Chapter 2: Literature Review

Transcription

1 product features, for the later stage of the implementation of E-business, SCM and CRM successfully. The Research will make recommendations for existing ERP companies to review their strategies in the implementation of ERP from E-business perspective and also potential companies who are in the edge of ERP Implementation. The Research will also provide recommendations for ERP Vendors to re-visit the product features in their perspective ERP Products. Chapter 2: Literature Review 2.1 Introduction The Corporate Information System is basically an Integrated Management Information system covering all business function within the Organization. An Information system is an open, purposive system that produces information using the input-process-output cycle. The minimal information system consists of three elements people, procedures and data. People follow procedures to manipulate data in order to produce information (Leon, 2003). The Information Era has dramatically changed the business environment, and keen competition puts tremendous demands on companies to reduce total cost and maximize return on investment (Yurong and Houcun, 2000). According to Leon (2003), an information system is an organized combination of People, Hardware, Software, Communication Networks and Data Resources that collects, collates, transforms and disseminates in an organization. The basis of competition and wealth creation in the digital economy is not just good use of information, quality, process reengineering, speed, effective decision-making, empowerment or the other countless management techniques. It is business model innovation (Kalakota and Robinson, 2000). The business process models need to be innovated continuously. According to Kalakota and Robinson (2000), to thrive in the digital economy world, companies need to structurally transform their internal foundations to be effective. They need to integrate their creaky applications into a potent e-business infrastructure. 9

2 Enterprise Resource Planning Systems have been evolved from Materials Requirement Planning (MRP) and Manufacturing Resource Planning (MRPII) systems. The Gartner Group made the term Enterprise Resource Planning, in the 1990s for the next generation Manufacturing Resource Planning (MRPII) Systems. The concept posited to integrate software applications of manufacturing beyond MRPII to other functions such as finance and human resources. (Kumar et al, 2003) ERP works like an information lubricant, facilitating the exchange of data among corporate divisions through the unification of key processes. More than 70percent of Fortune 1000 companies have either begun implementing an ERP or plan to do so over the next few years. Successfully implemented ERP systems have been helped to reduce inventories, shorten life cycle times, lower costs and improve overall operations (Kalakota and Robinson, 2000) Enterprise Resource Planning system implementation will have impact to the business processes such as Finance, Human Resources, Logistic Management, Maintenance Management, Sales & Distribution, Quality Management, Materials Management, Manufacturing and Strategic & Operational Planning, etc. The ERP System enables the company to integrate their business process and share common data and practices across the enterprise and allow the access of information in a real time environment. Additional benefits from successful ERP system could be Business Processes Automation, Availability of information from bottom level to top level, Increase Business Efficiency and Effectiveness, Solutions to the problems of legacy systems, Reduced development risk, and increase global competitiveness, etc. The major bottleneck in implementing the ERP Systems are High implementation Costs, difficulty in analyzing the cost and benefits of the ERP System, delayed payback period of Return On Investment, complexity of implementation, etc. The research will review ERP Implementation Strategy such as Innovation Process Stage models, ERP experience cycles like Project Phase and Shakedown Phase, Strategies like diver escaping from an island prison (Jane, 1999). The review will analyse documented problems of ERP implementations such as project team configuration, project cost overruns, project delays, conflicts with business strategy, 10

3 Employee Resistance to Change, etc. Some other Technical Problems like, Integration with existing legacy systems, customizations, Integration with other applications and so on will further extend the complexity of Implementing an ERP Successfully. The ERP implementation strategies, problems and complexity issues will further be extend to analyze the Successful stories of the ERP System projects and also ERP failure Projects. 2.2 What is ERP Enterprise Resource Planning (ERP) covers the techniques and concepts employed for the integrated management of business as a whole, from the viewpoint of the effective use of management resources, to improve the efficiency of an enterprise. ERP packages are integrated (covering all business functions) software packages that support the above ERP concepts (Leon, 2003). The initial definition of ERP was targeted at manufacturing companies. But being a framework of integrated application suites that unites major business processes, the use of the term ERP has expanded. Today, ERP encompasses all integrated information systems that can be used across any organization. (Kumar et al, 2003). Enterprise Resource Planning (ERP) is now being hailed as a foundation for the integration of organization-wide information systems. ERP systems link together the entire organization s operations such as accounting, finance, human resources, manufacturing and distribution. Moreover, they also connect the organization to its customers and suppliers through different stages of the product or the process life cycle. (Ahmed et al, 2003) ERP software is designed to model and automate many of the basic processes of a company, from finance to the shop floor, with the goal of integrating information across the company and eliminating complex, expensive links between computer systems that were never meant to talk to each other. 11

