THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES

ACCOUNTANCY, CONTROL AND EXPERTISE

I.

Enterprise resource
planning

Dragomir Andreea,
661

Enterprise Resource Planning

Dragomir Andreea

Table of contents
II.

Introduction - Enterprise resource planning.........................................................2

III.

Distinction between ERP concept and ERP systems......................................4

IV.

Advantages and disadvanteges of ERP.............................................................5

Advantages of ERP.................................................................................................. 5
Disadvantages of ERP............................................................................................. 7
V.

ERP life cycle........................................................................................................ 8

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II.

Introduction - Enterprise resource planning

ERP, stands for enterprise resource planning, is a software system that aims to serve as a
backbone for your whole business. It integrates key business and management processes to
provide a sky-level view of much of what's going on in your organization. ERP tracks company
financials, human resources data and all the manufacturing information such as where you put
your inventory and when it needs to be taken from the parts warehouse to the shop floor.
Enterprise resource planning is business management softwareusually a suite of integrated
applicationsthat a company can use to store and manage data from every stage of business,
including:

Product planning, cost and development

Manufacturing
Marketing and sales
Inventory management
Shipping and payment

In 1990, Gartner Group first used the acronym ERP as an extension of material requirements
planning (MRP), later manufacturing resource planning and computer-integrated manufacturing.
Without supplanting these terms, ERP came to represent a larger whole that reflects the evolution
of application integration beyond manufacturing.
The leader in ERP market share, and the one that invented the market to an extent, is the German
company SAP AG with its R/3 software. Other big players include PeopleSoft Inc., Oracle Corp.,
Baan Co. NV and J.D. Edwards & Co.
ERP systems attempt to integrate several data sources and processes of an organization into a
unified system. A typical ERP system will use multiple components of computer software and
hardware to achieve the integration. A key ingredient of most ERP systems is the use of a unified
database to store data for the various system modules. The two key components of an ERP
system are a common database and a modular software design. A common database is the system
that allows every department of a company to store and retrieve information in real-time. Using a
common database allows information to be more reliable, accessible, and easily shared.
Furthermore, a modular software design is a variety of programs that can be added on an
individual basis to improve the efficiency of the business. This improves the business by adding
functionality, mixing and matching programs from different vendors, and allowing the company
to choose which modules to implement. These modular software designs link into the common
database, so that all of the information between the departments is accessible in real time.

In the past few years, ERP has become a must have system for many firms to improve
competitiveness. More than 60% of US companies have installed or planned to install a
packaged ERP system. The popularity of ERP systems is also evidenced by its sales exceeding
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$30 billion in 2002, an increase of 300% since the late 1990s. Information managed by ERP
systems can play an active role in international supply chain systems to gain a competitive
advantage. Take a simple ERP function as an example. When a sales person for a multinational
company enters an order from a customer in any location in the world, the transaction data can
permeate the entire supply chains (including suppliers) information system. The system updates
the inventory of parts and supplies automatically, changing the production schedules of overseas
facilities and balance sheets at headquarters as well. Thus, the employees of different
departments in various countries quickly have the information needed to complete the processing
of their jobs. Feedback is fast and efficient. From this information the sales person can inform
customers of updated delivery dates, and the managers can receive accurate inventory status
immediately. ERP facilitates the enterprise-wide integration of information by tying together
suppliers, distributors, and customers without geographical restrictions. To summarize, an ERP
system provides multinational organizations with extensive information and coordination of
supply chain functions.
Modern ERP applications are based on material requirement planning (MRP). By the 1980s,
companies primarily competed to improve quality and focused on improving workflow
management and on-site control, and then generated detailed cost reports. Subsequently, MRP
evolved into manufacturing resource planning (MRP II), which integrates manufacturing
resources. However, intense competition has shortened product lifecycles, and clients typically
have diverse real-time requests. Particularly, timing, which is crucial to operational success, has
led to the development of ERP systems. The principal difference between the ERP and MRP II
systems is that the MRP II system is a material- and manufacturing- oriented information system
and cannot respond to rapid changes to globalized operations. Conversely, the ERP system is
based of client demands and integrates internal trading information and com-bines internal
workflows, thereby optimizing overall operational efficiency. In the early 1990s, the Gartner
Group developed an ERP system inspired both researchers and practitioners. In response to
environmental changes and actual needs, ERP system is applicable to, say, supply chain
management, customer relationship management and data warehousing, in which the ERP
system is embedded to increase its comprehensiveness.
An enterprise resource planning (ERP) system is implemented in an organization to support its
cross-functional business process integration and standardization (Davenport, 1998). As an
enterprise-wide information system, the ERP system provides various functional modules for all
departments of the organization to help achieve their stated departmental objectives, which are
established in line with the organizational objectives (Rajagopal, 2002). The ERP
implementation is a complicated and costly project with a high failure risk (Su and Yang, 2010;
Aloini et al., 2012). The project is deemed a success if it helps the organization achieve a
substantial proportion of its organizational objectives (Umbleet al., 2003). To ensure that the
organizational objectives will be achieved, the organization should ideally develop and
implement a set of critical success strategies (CSSs) that are critical to the success of the project.
ERP (Enterprise Resource Planning) systems typically include the following characteristics:

