APPLICATIONS AND BENEFITS OF ERP

IMPLEMENTATIONS
Fadhili Kiyao
School of Management Studies
CUSAT, Kochi - 22
E-mail:fkiyao@gmail.com

Abstract: The Enterprise information system offers the service

platform to improve the efficiency of enterprise work. Information
systems are widely used in different areas and improve the efficiency of
enterprise activities. The main purpose of this paper is to present the
ERP systems implementation together with identifying the benefits
from the implementation and economic effectiveness of ERP systems.
Key words: Enterprise Resource Planning (ERP), ERP system, ERP
implementation, Enterprise Information Systems

1.0 Introduction
The development in global information technologies and the competitive market climate
have pushed many companies to transform their businesses. An information system (IS) is
a group of components which can increase the competitiveness and
gain
better
information
for
decision
making. Consequently, many organizations decide to
implement IS in order to improve the effectiveness and efficiency of their organizations.
However, a lack of awareness of numerous and varied challenging issues surrounding
the implementation process could be problematic for the whole process.
Furthermore, the problem of a lack of key success issues seems to be a serious
obstacle for the information system implementation process. Additionally, IS
implementation has effects on an organization and these effects are related to the
consequences of the business processes. Consequently, this issue is critical and
crucial for an organization to consider when they implement a new IS.

Implementation of IS makes significant changes to the management of business

processes. The issue of assessing the effectiveness of implementation of IS is a very
important issue, as any major costs would require support, especially from the
leaders of the organization [1].

2.0 Enterprise information systems

Information systems (IS) are combinations of hardware, software, and telecommunications
networks which people build and use to collect, create, and distribute useful data, typically
in organizational settings [2]. Computers are the core component of information systems.
Over the past decade, the advent of powerful, relatively inexpensive, easy-to-use
computers has had a major impact on business. When we use the term information
system, we are talking about computer based-information systems.
Companies use IS to support their various business processes and activities for internal
operations such as manufacturing, order processing, and human resource management.
Companies can also use IS to support external interactions with customers, suppliers, and
business partners.
Enterprise information systems (EIS) are complex application software packages that
contain mechanisms supporting the management of the whole enterprise and integrate all
areas of its functioning. They promise the seamless integration of all the information
flowing through a companyfinancial and accounting information, human resource
information, supply chain information, and customer information [3].
EIS evolved from material requirements planning (MRP) and manufacturing resource
planning (MRP II) systems. Therefore, they started as the support for a variety of
transaction-based back-office functions and were then called Enterprise Resource
Planning (ERP) systems. However, they further evolved to include support for front-office
and inter-organizational activities including supply chain management, customer resource
management, and sales force automation. They started to offer solutions in an attempt to
seamlessly link front-office (e.g., sales, marketing, customer services) and back-office
(e.g., operations, logistics, financials, human resources) applications to enhance
competitive advantages [4].
Because companies within certain industries operate their businesses differently, it is
necessary to understand how it can use IS to support its unique internal business
activities. Generally [5], the flow of information through a set of business activities is
referred to as a value chain in which information flows through functional areas that
facilitate the internal activities of the business (shown in Figure 1). Functional areas can be
broken down into primary and support activities. Primary activities are functional areas
within an organization that process inputs and produce outputs. Support activities are
those activities that enable primary activities to take place [6].

Fig. 1 Porters Value Chain Model

3.0 APPLICATIONS OF ERP SOFTWARE

Enterprise resource planning (ERP) is a category of business-management software
typically a suite of integrated applicationsthat an organization can use to collect, store,
manage and interpret data from many business activities, including:

product planning, cost

manufacturing or service delivery

marketing and sales

inventory management

shipping and payment

ERP provides an integrated view of core business processes, often in real-time, using
common databases maintained by a database management system. ERP systems track
business resourcescash, raw materials, production capacityand the status of business
commitments: orders, purchase orders, and payroll. The applications that make up the
system share data across various departments (manufacturing, purchasing, sales,
accounting, etc.) that provide the data.[7] ERP facilitates information flow between all
business functions, and manages connections to outside stakeholders.[8]
Enterprise system software is a multibillion-dollar industry that produces components that
support a variety of business functions. IT investments have become the largest category
of capital expenditure in United States-based businesses over the past decade. Though
early ERP systems focused on large enterprises, smaller enterprises increasingly use ERP
systems. [9]
The ERP system is considered a vital organizational tool because it integrates varied
organizational systems and facilitates error-free transactions and production. However,
developing an ERP system differs from traditional system development. [10] ERP systems
run on a variety of computer hardware and network configurations, typically using a
database as an information repository. [11]

