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The Impact of Enterprise Resource Planning

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Article · July 2013

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 June 2013, Volume No: 2 Issue: 4

The Impact of Enterprise Resource Planning (ERP) Systems

Implementation on Business Performance
1
Dr M Nishad Nawaz MBA., MHRM., M.Phil.,Ph.D.
Department of MBA & Research Centre,
2
Dr K Channakeshavalu ME.,,Ph.D.
Principal & Director
East West Institute of Technology Bangalore.

Abstract:

Over the last decade Enterprise Resource Planning (ERP) have been adopted by many
companies as it contributes to the development and profitability of the organizations by
business solutions. Once configured it allows information to enter at a single point in the
process, and also updates a single, shared data base for all functions that directly or
indirectly depend on this information. These are a set of applications combining key functions
like finance, production. Sales, logistics, statutory compliance, human resources etc., in an
integrated fashion. In a manner these combine Enterprise Resource Planning system with
extended enterprise needs likes software solutions to the employees, customers and vendors.
ERP not only helps to establish world class best business solutions and bring transparency in
the business. This paper presents the definition, ERP Systems concept and need, the historical
evolution of the ERP Systems, why is ERP Systems needed, why firms invest in ERP Systems,
business performance development with ERP Systems, the scope of the ERP Systems, ERP
model, ERP architecture, ERP implementation approaches have been discussed.

Keywords : ERP, Business performance, Business applications, ERP Architecture,

ERP Benefits.

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 June 2013, Volume No: 2 Issue: 4

Introduction
In today‟s dynamic business environment and in the era of knowledge workers, enterprise
resource planning systems (ERP) has significantly contributed to the effectiveness of an
organization. In the present day business world, they have become an important instrument
without which the majority of enterprises could no longer function. Enterprise resource
planning systems are the principal infrastructure of information systems helping an
organization to prosper under the present day economic conditions. Successfully
implementation of enterprise resource planning systems creates organizational synergy,
which provides a stimulus for the development of particularly efficient processes necessary
for the success of an organization. As practice shows, implementation of an enterprise
resource planning system frequently does not justify the expectations of an enterprise, costs
much more than expected, and its implementation lasts for a considerably longer period of
time than planned. An organization has to analyze before implementing ERP Systems and to
know the benefits of the implementation.
The aim of this article is to show the implementation ERP in organization establish the
business success. Implementation of enterprise resource planning systems is a highly
complex process which is influenced not only by technical, but also by other factors like
performance of the business as well as organization. In the other hand to show what are the
benefits carried out with the implementation of the ERP in organizations, in this connection
literature the survey was conducted.
ERP Systems concept and need
There are different definitions of ERP. An ERP system is an attempt to integrate all functions
across a company to a single computer system that can serve all those functions‟ specific
needs. “Integration” is the key word for ERP implementation.
Enterprise resource planning (ERP) is an enterprise-wide information system designed to
coordinate all the resources, information, and activities needed to complete business
processes such as order fulfillment or billing.
An ERP system supports most of the business system that maintains in a single database the
data needed for a variety of business functions such as manufacturing, supply chain

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management, financials, projects, human resources customer relationship management,

knowledge management and talent management.
It may also integrate key customers and suppliers as part of the enterprise‟s operation. It
provides integrated database and custom-designed report systems. It adopts a set of “best
practices” for carrying out all business processes. A large number of firms forcing them to
change their business processes, structures and even business strategies with implementation
of ERP Systems. These ERP Systems providing many benefits like (i) Enterprise Integration,
(ii) Business Process Re-engineering, (iii) Standardizing systems and procedures across the
enterprise, (iv) Transparency, (v) Business networking, (vi) Best global management
practices, (vii) Global information systems infrastructure for acquiring this benefits firms
adopting ERP Systems and to meet the market and customer demand.
The historical evolution of the ERP Systems
The focus of manufacturing systems in the 1960‟s was on inventory control. Companies
could afford to keep lots of „„just-in-case‟‟ inventory on hand to satisfy customer demand and
still stay competitive. Consequently, techniques of the dayfocused on the most efficient way
to manage large volumes of inventory. Most software packages (usually customized) were
designed to handle inventory based on traditional inventory concepts [1,2].
In the 1970‟s, it became increasingly clear that companies could no longer afford the luxury
of maintaining large quantities of inventory. This led to the introduction of material
requirements planning (MRP) systems. MRP represented a huge step forward in the materials
planning process. For the first time, using a master production schedule, supported by bill of
material files that identified the specific materials needed to produce each finished item, a
computer could be used to calculate gross material requirements. Using accurate inventory
record files, the available quantity of on-hand or scheduled-to-arrive materials could then be
used to determine net material requirements. This then prompted an activity such as placing
an order, canceling an existing order, or modifying the timing of existing orders. For the first
time in manufacturing, there was a formal mechanism for keeping priorities valid in a
changing manufacturing environment.

