Enterprise resource planning
|✅ Paper Type: Free Essay||✅ Subject: Construction|
|✅ Wordcount: 5425 words||✅ Published: 1st Jan 2015|
Enterprise Resource Planning (ERP) systems are among the most important business information technologies to emerge in the last decade. The basic concept of Enterprise Systems is focused mainly on standardization, synchronization and improved efficiency.
Thousands of major construction firms and increasing numbers from other sectors as well, either have just completed their first ERP implementations or are in the middle of this major undertaking. ERP systems can be defined as “configurable information systems packages” which integrate information and process across organisational functional areas (Kumar and Hillegersberg, 2000).
The benefits of Enterprise Systems are very significant: coordinating processes and information, reducing carrying costs, decreasing cycle time and improving responsiveness to customer needs (Davenport 2000).
Keeping the project on schedule, under budget and the quality are usually are the main problem that has been faced by the construction industry. Construction industry is one of the major industries in contributing the economy, eventhough it is measured to be one of the most highly fragemented, inefficient and geographically detached industries in the world (Chung, 2007).
To overcome this inefficiency, a number of solutions have long been offered including implementation of IT.
In the context of the construction industry, ERP would be defined as a computer-based business management system that integrates all processes and data of the business, including engineering/design, planning, procurement, construction and maintenance/operations (Tatari et al. 2007). Now a day’s numbers of major construction companies are implementing the integrated IT solutions such as ERP systems to better integrate their various functions. However, these integrated systems in construction present a set of unique challenges, different from those in the manufacturing or other service sector industries. Each construction project is characterized by a unique set of site conditions, a unique performance team, and the temporary nature of the relationships between project participants. This means a construction business organization needs extensive customization of pre-integrated business applications from ERP vendors. Unfortunately, such an extensive customization can lead a construction firm to ERP implementation failure.
The ERP applications that are used by construction industry can be classified into two distinct groups: pre-packaged Software, and Web-based Project Management System (WPMS). Currently, the world’s biggest pre-packaged ERP software contributors involve SAP, Oracle, PeopleSoft, J.D. Edwards, and Baan. SAP is said to have about 60% of the world market (Holland, Light, Kawalek, 1999).
2. Problem Statement
ERP has become an essential part of enterprise method over the globe. Use of ERP in other sectors is being stable and growing. Its critical influence within designing novel business environments and procedures has been noteworthy. Different organizations in assorted subdivisions have dedicated to paying out and have already paid out large summations of capital for the implementation of ERP in their organizations. These equivalent companies possess been able towards document major improvements, both concrete and elusive, within their campaigns as a outcome of ERP implementation.
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Large number of organizations have implemented ERP in their process and make it more effective and profitable. The same observation can be made for some of the most successful corporations in the world. The question needs towards be asked – why is this? What are a number of the listened benefits that inflict corporations devote towards the implementation of ERP within their organizations? According to Oliver, & Romm (2002), “in common with other types of investment activity the adoption of an ERP system is a purposive intervention by an organization for bringing about a new state of affairs that is judged to be superior to the current state”. The most bulk valued factor that are often stated as a intent for performing to the implementation of ERP:
- Access of Information
- Improvement in process
- Thoughtfulness in business
- Dissatisfaction with out dated legacy systems
After implementing ERP companies have been competent to enhance costumer relation, strengthen delivering the flexible supply chain partnerships, improving the organizational flexibility, improve decision-making competency and decreasing task culmination time and cost (Ahmed, and Ahmed, Azhar, Mallikarjuna, 2003). Although Enterprise Resource Planning (ERP) has been completely applied by various associations internationally, within almost everybody of the else principal industrial sectors, its utilization in the building industry has been limited to exert via a few large organizations The greatest gatherings of construction administration that have either failed in their efforts to take on this technology, or are not very apparent with it are Small and Mid Size Construction Organizations. These organizations comprises the strength of the construction industry and have their possess specified commercial and operational needs. The failure of Small and Mid Size Construction Organizations to adopt ERP, despite all its promise advantages, is a problem that desires to be addressed.
