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ERP

ENTERPRISE RESOURCE PLANNING


DIDA LIONIESA SUSILO | 12/343552/PEK/17968

MASTER OF MANAGEMENT UNIVERSITAS GADJAH MADA 2013

TABLE OF CONTENTS TABLE OF CONTENTS LIST OF TABLES AND FIGURES 1 INTRODUCTION 2 ENTERPRISE RESOURCE PLANNING (ERP) 3 ERP HISTORY 4 CRITICAL SUCCESS FACTORS OF ERP 5 ERP ADVANTAGES AND DISADVANTAGES REFERENCES 1 2 3 3 4 5 8 10

LIST OF TABLES AND FIGURES

FIGURE 1. ERP SYSTEM CONCEPT ...................................................................... 4 FIGURE 2. DIMENSIONS OF ERP CRITICAL SUCCESS FACTORS .................... 6

TABLE 1. ERP HISTORY......................................................................................... 4

1 Introduction Each functional unit in organizations is derived from its different functional structure. Mostly, each of the unit is works toward their own goals and objectives, instead of working based on organizational goals. Simultaneously the business environment is becoming increasingly complex with functional units requiring more and more inter-functional data flow for decision making, timely and efficient procurement of product parts, management of inventory, accounting, human resources and distribution of goods and services. This issues happened because of the information flow in organization was founded are restricted by its functions. Here, the Enterprise Resource Planning (ERP) system was used as the solutions to overcome the issues. ERP provides a system to capture information organization-wide, with minimum redundancy. Many

organizations acquire and implement ERP, nowadays. ERP is used by the organizations and companies to improve the performance in operation and in strategic value.

2 Enterprise Resource Planning (ERP) Enterprise resource planning systems or enterprise systems are software systems for business management, encompassing modules supporting functional areas such as planning, manufacturing, sales, marketing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, transportation and e-business (Rashid, Hossain, & Patrick, 2002). The term Enterprise Resource Planning is originally coined in 1990 by The Gartner Group to describe the next generation of MRP II software. Historically, ERP evolved from material requirement planning (MRP) and manufacturing resource planning MRP II systems of the 1970s and the 1980s, respectively. MRP and MRP II systems were designed to systemically link different aspects of process information within specific business context such as manufacturing. ERP is defined as conceptual definition involves the integration of business processes within an organization, with improved order management and control, accurate information on inventory, improved workflow, and supply chain management, and better standardization of business and best practices. And ERP as a system is about technological infrastructure designed to provide the required functional capability required to turn the ERP concept into a reality. ERP systems
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should not be a mere technological artifact; it is a core platform designed to support and lever the capabilities of the tools and processes used by an organization. ERP system is the technological manifestation of the ERP concept, its benefits, capabilities, goals, and strategic value (Djavanshir, Tarokh, & Reza, 2012). Below is the main concept of ERP systems in most organizations.

Front-Office

Corporate Reporting

Back-Office Financial Applications

Customers

Sales & Distribution Service Applications

CENTRAL DATABASE

Manufacturing Applications Inventory Management

Suppliers

HR Management

Figure 1. ERP System Concept

3 ERP History Based on Rashid, Hossain, & Patrick (2002), ERP development is closely related to the developments of the computer hardware and software systems. It is gradually changing from era to era.

Table 1. ERP History 2000s 1990s 1980s Extended ERP Enterprise Resource Planning (ERP) Manufacturing (MRP II) 1970s Material (MRP) 1960s Inventory Control Packages Requirements Planning Resources Planning

1960s On this era, most organizations designed, developed and implemented centralized computing systems. The organizations are mostly automating their inventory control systems using inventory control packages (IC) on that time. There were some systems based on programming languages such as COBOL, ALGOL and FORTRAN. 1970s On 1970s Material Requirements Planning (MRP) systems were developed. This era was mainly planning the product or parts requirements according to the master production schedule. 1980s Emphasize on optimizing manufacturing processes by synchronizing the materials with production requirements, MRP II were developed in this era. MRP II included areas such as shop floor and distribution management, project management, finance, human resource and engineering. 1990s Begin in the late 1980s, ERP system were developed. It was buint with the power of enterprise-wide inter-functional coordination and integration. Based on the technological foundations of MRP and MRP II, ERP systems integrate business processes including manufacturing, distribution, accounting, financial, human resource management, project management, inventory management, service and maintenance, and transportation, providing accessibility, visibility and consistency across the enterprise. The vendors in this era were added more modules and functions as add-ons to the core modules giving birth to the extended ERPs. These ERP extensions include advanced planning and scheduling (APS), e-business solutions such as customer relationship management (CRM) and supply chain management (SCM).

4 Critical Success Factors of ERP In this technology-oriented centuries ERP has took a critical place in an organizations development. It was argued as a vital part of organization in defining their strategies. According to OLeary 2000; Sandoe et al. 2001; Bharadwaj e t al. 2007, successful implementation of an ERP system can reduce inventory, production, shipping, labor, and IT maintenance costs, and thus lead to greater effectiveness and a better competitive edge in terms of improved strategic initiatives and responsiveness to customers (Shaul & Tauber, 2013). Furthermore, article by Shaul & Tauber on 2013 is classifies Critical Success Factors (CSFs) and subfactors that play a role in todays ERP implementation and
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management. Studies of the CSFs affecting an ERP implementation have examined different dimensions.
STRATEGIC Global
Developing Countries Organization