4 Strategic & Operational Planning Finance Manufacturing Human Resources Materials Management ERP System Logistic Management Quality Management Maintenance Management Sales & Distribution Fig.2.1: Information Integration through ERP Systems (Leon, 2003) ERP Software is a mirror image of the major business processes of an organization, such as customer order fulfillment and manufacturing. ERP system s set of generic processes, produce the dramatic improvements that they are capable of, only when used to connect parts of an organization and integrate its various processes seamlessly. (Leon, 2003). The key underlying idea of ERP is using information technology to achieve a capability to plan and integrate enterprise-wide resources, i.e. by integrating the applications and processes of various functions such as design, production, purchasing, marketing, and finance. Enterprise wide integration goes beyond physical computer integration (i.e. using computer communication networks and protocols) and system integration (i.e. building integrated systems based on shared data and exchange formats, and common architecture). A salient feature of enterprise integration is business integration, i.e. understanding the way business processes and enterprise policies are structured, how they relate to one another and how they are efficiently executed using the enterprise means (e.g. human resources, applications, and physical resources) depending on the availability of internal or external enterprise objects (e.g. events, information entities, physical entities, etc.) or conditions. Both computer 12

5 integration and systems integration are important means of achieving enterprise integration. But other coordinating and integrating mechanisms such as standardization of work processes, norms, skills and output, and supervision structure are equally important for realizing the potential benefits of integration (Kumar et al, 2003). ERP systems let a company share common data and practices across the enterprise and allow the access of information in a real-time environment. ERP solutions are designed to solve the fragmentation of information in large business organizations, and integrate all the information flowing within a company. (Themistocleous et al, 2001). 2.3 Advantages and Disadvantages of Implementing ERP The Advantages of Implementing ERP According to Leon (2003), Installing an ERP System has many advantages-both direct and indirect. The direct advantages include improved efficiency, information integration for better decision making, faster response time to customer queries, etc. The indirect benefits include better corporate image, improved customer goodwill, customer satisfaction and so on. The following benefits could be gained by implementing the ERP systems: 1. Provide an integrating working environment. (Ahmed et al, 2003) 2. Enable automation. (Ahmed et al, 2003) 3. Availability of information from field level until the management level. (Ahmed et al, 2003) 4. Integration in applications in any department. (Ahmed et al, 2003) 5. Flexibility and facility to standardizing process or to accommodate changes and globalization. (Ahmed et al, 2003) 6. Achieve balanced people, process and technology changes across all areas. (Ahmed et al, 2003) 7. Apply planning and program management practices throughout the program life cycle of a project. (Ahmed et al, 2003) 13

6 8. Solutions to the problems of legacy systems, Reduced development risk, Increase global competitiveness and business efficiency. (Themistocleous et al, 2001) Disadvantages of implementing the ERP systems: 1. High implementation cost. It can range from some hundred thousand dollars in small companies to a billion dollars for large multinational companies (these numbers including training and consulting). (Ahmed et al, 2003) 2. Delay on return on investment. The benefits of ERP may not be shown until after companies have had it running for some time. (Ahmed et al, 2003) 3. Implementation complexity, integration problems, customization problems over budget and late projects, organizational change and resistance to change problems with business strategy and competitive advantage. (Themistocleous M. et al, 2001) 2.4 ERP Implementation Strategy An ERP Implementation is an organizational innovation process. An organizational innovation process that includes the use of IT systems and technology, and the development of complimentary business and human resources will be more important in drawing competitive advantage from technology implementation than will IT systems themselves. ERP Implementation and adoption is a complex exercise in technology innovation and organizational change management. (Kumar et al, 2003) The Organizational Behaviour and Change Management plays a vital role in ERP Implementation. Two broad approaches are commonly used in the literature for study of organizational behaviour in general, and of innovation in particular: the variance theory and the process theory. The variance theory attempts to identify characteristics of the organization, the environment or the factors that lead to organizational adoption of innovations. The Process theory considers the events and behaviors occurring within an Organization that is considering an innovation. 14