It can be proposed that
2. RESEARCH PURPOSE
The overall purpose of this research is to assess the critical success factors for the implementation of ERP systems to support construction industry and to what extent it is being used in enterprise integration and the benefits derived from using ERP systems. Furthermore, success factors coupled with the organizational performance will be assessed and validated. The relationship between the perceived performances will be assessed against the influence of upper management support, role of project champion in managing change in the organization, the level of organizational emphasis on communication and training, and organizational experience with ERP systems.
3. RESEARCH AIM
The proposed research endeavours to investigate the following questions:
- What issues and problems faced by Construction organisations during the implementation of ERP systems?
- How can problems be reduced in implementing complex new technology into the existing structure of an organization?
- What must be considered, from the organizational as well as the technical perspective, to effectively integrate the technology and people in the organization who use it?
Although this study cannot fully answer these questions, this research will provide valuable information concerning the technological and management systems used to support Construction organizations. Evaluation of implementation and problem issues will serve to further support management decision making.
4. RESEARCH QUESTIONS
This research will identify the characteristics of ERP systems used in today’s Construction industry. The results of this research will provide additional realistic information for construction organizations seeking to implement ERP systems, providing recommendations pertaining to the issues that must be addressed for companies to avoid critical problems in their own implementation of ERP systems.
Questions to address:
- What are the critical success factors for implementing ERP system in a Construction organization?
- Is upper management support crucial to the success of ERP systems?
- What are the change management strategies the management should employed to help the successful implementation and performance of ERP systems?
- Is the success of ERP system depends upon the level of effective communication and the employee education and training?
The generalized question to which this research will contribute is: What are the basic factors that determine the success of ERP systems implementation in regards to the ability of the system to influence organizational performance? When an organization decides to implement and integrate an extended, inter-departmental computer system into its operations, what issues must be addressed to indemnify that the computer application system will effectively contribute to organizational performance improvement?
5. RESEARCH OBJECTIVES
The objectives of this research are as follows:
- To independently obtain current information regarding the state of ERP systems in Construction organization today.
- To determine the critical success factors for implementing an ERP system in Construction organisation.
- To survey current users about factors that contribute to the success of ERP systems, especially in regards to effective communication, user training techniques, change management and the effect of upper management support. This will serve to validate previous research as well as obtain more information about successful experiences in industry.
6. Research method
The research method appropriate for this research project will be of qualitative nature through an interpretive case study, where data collection techniques will consist of thorough literature review, secondary data review of documentation regarding the ERP project and interviews from senior computer, technical and management consultants.
2. Literarture Review
Literature is a term that refers to all sources of published data and Literature Review is a written summary about the findings from the literature (Hussey and Hussey, 1997). A literature review helps in establishing what research has been conducted on the researcher’s chosen area of study and also to identify what research is currently in progress (Saunders et al., 2000).
In order to research into Enterprise Resource Planning (ERP) systems, a thorough literature review has been conducted with a centre of attention placed on ERP systems and the implementation of these systems in Construction organizations. Previous papers on ERP implementation projects will be reviewed focusing on successes and previous failures in ERP projects. As the research site is Hindustan Construction Company Ltd., the coonstruction sector has also been reviewed.
2. ENTERPRISE RESOURCE PLANNING
2.1The ERP Phenomena
ERP systems are highly integrated software packages (Holland et al., 1999) that can be customised to cater for the specific needs of an organisation (Boudreau and Robey, 2000; Esteves and Pastor, 2001; Laberis, 1999). The concepts that have been evaluated and, at times, utilized by construction organizations in achieving the goal of improved efficiency through better management of collaborated knowledge is Enterprise Resource Planning (ERP)(Negahban and Baecher 2008). ERP systems have been defined to be a “computer program that provides a general working platform for all departments of an enterprise with their management functions being integrated into the program” (Jingsheng & Halpin, 2003).