4.0 Benefits of ERP implementations

4.1 Integrated Information
Instead of having data distributed throughout a number of separate databases, all
information is now located in a single location. Data is also kept consistent and up-to-date.

ERP collects, manages and distributes information across functional boundaries and helps
break down information silosthose barriers that stand in the way of full cooperation
between production, materials, planning, engineering, finance and sales/marketing. The
resulting higher quality, reduced time-to-market, shortened lead times, higher productivity
and lowered costs can help improve customer service and increase sales and market
share as well as margins.
Measurements, analysis and simulation capabilities can help companies plan better and
react sooner and more effectively to changes in demand, competitive actions, and supply
chain disruptions.
Modern ERP systems are built for the internet-enabled world with e-commerce capabilities
and provision for integration and collaboration with supply chain partners, customer
portals, and enhanced tracking of incoming material and outgoing product to extend the
visibility and control. Many companies are challenged by the continually changing
requirements of Internet-based business processes and find that their current ERP system
is not able to take them where they need to go. Its hard to put a value on the ability to take
advantage of new and evolving e-business imperativesor the cost of not being able to
keep up with (or perhaps even lead) the competition [12].
4.2 Improved visibility and Reduced operating costs
Due to the centralized nature of ERP systems, organizations can track inventory levels on
a daily basis, including inventory in transit and future consignments to be received. This
visibility can enable organizations to control their working capital requirements to a great
degree. This visibility also enables organizations to run their enterprise in accordance with
their strategy, while empowering them to make quick decisions to pursue opportunities.
One of the most immediate benefits from implementing an ERP is reduced operating
costs: such as lower inventory control costs, lower production costs and lower marketing
costs. By avoiding duplication of information but not reinventing the wheel for common
business processes, an ERP provides opportunities for cost reduction and value-added
tasks, leading to increased margins [13].
4.3 Standardized business processes and Improved compliance
Most ERP vendors design their products around standard best-business processes, which
are based on industry best practices. Organizations can use these business processes to
standardize their own processes. This process consistency allows a consolidated view of
the business across the distributed enterprise, enabling organizations to drive continuous
improvements, as operations are streamlined and there is healthy synergy between
departments and functions. The improvement also comes from transparency and reduction
in human errors due to automation of inter-company transactions. With ERP, organizations
can enforce compliance related to different regulations such as Sarbanes-Oxley or
industry specific initiatives such as 21 CFR part II [14].
4.4 Global Adoption of Best Practices, Compliance and Risk Management
The ability to more quickly close the books and provide much more timely financial results
to corporate management is a great benefit to global organizations. Global ERP solutions
provide much greater visibility to individual global entities and the ability to view the entire
enterprise with multiple currencies and multiple locations; this positions organizations to
quickly grow and expand as the market dictates. Global visibility and control of
compliance-related processes and activities are key factors in enforcing effective
compliance and risk management practices. A Global ERP solution can enable your

organization to streamline and comply with a variety of global and local compliance
requirements and customer mandates, including financial, legal, and environmental. By
utilizing a single solution for policies and procedures, process documents, database logs,
reports, charts, and key risk indicators, global organizations can see the whole picture,
take control of processes, mitigate risks, and ultimately reduce the cost of compliance [15].
4.5 Reduced Operating Costs
Organizations that successfully adopt global systems and processes see reduced
operating costs in a number of areas. With a single global ERP system, companies benefit
from reduced IT costs, including staff, support, infrastructure, and applications.
Standardized processes also enable organizations to continuously improve efficiency,
productivity, and decision making enabling volumes to increase without needing an equal
increase in operating costs [16].
4.6 More Benefits of ERP implementations
The following are more benefits that can be obtained by ERP implementations in an
Organization [17].
i)
ii)