7 Many Implementation Process adopted are stage models, like Initiation, adaption, adoption, acceptance (Kumar et al, 2003). Some of the other Innovation process stage models are as follows. Table 2.1: Innovation Process Stage models (Kumar et al, 2003). Authors Year Phases Rogers 1983 Adoption and Implementation Cooper and Zmud 1990 Initiation, adaption, adoption, acceptance Soh and Markus 1995 IT expenditure (adoption), IT assets (implementation), Organizational impacts (post-implementation) Markus and Tanis 2000 Project Chartering, project configuration, shakedown, onwards and upwards. Many of the above phases are similar, major part of the implementation phase consists of the Project configuration and shakedown. These phases include decisions and typical activities in the adopting organization, following adoption decision and leading to configuration and stabilization of ERP systems in the organization. The project configuration phase is comprised of activities intended to get the systems up and running in the organization, while Shakedown is a critical phase in ERP experience where the organization comes to grip with their ERP systems. The Shakedown phase has been defined to continue until the normal operations are restored. The difficulties in institutionalizing new systems and potential business disruption in this transition phase make Shakedown a critical phase for an ERP implementation. (Kumar et al, 2003). According to Kumar et al (2003), Implementation phases of ERP experience cycle consists of Project Phase ( dollars to assets ) o Activities designed to get system up and running in one or more organizational units o Key personnel involved are Project Manager, Project Team Members, and variety of external technical and general management consulting resources, executives (in steering committee capacity), other organizational members (in consultative roles) 15

8 Shakedown ( assets to impacts ) o Period of time from going live until normal operation or routine use has been achieved. o Key personnel involved are Operations managers, and users, remnants of the project team, IT support personnel, external technical support personnel. From another literature point of view, the most important step of ERP implementation is the phase called Gap Analysis, which is the step of negotiation between the company requirements and the functions a package possesses. The first important point is clearly defining company objectives and targets, and making these known and recognized throughout the entire company. Next, the manner in which the company management is involved in the project and the speed of decision-making is important. Last is the selection of experienced consultants and integrators without limiting to package implementation. But there is a lack of experienced consultants and integrators. The best way to solve this is to select employees with the right aptitude, commitment and functional knowledge, to get them trained and make them work along with the external consultants. This will leave the company with enough in-house consultants and integrators when the vendor s staff and the external consultants leave the scene. In some cases it is effective to invite outside consultants with wide experience in package implementation to the user side, such persons can be assigned the role of coordinator between the package vendors and the system integrators (Leon, 2003). 2.5 Documented Problems of ERP Implementation The most important factor for ERP implementation in a company is the attitude reform of the employees at all levels of that company. How managers use information systems and information technology as strategic management methods, are likely to become the turning point of the change. Companies where the speed of change is fast, have a greater chance of surviving and growing in this age of intense competition. It is a necessity to have time schedule for implementation, like By when and in what way do we want to do such-and-such? or How should such-and-such a thing be achieved? etc. Another important factor is cost estimation for ERP Project, where the 16