Several definitions from the published literature are given to further explain the concept: “ERP (enterprise resource planning systems) comprises of a commercial software package that promises the seamless integration of all the information flowing through the company-financial, accounting, human resources, supply chain and customer information” (Davenport, 1998). “ERP systems are configurable information systems packages that integrate information and information-based processes within and across functional areas in an organization” (Kumar and Van Hillsgersberg, 2000). “One database, one application and a unified interface across the entire enterprise” (Tadjer, 1998). “ERP systems are computer-based systems designed to process an organization’s transactions and facilitate integrated and real-time planning, production, and customer response” (O’Leary, 2001). Kapp et al. (2001) defined ERP as “a system of integrated procedure, rules and algorithms designed to function consistently time and time again” (p. 85).
The key point in an ERP system is integration. The purpose of ERP is to create one computer system that can perform all the functions of every department within an organization by linking all the departments into one single database. “What ERP really does is organize, codify, and standardize an enterprise’s business processes and data. According to Negahban, S, 2008 By utilizing this technology would allow the construction industry to harness the power of collective knowledge. In addition, regulatory and competitive forces, financial demands of owners, and an ever-shortening timeline to finish projects contributed to an increased pace of the utilization of this technology in the construction industry. It took the construction industry longer than other industries to realize the importance of the utilization of IT applications in improving the possibility of ultimate success in an integrated project environment.
2.2 Evolution of ERP
The history of ERP can be traced back in 1960’s, when the system focuses mainly towards inventory control (Seo, 1999). During 1970’s, a shift of focus towards MRP (Material Requirement Planning) was observed. This system helped in translating the master production schedule into requirements for individual units like sub assemblies, components and other raw material planning and procurement. This system was involved mainly in planning the raw material requirements (Kalakota and Robinson, 2001).
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Then, in 1980’s came the concept of MRP-II (Manufacturing Resource Planning) which involved optimizing the entire plant production process (Seo, 1999; Kalakota and Robinson, 2001). In the beginning, MRP-II was an extension of MRP to include shop floor and distribution management activities. Afterwards, it was further extended to include areas like Finance, Human Resource, Engineering, Project Management etc (Seo, 1999). This gave birth to ERP (Enterprise Resource Planning) which covered the cross-functional coordination and integration in support of the production process (Seo, 1999; Kalakota and Robinson, 2001).
The role of enterprise resource planning (ERP) does not match its name. It is no longer related to planning and resources, but is rather related to the enterprise aspect of the name. ERP attempts to unify all systems of departments together into a single, integrated software program based on a single database so that various departments can more easily share information and communicate with each other.(chung,2007).The ERP include the entire range of a company’s activities. It addresses both system requirements and technology aspects including client/server distributed architecture, RDBMS, object oriented programming etc (Bancroft, 1996). ERP systems are designed as an integrated set of software modules, all linked to a common database, handling a host of corporate functions such as finance, human resources, material management, sales etc. (Slater, 1998).
Russell and Taylor (1995) suggested that the ERP of today differ from traditional MRP II system in the areas of relational database management, graphical user interface (GUI), fourth generation languages (4GL), client-server architecture and open system capabilities. In addition, Kapp et al. (2001), stated that the differences between ERP and MRP II is the inclusion of a variety of manufacturing processes within ERP, in which modern ERP software is able to handle both discrete work orders and flow orders, JIT and MRP, EDI, and hand-entered orders (p. 86). Wainewright (2002) also stated that MRP was used for tracking suppliers, work-in progress and the output of finished goods, while ERP was used for all type of business with additional functions including financials, payroll and human resources management. Furthermore, Kremzar and Wallace (2001) also stated that ERP is far better than MRP II for three reasons: a) ERP applies a single set of resource planning tools across the entire enterprise, b) ERP provides real-time integration of sales, operating, and financial data, and c) ERP connects resource planning approaches to the extended supply chain of customers and suppliers. According to Koch(2002) the main reasons that companies take ERP are summarize below:
- Because of its Integrated Financial Information i.e. to create a single version of information which cannot be questioned because all the members of the company use the same system.