An integrated system that operates in (or near) real time without relying on periodic
updates
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A common database that supports all applications

A consistent look and feel across modules

Installation of the system without elaborate application/data integration by the

Information Technology (IT) department, provided the implementation is not done in
small steps

Fig.1 Rich picture depicting ERP project

Source: Skok W. and L. M

III.

Distinction between ERP concept and ERP systems

The concept of ERP, and the systems designed to supply the functionality required to make this
concept a reality, represent a significant step in the long history of technology assisted businessprocess integration. Earlier concepts such as MRP and MRPII, were designed to assist planners
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by logically linking various forms of process information in specific business contexts such as
manufacturing. The ERP concept was subsequently designed to integrate these smaller otherwise
isolated systems so that real-time resource accountability across all business units and facilities
of a corporation could be maintained. As a result peripheral issues such as the elimination of
conflicting information, the reduction in data redundancy, standardization of business unit
interfaces, global access and security all fell under the objectives of ERP system design. Today
more than ever, the capability of such systems to allow additional decision support and
information analysis packages to be bolted on has become another critical feature.
Because of the importance of these developments, as a first step towards organizing future ERP
research it is critical to make a clear distinction between references to the ERP concept and
references to ERP systems. The interpretations of a number of authors clarify this distinction.
For example, Mabert et al. (2000) describe a concept-based definition of ERP as involving the
seamless integration of processes across functional areas with improved workflow,
standardization of various business practices, improved order management, accurate accounting
of inventory and better supply chain management. ERP systems on the other hand are merely
the vehicles through which this is accomplished. Enterprise resource planning (ERP) systems are
software packages that allow companies to have more real time visibility and control over their
operations.
Bendoly (2001) takes a parallel approach to separating the ERP concept from definition of ERP
systems. This approach emphasizes that ERP systems should not be looked at simply as tools that
have a fixed and measurable output, but rather as a technological infrastructure designed to
support the capability of all other tools and processes used by a firm. Using arguments based on
the theory of swift-even flow (Schmenner and Swink, 1998) and its ties to the law of bottlenecks
(Goldratt, 1989), the proposal is that the benefits made possible from both the presence of such
architecture and the process of establishing it are analogous to those provided by continuous
improvement mechanisms. Subsequently, the presence of ERP architectures in-house is predicted
to provide gains to future non-ERP concept and system implementations (Soliman and Youssef,
1998).

IV.

