ERP Systems Globalization Organizations

Question: Discuss about the ERP Systems for Globalization Organizations. Answer: Introduction In this age of digitalization and globalization, organizations are continuously increasing their operation and thus there is greater need of planning and managing of resources, demand, supply, and demand management, finances in a globalized complex environment. ERPs help the organization to achieve this goal of managing their Sales, Purchases, logistics, account receivables, account payables, asset management, fixed assets needs provided ERP is implemented and configured effectively and is aligned to your business processes. The word effective is very important here because all the enterprises that are planning to implement ERPs or the enterprises who are in process of implementing ERPs software are already scared to some extent due to numerous stories of the failures of ERPs projects. Fox Meyer Drugs become bankrupt while implementing ERP, Waste Management Inc, Dell and Hershey discarded their ERP implementation projects in between suffering from a loss of whopping 100 million US do llars (Motwani, Mirchandani, Madan, Gunasekaran, 2002). Nike suffered huge revenue from sales after ERP implementation project go live. Although all these cases are quite dreadful but then there are also no dearths of cases of successful ERP implementations. Cadbury, Emerson electric, General electric, Rheem manufacturing, Integra life sciences are some of the organizations that have achieved tremendous improvements in their balance sheet and business processes after implementing ERP over a period of time. According to the literature available on this subject, most common cause of the failure of the ERP projects are failure of the management of the company to understand and solve the business problems that arises due to ERP systems. ERP is just an enabler; the main task that differentiates winners from failures is how efficiently the business processes are reengineered and how better the ERPs and standard business processes are aligned with each other. Most of the benefit of the ERPs project comes from changing a business process by solving the business problems and the acceptance of the new processes by the people. In a nutshell, Management ability to solve the business problems, ability to manage changes, understanding business requirements, ability to direct and execute the project are the most important factors for making EPR project as a successful one. Thus, ERP projects are mainly people driven. The objective of this report is to discuss and understand the key issues related to ERP implementation projects, the role and importance of the right people in ERP projects and how these issues can be managed in order to create a positive impact on the ERP implementation projects and making them successful. Also, appropriate real life case studies of the various organizations will be discussed time to time to explain the issues in a more effective way and to discuss companys experiences. Analysis Due to the high cost, long duration and the complexity involved in ERP implementation projects, there are often huge chances of failure if the risks and issues are not manager properly. Before going further into the details, let us discuss the structure of common ERP projects. There are 3 entities: Vendors are the owners of the ERP software who sell the licenses to various enterprises Business implementation team consists of Project manager, change agent, Business process manager for each tracks/modules, which are in scope (Purchasing, Order Management, Logistics, Manufacturing, Finance, Asset Management etc), data management team and quality assurance team. Implementation partner refers to the IT vendors who will actually implement and configure the ERP after understanding the requirements from the business. Implementation partner team also consists of project manager, quality assurance team, technical team and Functional consultant for each module. For every track say Purchasing, Business process manager of Purchasing and Functional consultant of Purchasing will work together to discuss the requirements, changing the business processes and configuring the ERP system. Business team is having the deep knowledge about business processes and functional consultants have deep knowledge about the ERP product (SAP, Oracle, Microsoft dynamics or any other) for their respective modules. Thus, structures of ERP projects are quite complex due to involvement of many entities and there can be multiple reasons for failure of ERP projects. However, the important point here is that ERP is just the software; it is the way of the usage of the software by the people which makes the implementation as a success or failure. Same ERP projects have different outcome because of the different people involved in the project. Thus, ERP projects are highly people centric and most of the issues and costs associate with ERP projects are people related. Some of the critical issues are discussed as follows: Requirement gathering and appropriate ERP vendor selection Requirement gathering is one of the most important aspect in selecting the ERP vendor but still many business executives tends to ignore it or does not get into much details of the requirement. Business executives tend to influence by the sales pitch of the ERP vendors and swayed by successful case studies of the ERP implementation projects by these vendors that demonstrates how the enterprises achieves huge savings by implementing the ERP. However, each business is different and has different set of requirements. Thus ignoring the business requirements is a sure shot recipe for the failure of the implementation projects (Alcarez, Urla, 2002). For example, Waste management Inc suffered massive loss of 100 million dollars due to the failure of ERP implementation and take a legal action against their ERP vendor, SAP. SAP claimed that business is not able to articulate its requirement clearly which lead to the failure of the project (Ghosh, 2012). Not only this, FoxMeyer drug selected SAP ERP because of its success stories in other pharmacy companies and reputation (Scott, vessey, 2000) despite being warned by some Chicago based consultation firm that SAP will not be able to fulfill its business requirements and the result is that FoxMeyer Drug filed legal case against SAP for bankruptcy. To tackle this issue, the best approach is that Business executives prepares detailed list of requirement by each functional area like Order Management, Finance, Manufacturing, Procurement and ask ERP vendors to cover these requirements in their presentation if they are directly