- The information is integrated on one system rather than scattered on many different systems that cannot communicate which each other, so that the company can track orders and can coordinate with different related departments across many different location at the same time.
- It standarized and speed up the process using single integated system which can save time and increase productivity.
- Reduces inventory by improving the observation ability of the order process inside the company.
The popularity of ERP systems started to soar in 1994 when SAP, a German based company, released its next generation software known as R/3 (SAP, 2003). In the following years, companies began to pour billions into ERP systems offered by SAP and its major competitors such as Oracle, Baan, J.D. Edwards, etc. Recently, ERP vendors add more modules and functions as “add-ons” to the core modules giving birth to the new term i.e. extended ERPs or ERP II (Adam and Sammon, 2004). It is the enterprise systems for the 21st century. These ERP extensions include advanced planning and scheduling (APS), e-business solutions such as customer relationship management (CRM) and supply chain management (SCM) (Bhattacherjee, 2000). ERP II systems are about optimizing the supply chain through collaboration with trading partners. It crosses all sectors and segments of business, including service industries, government, and asset-based industries like mining (Turban et al. 2001). According to Zrimsek (2003), ERP II systems is web-based, open to integrate and interoperate with other systems, and built around modules or components that allow users to choose just the functionality they need. Figure 1 summarizes the historical events related with ERP.
2.3 ERP Functions, Purpose of ERP Systems
Enterprise Resource Planning (ERP) systems are software driven business management system which integrates all facets of the business, including manufacturing, planning, sales and distribution, financials and human resources (Kuang et al., 2001). It is a system that integrates all information that runs through an organisation (Davenport, 1998) and can be categorised as a large information system. It can be customised to cater the needs of an organization (Watson and Schneider, 1999). During 1990s ERP systems became the de-facto standard for replacement of legacy systems in large, and particularly multi-national companies (Parr and Shanks, 2000)
ERP systems become more widely implemented, software applications are developed to help business managers implement ERP in diverse business activities such as project planning and management, subcontracting, material tracking, service, finance and human resources (tatari,2009)
However, enterprise systems expanded to include “back office” functions (such as operations, logistics, finance, and human resources) and “non transaction-based systems” (Davenport, 1998) or “front-office” functions (such as sales, marketing, and customer service), as integral components of ERP systems (Davenport, 1998; Chen, 2001). This expansion result from the emergence of Supply Chain Optimization (SCO) (Chen, 2001), or Supply Chain Management (SCM) (Turban et al., 2001) and CRM strategies and systems (Chen, 2001), as illustrated in Figure 2. Turban et al. (2001) referred to this “beyond the corporate walls’ integration” as extreme integration (p. 304). Turban et al. (2001) further commented that in this approach to integration, “SCM can be viewed as the brain and ERP as the strong body” (p. 305).
“While the names and numbers of modules in an ERP system provided by various software vendors may differ, a typical system integrates all these functions by allowing its modules to share and transfer information freely and centralizing all information in a single database accessible by all modules” (Chen, 2001). Provided in Figure 3 is an overview of an ERP system.
Due to the importance of these systems in terms of added functionality over legacy systems and potential integration benefits, a large number of organisations are adopting these systems to manage their operations (Ross, 1999). They adopt these systems due to various technical or business reasons. Technical reasons include Y2K issues (myth), replacing legacy system that did not work etc. Organisations that have successfully implemented ERP systems view them as one of the most important innovations that have lead to the realization of substantial tangible and intangible improvements in a variety of areas (Davenport, 2000).
Five other reasons for acquiring an ERP system are: 1) to integrate financial information, 2) to integrate customer order information, 3) to standardize and speed up manufacturing processes, 4) to reduce inventory level, and 5) to standardize Human Resource information (Koch, 2002). According to Kremzar and Wallace (2001), operating the business in a rapidly changing and highly competitive environment is the primary purpose of implementing an ERP system.
