What is ERP ? Is it a fad or does it deliver definitive results? such questions have always plagued the minds of practitioners in this area and as make this write-up I want for sure to be communicating something long standing so that by and large some resemblance of sound understanding dawns on the reader.
Note that the key focus in an ERP which is an abbreviation of "Enterprise Resource Planning" is the word Enterprise and what it stands for. ERP helps in better Management and decision making they say..it does but much of it depends if the implementer and the user of ERP has some understanding of the underlying concepts.
For long and for very long it appears to me that the perpetrators of business or production had a faint understanding of Management and Management of corporations very often went into wromg hands. We have developed a word "Corporate Governance" for right reasons and have commenced using the word Governance as against Management suggests by itself the complex nature of handling the various facets of business. The building blocks of production are Land , Labour , Capital and Organization. Land and Capital are inanimate whereas Labour and Organization are animate because they constitute people. Both these kinds of people do different kinds of work....Labour looking into the present and organization trying to charter the future..and the word organization largely refers to Management in modern terms.
Let us try to decipher the the possible trajectory through which ERP evolved. The earliest computerization of business processes were possibly in the manufacturing era of the 1930.s where large mainframes were used to probably undertake pay roll processing and making and selling of mainframes were an active predisposition for people and these systems worked with punched cards and by punching cards large scale calculations were undertaken. Every month only few cosmetic changes need be made on an already existing card and repetitive pay roll calculations were undertaken. I think industrial societies as we see today emerged all of a sudden with the motor car industry and a hither to unknown phenomena of tens of thousands of people working at one place to make products come into existence and with it managerial problems of various kinds demanding ultimately the entry and synergy of information systems.
Somewhere the auto sector of Germany in the 1970's saw the need for an integrated information platform not only to solve pay roll processing but also included inventory and the like. They say there was MRP 1 and MRP 2 and it appears to me MRP 1 was Material Resource Planning and MRP 2 was Manufacturing Resource Planning and in the latter for the first time Finance appeared as a module.
Few decades ago ERP implementations became rampant and continues to grow and many implementations were failures due to various reasons in the past. ERP is sometimes confused with words like MIS though they mean separate things. An organization has to be ready for an ERP which means its operations have become complex, works in a competitive environment and Resource mobilization, utilization and economics dictate to a large extent sustainability. When these conditions are true ERP has increased significance. MIS on the other hand is not resource centric in its approach and is to a large extent a fast acting decision making tool very relevant when an organization is facing rapid market expansion and growth. Somewhere an MIS matures into an ERP and an ERP though by default performs the functions of an MIS has a more extended goal the conversion of a mere organization into an enterprise.
I believe any human cluster that eventually lands up becoming a larger corporation starts as a federation..thereafter becoming an organization and eventually if at all becoming an enterprise.This journey is beset by many different kinds of managerial problems from time to time and various kinds of people steer the set-up through this course. A federation is a loose connection of people who are in charge of a fledgling endeavor and the success or failure of the endeavor resting on the wits and skills of these people and in a federation there is scant need for formal information exchange or transfer. A federation over time starts becoming complex owing to market dynamism and the need for a formal information structure that forms part of organizations. There is a hierarchical set up and the organization re frames its information systems occasionally finding a need to do so considering the environment in which it operates.This environment is largely characterized by its "on-demand" nature which means that you get information only when asked for ; the information so obtained may or may not be fully useful and decisions are based on them. An organization over time matures into an enterprise and an enterprise is characterized by its "by-default" nature which means information is constantly updated as a matter of practice one needs it or not. Constantly all the points of an enterprise are enlivened with the updated information concerning the enterprise there-by making day to day decision making and any analysis there-of more accurate with lesser processing and reduced transaction times.
The word ERP is sometimes misconstrued. If a bank were to connect all its branches through some information back-bone would it tantamount to an ERP ? the answer is no.It is still within the realms of an MIS. In the ultimate analysis it is resource economics that defines an ERP and a bank in the strict sense is not working with a differentiated set of enormous resources and its sustainability is not dependent on resource rationalization and does not by itself qualify for being called ERP. What is resource economics. Mobility of resource , avaliability of resource, transfer of resource, allocation of resource, cost of resource and cycle time of resource constitutes resource economics.
At a fundamental level what is the difference between MIS and ERP ?
If the acronym MIS were to be dissected into M I and S........M stands for management and implies management of an organization. An organization is a formal structure with hierarchy and I the "information" is largely used for decision making ...and S the system is the way information is collected and distributed for decision making. Contrasting this with ERP...the E stands for enterprise and the conversion of organization to enterprise..in an enterprise unlike an organization there is a criss-cross matrix flow of information and information updation across several related nodes happens on a continuous basis..the R relates to resource and resources and their rationalization and the resource planning and dynamics that result as a result of this organizational transformation and strategic shift.
In what kinds of an environment is ERP ideal. Especially when an organization has got large individual and independent resources that comprise manufacturing and operations resource economics of various kinds can dictate competitive advantage and reduce cumulative costs of operations. ERP makes the organization system driven as against people driven. What is the difference between system driven and people driven organizations. In people driven organizations you rely on people for information and in system driven institution they are available on a contrivance.
As the world recognized the word ERP there was a frenzy of implementations around the world precisely in the late 1990's and many of them were destined to doom for various reasons of Entry barriers and Exit barriers. Entry barrier is when the people using any existing system contradict the advent of an ERP for any reason and Exit barriers arise from the question what to do with existing paraphernalia which would be rendered obsolete in the event an ERP has to make its way. These situations can differ from organization to organization but they exist. ERP implementations did fail from the actions of pressure groups who silently violated the implementation activity and jeopardized them without redemption. Today implementations are by and large reasonable and successful. When an ERP is implemented there are two distinct issues. TCO and BRF ..TCO meaning " total cost of ownership" and BRF means "benefit ramp factor" .TCO involves all the transparent and hidden costs involved in an implementation and BRF is indicative of how quickly the various benefits of an implementation can be realized and any successful ERP implementation is characterized by a judicious balance of these forces else implementations can result in some kind of relative failure of various degrees. All ERP implementations have a component of relative failure but this component must not be unduly enormous and must be capable of correction through some process of customization.
How to successfully implement ERP ? Present day success rates of ERP are high largely because of the awareness and experience in this sector . Eventually every organization in the world will have some form or kind of ERP. Largely the percentage of ERP penetration must be less than ten percent which means there is large scope for ERP implementations around the world. To successfully implement ERP the following points must be noted;
1. Estimate the typical resource definitions of the organization. Resource definitions are a prioritized list of resources that run any organization and the elements of the list and realities vary from organization to organization.
2. Identify the total number of Major nodes and sub-node terminals required by the ERP which should cover the geographical land scape of the organization.
3. Conduct a generic process study through some formal and non-formal pictorial analysis which traces the supply chain from beginning to end and obliterate, merge and demerge various processes where ever possible.
4. Choose a set of ERP packages from the industry that would necessarily cover the various issues listed above and deliberate with the vendors how their ERP would fit into context.
5. Identify the final vendor and preferably give him a turn key contract on acceptable terms.
6. Most importantly give formal training to all employees for at least 10 hour duration about critical aspects of ERP and their possible advantages and fine tune the implementation based on any inputs or concerns.
7. Discuss the implementation methodology with the vendor..his comfortable implementation methodology..his past success rates..and the requirements of the organization.
8. Closely supervise the implementation process and react to any exingencies.
9. Spend time thereafter to enter all critical resource data into the ERP system.
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