ERP systems

Primary partition about ERP here

As you know, one of the main problems of the Russian enterprises is the low performance of production which, by McKinsey estimates, is four times lower, than in the USA. The task of upgrade of economy is set at the state level, and the enterprises which are especially using high technologies need to look for internal reserves of optimization.

The solutions ERP are management systems for key business processes of the enterprise. An ERP system includes modules: planning of activity of the company, budgeting, logistics, accounting, personnel management, production management, customer management. Corporate, management, accounting records allow the top management to receive a complex picture of activity of the enterprise that does the ERP system by the irreplaceable instrument of automation of operating activities and support of acceptance of the current and strategic management decisions. In fact, the ERP system is complex storage and use of information, a possibility of data acquisition on activities of the organization within work in one system.

The project on implementation of the ERP system can be separated into the following stages: project planning, goal setting; diagnostics and requirement analysis; choice and justification of the platform, ready-made solution; design of an information system; documentation and approval of project solutions; software development; testing of an information system; system deployment; user training; operation and support and also assessment of results. Project management is based on the best practices and methodologies. Depending on desires, requirements and scale of the project of the customer implementation of ERP systems can last both of three months, and up to 24 months.

Project cost on implementation of ERP systems includes the cost of purchase of licenses (there is also a possibility of lease of licenses) and cost of services in setup and system implementation or industry solution. Project cost, of course, depends on an implementation methodology, on the volume of consulting services, on desires and needs of the customer. It is also necessary to consider expenses on IT infrastructure, motivation of a command and operation of a system.

Implementation of the ERP system allows the companies to increase the income, due to loyalty of old clients and to attraction of new; lower management and operating costs on average by 15%; reduce commercial costs for 35%; save on current assets; reduce an implementation cycle; lower the insurance level of warehouse stocks; reduce receivables; increase turnover of means in calculations; increase turnover of material stocks; improve utilization of fixed assets.

It is necessary to implement the ERP system when accurately an implementation particular purpose, there is an interest of TOP – management in clarity and business process automation in the organization, in the company there are resources for implementation and motivation, the customer decided on the platform and a team of implementers – developers.

Concept of ERP

Historically the concept of ERP became development of simpler concepts of MRP (Material Requirement Planning  is Planning of material requirements) and MRP II (Manufacturing Resource Planning  is Production resource planning). The program tools used in ERP systems allow to carry out production planning, to model a flow of orders and to estimate a possibility of their implementation in services and divisions of the enterprise, coordinating it to sale.

One of important issues – belongs a system to the class ERP, or is accounting. To answer this question, it is worth to remember that the ERP system (as it appears from the name) is first of all schedule system of resources. It describes not only a situation "as was" and "as is", but also "as will be", "as should be". ERP systems not just store data on the events at the enterprise, but also incorporate planning modules and optimization of all types of resources (financial, material, human, temporary, etc.), and the majority of functions of accounting, implemented in a system, it is directed to support of functioning of these modules.

It is necessary to have for implementation of planning features and optimization in a feedback system. I.e. on the basis of the purposes of management the plan is formed, then on work progress fixing of real indicators, their analysis is carried out and on the basis of comparison of effective objectives and the achieved results the adjusting influence is developed. The accounting system allows to fix results only. It, unlike the ERP system does not include function for planning automation, and comparison 'the plan — the fact'. In other words, using the accounting systems it is possible to execute only some analytical part of management, but not synthetic. In it fundamental difference of the ERP system from the accounting system.