Various studies have been done focussing on adoption and implementation of software applications (Harrison et al., 1997; Lassila and Brancheau 1999). However, the enterprise-wide implications, high resource commitment, high potential business benefits and risks associated with ERP systems make their implementation a much more complex exercise in innovation and change management than any other software package (Nelson and Somers, 2001; Gefen, 2000). Radding (1999) argued that when an organisation puts millions of dollars into a core business application and reengineers its business processes around it, the system is destined to become much more than an application.
2.4 General Perspective of Today’s ERP Systems
For over a decade the ERP system has had major impact on the manufacturing industry. Besides manufacturing companies, the ERP system has also gone further to serve the other industries. According to Boyle (2000), the ERP system is also linked with the web and e- commerce applications and beginning to use web browsers as the graphical user interface.
Management was not using ERP to its full potential. Today, ERP is the foundation of businesses domestically and globally (White et al., 1999). It is used as a management tool and gives organizations a great competitive advantage (Koch, 2002). As ERP systems become more widely implemented, software applications are developed to help business managers implement ERP in diverse business activities such as project planning and management, subcontracting, material tracking, service, finance and human resources.(tatari,2009) Most of the ERP packages, today, provide multiple language and currency capabilities, allowing operations in different countries to become more integrated (Computerworld, 1998). In an era of globalization, such characteristics are very appealing for organizations desiring to expand their activities worldwide without losing control over them. The popularity of ERP is evidenced in a study that showed that nearly 19 percent of organizations across all industry sectors have installed ERP software (Computer Economics, 1999). The study also showed that the popularity of ERP continues to rise, with 34 percent of the surveyed organizations investigating, piloting, or implementing ERP packages. Davenport (1998) characterized ERP as “the most important development in the corporate use of information technology in the 1990s” (p. 122).
2.5 ERP Systems and Construction Organizations
In the construction industry, because of the fragmented nature of the business, ERP implementation and utilization has not reached the same level as the other industrial sectors; however, the construction industry has finally awakened to importance of ERP, even though it is lagging behind other major industries that have been utilizing ERP to improve their efficiencies and bottom lines. (negahban,2008)
There has been a remarkable improvement in both the speed and ability to conform to logical, customer-oriented business processes with the configurable and more flexible ERP systems (Donovan, 1998). In fact, now days, the management can chose from number of ERP products that come with multiple best practice options. The old MRP systems were very rigid as predefined business processes were embedded in the software making it difficult to adapt to the real needs of a manufacturing business (Seo, 1999). Customizing an off-the-shelf MRP system was expensive, difficult, risky and unusually time-consuming. As a result, companies had to make their order fulfilment process in such a way so as to accommodate the vendor’s predefined MRP software process but it greatly limits the management’s ability to adjust their order fulfilment process to cope with changing customer requirements and to create a competitive advantage (Donovan, 1998). With today’s developments in ERP software technology, companies have an opportunity not only to configure business processes at much more reasonable cost and risk but also to create the opportunity for a competitive advantage (Kalakota and Robinson, 2001).
The success of ERP in manufacturing enterprises resulted in its adoption by some large construction companies (ML Payton Consultants 2002; Voordijk et al. 2003). The high expectation of achieving all-round cost savings and service improvements is very much dependent on how good the chosen ERP system fits to the organizational functionalities and how well the tailoring and configuration process of the system matched with the business culture, strategy and structure of the organization. By implementing right ERP system, the organization significantly improve its entire order-to-delivery process, increase its ability to service customers at a lower cost and also better forecast its sales and other business activities, which is a competitive advantage (Harvard Business School, 1997).