9 company doesn t have any previous experience in estimating the cost of such a massive project. Estimated cost shouldn t be based on figures from in-house development and implementation where as in practically substantial additional costs that are necessary, such as consultation, customization, training and education (Leon, 2003). The complexity of ERP has forced organizations to collaborate with external consultants in order to adopt an ERP solution. Discrepancies on the approach of implementation as well as cost overruns and project delays usually cause serious conflicts between organizations and consultants and lead to failures. Furthermore, many employees resist changing and often causing serious problems to companies. About the half of ERP implementations fail to meet expectations due to underestimation of change management (Themistocleous et al, 2001). One of the main problems of ERP systems is the conflict with the business strategy. The non-flexible nature of ERP solutions forces organizations to fit the package and abandon their way of doing business. This problem affects companies and in some cases has led organizations, like FoxMayer, to bankruptcy or failure (Davenport, 1998). Companies make minimum changes to ERP solutions, as the enterprise packages are complicated and hardly allow changes. Additionally, if a company alters an ERP package, it has problems with the internal integration of ERP modules. Integration is another important problem of ERP solutions. Although ERP packages were described and promoted as integrated suites (Davenport, 1998), they face serious integration problems. These problems have been faced, as ERP packages are not designed to tie up other autonomous applications. As a result a number of disparate applications coexist with ERP systems in companies and ERP packages fail to provide an integrated IT infrastructure (Themistocleous et al, 2001). ERP Systems resemble many other large, complex, sophisticated IT systems. Extremely risky and failure prone to begin with, an ERP system by its very nature courts greater risk than other system types. According to (Krasner, 2000), the most obvious problem with ERP implementation is that these projects are so large and so 17

10 complex that you can t tell the implementation of the software apart from reengineering the business. These complexities can cause problems with management, users and technical issues. Management difficulties involved in running a complex ERP Project could be categorized in to five areas (Krasner, 2000); Lack of integrated project team planning, Managed communications across many people, A formal decision-making process, An integrated test plan and managed test process, and Applying lessons learned from earlier implementations to later implementations According to a survey by Themistocleous et al (2001), managerial problems faced during (or after) the implementation period of the ERP system are as follows; Table 2.2: Managerial problems during and after ERP Implementation (Themistocleous et al, 2001) Type of Problem Percentage Project Cost Overruns 66% Project Delays 58% Conflicts with business strategy 42% Employees Resistance to Change 42% Conflicts with Consultants 38% Internal Conflicts 34% Conflicts with Vendors 30% According to above findings, project cost overruns and delays were significant problems and affect seriously the implementation phase and the whole project. These two types of problems are correlated as project delays increase the project cost. Other kinds of problems that caused during the implementation phase were conflicts with external entities such as consultants, ERP vendors as well as internal conflicts. Each time a conflict with an external or internal entity occurred, a project delay was caused. 18

11 It is clear that these types of conflicts cause project delays and cost overruns. As a result, it can be said that there is a correlation between conflicts with external or internal entity, project delays and project cost overruns. (Themistocleous et al, 2001) Moreover, companies faced major problems after rolls out ERP. The companies surveyed (42%) faced serious problems with their business strategies, as the ERP system imposed its own way of doing business (Davenport, 1998). In addition, ERP solutions caused organizational restructuring and led to employee s resistance to change. There is major resistance to change after a company rolls out ERP and some cases companies face employees resistance during the implementation period. This type of resistance may also lead to project delays, as employees do not support efficiently the implementation process. Literature findings suggest that 90% of ERP projects end up late and only 3.6% of ERP projects have finished on time, on budget, without technical problems and achieved their objectives (Themistocleous et al, 2001). Key success in overcoming management problems, is to establish and maintain momentum by paying attention to the following factors: focus, teamwork, defined scope, business case analysis, planned training and support, smart re-engineering, overall architecture, rigorous project management, effective communication of expectations, and top-management involvement (Krasner, 2000). User Problems is another major issue in taking ERP Projects live. In one survey, 62 percent of respondents cited people issues as a prime problem in taking ERP Projects live. User Problems arise before going live of the project and as well as after going live. ERP will lead to reengineer, downsize, rightsize or otherwise streamline business processes in pursuit of a competitive edge or greater efficiency (Krasner, 2000). Another documented problem is, Technical Problems particular to ERP Projects. Many ERP projects are plagued by complex technical problems, which fall into the following general categories (Krasner, 2000); Nonrobust and incomplete ERP packages Complex and undefined ERP-to-legacy-system interfaces Middleware technology bugs Poor custom code and 19