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The ability of the planning system to systematically and efficiently schedule all parts was a
tremendous step forward for productivity and quality[3,1,2]. Yet, in manufacturing, production
priorities and materials planning are only part of the problem. Capacity planning represents
an equal challenge. In response, techniques for capacity planning were added to the basic
MRP system capabilities.
Tools were developed to support the planning of aggregate sales and production levels (sales
and operations planning), the development of the specific build schedule (master production
scheduling), forecasting, sales planning and customer order promising (demand
management), and high-level resource analysis (rough-cut capacity planning). Scheduling
techniques for the factory floor and supplier scheduling were incorporated into the MRP
systems. When this occurred, users began to consider their systems as company-wide
systems. These developments resulted in the next evolutionary stage that became known as
closed loop MRP[3].
In the 1980‟s, companies began to take advantage of the increased power and affordability of
available technology and were able to couple the movement of inventory with the coincident
financial activity. Manufacturing resources planning
(MRP II) systems evolved to incorporate the financial accounting system and the financial
management system along with the manufacturing and materials management systems. This
allowed companies to have a more integrated business
system that derived the material and capacity requirements associated with a desired
operations plan, allowed input of detailed activities, translated all this to a financial statement,
and suggested a course of action to address those items that were not in balance with the
desired plan[1].
By the early 1990‟s, continuing improvements in technology allowed MRP II to be expanded
to incorporate all resource planning for the entire enterprise. Areas such as product design,
information warehousing, materials planning, capacity planning, communication systems,
human resources, finance, and project management could now be included in the plan.
Hence, the term, ERP was coined. And ERP can be used not only in manufacturing

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companies, but in any company that wants to enhance competitiveness by most effectively
using all its assets, including information [1,2].
Why is ERP Systems needed

The business environment is dramatically changing. Organizations today face the challenge
of increasing competition, expanding markets, and rising customer expectations. This
increases the pressure on companies to lower total costs in the entire supply chain, shorten
throughput times, drastically reduce inventories, expand product choice, provide more
reliable delivery dates and better customer service, improve quality, and efficiently
coordinate global demand, supply, and production [2]. As the business world moves ever
closer to a completely collaborative model and competitors upgrade their capabilities, to
remain competitive, organizations must improve their own business practices and
procedures. Companies must also increasingly share with their suppliers, distributors &
[4]
customers the critical in-house information they once aggressively protected . And
functions within the company must upgrade their capability to generate and communicate
timely and accurate information. To accomplish these objectives, companies are increasingly
turning to enterprise resource planning (ERP) systems. ERP provides two major benefits that
do not exist in non-integrated departmental systems: (1) a unified enterprise view of the
business that encompasses all functions and departments; and (2) an enterprise database
where all business transactions are entered, recorded, processed, monitored, and reported.
This unified view increases the requirement for, and the extent of, interdepartmental
cooperation and coordination. But it enables companies to achieve their objectives of
increased communication and responsiveness to all stakeholders [5].
Why Firms Invest in ERP Systems
Why do firms invest in ERP given the different alternatives for information integration in a
business? The answer for this question lies between either technical gains e.g. replacing
legacy systems, or for business reasons e.g. improving operational performance and
efficiency (Nicolaou, 2004).
Many technical reasons exist including the replacement of disparate systems into a single
integrated system (Hitt et al., 2002). The replacement of legacy systems was very important

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for the boom of ERP during the late 1990s when companies wanted to replace their legacy
systems during the year 2000 (Y2K) with a more Y2K compliant solution so they have
invested into ERP systems (Anderson et al., 2003). ERP also provides a tested system
security basis which promises to keep the organization up to security standards and for
providing data security (Fuß et al.,2007).
Business reasons also exist. This includes automation and reengineering of business
processes (Hitt et al., 2002). Other business reasons provided by Federici (2009) are better
management, better operations, better information availability and reengineering procedures,
which are all reasons for acquiring ERP. Other business reasons include enhancing
cooperation and teamwork between employees in the company. In addition, benefits expected
from implementation of ERP systems include tangible benefits like reducing costs, reducing
operations time, and a lean organization, while intangible benefits like information
integration, better information quality, and increase in customer satisfaction also exist (Loh et
al., 2006; Nicolaou, 2004).
Such perceived benefits are expected because ERP help make production inside
manufacturing companies more efficient by integrating information from other departments
like sales and procurement into the production system, which as a result helps eliminate costs
and improve production schedules (Matolcsy et al., 2005).
Literature Review
Siriginidi, 2000; 7Lee and Lee, 2000; 8Ross and Vitale, 2000; 9Teltumbde, 2000; 10Scott and
Vessey, 2000; 11Stensrud, 2001; 12Clemmons & Simon, 2001; 13Light, 2001; 14Weston, 2001;
15
Huang & Palvia, 2001; 16Rajagopal, 2002; 17Robey et al., 2002; 18Gulla & Brasethvik,2002;
19
Motwani et al., 2002; 20Siau & Messersmith, 2003; 21Voordijk et al., 2003; 22Mabert et al.,
23 24 25 26
2003a; Soffer et al., 2003; Thomas & Jajodia, 2004; Siau, 2004; Amoako-Gyampah,
2004; Huin, 2004; Light, 2005; Kim et al., 2005; Worley et al., 2005; 31Gosain et al.,
27 28 29 30