With ERP, it is possible to share and exchange information in digital format throughout the project life cycle. Thus, information is stored only once and all project participants are able to access this information in real-time(tatari,2009)
Generally an ERP system is expected to improve both backbone and front-end functions simultaneously. Organizations decide to install ERP systems for many tangible and intangible benefits and strategic reasons. In various cases the calculation of return on investment (ROI) is weighted against the many intangible and strategic benefits (Gefen, 2000). However, to get the benefits of ERP systems, organizations need to undertake some problems and disadvantages. The advantages and disadvantages that organizations face after implementing ERP are given below:
Benefits of ERP systems
- Integrating the organization’s activities by processing a large majority of an organization’s transactions (O’Leary, 2001) and managing the information needs of companies (Gefen, 2000; Baskerville et al., 2000).
- Facilitation of intra-organization communication and collaboration (O’Leary, 2001).
- ERP does the integrating job, allowing the business to spend less time figuring out what’s going on and more time for improving (Slater, 1999).
- Options exist to purchase only the modules needed presently and acquire any extra modules needed in the future (Gefen, 2000). ERP’s use an enterprise-wide database which allows access to the data in real time (O’Leary, 2001).
- Both small and large companies can benefit both technically and strategically from investments in enterprise systems (Markus and Tanis, 2000) as they enable organizational standardization, eliminate information asymmetries and provide on-line and real-time information (O’Leary, 2001).
Disadvantages of ERP systems
- ERP’s can have a negative impact on the work practices and culture of an organization (Allen and Kern, 2001; Soh et al., 2000).
- It takes an average of 8 months after the new system is installed to see any benefits (Koch et al., 1999).
- Lack of feature-function fit between the company’s needs and the packages available (Markus and Tanis, 2000).
- The need for competent consulting staff to extensively customize the ERP (Gefen, 2000) to increase the acceptance of a new system.
- There is a need for extensive technical support prior to its actual use (Gefen, 2000).
2.6 ERP Systems Architecture
ERP vendors understood the limitations of the old legacy information systems, i.e. MRP/MRPII systems, used in large enterprises of the 1970s and 1980s. Some of these old systems were developed in-house while others were developed by different vendors using several different languages, database management systems and packages, creating number of incompatible solutions unfit for the data flow between them (Seo, 1999). It was not easy to enhance the capacity of such systems or the users were unable to upgrade them with the organization’s business changes, strategic goals and new information technologies (Chen, 2001). ERP systems are recognized for their databases and interdepartmental linkages. ERP structure provides a basis for MRP systems to become an enterprise integration tool (Kalakota and Robinson, 2001). Enterprise integration is viewed as developing the availability and accessibility of information within an extended corporate system and using the information system to efficiently coordinate both the decisions and actions of thousands of individuals (Enterprise Integration Laboratory, Univ. of Toronto, 1994).
To operate in an enterprise sense, the organizations need to distribute their applications for costing, planning, scheduling etc to accommodate the multiple layers of the organization, its work centers, sites, divisions and management levels (Turban et al., 2001). Multiple languages and currencies are also being included for global applications (Chase and Aquilano, 1995). The characteristics of an ERP system are as follows:
- Modular design containing many distinct business modules such as financial, manufacturing, accounting, distribution, etc (Davenport, 1998; Chen, 2001).
- Use centralized common database management system (DBMS). It is based on distributed, client/server computer systems (Wood and Caldas, 2001, p. 387).
- The modules are integrated and provide seamless data flow, increasing operational transparency through standard interfaces (Holland et al., 1999).
- It is generally complex system involving high cost (Davenport, 1998).
- It is flexible and offer best business practices (Davenport, 2000).
- It requires time-consuming tailoring and configuration setups to integrate with the business functions of company (Gefen, 2000).
- The various functional modules work in real time with online and batch processing capabilities (Davenport et al., 1998).
Different ERP vendors offer different ERP systems with some level of specialty but the core modules are almost the same for all of them. The main ERP modules found in the successful ERP systems are as follows (Turban et al., 2001):
- Accounting management
- Financial management
- Manufacturing management
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