Page 240 - Operations Strategy

THE CHAllEngEs of infoRmATion TECHnology (iT) 215
with a standard ERP package. If a business’s current processes do not fit, they can either
change their processes to fit the ERP package, or modify the software within the ERP
package to fit their processes. However, both of these options involve costs and risks.
Changing business practices that are working well will involve reorganisation costs as
well as introducing the potential for errors to creep into the processes. Adapting the
software will both slow down the project and introduce potentially dangerous software
‘bugs’ into the system. It would also make it difficult to upgrade the software later on.

Supply network ERP
The step beyond integrating internal ERP systems with immediate customers and sup-
pliers is to integrate it with the systems of other businesses throughout the supply
network. This is often exceptionally complicated. Not only do different ERP systems
have to communicate together, they have to integrate with other types of system. For
example, sales and marketing functions often use systems such as customer relation-
ship management (CRM) systems that manage the complexities of customer require-
ments, promises and transactions. Getting ERP and CRM systems to work together is
itself often difficult. Nevertheless, such Web-integrated ERP applications are emerg-
ing. Although a formidable task, the benefits are potentially great. Transaction costs
between supply network partners could be dramatically reduced and the potential for
avoiding errors is significant. Yet such transparency also brings risks. If the ERP system
of one operation within a supply chain fails for some reason, it may block the effective
operation of the whole integrated information system throughout the network.

Criticisms of ERP
Attempting to get new systems and databases to talk to old legacy systems can be very
problematic. Not surprisingly, many companies choose to replace most, if not all, of
their existing systems simultaneously. New common systems and relational databases
help to ensure the smooth transfer of data between different parts of the organisa-
tion. Therefore, ERP installation can be particularly expensive. In addition, there are
also considerable ‘adjustment costs’ associated with many of the implementations.
ERP implementations have developed a reputation for exceeding their budgets, with
200/300 per cent cost and time overruns being commonly cited for reasonably sized
installations. Yet, given that such systems are predicated on both substantial IT devel-
opment and process redesign work, it should not be surprising that costs and time-
frames proved to be larger and longer than predicted.
In addition to the obvious investment of time and effort, there is also the cost of
providing training in new ways of working. Given that old systems, procedures and
routines are being replaced in an ERP implementation, this retraining cost can be very
significant. During the retraining period there may also be an increased chance of staff
error that, combined with the novelty of the system, could cause further failures.
By definition, ERP systems are ‘enterprise wide’. This means that all parts of the enter-
prise must agree on a shared way of working (that coincides with the ERP system’s
underlying structure) and uniformly implement the system in the same way. There
are two important implications of this. First, getting all parts of the enterprise to agree
on a common business model is rarely straightforward, even supposing that the ERP
system’s business model is appropriate for the way the enterprise prefers to operate.
Second, because all parts of the enterprise are linked together, the whole business could
be held back by the ‘weakest link’. That is, inefficiency or incompetence in one part of
the enterprise may hold back the whole business.

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