31 32 33 34
2005; Wei et al., 2005b; Sumner, 2000; Nah et al., 2001b; Hong & Kim, 2002;
35 36 37 38
Umble et al., 2003; Loh & Koh, 2004; Ehie & Madsen, 2005; Ettlie et al., 2005;
39
Kremers & van Dissel, 2000; 40Koch, 2001b; 41Boykin, 2001; 42Nelson, 2003; 43Nah et al.,
44 45 46 47
2004; Calisir & Calisir, 2004; Martin & Cheung, 2005; Yu, 2005; Koh & Simpson,

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 June 2013, Volume No: 2 Issue: 4
48 49
2005; El Sayed, 2006; Koh & Saad, 2006 concluded that implementation of ERP create
critical success factors, issues and develops the firms.
50
Elisabeth J. Umble, Ronald R. Haft M. & Michael Umble their study identifies the success
factors, software selection steps & implementation procedures critical to a successful
implementation of ERP in an organization any type.
51
Stephan A. Kronbichler et al made research with literature review to found the critical
success factors (CSFs) within ERP projects and concluded that the more integration brings
success factors of ERP Systems.
52
Arnoldina Pabedinskaitė made study on the factors of the success of implementation and
analyses differences in evaluations opinions experts and users of ERP systems. The study
concluded that users of ERP consider as the most important factors determining the success
of implementation are factors relating to management of project of implementation.
53
Michael Krigsman conducted the study with 2000 respondents from 61 countries and taken
data in between of Febrarury 2006 to May 2012 of ERP buyers. The study concluded that the
SAP have the largest share of the market, Oracle implementation gives longest
implementation duration, Microsoft Dynamics implementation have the smallest share of the
market. For this above reasons ERP buyers have to aware about the benefits of
implementation of ERP.
54
Jiaqi Duan Parwiz Faker Alexander & Fesak Tim Stuart explained the benefits and
drawback of cloud based versus traditional ERP systems in an organizations. Researchers
discuss the revealed controversies of the previous research and reasons why or why not
cloud-based ERP might be more of interest to SMEs than to large enterprises.
55
Woltering et al conducted study on the tests the merits of a software tool employing the
regression-based Gratton method that claims to remove the detrimental effects of the eye
blink and leaves the activity of the brain. The study concluded that this tool distorts the data
at acceptable levels, yet caution should be taken when interpreting later components, like the
P3.

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Business performance development with ERP Systems

ERP automates the tasks involved in performing a business process-such as order fulfillment,
which involves taking an order from a customer, shipping it and billing for it. With ERP,
when a customer service representative takes an order from a customer, he or she has all the
information necessary to complete the order. Everyone else in the company sees the same
computer screen and has access to the single database that holds the customer's new order and
all databases of the customers. When one department finishes with the order, it is
automatically routed via the ERP system to the next department. To find out where the order
is at any point, one need only log into the ERP system and track it down. The order process
moves like a bolt of lightening through the organization, and customers get their orders faster
and with fewer errors than before. ERP can apply that same magic to the other major
business processes, such as employee benefits or financial reporting.
Objectives of the ERP Systems
The common objectives of ERP are to integrate all departments and functions across a
company onto a single computer system that can serve all those different departments‟ needs.
The ERP combines them all together into single, integrated software program than runs off a
single database so that the various departments can more easily share information and
communication with each other.
The scope of the ERP Systems

 ERP facilitates a company-wide integrated Information Systems covering functional

areas such as manufacturing, sales and distribution, accounts, payables, receivables,
inventory, human resources, customer relationship management, knowledge
management and talent management etc
 ERP integrates and automates most business processes and shares information
enterprise-side in real-time, thereby improving customer service and the corporate
brand.
 ERP provides complete integration of the system not only across departments but also
across companies under the same management.