12 Poor system performance To function, an ERP package must be placed in an IT environment that already contains other systems. The interfaces between these systems are complex and significantly affected by the overall IT integration approach. Most ERP packages don t cover all the specific business requirements, and therefore it may need a certain amount of customization to complete the fit. In some troubled projects, custom-code development started without sufficient thought and planning. The subsequent undisciplined development produced poor-quality code with unexpected, unlocalized side effects that arose from poor structuring (Krasner, 2000). According to a survey by Themistocleous et al (2001), technical problems could be caused during (or after) the implementation period. Identified Technical Problems are as follows; Table 2.3: Technical Problems of ERP Implementation (Themistocleous et al 2001) Type of Problem Percentage Integration with existing system 82% Customization 78% Integration with other applications 46% European Currency 42% Security 34% Other 14% Y2K 4% According to above findings, Integration with other applications and Customization is also a serious technical problem. The 72% ERP specialists report that serious customization problems were caused both during implementation period and afterwards. It is suggested that it is better to fit the ERP package rather than trying to customize it. The majority of companies followed an approach with minimum changes in order to parameterize the package. This approach is known as Vanilla approach. In 20

13 some cases significant modification has been carried out to the ERP Package (Themistocleous et al 2001). The other major problem identified by Themistocleous et al (2001), is Application Integration. Integration problems were faced when companies attempted to tie up the ERP system with a number of existing applications (e.g. best-of-breed modules). According to their survey, 58% of companies didn t manage to integrate ERP solution existing systems. Many ERP adopted the Electronic Data Interchange (EDI) for Application Integration (AI). 2.6 ERP Implementation Failures What constitutes an ERP implementation failure? There are degrees of failure with ERP projects. The most obvious failure is never actually implementing the ERP system. But a project can be considered failed if the new system is not fully utilized. According to a survey conducted by Forrester Research in April 2001, only six percent of 500 companies surveyed considered their ERP systems effective, while 79 percent said they were not effective or only somewhat effective. Five of the top ten Corporate Information Technology Failures cited by Computerworld involve ERP. ERP failures consists of many factors such as Inherent complexity of ERP Implementation, Outside Consultant issues, Inadequate Training, Process risks and process barriers, Corporate Culture, Unrealistic Expectations, Over customization of Software, Using IT to solve the problem, Timeline flexibility, Infrastructure Issues, etc. (Barton, 2001) A notorious example of a failed ERP implementation is the Hershey Foods SAPAG s R/3 implementation. The company spent $112 million and 30 months on their ERP project. When they went live in July 1999, the company experienced problems pushing orders through the system, resulting in shipping delays and deliveries of incomplete orders (Barton, 2001). Many reasons have been cited for the Hershey ERP failure. One, the project was originally scheduled to take four years, but the company forced the implementation to go live in just 30 months. Two, the company simultaneously implemented a 21

14 customer-relations package and a logistics package, substantially increasing the overall complexity and employee learning curve. Three, the company went live at their busiest time of the year, just before Halloween, and the resultant delays caused third quarter profits to fall by $151 million compared to the previous year. (Barton, 2001) One step often taken to reduce the complexity and time involved in an ERP project is using process templates. Managers are not willing to spend the time, effort, and money to work through the complexities inherent in configuring an ERP system to company- specific processes. They use process templates to short cut the process and accelerate implementation. Although the templates are simpler and speed up the process, they promote generalization, which can limit performance gains and competitive advantage. (Barton, 2001) 2.7 ERP Implementation Success Stories Case Study1: Background In 1999, the University of Wisconsin-Superior (UWS) launched a project to implement an Enterprise Resource Planning (ERP) system called PeopleSoft Student Administration (SA). The New system would replace the university s aging, homebuilt legacy student information system (SIS) and several third-party sub-systems. The university s chancellor and provost envisioned that the SA system would integrate existing administrative subsystems meet increased demand for student Web-based services and provide prompt and accurate reports. The implementation was by and large a success. (Yakovlev and Anderson, 2001) UWS built its legacy SIS on a Unisys A-Series mainframe in the early 1980s, with several major additions implemented in the 1990s. The system provided touch-tone registration, automated billing, and direct lending. The SIS included several subsystems such as third-party financial-aid and student admission tracking systems. (Yakovlev and Anderson, 2001) This ERP Project was successful and could be analysed under following categories: 22

