Question

What is an example of a limitation in implementing a new ERP system and how it effects the efficiency of an organization?

What are some measures that can be implemented so that this impact can be reduced?

Answer 1

Limitations of ERP (Enterprise Resource Planning) Systems:
1. The cost of ERP Software, planning, customization, configuration, testing, implementation, etc. is too high.
2. ERP deployments are highly time-consuming – projects may take 1-3 years (or more) to get completed and fully functional.
3. Too little customization may not integrate the ERP system with the business process & too much customization may slow down the project and make it difficult to upgrade.
4. The cost savings/payback may not be realized immediately after the ERP implementation & it is quite difficult to measure the same.
5. The participation of users is very important for the successful implementation of ERP projects – hence, exhaustive user training and a simple user interface might be critical. But ERP systems are generally difficult to learn (and use).
6. There may be additional indirect costs due to ERP implementation – like new IT infrastructure, upgrading the WAN links, etc.
7. The migration of existing data to the new ERP systems is difficult (or impossible) to achieve. Integrating ERP systems with another stand alone software system is equally difficult (if possible). These activities may consume a lot of time, money & resources if attempted.
8. ERP implementations are difficult to achieve in decentralized organizations with disparate business processes and systems.
9. Once an ERP system is implemented it becomes a single vendor lock-in for further upgrades, customizations, etc. Companies are at the discretion of a single vendor and may not be able to negotiate effectively for their services.
10. Evaluation before the implementation of an ERP system is critical. If this step is not done properly and experienced technical/business resources are not available while evaluating, ERP implementations can (and have) become a failure.
=>These are effects on the efficiency of an organization.
->Training Inefficiency - Skills, experience, manpower, and optimum utilization of resources are key within a manufacturing operation. Without these factors, it is difficult to have your operation run efficiently and smoothly, which is why proper training in ERP is imperative to make the system work appropriately. A substantial amount of companies attempt to save money through not providing enough expenses for enterprise resource planning training for employees. This will result in inadequate cognizance of the particular Enterprise Resource Planning vendor package being utilized. Inadequate training may lead to mishandling of the technology by employees, which results in the loss of valuable information.
->Expensive System - Enterprise Resource Planning (ERP) is a costly software alone, and setting up the software as well can be extremely costly as well. The acquisition is dependent upon the scope of implementation, complexity of the departments and ERP vendors. Packaged ERP software can cost up to a few million dollars. Besides ERP software, computer hardware, updated network equipment, and security software are also necessary for the implementation of ERP software.
->Degree of Customization - The customization of ERP setup is limited and it may engross the changing of the entirety of the ERP software foundation. The flexibility of the setup is entirely dependent on the brand of software being utilized. Some brands even provide a provision of extended customization and flexibility, which makes them more convenient to utilized when being compared to others.
->High Implementation Times - Implementation times and costs of software such as ERP are incredibly important to consider when purchasing the software. Installation and training time may disturb the functionality of the organization and could impose a huge risk of loss of potential business in that particular period. Complete installation could take up to a year, depending on the various modules that have to be installed. This time is worth spending only if the new setup gives significant profit returns among time and money.
->Interconnectivity of Departments - Interconnectivity among various departments within a manufacturing operation is both beneficial and disadvantageous. A chain is as strong as its weakest link, and with the implementation of ERP, inefficiency within one department will lead to inefficiency within the others. If one department is affected and becomes inefficient, it may affect the efficiency of other departments.

=>Some measures that can be implemented so that this impact can be reduced.
1. Get Executive Buy-In from the Start
One of the most important first steps in reducing ERP implementation risk is ensuring that your organization’s executives are fully on-board with the new ERP system, the implementation process, and implementation timelines.
Executives who understand the benefits that the new ERP system will offer, and who are realistic about the work that’s required to get it up and running, will provide key support throughout the process. They will also be the ones to share the vision with other business stakeholders, and ensure organization-wide user adoption post-deployment.
2. Define Your Goals for the New ERP System
What do you want your ERP system to achieve? What metrics will your company use to measure its success post-implementation? A muddled view of the answers to these questions will create a confused, and most likely delayed project.
Understanding exactly what your business needs from a new ERP system, what the most important priorities are during the project, and that your business stakeholders are all on the same page, will provide clear, well-defined objectives and targets.
3. Determine Your Budget
This is one area where extra planning before the project will save a company from dealing with a ton of headaches in the future. Mapping out the time and resources that will be needed for each step of the project – from the initial software purchase to each phase of implementation, to post-go-live support – and working with the executive team on budget allotment helps everyone be crystal-clear on the funds to be released.
Budget transparency keeps processes running smoothly, so make sure your budget is sensible for the work that will be required. A pragmatic view will also help plan for contingencies in case issues pop up that need to be addressed.
4. Fully Outline All the Functionality You Need
What functionality is imperative for running your business? And what functionality will improve how you run your business? Fully understanding your ERP system requirements and prioritizing their importance, as well as appreciating how that functionality will impact your business, is crucial for getting a clear-cut implementation plan. Mapping out each step for configuring and completing your functionality requirements will help prevent dreaded scope creep from kicking in down the line.
5. Learn about Hosting Options – On-Premise vs. Cloud
Identifying where you want your data to reside, and how you want users to access the system, are key factors when evaluating Cloud and on-premise ERP hosting options.
6. Identify Who the Right Resources Are for the Project
Not having the right resources lined up for an ERP implementation project can doom the project before it even begins. Ensuring you have an experienced, knowledgeable team of different roles and responsibilities to dedicate to implementation work will help keep your project running smoothly and efficiently.