Large Enterprises

Core ERP Vendor

Private Sector Life Cycle

CULTURAL
Specific Phase Public Sector Partner

TECHNOLOGICAL

Integrated Components

SMEs

End User

Developed Countries

Local

TACTICAL

Figure 2. Dimensions of ERP Critical Success Factors Late 1990s The Enterprise Era Technological Different technical composition (graphical user interface, relational database, client-server architecture, and open system portability) has been developed into ERP on this era. LEs-SMEs According to Liang and Xue (2004), the ERP market has traditionally been limited to LEs (Large Enterprises). The main reasons for adopting an ERP system were: Y2K problem, Euro conversion, and integration with other companies of the group (Shaul & Tauber, 2013). Strategy ERP software was focused on the speed of the process as a whole, to streamline the process with higher success rates (Murray & Coffin, 2001). Global Holland and Light (1999) argued that IT factors, in addition to known business and management factors, played a key role in the context of global ERP implementation. Early 2000s Collaborative Commerce Era Local-Global Competition increased, customer driven power with the increasing transparency of the global market place (Akkermans et al. 2003).
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Core ERP Integrated Components ERP didnt provide full support for business automation. Vendors Industry consolidation took place. Vendors saw substantial revenue growth from the acquisition of other software. Strategy Major vendors acquisitions enabled them to offering modules to give the solutions. Organizational Organizational factors were equally important throughout the life cycle whereas technical factors were more crucial during the early phases. SMEs-Les ERP vendors were having difficulties to penetrate the large company market sector further, while the SME market showed steady growth. Information technology Until 2002, less than 25% of research ERP articles focused on IT. These questions emerged in 2003 when 40% of the articles focused on ERP and architecture, design, data models, Web services, enterprise application integration, etc. Developed-Developing Countries There was wide acceptance of ERP in developed countries, while developing countries lagged far behind. Public Sector Specific characteristics of the public sector ERP life cycle and provided insights into factors affecting ERP implementation along with the strengths and weaknesses of ERP systems for public sector organizations. ERP Life cycle ERP systems must be maintained and upgraded. Mid Decade Leveraging the Integration Core ERP: Integrated Components ERP license revenue remained steady. Strategy ERP models tended to differ in terms of entry into specific vertical markets. Vendors ERP vendors began to either acquire or develop extensions such as CRM and SCM. Information technology Integration, balancing between integration and best of breed functionality started to shift. Customization, To avoid ERP software modifications which were perceived as slowing down the project, the cause of risky bugs needing to be rewritten in an upgrade, many organizations were committed to a vanilla implementation. Another critical success factors in IT is its flexibility and scalability.

Developed-Developing countries North America lost some of its market share to emerging markets in Asia-Pacific and Latin America. Europes overall share remained steady at 39%. LEs-SMEs Globalization, centralization, and regulatory compliance were the key drivers for continued ERP investment among LEs. Culture Organizational culture is embedded within national culture and it is regarded as a unique factor affecting ERP systems implementation success. Late Decade Seeking a Better Utilization of IT Infrastructure Information Technology The spread of mobile devices has prompted ERP vendors to extend ERP. Tactical Companies with strained IT budgets have been forced to be more prudent with their software implementation spending. Vendors ERP vendors continue to acquire products or develop their own functionality that is either comparable to or better than many of the best of breed applications, and hence enable companies the opportunity, via single source, to maintain or create a competitive advantage based on unique business processes, rather than adopting the same business processes which would leave no firm with an advantage. Global- Local ERP system features developed by local vendors tend to be more user friendly for domestic or local users by incorporating culture-specific factors into their systems, whereas those developed by global vendors are likely to be less localized than domestic ERP systems due to their orientation toward the global market. SMEs-Les SME environment may differ substantially from ERP implementations in LEs and cannot be extrapolated to SMEs. Private Public sector Non-manufacturing markets such as retail, financial services, and the public sector had been developed.

5 ERP Advantages and Disadvantages According to Rashid, Hossain, & Patrick (2002) there are some advantages of the use of ERP in business and/or organizations. ERP can provides more reliable information access by using the common DBMS, consistent and accurate data, and improved reports. It might avoid data and operations redundancy through modules access same data from the central database, avoids multiple data input and update
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operations. It can minimize retrieving and reporting delays due to delivery and cycle time reduction. Cost reduction time savings can be achieved by enterprise-wide analysis of organizational decisions. ERP can adapt easily in business changing environment and also easy to restructure. Improved scalability by structured and modular design with addons. It may mproved maintenance Vendor-supported longterm contract as part of the system procurement. Furthermore, ERP may reach global outreach by extending the modules such as CRM and SCM. The use of e-commerce, e-business internet commerce, and collaborative culture also become the advantage of ERP. However, ERP doesnt come without any disadvantages. Some disadvantages that can be defined from ERP implementation, such as time-consuming, expensive, modules conformity, the dependency to the vendor, complexity of the features, scalability and global outreach of the system, and extended ERP capability. The impacts of these things can be reduced by minimize sensitive issues, internal politics and raise general consensus; the architecture and components of the selected system should conform to the business processes, culture and strategic goals of the organization; choose the best of breeds long-term committed support; considering the implementation and needful carefully; longterm commitment to product and services, consider Internet-enabled systems; and have to be considered the middle-ware addon facilities and extended modules such as CRM and SCM.

REFERENCES

Djavanshir, E. N., Tarokh, M. J., & Reza, G. (2012). ERP: a literature survey. International Journal of Advanced Manufacturing Technology , 9991018.

Rashid, M. A., Hossain, L., & Patrick, J. D. (2002). The Evolution of ERP Systems: A Historical Perspective. In M. A. Rashid, L. Hossain, & J. D. Patrick, Enterprise Resource Planning: Global Opportunities and Challenges (pp. 1-16). Idea Group Publishing.

Shaul, L., & Tauber, D. (2013, August). Critical Success Factors in Enterprise Resource Planning Systems: Review of the Last Decade. ACM Computing Surveys, Vol. 45, No. 4, Article 55 , pp. 1-40.

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