15 Migration Approach: The goal in this implementation was to migrate core functionality to the new system on time and within the budget Numerous reports of failed ERP implementation illustrated the importance of adhering to the project schedule and following implementation rules such as leaving the delivered product unmodified and providing adequate training to implementers and users. (Yakovlev and Anderson, 2001) Training: Technical Training on the new system began in summer 1998 and functional training in summer Early technical training gave the IT staff a head start on acquiring the hardware and installing the system. The project manager tried to schedule most training off site so that those involved would not be encumbered by their everyday job tasks. Some additional staffing helped IT staff and system users offload existing duties throughout the implementation process. (Yakovlev and Anderson, 2001) Project Schedule: From the beginning, the campus IT department issued hardware and operating system specifications for user workstations. The hardware was to exceed PeopleSoft s recommendation in every category (permanent storage, processor speed, and so on) to lengthen the life cycle of the equipment and to minimize risks associated with new, potentially more demanding, releases of the system. (Yakovlev and Anderson, 2001). 2.8 Extending ERP as End to End Business Systems As with all other aspects of the ERP software market, providers are hurriedly adding new applications to their core products. Companies are primarily concerned with improving the efficiency of internal business processes. Having largely addressed that problem through reengineering, companies are now seeking other ways to surpass the competition namely by meeting customer s needs. ERP systems vendors have responded to this shift in their customer s priorities by expanding their own focus from running the back end of business to running the front end of the business the parts of the company that come in most frequent contact with the customer. They are 23

16 also improving the back-office applications that relate directly to satisfying customers (Callaway E.,1999). Types of Extended Enterprise Resource Planning Applications: According to Callaway (1999), the ERP Software providers have concentrated on expanding into four key areas; Customer Relationship Management (CRM) Including software for Customer Service Requests (CSR), field service and maintenance workers, and customer support staff. Advanced Planning and Scheduling (APS) A new type of production planning that attempts to produce the most realistic schedules possible by considering a wide number of variables. Decision Support Software used by business analysts who review the data in their companies ERP Systems to detect trends and forecasts. E-commerce Software that allows companies to buy and sell goods over the Internet using Web-based applications. The intent is for these applications to use the same core database as the traditional ERP system and to be integrated with the applications traditionally found in an ERP suite. What is E-business, SCM and CRM: The term commerce is viewed by some as transactions conducted between business partners. Therefore, the term electronic commerce seems to be fairly narrow to some people. Thus, many use the term e-business. It refers to a broader definition of e- commerce, not just buying and selling but also servicing customers and collaborating with business partners, and conducting electronic transactions within an organization. (Turban E. et al, 2003) According to Turban E. at al (2003), E-business is all about cycle time, speed, globalization, enhanced productivity, reaching new customers and sharing knowledge across institutions for competitive advantage. Supply Chain Management is a B2B application. SCM consists of many processes and roles, which integrated together. The Supply Chain encompasses all the activities associated with the flow and transformation of goods from the raw materials stage all the way to the end user. (Turban E. et al, 2003). As shown by Turban E. et al, (2003), 24

17 the supply chain can be broken into three parts- upstream activities involving material and service inputs from suppliers, internal activities involving the manufacturing and packaging of goods, and downstream activities involving the distribution and sale of products to distributors and customers. In the 1990s business managers have come to recognize that management and control of the upstream and downstream activities, which involve relationships with partners who are technically outside the enterprise are as important as the internal activities involved in the actual production of products. (Turban E. et al, 2003) Upstream Internal Downstream 2 nd Tier Suppliers 2 nd Tier Suppliers 2 nd Tier Suppliers 1 st Tier Suppliers 1 st Tier Suppliers Assembly / Manufacturing and Packaging Distributio n Centers Retailers Customers Fig.2.2: Supply Chain: Upstream, Internal and Downstream (Turban E. et al, 2003) Customer Relationship Management (CRM) is designed to meet the needs of people who work with customers or manage customer-related issues and to ensure that these people have access to the same, current customer information. Typical CRM applications include software for Sales Force Automation, Marketing, and service and support (Callaway, 1999). Customers contact companies in a variety of ways. The telephone, , Web sites, marketing literature, designated account representatives, distributors, and customer service centers are only few avenues that give customers access to the companies with which they conduct business. These methods are equally important to the company serving the customer because they present opportunities to collect valuable customer information. Within those avenues, many employees, from marketing managers to account managers to field service technicians, interact with customers. 25