Advantages and disadvanteges of ERP

Advantages of ERP
ERP systems replace complex and sometimes manual interfaces between different systems with
standardized, cross-functional transaction automation. Order cycle times (the time from when an
order is placed until the product or service is delivered) can be reduced, resulting in improved
throughput, customer response times, and delivery speeds. Similarly, automated financial
transactions can reduce cash-to-cash cycle times and the time needed to reconcile financial data
at the end of the quarter or year. The result is a reduction in operating capital and the headcount
of the financial area.
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Another benefit of ERP systems is that all enterprise data are collected once during the initial
transaction, stored centrally, and updated in real time. This ensures that all levels of planning are
based on the same data and that the resulting plans realistically reflect the prevailing operating
conditions of the firm. For example, a single, centrally developed forecast ensures that
operational processes remain synchronized and allows the firm to provide consistent order
information to customers.
Taken together, the standardized firm-wide transactions and centrally stored enterprise data
greatly facilitate the governance of the firm. ERP reports provide managers with a clear view of
the relative performance of the various parts of the enterprise, which can be used to identify
needed improvements and take advantage of market opportunities.
1. Complete visibility into all the important processes across various departments of an
organization (especially for senior management personnel).
2. Automatic and coherent work-flow from one department / function to another to ensure
smooth transition/ completion of processes.
3. A unified and single reporting system to analyze the statistics/ numbers/ status etc in realtime, across all the functions / departments.
4. Since same software is used across all departments this can avoid individual departments
having to buy and maintain their own software systems.
5. Certain ERP vendors can
Intelligencefunctionalities as well.

extend

their

ERP

systems

to

provide Business

6. Advanced e-commerce integration is possible with ERP systems that can handle web-based
order tracking/ processing.
7. There are various modules in an ERP system like Finance/ Accounts, Human Resource
Management, Manufacturing, Marketing / Sales, Supply Chain / Warehouse Management, CRM,
Project Management, etc.
8. Since ERP is a modular software system, its possible to implement either a few modules (or)
many modules based on the requirements of an organization. If more modules implemented, the
integration between various departments might be better.
9. Single Database is implemented on the back-end to store all the information required by the
ERP system and that enables centralized storage / back-up of all enterprise data.
10. ERP systems are more secure as centralized security policies can be applied to them and all
the transactions happening via the ERP systems can be tracked.
11. ERP systems provide visibility and hence enable better/ faster collaboration across all the
departments.

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12. It is possible to integrate other systems (like bar-code reader, for example) to the ERP system
through an API (Application Programing Interface).
13. ERP systems make it easier for order tracking, inventory tracking, revenue tracking, sales
forecasting and related activities.
14. ERP systems are a boon for managing globally dispersed enterprise companies.

Disadvantages of ERP
Problems with ERP systems are mainly due to inadequate investment in ongoing training for
involved personnel, including those implementing and testing changes, as well as a lack of
corporate policy protecting the integrity of the data in the ERP systems and how it is used.
1. The cost of ERP Software, planning, customization, configuration, testing, implementation, etc
is too high.
2. ERP deployments take 1-3 years to get completed and fully functional.
3. Too little customization may not integrate the ERP system with the business process & too
much customization may slow down the project and make it difficult to upgrade.
4. The cost savings/ payback may not be realized immediately after the ERP implementation & it
is quite difficult to measure the same.
5. The participation of users is very important for successful implementation of ERP projects
So, exhaustive user training and simple user interface might be critical. But ERP systems are
generally difficult to use (and learn).
6. There maybe additional indirect costs like new IT infrastructure, upgrading the WAN links,
etc.
7. Migration of existing data to the new ERP systems is always difficult to achieve as with
integrating ERP systems with other stand alone software systems.
8. ERP implementations are difficult to achieve in decentralized organizations with disparate
business processes and systems.
9. Once an ERP systems is implemented it becomes a single vendor lock-in for further upgrades,
customizations etc.

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V.

ERP life cycle

The different phases of the ERP implementation are given below:

Pre-evaluation Screening
Package Evaluation
Project Planning Phase
Gap analysis
Re-engineering
Configuration
Implementation Team Training
Testing
Going Live
End-user Train in post-implementation.