supported by their products and if not supported, it is possible to do through customizations. Once the business executives are more vocal about their requirements, ERP vendors will be forced to put more details into their sales proposals. Below is the example of the detailed questions that Business executives need to ask about from the vendor: Sr. no Track Requirement Fit/Gap IF gap/Customization possible. Complexity of the customization 1 Order Management Drop ship and back to back orders supported FIT 2 Procurement Return to vendor FIT 3 Inventory Serial, lot and revision control Serial and lot control are FIT NO Once the requirement analysis is done, Business executives should select the ERP product that is designed to suit their requirements with least amount of customizations. Customizations are very expensive to build and maintain and thus the thumb rule is that any ERP project should not have more than 20% of the customizations. Once this project preparation work is done, it will be easier for the business executives to be reasonable in selection of the right products aligned to their business systems and not just swayed by the good reputation of the ERP vendor. Implementation Partner Selection of Implementation partner is also very important and critical for the success of the project (Tsai, Shaw, Fan, Liu, Lee, Chen, 2011). The depth of knowledge of the functional consultants provided by the implementation partner, their experience and flexibility, their patience to handle change in requirements during the initials phases of the project is of the immense value for the success of the projects. If functional consultants have good track for implementing ERP in similar industries, they can help business to reengineer their process and this will also provide the confidence to the business process owners. Comfort level of the business is shaped by the confidence levels of the functional consultants. Similarly, experienced project manager who can handle the pressure, keep the scope, cost and timeline of the project in control and his ability to manage the risks based on his risks and intuition can be very critical for the success of the project. Another important thing is there that any organizations generally implements ERP only once. Later on, they just upgrade and add different modules, have rollouts for different business units. Thus, there will be many unforeseen challenges that business will face. At that time, it is the responsibility of the Implementation partner to clarify their challenges and provide solution based on their experiences in multiple ERP projects (Bingi, Sharma, Godla, 1999). Top Management Support People are the most important for the successful of any ERP project and thus ERP projects are highly people-centric because ERP is just an enabler. Top management knows the scale of the ERP project and technicality involved so it is indispensable that they must monitor the project execution. Often, they give the task of managing ERP projects to middle management who are not fully aware and also not capable of influencing the change in business process and as a result, there is a lot of opposition from the process owners whenever any change in business process is required. Also, for approvals of change in business process, they have to work with top management due to which there are unnecessarily delays and follow ups which leads to delay. Participation of the top management in just stage gate meetings that are conducted when any milestone is achieved and next phase of the project is about to start is simply not enough (Parr, Shanls, Darke, 2013). They should be monitoring the progre ss of the project frequently and resolve the business problems, approves change in business process and remove delays and bottlenecks in the project. If top management is closely monitoring the ERP project, middle management will also be very much active and aware and decisions should be taken in a timely manner before it is too late. For instance, take the case of FoxMeyer drug. There are frequent changes in the scope of the project lead to unmanageable timelines. Testing phase was cut short by the top management for expediting and this all leads to the failure of the ERP project (Scott, 1999). ERP implementation is a transformative phase in any organization and it becomes imperative for the top management to lead this change by educating the people why it is important for them to implement ERP systems to survive in the market. People who are worry about their jobs due to ERP implementation should be educated that it is just the enabler and it the people only who will manage the software. In a nutshell, if the top management is fully committed for the success of the project, then this commitment will be cascaded to middle management and users which will finally lead to the organizational commitment for the success of the project (Parr, Shanls, Darke, 2013). Ability to manage change ERP projects are sometimes also known as organizational change management projects due to the scale of change involved in any ERP implementation project. Business users have the tendency to resist the change because they are in their comfort zone and fully aware of the existing systems. They will to resist the new ways of doing things and hence makes excuse that ERP is making their job tough and their current processes are not supported by the ERP. As a result, there will be lot of chaos. Thus, it is very much important for the top management to lead the change, educate the users about the implementation of ERP and convinced them about urgency of success of this ERP implementation. Business users should also be given the assurance for adequate training so that they will become comfortable with the new systems. Also, whenever change in business process is required, business users will resist it but if it is advocated by the top management after convincing users about the benefits of i t, they will gradually accept it and adopt it (Altamony, Tarhini, Al-Salti, Gharaibeh, Elyas, 2016). Users should be educated that there are some standard processes derived from the best practices and it is inculcated in ERP packages. If they try to customize, it will not work for long because there will be issues during upgrade. And also, customizations are very expensive to develop as well as maintain. Thus, business process reengineering is required and this reengineering is uncompleted without participation from the end users who are actually the users of the ERP system. To overcome their fear of adapting to new systems, Management must ensure them about the adequate training and testing before the go live. Many organizations compromise on