Functions of ERP systems

The principle of the creation of the uniform data warehouse containing all corporate business information and providing simultaneous access to it of any necessary number of the employees of the enterprise given appropriate authority is the cornerstone of ERP systems. Change of data is made through functions (functionality) of a system. Basic functions of ERP systems:

• maintaining the design and technology specifications defining structure of the made products and also the material resources and transactions necessary for their production;
• formation of sales plans and production;
• materials requirement planning and component parts, terms and supply rates for accomplishment of the production schedule of products;
• inventory management and purchases: maintaining agreements, implementation of the centralized purchases, ensuring accounting and optimization of warehouse and shop stocks;
• production capacity planning from aggregate planning before use of separate machines and the equipment;
• operational management of finance, including drawing up the financial plan and control of its execution, financial and management accounting;
• project managements, including planning of stages and resources.

See Also: What to consider the ERP system: technique of TAdviser

Features of implementation

Classical ERP systems, unlike the so-called "boxed" software, belong to the category of the "heavy" software products requiring rather long setup to begin to use them. The choice of CIS, acquisition and implementation, as a rule, require careful planning within the long project with participation of partner  supplier company or the consultant. As CIS are based on modularity, the customer often (at least, at an early stage of such projects) purchases not a full range of modules, but their limited set. During implementation the project team, as a rule, within several months performs setup of deliverable modules.

Any ERP system is, as a rule, expected a specific market segment. So, SAP is used more often on large industrial enterprises, Microsoft Dynamics - in mid-size companies and a different profile, 1C - in the companies small and also in case of the limited budget.

The implementation cost of ERP, depending on the size of the company, complexity and the selected system, can be from 20 thousand USD to several million USD. This amount joins software licenses and also implementation services, to training and support at a stage of start of a system in operation.

Panorama Consulting Group published the annual research of the world market of ERP systems for 2012. Traditionally in a research the emphasis not is placed on revenues of vendors and software suppliers, and on the user experience of the companies which implemented enterprise management systems.

One of the main results of the research Panorama Consulting is creation of a typical picture of the average ERP project and also assessment of satisfaction of users already implemented solutions. So, according to the results of the research which came out in 2012, 81% of the polled companies were happy with the made choice for benefit of this or that ERP system, and 19% - are not happy.

What else indicators of "normality" of the ERP project were detected by researchers? So, 41% of the companies change the business processes to bring them into accord to functionality of the ERP system. 27%, on the contrary, change functionality of systems and finish them that systems corresponded to already developed business processes. 19% of respondents practically did not mention this area or were not focused on business processes. 13% at first changed business processes and only then started implementation.

According to data of a research, 63% of the companies face organizational problems during ERP implementations. 34% of respondents prefer when entering a system in operation to use a method of "Big Bang" when new software is started everywhere and once in all divisions and assets. 46% put new ERP into operation step by step, in 20% - support the hybrid approach.

57% of the enterprises prefer also "tough" input of the ERP system in operation when work of users with old software of unavailable it becomes single-step. Whereas 43% prefer to use the parallel account (a gradual failure from old software).

The main advantages which were got by the companies from implementation of ERP respondents called increase in availability of information, reduction of response time and improvement of processes of interaction in the organization. 94% of respondents anyway achieved positive results from implementation.

Types of the got advantages of implementation of ERP systems

Panorama Consulting, February, 2012

But not everything is so positive. According to the research Panorama, 56% of projects are beyond initially designated budgets. In a research of 2011 of such projects was more – 74%. For last 2011 the overexpenditure on ERP projects made about $2 million, and the previous year – about $10.5 million. The delta between the planned and final price of the project averages about 25%.

Overexpenditure on ERP projects

Panorama Consulting, February, 2012

Besides, according to analysts, the companies often underestimate time which will be required to them for achievement of desirable results and return of investments. 29% of the companies claim that they did not manage to return the investments. The payback period for the ERP project averages 1-3 years.

Time of return of investments into the ERP project

Panorama Consulting, February, 2012

Also often there are difficulties with implementation project duration. According to a research, on average the ERP project to be added about 16 months. According to data of the previous report (2011), 38% of projects come to the end in time, 54% last longer, and 23% from them are 25% longer.