Although these phases, as shown in Figure, may seem very liner and distinct from each other, in
reality, throughout an actual implementation, the phases are in fact quite fluid. In many cases,
companies go through many implementations in different business units, different modules, or
manufacturing location.
Pre-evaluation Screening:
The company has decided to go inform the ERP system, the search for the perfect package starts.
But there are hundreds of ERP vendorsof all sizes and shapesall claiming to have the
solution that is ideal for you. Analysing all the packages before reaching a decision is not a
viable solution. It is also a very time consuming process. So it is better to limit the number of
packages that are evaluated to less than five. It is always better to do a thorough and detailed
evaluation of a small number of packages, than doing a superficial analysis of dozens of
packages. Hence, the company should do a pre-evaluation screening to limit the number of
packages that are to be evaluated by the committee.
If one studies the history of the ERP packages and finds out how each package evolved, it soon
becomes evident that every ERP package grew out of the experience or opportunity of a group of
people, working in a specific business, who created systems that could deal with certain business
segments. It is generally accepted that most ERP packages are stronger in certain areas than in
others, and each one is madly trying to add functionality in areas where they have been lacking.
As the companies grew over time the ERP packages evolved. The experience gained from
implementation, the feedback by the users, the need to enter into new markets and the pressure
from competitors forced most ERP vendors to redefine and expand the scope of the activities .
and functionality of their products.
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While making the analysis it would be a good idea to investigate the origins of the different
packages. Now, most packages cater to almost all business and services sectors.
Package Evolution:
The evaluation/selection process is one of the most important phases of the ERP implementation,
because the package that you select will decide the success or failure of the project. Since ERP
systems involve huge investments, once a package is purchased, it is not an easy task to switch to
another one.
The most important factor that should be kept in mind when analysing the different packages is
that none of them are perfect. The idea that there is no perfect package needs to.be understood by
everyone in the decision-making team. The objective of the selection process is not to identify a
package that covers each and every requirement (a perfect fit). The objective is to find a package
that is flexible enough to meet the companys needs, or in other words, a software that could be
customized to obtain a good fit.
It is impossible to get a system that will perform. exactly as the , company does business, but the
aim should be to get the system that has the least number of differences.
According to S Shankarnarayanan, Senior Consultant with Baan Infosystems India Pvt. Ltd.
(ERP SystemsUsing IT to gain a competitive advantage), some important points to be kept in
mind while evaluating ERP software includes:
Functional fit with the companys business processes
Degree of integration between the various components of the ERP system
Flexibility and scalability
Complexity
User friendliness
Quick implementation
Ability to support multi-site planning and control
Technologyclient/server capabilities, database independence, security
Availability of regular upgrades
Amount of customization required
Local support infrastructure
Availability of reference sites
Total costs, including cost of license, training, implementation, maintenance, customization and
hardware requirements.
Project Planning Phase: This is the phase that designs the implementation process. It is in this
phase that the details of how to go about the implementation are decided. Time schedules,
deadlines, etc. for the project are arrived at. The project plan is developed. Roles are identified
and responsibilities are assigned.

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The implementation team members are selected and task allocation is done. This phase will
decide when to begin the project, how to do it and when the project is supposed to be completed.
This is the phase which will plan the what to do in case of contingencies; how to monitor the
progress of the implementation; what control measures should be installed and what corrective
actions should be taken when things get out of control.
Gap Analysis:
This is, arguably the most crucial phase for the success of the ERP implementation. Put very
simply, this is the process through which companies create a complete model of where they are
now, and in which direction they want to head in the future. The trick is to design a model which
both anticipates and covers any functional gaps.
One of the most affordable, albeit painful, solutions entails altering the business to fit the ERP
package. A company can simply agree to live without a particular function. Other solutions
include:
Pinning your hopes on an upgrade (low cost but risky) *
Identifying a third-party product that might fill the gap (hopefully it also partners with the ERP
packages, keeping interfacing to a minimum)
Designing a custom program
Altering the ERP source code.
Re-engineering:
In ERP implementation settings, re-engineering has two different connotations. The first
connotation is the controversial one, involving the use of ERP to aid in downsizing efforts. And
there have been occasions where high-level executives have invoked the re- engineering slogan,
and purchased an ERP package with the aim of reducing significant numbers of employees. It is
best to treat ERP as an investment as well as a cost-cutting measure, rather than as a downsizing
tool. Downsizing is a business practice that may have its place, but it should not be cloaked
within the glossier slogan of re-engineering, or justified by the purchase of an ERP package.
ERP should engender business change, but should not endanger the jobs of thousands of
employees.
The second use of the word re-engineering in the ERP field [or business process re-engineering
(BPR) as it is usually called], refers to an ERP implementation model initially designed and used
with much success by the Big Six consulting firms; The BPR approach to an ERP
implementation implies that there are really two separate, but closely linked implementations
involved on an ERP site: a technical implementation and a business process implementation.
Configuration: This is the main functional area of the ERP implementation.
Configuring a companys system reveals not only the strengths of a companys business process
but alsoand perhaps more importantly its weaknesses. Example, a company might have an