18 Marketing Sales Customer Information Customer Information Customer Information Pool One Face to the Customer Service Customer Information Fig2.3: Customer Relationship Management Software Helps Companies Present One Face to the Customer Enterprise Resource Planning is enterprise-wide application software that can provide a centralized repository of information for the massive amount of transactional detail generated daily. It integrates core business processes from planning to production, distribution, and sales. Early versions of ERP solution focused on the intranet-based groupware, so effective integration with E-commerce was not established. The approaches taken for the integration between E-commerce and ERP are the inside-out approach, outside-in approach, and open electronic cart approach. (Turban E. et al, 2003). Seller ERP-based Catalog Web-based Catalog Web Browser Web Browser Buyer Web Server Sales from Automation Mainframe Application Server Supplier Chain Planning Data Mark ERP System ER System (a) Inside-Out Approach (b) Outside-In Approach Fig.2.4: Architectures of Integrating E-Commerce with ERP (Turban E. et al, 2003) 26

19 Inside-Out Approach: Extend ERP Outward The leading ERP vendors, such as SAP, PeopleSoft, Oracle, Baan, and J.D. Edwards, offer the way to extend their applications to users through a Web Interface as depicted in Figure2.3. For instance SAP offers a B2B Internet-commerce system to be used within the R/3 system and the strategic partner, Commerce One, provides additional commerce functionality to operate with SAP The SAP B2B Procurement solution (BBP) is provided as part of the SAP supply chain optimization planning and execution initiative. Each desktop within an organization is able to use single entry screen to purchase goods and check pricing from multiple suppliers, availability and delivery times. (Turban E. et al, 2003) When the e-business solution requires a simple mapping of ERP functionality to a Web interface, this inside-out architecture can be highly effective. It lets companies distribute ERP transaction capabilities to a wide audience of Web users without requiring that they load any specific client software on their PCs. However, companies should consider whether inside-out architecture enables them to integrate best-breed technologies. Also, most companies use multiple back-end systems in addition to their ERP system, such as legacy systems or data warehouse. However, the inside-out approach is difficult to integrate with multiple systems, and when the e-business processes do not map directly with the ERP system, the inside-out approach breaks down. (Turban E. et al, 2003). Outside-In Approach: In this approach, rather than extending the reach of ERP-based business processes through a Web server, the outside-in approach uses a robust software named application server, which has the ability to integrate multiple systems into an e- business solution as depicted in Fig.2.4. The outside-in architecture is better suited for complex e-business with multiple back-end and front-end applications. Following the outside-in approach, the e-business application resides within the application server rather than within the individual back-end systems. Typical application servers are Application Server (Netscape), Enterprise Server (Microsoft), Domino (Lotus), Websphere (IBM), and Enterprise Server (Sun). However, the outside-in approaches are limited by the capabilities of the application server platforms upon which they are built. (Turban E. et al, 2003). 27

20 Open Electronic Cart Approach: In this approach, the buyer keeps a shopping basket, which resides at the buyer s PC. Items from multiple sources can be tentatively selected and stores in the buyer s electronic cart (e-cart). The order can be made and stored in the e-cart as well. However, the e-cart has an open file format, so the ERP or any legacy systems can be interfaced easily. This architecture is simple and economical and suits the B2B EC environment well. (Turban E. et al, 2003). 2.9 ERP Investment Analysis All companies have one important question regarding ERP Software. What is the Return On Investment (ROI)? Unfortunately, no clear or standard answer is available. In fact, many companies do not try to calculate an ROI on their ERP Systems. (Callaway E, 1999) Why Return on Investment Calculation is Complicated? ERP Systems are unlike any other systems companies purchase. They are far more expensive, complicated, and expensive than almost any other type of IT, and their corresponding software affects more parts of the business than any other type of software. When ERP systems initially became mainstream, companies immediately attempted to calculate the potential return on ERP projects and with good reason. How could possibly justify spending hundreds of thousands to millions of dollars on software without solid figures showing positive financial ROI? Unfortunately, it has been quickly discovered that attributing quantifiable returns to ERP systems is nearly impossible. (Callaway E, 1999) It has been asserted that measuring the return on ERP systems is difficult because of the reasons companies implement the software in the first place. Usually, company s goals are to increase sales and outpace competitors by improving their ability to provide goods and services. Yet, revenue gains are difficult to link to software. Another way to understand the ERP/ROI issue is to consider the benefits of ERP systems. Some of those benefits, such as reduced inventory and reduced employee headcount, might be easy to translate into dollars saved. At least half of the benefits 28