Exceeding of terms of ERP projects

Panorama Consulting, February, 2012

As for technical aspect of a question, 58% of the companies select traditional on-premise ERP-системы, and 21% place them on external hostings. About 39% of the companies use additions of third-party developers that often negatively affects the level of complexity and terms of projects. From year to year customization volumes within implementations grow.

The most often implemented modules of ERP systems

Panorama Consulting, February, 2012

Most often the companies implement the following modules of ERP systems: 77% - management of finance, 62% - sales management and distribution, 51% - material management, 50% - personnel management, 45% - CRM and also management of a warehouse.

ERP system choice

Growth of complexity of ERP systems caused by constantly increased functionality in this connection, the potentiality also increases to increase efficiency of business processes of the company due to implementation of ERP systems does very responsible a problem of the correct selection of ERP systems. In case of the wrong choice the company risks to lose essential means and time therefore for the solution of this question often will organize the special project on the choice of CIS with involvement of the independent consultant. Modern techniques recommend the structured studying of business processes of the company and determination of criteria for the choice and comparison of offers, unlike the outdated approach based mainly on comparison of functional and technical characteristics of systems. The modern view at choice of systems is developed as a result of growth of number of unsuccessful implementations in which studying of business processes was entirely transferred to a stage of implementation and it was entrusted to integrator which performed delivery of a system.

Advantages

Use of Enterprise resource planning allows to use one integrated program instead of several separate. The single system can manage processing, logistics, distribution, stocks, delivery, drawing of invoices and accounting.

The system of access isolation implemented in ERP systems to information is intended (in a complex with other measures of information security of the enterprise) for counteraction as to external threats (for example, to industrial espionage), and internal (for example, to plunders). Implemented together with the CRM system and a quality control system, ERP systems are aimed at the maximum satisfaction of requirements of the companies for management tools business.

Shortcomings

The main difficulties at a stage of implementation of ERP-of systems face for the following reasons:

• Mistrust of owners of the companies hi-tech solutions, as a result - weak support of the project from their party that does implementation of the project poor-selling.
• Resistance of departments in providing confidential information reduces system effectiveness.

According to results of the research conducted in 2008 by the American company Panorama Consulting Group, 93% of ERP projects last longer than the planned term, and nearly two thirds of projects do not meet the budget selected with it. Moreover, only 13% of the companies are completely happy with results of ERP projects, and only 21% of the companies could implement during implementation of ERP at least a half of scheduled tasks.

The set of the problems connected with functioning of ERP arise because of insufficient investment into personnel training and also in connection with crudity of policy of entering and support of relevance of data in ERP.

Restrictions:

• The small companies are not able to afford to invest enough money in ERP and adequately to train all employees.
• Implementation is rather expensive
• A system can suffer from a problem of "a weak link"  — the efficiency of all system can be broken by one department or the partner.
• Compatibility issue with the former systems.

There is a delusion that sometimes ERP difficult or cannot be adapted for document flow of the company and its specific business processes. In fact, any implementation of the ERP system is preceded by a stage of the description of business processes of the company.

Advantages of use

According to Panorama Consulting CLASH OF THE TITANS 2014^[1] for July, 2014, the most widespread results of implementation of the ERP system is that in the company information becomes more available: it is noted by 42% of respondents.

13% the company noted that use of the ERP system allowed them to improve interaction of all divisions and parts of business, 8% could using such solutions optimize customer interaction, 4% - to increase performance. And here nobody though in 2012 such result of implementation was called by 7% of respondents could cut down expenses on compensation.

At the same time the effectiveness of ERP implementations still remains quite low. Only 31% of clients of SAP, 17% of clients of Oracle and any of clients of Microsoft noted that they could achieve at least 50% of the expected effect of implementation.

See Also

List of all companies of ERP vendors,
integrators and projects known to TAdviser

Enterprise management systems (market of Russia)

Main trends of the market of ERP systems (Russia)

Geography of ERP projects

Industry specifics of the ERP projects in Russia

Notes