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accounting practice that cannot be configured into the system or some shipping process that
wont conform to the package.
Implementation Team Training:
Around the same time that the configuration is taking place, the implementation team is being
trained, not so much how to use the system, but how to implement it. This is the phase where the
company trains its employees to implement and later, run the system. The ERP vendors and the
hited consultants will leave after the implementation is over. But for the company to be selfsufficient in running the ERP system, it should have a good in-house team that can handle the
various situations. Thus, it is very vital that the company recognizes the importance of this phase
and selects those employees who have the right attitudepeople who are willing to change,
learn new things and are not afraid of technologyand good functional knowledge.
Testing:
This is the phase where you try to break the system. You have reached a point where you are
testing real case scenarios. The system is configured and now you must come up with extremecase scenarios system overloads, multiple users logging on at the same time with the same
query, users entering invalid data, hackers trying to access restricted areas.
Going Live:
Lights on, switches thrown, gloves off. On the technical side, the work is almost completedata
conversion is done, databases are up and running; and on the functional side, the prototype is
fully configured and tested and ready to go operational. The system is officially proclaimed
operational, even though the implementation team must have been testing it and running it
successfully for some time. But one the system is live, the old system is removed, and the new
system is used for doing business.
End-user Training:
This is the phase where the actual users of the system will be given training on how to use the
system. This phase starts much before the system goes live. The employees who are going to use
the new system are identified. Their current skills are noted and based on the current skill levels,
they are divided into groups. Then each group is given training on the new system. This training
is very important as the success of the ERP system is in the hands of the end-users. In addition to
these general topics, each employee is trained on the job or task that he/she is supposed to
perform once the system goes live. It is human nature to resist change. Also many people are
afraid of computers and other new technologies. The end-user training is much more important
and much more difficult (since most end-users are not thrilled at having to change) than the
implementation team training. Companies are beginning to take this phase; seriously, as there is
statistical evidence now, which shows that most implementations fail because of a lack of enduser training.
Post-implementation (Maintenance Mode):
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One important factor that should be kept in mind is that the post-implementation phase is very
critical. Once the implementation is over, the vendors and the hired consultants will go. To reap
the full benefits of the ERP system, it is very important that the system should get enterprisewide acceptance. There should be enough employees who are trained to handle the problems that
might crop-up. There should be people, within the company, who have the technical prowess to
make the necessary enhancements to the system as and when required.
The post-ERP organization will need a different set of roles and skills than those with less
integrated kinds of systems. At a minimum, everyone who uses these systems needs to be trained
on how they work, how they relate to the business process and how a transaction ripples through
the entire company whenever they press a key. The training will never end; it is an ongoing
process.
Projects for implementing the ERP systems get a lot of resources and attention. However, an
organization can only get the maximum value of these inputs if it successfully adopts and
effectively uses the system.

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References:
[1] F.Robert Jacobs, Elliot Bedoly Enterprise resource planning: Developments and directions
for operations management research
[2] Chung-Hsing Yex, Yan Xu Managing critical success strategies for an enterprise resource
planning project
[3] Skok Walter, Legge Michael Evaluating Enterprise Resource Planning (ERP) Systems using
an Interpretive Approach
[3] Jui-Sheng Chou, Jhih-Hao Hong Assessing the impact of quality determinants and user
characteristics on successful enterprise resource planning project implementation

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