the training and testing which will ultimately lead to the collapse of ERP project (Gupta, Naqvi, 2014). Nikes suffered huge loss from their ERP implementation because of lack of improper training and testing. When Nike go live, users are not comfortable with the ERP systems and does not know how to use the new systems which lead to loss of sales. Also, Nike accepted that there are lots of bugs in demand planning software and it is very slow which lead to failure (Wong, Scarbrough, Chau, Davison, 2005). If Nike could have raised these points during the testing phase, it could have saved millions. But then user complained, they were not given enough time to test the systems. User Training- cascading effect on Testing User training is another important aspect for the success of the project and also the most ignored one. It is very important for the management to accommodate this in the project timeline because it is actually the users who will use the new system. Users training will also have positive impact on the testing of the new systems (Ram, Wu, Tagg, 2014). For instance, if the users are not trained on the new systems, their testing of different business scenarios would also be incomplete and there can be unforeseen challenges after the go live. If the adequate time is given for testing, Users will also test the new systems thoroughly and become comfortable with it. Logging testing defect after go live will be very costly for the organization(Amini, Safavi, 2013). For example, Lumber Liquidators is a leader in US that provided hardwood flooring. Their ERP implementing project is very huge in scope covering close to 300 stores however after go live, they suffered huge drop of about 45% in their net income as compared to previous year due to their inability to handle ERP. Lumber Liquidators management openly admits that there were no issues with the ERP systems and implementations but lack of training of users on new systems lead to this sudden drop in income (Blazer, 2012). Users were habitual of working in Silos however in ERP, business processes are closely linked and have effect on other modules and tracks. For instance, if there is any issue in purchasing the material or receiving, Finance will also be affected during the account payable conciliation, Manufacturing will also be affected in production scheduling of the jobs due to unavailability of raw materials. Go live/Cutover Strategy/Rollout Plan Preparing appropriate Go live strategy by learning from the experiences of other organizations is another important aspect of the ERP projects. There are many approaches like Big Bang approach and phased approach and then there are many flavors of each. For instance, Big Bang approach is that all the modules or all the plants/locations in scope of the ERP projects would start using the new systems after Go live. Phased approach is that initially organization will go live with the finance module and continue to use the existing systems for the other tracks. Once this module is stabilized, organization will go with go live of other tracks based on their priority. Phased approach can also be like initially 1 project goes live and once it is stabilized; there are roll outs for other locations. If the organization is not very comfortable with the ERP systems, Phased approach is recommended so that they can correct mistakes before further expanding the scope of ERP implementation. Modules should be properly tested covering all the business scenarios before system goes live (Sengupta, 2015). Consider the case study of ERP implementation in Hershey. Hershey was keen on using big bang approach (Chen, 2001) and then collapsed in few days after the go live in few days. There were so many unforeseen challenges and issues in each track that it breaks down. Organization Internal Project team Internal project team of the business that comprises of process owner of each track should also be experienced and skilled. Each process owner should be very comfortable about their processes and also aware about the points where their process is cutting different track and may impact the other tracks. ERPs are very connected software and they do not work in Silos while people have habit of working in Silos. Internal project team should also be capable enough to create new business processes or change existing flows if the flows not in synchronized with the ERP systems. It is because ERP systems are built by using the best practices for each business processes. Apart from this, it is very important that the project team should have open mind about the new systems and are very comfortable with their domain. Preparing the important flows in a swim lane fashion like where the business process is cutting into the different track should be prepared. For instance procure to pay cycle, order to cash cycle, manufacture to order should be prepared by all tracks coordinating together. First, high level processes (L1) should be prepared, then gradually adding more details into the process flows and making L2, L3, L4 until all process and sub-process are broken down into activities (Oca, Snoeck, Cardoso, 2014). Enterprise should also assign ERP project champion to oversee the progress of the projects and raised concerns and escalate issues if he sees any issue, delays or things going wrong. Six sigma projects are also complicated and they also have champion that works very well for the execution of the project. Conclusion To conclude, this essay discussed why ERP projects are people centric and why their success and failure depends on the people. ERP software is same but some organizations are achieving huge benefits while some land in bankruptcy and loss of sales. It is because ERP software is just an enabler. Its benefit will come when it is properly implemented. There are numerous issues related to people that deter ERP projects from reaching its true potential. Most of such issues are discussed in detailed by giving example of appropriate real life case studies and appropriate measures are suggested. There are issues like Change management, top management support, requirement gathering, and selection of implementation vendor which all are very critical in determining the fate of the ERP projects. Some organizations couldnt get them right and suffered huge losses, some organizations like FoxMeyer have unrealistic expectation from the ERP software without realizing that it is just the software and f ailed while some enjoying the benefits of ERP and improving their balance sheets continuously. References Altamony, H., Tarhini, A., Al-Salti, Z., Gharaibeh, A., Elyas, T. (2016). 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