Wednesday, June 18, 2008

Key Points of Day 2 Articles

The ERP Purchase Decision: Influential Business and IT Factors
· ERP is a large-scale, cross-functionally integrated, and a packaged implementation supporting on-line interactive systems and data integration. It can be applied as just one module to the organizations while a majority of organizations choose to implement more than one module. The market for providing ERP systems is dominated by major companies like SAP AG and Oracle. As well as providing service to large clients, these companies try to make implementation more rapid and less costly in order to attract smaller firms as clients too.
· Consultancy costs are usually much higher than the purchase price of the systems.
What ERP package capabilities are associated with the purchase of an ERP?
First of all, the companies should identify the ERP package capabilities because this is the major factor influencing the purchase decision.
The researchers in the article define two parts of ERP purchases: (1) Support ERP purchase involving HR, accounting/finance modules, and (2) Value-chain ERP purchase involving materials management.
While giving the implementation decision, companies consider both technical capabilities and business capabilities of ERP packages.
The business capability considerations mostly include the view that implementing ERP would result in increased competitiveness. Competitiveness is believed to be achieved through increased business flexibility and the ability to implement cross-functional processes. However, in the discussions in the class and in the “Why ERP?” book, we have seen that flexibility is not always assured by ERP system implementations. Other two main business capabilities defined are the desire to reengineer the business processes and access to integrated data. Even though most of these business capabilities such as using integrated single data and implementing multi-functional processes are right, during class it has been discussed that achieving competitiveness cannot be enabled solely by ERP.
In the literature, three main IT capabilities of ERP systems are defined: (1) replacing the old systems with modern ones, (2) the reason that legacy systems don’t satisfy the needs of the organization, and (3) the view that buying software would have less cost than building a software in-house.
The writers of the article have searched for the main business and IT factors that influencing the ERP purchase decision and come up with four main factors for each:
Business Factors: data integration, changing businesses, global capabilities, flexibility.
IT Factors: IT purchasing, cost reduction, expertise, and architecture.

Decision Making in the Evaluation, Selection, and Implementation of ERP Systems
When compared to MRP systems, ERP systems have additional features about supply chain management, customer relationship management, professional service automation, etc.
The ERP market had considered to be saturated after Y2K concerns have ended, but the market has been continuing to grow driven by the increasing e-commerce business.
ERP systems apply best practices and implementing these systems mostly require adjustments in the business processes of the companies according to these best practices. So, the decision to purchase an ERP system is not only a financial decision, but rather there are other factors influencing the decision such as business strategy, business processes, and different stakeholders involved.
Decision making models have been analyzed in the article and six kinds of models have been identified: (1) Classical Model, (2) Administrative Model, (3) Incremental Model, (4) Adaptive Model, (5) Irrational Model, and (6) Political Model. The descriptions of each model and their processes have been given in the article in Table1.
In the HSP case given in the article, a team has been established to choose the ERP vendor. After making initial interviews with the vendors, a larger team has been established including personnel from almost every function, probably because of knowing the workflows well; as we discussed about the implementation teams in the class. Business cases for each function have been described by these people to the vendors and the final decision has been given concerning each vendor’s capability on these functions. It is also interesting in the case that everyone in this team have been given equal voting right while the manager did not attend voting.
For the case of HSP, each phase of the decision making process is defined with one of the six models described before in order to make these models clearer. Three models could actually be applied to this case; administrative, adaptive, and political model.

ERP Software
In this article, not much different things have been mentioned that those discussed in the class. Most important point in ‘how it works’ is the data integration and the fact that the system has a unique data set collected from different functional areas. The main contribution of this is defined as consistency.
The major drawbacks of ERP systems are also mentioned. First of all, they take long time to implement. If the data duplication has been seen as a problem in the enterprise before the implementation of ERP, this misleading data is also goes into the new system too; this is also discussed in the class and mentioned as ‘garbage in – garbage out’.
About the costs of implementing ERP, “on time – on budget” requirement has been given significance in the article too.

Assessing the ERP Software
This article analyzes different kinds of ERP vendors as we have discussed in the class. It is noted that although major players dominate the market by offering a greater degree of integration; they cannot be a solution to all kinds of organizations with different characteristics, processes, and needs.
From the supply chain management point of view, the most important triggering factor behind implementing ERP is the desire to manage the whole supply chain through an integrated system. So the vendors are trying to improve their supply chain execution features such as warehouse management, transportation management, etc. In order to answer the needs of different supply chain management strategies, for example, SAP has developed special modules for Kanban system. That is, as mentioned in the article, the major vendors are trying to increase their sense and respond capabilities.
While developing the supply chain management features of the ERP systems, it is crucial to assure higher integration between SCM and other activities such as financials, etc. for reporting, controlling and similar purposes.
As in the Knowles Co. case, ERP should give better visibility over the whole operations.
Besides the major vendors, smaller ones can be more beneficial for the mid-market niches having also limited IT budgets. We have discussed all benefits and disadvantages of these small vendors during the classes. Small vendors may sometimes be capable of delivering service and products that satisfy all needs of the companies immediately, through more flexibility and room for customization (niches).
Still, ERP systems have some weaknesses. As an example, weaknesses in handling reverse logistics are given in the article. Also, integration does not always happen as easy as it seems when it comes to practice. Banker’s statement on page 23 proves that; he notes that you sometimes need to use additional software tolls when you implement SAP. This is similar to what Seçil mentioned in the class about integrating the in-house systems with the ERP systems provided by the major vendors like SAP; they don’t assure that every upgrade will be compatible with these in-house software tools.
As also discussed in the class, there is not only one vendor type that is beneficial to all kinds of organizations. The key point of assessment should be the answer to this question: will the given solution satisfy my business processes? If a major vendor cannot satisfy your needs, then a smaller vendor and/or a third-party solution can be more beneficial.

1 comment:

cator said...

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