21 attributed to ERP software, however, such as improved business performance, and improved visibility into Supply Chain, are intangible and difficult to relate directly to cost savings or increased profit. Consequently calculating a return on the total ERP system becomes complicated. (Callaway E, 1999) Then the question arise is, whether calculating ERP ROI Valuable? Many companies forgo the standard ROI justification and install ERP systems anyway. Companies ignore ROI results because many are seeking intangible benefits: more tightly integrated business processes, easy-to-use systems, and the ability to eliminate legacy systems, for example. Many companies have lack of interest in ERP ROI: and consider the ROI as zero. They consider the role that ERP Systems play in a company: ERP provide the basic infrastructure necessary for the business to run. Many companies are interested in ERP suites because they recognize that their existing IT infrastructure is broken or nearly broken. Information is not accessible. Business processes are convoluted and disconnected. Companies are spending thousands of dollars replacing old parts and maintaining the fragile links between disparate systems. They consider the ERP software as a cost of conducting business. (Callaway E, 1999) Even though ROI ignored, companies do not ignore the numbers entirely. They see ERP Systems and ROI differently. For example, companies are focusing on ROI goals that are real and attainable, such as reducing inventory cost or improving customer satisfaction. Companies should also follow the costs associated. According to literature survey, many of the problems have been identified as Managerial problems and Technical Problems. Such Managerial Problems are Project Cost Overruns, Project Delays, Conflicts with business strategy, Employees Resistance to Change, Conflicts with consultants, Internal Conflicts and Conflicts with Vendors etc. Such Technical Problems are Integration with existing system, Customization, Integration with other applications, European Currency, Security and Y2K problems etc. Integration of E-business, SCM and CRM with ERP is very important in current context of the Business Environment. The literature survey provided the importance of E-business, SCM and CRM integration with back-end ERP System, but doesn t address the issues relevant to integration. Successful 29

22 integration will depends on ability of the ERP features, Corporate Vision for E- business, SCM and CRM, Business Process Re-engineering further according to the needs of the integration Conclusion In according to the literature survey there are key implementation models. Such Implementation models are Innovation Process Stage models and ERP Experience Cycle. Another approach is Gap analysis between the company requirement and functions available in the package. Managerial problems such as Project Cost Overruns, Project Delays, Conflicts with business Strategy, etc are one part of documented ERP Problems. The other side of documented problem is Technical Problems related to ERP such as Integration with existing system, Customization, Integration with other applications, etc. ERP Failure rate is high due to complexity nature, consultancy issues, inappropriate process mapping, over customization, etc. The reasons for famous ERP failure of Hershey Foods were the project time crashing, unnecessary complexity with other packages and went live in busiest time. Anaylsis of success stories of ERP Implementation highlight the importance in Migration approach, Training, and Project Schedule. From E-Business, SCM and CRM point of view it is important to have detail analysis of ERP Vendor Product features at the time of selecting the product. The difference between the Inside-Out Approach and Outside-In Approach is very important from the product point of view. Because of the difficulty in quantifying the Cash flow analysis in the ERP Project s return, major companies do not calculate the Return On Investment. Many companies ignore the ROI calculations and results because many are seeking intangible benefits: more tightly integrated business processes, easy-to-use systems, and the ability to eliminate legacy systems, etc. Many of the ERP Implementation issues are beyond above problems and the Implementation strategy doesn t cater the major stakeholder of the ERP Projects. Major Stakeholders of the ERP Projects are Product Vendor, Implementation Partner 30