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 ERP bridges information gaps across a company and focuses on key issues such as
productivity enhancement, customer service, cash management, inventory, quality
control, prompt delivery, etc.
 ERP is the solution for better project management.
 ERP provides business intelligence tools like decision support systems, executive
information system, reporting, data-mining, early-warning systems, enabling people
to make better decisions and improve business processes.
 ERP not only addresses the current requirements of the company but also provides an
opportunity for improvement and refinement in the business processes on a
continuous basis.
ERP Model

Sales Finance
Data Analysis S
C u
l p
i p
e l
Services CRM
n ERP i
t e
s r
Manufacturing Inventory Supply
s

Human Resources

Source: Simon Holloway, Practice Leader-Process Management & RFID, Bloor Research,
October 2010.

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ERP Architecture
The most commonly employed architecture are

 Two Tier Architecture

 Three Tier Architecture

ERP System Configurations: Client-Server Network Topology

Two-tier

First Tier

User
Presentation
Layer

Application
Second Tier Server and Database
Server
Layer

Applications Database

Two-Tier Client Server

Source: Zubair H. Shaikh, ERP : The Future of Business Automation 01 Edition,Atlantic,2009

 Common server handles both application and database duties
 Used especially in LANs
Three-tier
Client links to the application server which then initiates a second connection to the database
server used especially in WANs

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 June 2013, Volume No: 2 Issue: 4

User
First Tier Presentation
Layer

Second Tier Application

Applications Server Application
Layer

Third Tier Database Database

Database Server Layer

Three-Tier Client Server

Source: Zubair H. Shaikh, ERP : The Future of Business Automation 01, Edition,
Atlantic,2009.

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 June 2013, Volume No: 2 Issue: 4

User
First Tier Presentation
Layer

OLTP OLTP OLAP OLAP

Second Tier Application
Applications Server Server Applications
Layer

Operations Data
Third Tier Operations Data Database
Database Warehouse
Database Warehouse Layer
Server Server

ERP with OLTP and OLAP Client Server using Data Warehouse

Source: Stephen Harwood, ERP: The Implementation Cycle, Butterworth-Heinemann,2003.

Potential benefits and uses of Enterprise Resource Planning (ERP)

Organizations getting following benefits are getting for implementation of ERP.
Internal Benefits
 Integration of a single source of data
 Common data definition
 A real-time system
 Increased productivity
 Reduced operating costs
 Improved internal communication
 Foundation for future improvement
External Benefits
 Improved customer service and order fulfillment
 Improved communication with suppliers and customers
 Enhanced competitive position
 Increased sales and profits

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ERP Implementation Approaches

 The big bang-install a single ERP system across the entire organization
 Franchising-Independent ERP systems are installed in different units linked by
common processes, e.g., bookkeeping.
 Slam dunk-install one or several ERP modules for phased implementation of key
business processes.
Major Phases of ERP Implementation (Kent Sandoe, Enterprise Integration)

 Initiation-develop business case, project scope, and implementation strategy

 Planning-establish implementation team, determine goals and objectives, establish
metrics
 Analysis and process design-analyze and improve existing processes, map new
processes to be adopted by the system
 Realization-install a base system, customization, and test the system
 Transition-replace the formal system with the new system, data conversion
 Operation-monitor and improve system performance, provide continued training and
technical support
Major Challenges to ERP Implementation

 Limitations of ERP technical capabilities

 Inconsistency with existing business processes
 Costs - implementation (hardware, software, training, consulting) and maintenance
 Impact on organizational structure (front office vs. back office, product lines, etc.)
 Changes in employee responsibilities
 Flexibility of software system upgrades
 Implementation timelines
 Availability of internal technical knowledge and resources
 Education and training
 Implementation strategy and execution
 Resistance to change

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Scope of Further Research

Based on the literature review, the researchers have to select and opt for web-based ERP
Systems. The future of ERP Systems lies in wireless and digital devices. However as more
and more companies adopting change management in Information Technology. So
researchers have to concentration on change management with emerging of ERP business
applications. Even researchers can do more research on linkage to other software systems,
e.g., supply chain management system, e-commerce, customer relationship management
system, E-Business, M-Business and G-Business, Enterprise Assets Management, Product
Lifecycle Management and Business Intelligence.
Conclusion
This article exhibits the impact of ERP systems on business performance. The relationship
between ERP systems adoption and business benefits was also reviewed. It was found that
with ERP architecture make better smooth functioning of operational level activities can be
achieved. Different factors like why is ERP needed in organization, why firms investing ERP
systems, ERP model were discussed.
Therefore, the importance and impact of ERP systems and its implementation in the
organizations, ERP buyers, management thinkers, corporate giants and host of other who are
implementing ERP systems for gaining a competitive and better performance in various
functions of the organization.
A good ERP systems also makes an organization seamless by removing all the
communication barriers. Thus the overall purpose of ERP systems is to provide profitability
and related information to help managers and staffs understand business performance and
plan its future direction and also allow the companies to correct negative situations quickly
and minimize financial losses. ERP Systems act as a solution to run the business globally and
profitably.

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