Complete visibility into all the important processes, across various departments of
an organization (especially for senior management personnel).
Automatic and coherent workflow from one department/function to another, to
ensure a smooth transition and quicker completion of processes. This also
ensures that all the inter-departmental activities are properly tracked and none of
them is missed out.

iii)

A unified and single reporting system to analyze the statistics/status etc. in realtime, across all functions/departments.
iv) 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 may
be better.
v) Since a Database system is implemented on the backend to store all the
information required by the ERP system, it enables centralized storage/back-up
of all enterprise data.
vi) ERP systems are especially helpful for managing globally dispersed enterprise
companies, better.
vii) It is possible to integrate other systems (like bar-code reader, for example) to the
ERP system through an API (Application Programing Interface).

6.0 CASE STUDY OF A SUCCESSFUL ENTERPRISE RESOURCE PLANNING

SYSTEM [18]
ERP solutions are great, but successful implementation requires careful thought,
consideration and engagement from all stakeholders. This article discusses two examples
for ERP solution of different scenarios, scales and requirements. Covered examples
include existing challenges, selection criteria of implemented solutions and benefits
achieved thereof.
6.1 LG implementation of HRMS
When the global giant - LG Electronics (LG) - having 114 subsidiaries, more than 82,000
employees across 40 countries - tried to harmonize its HR functions, the challenges were
of a similarly giant scale. High maintenance costs, local controls lacking transparency,

inefficient decision making, under-utilization of resources, manual processes, etc. made it

difficult for LG to operate as a global company, which then decided to take the ERP route.
6.2 The challenges for LG:

Location specific multiple systems leading to unclear top-level reporting, lack of

optimum resource utilization

Location specific processes lacking transparency and automation needs for a

global reporting

Disengaged employees, limited outlook, no room for information or best practices

sharing

Limited localized resources for employee learning & training

Challenges with decision making, with significant business impact

6.3 Selection criteria for ERP solutions:
LGs familiarity with Oracle technology due to earlier Oracle usage made it easier to
finalize a solution. It offered large data hosting, seamless migration of old data, easy
scalability, multiple modules addition as needed and centralized access and control. LG
hired Oracle Consulting to build a single centralized system which integrates available
Oracle HR modules for uniform use at global level, thereby replacing location specific
system dependency.
6.4 Achieved benefits:
The ERP solution, which included a data mart, performance management system, staff
portal, and e-learning application, enabled the following benefits for LG:

Centrally managed a single system with minimal maintenance costs

Transparency in the recruitment and employee appraisal processes which

enabled hiring, engaging and rewarding performance based on the right
competencies and proven performance

Real time reporting for higher management and tracking of set goals and
objectives

Informed decision making due to readily available real time reports

Centralized control over HR processes, with region level flexibility to implement

localized changes

Efficiency improvement for HR functions and processes

Cost savings due to not having to maintain multiple systems

Easy sharing of best practices across the various centers

Easy access self-service function made available for employee self-help

Easy learning facilitated for common tasks through document sharing and online
tutorials, resulting in time and cost savings

Increased employee morale, productivity and engagement

6.5 Timeframe
Benefits surely look attractive, but it was not a cakewalk, given the large and distributed
scale of ERP system implementation. Spanned over 5 years (2002-2006) in five planned
phases with clearly set objective, the ERP solution enabled LG to mitigate the challenges
posed by vastly spread global centers, for its Human Resource Management System
requirements. Today, LG continues to benefit with the automated ERP solution, and
continues to enhance it further as needed.

6.0 CONCLUSION
ERP Systems make it easier to track the workflow across various departments. They
reduce the operational costs involved in manually tracking and (perhaps) duplicating data
using individual & disparate systems. In this article, let us have a look at the advantages
and dis-advantages of implementing ERP (Enterprise Resource Management) Software
Systems. Although ERP systems may seem complex and costly, even small businesses
are increasingly finding it necessary to invest in such technology in order to remain
competitive. "ERP systems are being implemented today to provide a stable foundation for
a growing number of businesses across all segments, from dot-coms to major automotive
manufacturers.

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