies. ERP systems, once found almost exclusively in the manufacturing sector, are now be implemented across a variety of industry sectors, including insurance, banking, higher education, and health care. As nonmanufacturing sector industries embrace ERP systems, vendors will need to continue offering customized solutions for niche markets.

Web-based delivery of ERP system solutions will continue unabated as companies seek to enable collaborative access to systems and data. Large organizations will customize web-based delivery by purchasing middleware solutions to link ERP and SOA architectures. The next generation of ERP systems is being developed with scalability, flexibility, and security in mind. There are many documented examples of best practices of implementing ERP software solutions, and companies can benefit greatly from enterprise-wide planning and support for such initiatives. Companies that are about to undertake the ERP process or purchase software applications would do well to investigate what has worked well for other companies in their industry. ERP systems have been in existence for decades in one form or another; due diligence in learning from organizational successes and failures will go a long way in helping organizations to successfully implement ERP systems and processes.

Terms & Concepts

• Business Process Reengineering: A management initiative aimed at improving efficiency and effectiveness of an organization's processes. The opportunity is for organizations to look at their business processes from a clean-slate perspective when undertaking this effort and be willing to change existing legacy systems if necessary.
• End-to-End Process: The end-to-end principle in the context of ERP or enterprise-wide systems requires a business to look at its processes across the entire business spectrum (from sourcing to sales to customer satisfaction).
• Extended ERP: (ERP technology as defined after 2000). The next generation of ERP that typically includes e-business solutions such as CRM (customer relations management) and SCM (supply chain management).
• Identity Management: Identity management (IdM) is related to data security and refers to the management of a user's credentials and how users might log into an online system.
• Middleware: Computer software that connects applications. These applications can be within a company or from a company to a partner's application.
• Role-Based Access Control (RBAC): Defines roles and grants certain access rights for users to access databases.
• Service Oriented Architecture (SOA): SOA is meant to allow decently large sections of functionality to be tied together to form ad-hoc applications built almost completely from preexisting software services. The larger the sections included, the fewer interface points needed to implement any certain set of functionality.
• Supply Chain Management (SCM): The term SCM was coined in the 1980s to refer to the necessary business requirement of integrating key business processes from the end user back to original suppliers. Companies and corporations partake in a supply chain through the exchange of information with partners and customers to facilitate efficient business operations.

Bibliography

Clark, L. (2007, May 22). Mittal scraps global standardisation plan. Computer Weekly, 1. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25348028&site=ehost-live

Fuβ, C., Gmeiner, R., Schiereck, D., & Strahringer, S. (2007). ERP usage in banking: An exploratory survey of the world's largest banks. Information Systems Management, 24, 155-171. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24654646&site=ehost-live

Kamath, J. (2007, June 19). Volkswagen gives IT staff bigger say in ERP systems. Computer Weekly, 4. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25615287&site=ehost-live

Katz, J. (2007). SOA: The next disruptive force. Industry Week/IW, 256, 41-41. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24309899&site=ehost-live

Kugel, R. (2007). Getting more from ERP. Business Finance, 13, 45-46. Retrieved August 7, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25139045&site=ehost-live

Nazemi, E., Tarokh, M., & Djavanshir, G. G. (2012). ERP: A literature survey. International Journal Of Advanced Manufacturing Technology, 61, 999-1018. Retrieved November 27, 2013, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=78307374&site=ehost-live

Shaul, L., & Tauber, D. (2013). Critical success factors in enterprise resource planning systems: Review of the last decade. ACM Computing Surveys, 45, 55-55:39. Retrieved October 31, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=90108290&site=ehost-live

She, W., & Thuraisingham, B. (2007). Security for enterprise resource planning systems. Information Systems Security, 16, 152-163. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25728921&site=ehost-live

Shukla, R. (2012). Novel approach to compare an established open-source ERP and a next generation cloud computing ERP. Researchers World: Journal Of Arts, Science & Commerce, 3, 8-15. Retrieved November 27, 2013, from EBSCO Online Database Academic Search Complete. http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=90322418&site=ehost-live

Swanton, B. (2007, June 12). Using SOA as a competitive weapon. Computer Weekly, 20. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=25636469&site=ehost-live

Suggested Reading

Griffin, J. (2007). BI and ERP integration: Five critical questions. DM Review, 17, 6-6. Retrieved August 6, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=24911549&site=ehost-live

Kumar, K., & Van Hillegersberg, J. (2000). ERP experiences and evolution. Communications of the ACM, 43, 22-26. Retrieved August 7, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=12070056&site=ehost-live