How to Implement ERP

ERP's scope usually implies significant changes to staff work processes and practices. Generally, three types of services are available to help implement such changes—consulting, customization, and support. Implementation time depends on business size, number of modules, customization, the scope of process changes, and the readiness of the customer to take ownership for the project. Modular ERP systems can be implemented in stages. The typical project for a large enterprise consumes about 14 months and requires around 150 consultants. Small projects can require months; multinational and other large implementations can take years. Customization can substantially increase implementation times.
Besides that, information processing actually has influential effects on various business functional activities—due to severe competitions, taking control of logistics efficiently would be significant for manufacturers. Therefore, large corporations like Wal-Mart use a just in time inventory system. This increases inventory storage and delivery efficiency, since it helps avoid wasteful storage days and lack of supply to satisfy customer demand.
Moreover, many companies realize that increasing market share requires that they be sensitive to marketing changes and make appropriate adjustments. Lots of information processing applications could meet these requirements, and ERP covers almost every essential functional unit of a firm’s operations—including accounting, financing, procurement, marketing, and sales.
This information processing tool becomes the bridge that helps different isolated functional units share and update their data immediately, so managers can continually revise strategies based on data from all departments. However, information tools like ERP are expensive, and not a practical method for medium or small business owners. To address this issue, some software firms develop simpler, cheaper information processing tools specifically for smaller companies.

Process preparation

Implementing ERP typically requires changes in existing business processes. Poor understanding of needed process changes prior to starting implementation is a main reason for project failure.
It is therefore crucial that organizations thoroughly analyze business processes before implementation. This analysis can identify opportunities for process modernization. It also enables an assessment of the alignment of current processes with those provided by the ERP system. Research indicates that the risk of business process mismatch is decreased by:
  • Linking current processes to the organization's strategy
  • Analyzing the effectiveness of each process
  • Understanding existing automated solutions
ERP implementation is considerably more difficult (and politically charged) in decentralized organizations, because they often have different processes, business rules, data semantics, authorization hierarchies and decision centers. This may require migrating some business units before others, delaying implementation to work through the necessary changes for each unit, possibly reducing integration (e.g., linking via Master data management) or customizing the system to meet specific needs.
A potential disadvantage is that adopting "standard" processes can lead to a loss of competitive advantage. While this has happened, losses in one area are often offset by gains in other areas, increasing overall competitive advantage.

Configuration

Configuring an ERP system is largely a matter of balancing the way the organization wants the system to work with the way it was designed to work. ERP systems typically include many settings that modify system operation. For example, an organization can select the type of inventory accounting—FIFO or LIFO—to use; whether to recognize revenue by geographical unit, product line, or distribution channel; and whether to pay for shipping costs on customer returns.

Customization

ERP systems are theoretically based on industry best practices, and their makers intend that organizations deploy them as is. ERP vendors do offer customers configuration options that let organizations incorporate their own business rules, but often feature gaps remain even after configuration is complete.
ERP customers have several options to reconcile feature gaps, each with their own pros/cons. Technical solutions include rewriting part of the delivered software, writing a homegrown module to work within the ERP system, or interfacing to an external system. These three options constitute varying degrees of system customization—with the first being the most invasive and costly to maintain. Alternatively, there are non-technical options such as changing business practices or organizational policies to better match the delivered ERP feature set. Key differences between customization and configuration include:
  • Customization is always optional, whereas the software must always be configured before use (e.g., setting up cost/profit center structures, organisational trees, purchase approval rules, etc.).
  • The software is designed to handle various configurations, and behaves predictably in any allowed configuration.
  • The effect of configuration changes on system behavior and performance is predictable and is the responsibility of the ERP vendor. The effect of customization is less predictable. It is the customer's responsibility, and increases testing activities.
  • Configuration changes survive upgrades to new software versions. Some customizations (e.g., code that uses pre–defined "hooks" that are called before/after displaying data screens) survive upgrades, though they require retesting. Other customizations (e.g., those involving changes to fundamental data structures) are overwritten during upgrades and must be reimplemented.
Customization advantages include that it:
  • Improves user acceptance
  • Offers the potential to obtain competitive advantage vis-à-vis companies using only standard features
Customization disadvantages include that it:
  • Increases time and resources required to implement and maintain
  • Inhibits seamless communication between suppliers and customers who use the same ERP system uncustomized
  • Can create over reliance on customization, undermining the principles of ERP as a standardizing software platform

Extensions

ERP systems can be extended with third–party software. ERP vendors typically provide access to data and features through published interfaces. Extensions offer features such as:
  • Archiving, reporting, and republishing
  • Capturing transactional data, e.g., using scanners, tills or RFID
  • Access to specialized data and capabilities, such as syndicated marketing data and associated trend analytics
  • Advanced planning and scheduling (APS)
  • Managing resources, facilities, and transmission in real-time

Data migration

Data migration is the process of moving, copying, and restructuring data from an existing system to the ERP system. Migration is critical to implementation success and requires significant planning. Unfortunately, since migration is one of the final activities before the production phase, it often receives insufficient attention. The following steps can structure migration planning:
  • Identify data to migrate
  • Determine migration timing
  • Generate data templates
  • Freeze the toolset
  • Decide on migration-related setups
  • Define data archiving policies and procedures

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