Ever since the 1900s companies have struggled to maintain their efficiency and keep a constant increase in their profits, however due to the incompetence of the computers and their systems this was an impossible task. There was another problem that was arising, which was that global corporations were starting to rise quickly; hence there was an urgent need for systems to be able to fulfill their needs (Wang et al 2006).
Unfortunately, the ERP system is not a straightforward software system, which leads to one of the disadvantages that is the company's staff might not be able to use the system with ease, without training. Nevertheless, this disadvantage can be overlooked, as it is able to gather all the experience and ideas of enterprises. ERP systems are seen as the backbone of the organization as it is a very powerful tool that supports management activities daily (Alanaby, 2005).
With the rise of global markets, organizations need a system to be able to deal with the competitive and external environments that are increasing, due to the changes in the enterprises, hence then need to be flexible in every aspect of the organization. Numerous organizations had some challenges posed to them, which were the main obstacle for the ERP system to overcome. One of the main challenges is enabling the functional information to flow across the organization into a single package with a common database. This has been overcome by the ERP as it allows easy and immediate access to information from any part of the organization, any employee is able to access customer history information, product data etc. (Al-Fawaz, Al-Salti, & Eldabi, 2008).
2.Enterprise Resource Planning
Enterprise Resource Planning (ERP) system is an information system (IS) that supports and integrates many components of a business, including planning, manufacturing, sales, and marketing. An enterprise system such as ERP often requires years of implementation and post implementation; it becomes part of the business and supports its tactical movements and strategic direction (Chen, Law, & Yang, 2009, p. 157). ERP systems are configurable information system packages that integrate information and information based processes within and across functional areas in an organization. It is one of the most crucial tools to sustain business competitiveness, ERP has probably been the most rapidly growing system area in operations today and thousands of companies of any size have implemented or are in the process of implementing an ERP system (Peng & Nunes, 2009, p. 926).
The aim of the systems is to support the management of the company as a whole as their implementation often leads to radical organizational changes. One of the advantages that benefit companies greatly is that due to combination of the data on functional levels, leading to the reduction in redundancy in results, or data. ERP systems are made up of reasonable, configurable and incorporated information systems, which in order complete the job of planning, managing all the enterprise resources. However, not only that, it also helps in limiting the technical limits, restructure the business process in an organization (Alanaby, 2005, p. 2).
2.1. ERP Architecture
ERP system should have accurate, complete and formal information that is supportable, timely and function wise to the company's future. In the real environment it is accomplished by a combination of ERP system controls and controls in the environment in which the operating system includes the operating of the ERP system. The controls are divided into general and application controls. The general controls include management and environmental controls. The management controls is responsible for the organization, polices, procedures, planning and everything related to management. Environmental control is the operational control, which is administered in the computer operations and in the built in operating system (Wang, XU, & Zhan, 2006).
Importantly, the architecture components are the basic construction unit in the ERP system; hence it is necessary to clarify the structure and the semantics of the components. Wang et al (2006) acknowledged the architecture component can be divided into five spaces, starting with the Reality Space (RS) is used to described the reality of enterprises as well as their similar features that form an industry. Next is the Business Model Space (BMS), which includes models of management patterns and business processes of enterprise in reality space. Model Element Space (MES) has basic model elements with atomic semantics, in addition to the basic units of business models. The transformation of operations from business models and element models are formed by the reusable business components, which are cause by Business Component Space (BCS). Lastly the Software Space (SS) encloses the option to execute software components, which are aided by the formation of specific component implementation techniques such as Java, in accordance to the conditions of the equivalent business components.
The following figure shows the architecture space components: (Wang et al 2006; 7)
2.2. ERP Benefits
ERP system integrates the majority of the business processes and allows access to the data in real time. ERP improves the performance level of a supply chain by helping to reduce cycle times. There are also some intangible benefits that an organization may gain by implementing an ERP system to achieve, better customer satisfaction, improved vendor performance, increased flexibility, reduced quality costs, improved resource utility, improved information accuracy and improved decision making capability. User involvement is one of the most cited critical success factors in ERP implementation projects. "There are two areas for user involvement when the company decides to implement an ERP system and user involvement in the stage of definition of the organization's ERP system needs, and user participates in the implementation of ERP systems" (Al-Fawaz, Al-Salti, & Eldabi, 2008, p. 3).
2.2. Life Cycle of ERP
ERP are software package composed of several modules, such as supply chain management, human resources, sales, production and integrating the data across the organization. These modules can be reengineered to fit the organizations needs. The change is the core phenomena related with ERP systems. In order to create a seamless adjustment plan, the organization should establish the change plan to adapt ERP system. "ERP systems are not projects that someday will end, but rather, they are a way of life. They require a high degree of alignment between business strategies, information technology strategies and organizational process," (Esteves & Pastor, 1999, p. 2).
ERP life cycle is a set of stages analyzing the system from day of birth to the day of death. The life cycle is break down into six stages, consisting of adoption decision that is known by initiation, acquisition that is known by planning, implementation, use & maintenance, evolution and retirement. The adoption decision and acquisition stages are basically the organization is defining their goals, plans, budgets, deadlines and selecting vendor and package. The implementation and use & maintenance phases, are where the issues arises consisting of reengineering and alteration of the ERP package acquired according to the organizations needs, communicating with consultant and using the system. The evolution phase is generally adding and integrating more capabilities into the ERP system. Finally the last stage is retirement where new technologies appear and substituting it with the old system (Chen et al, 2009; Esteves & Pastor, 1999).
2.2.1. Adoption Decision.
Adoption decision is the phase where we start asking why do we need a new solution for the information system of the organization, and the kind of solution that best fits the needs of the organization. Managers must question the need for a new ERP system while selecting the general information system approach that will best address the critical business challenges and improve the organizational strategy. The managers have to decide what kind of enterprise information system they want for their organizations. This decision will have impact on the business and organizational progressions and, in most cases, on the organization strategy and goals (Esteves & Pastor, 1999; Chen et al, 2009).
2.2.2. Acquisition
Acquisition phase starts after the managers have decided on what kind of ERP system the organization needs. The phase consists of the product selection that best fits the requirements and goals of the organization and choosing a consultant. The consultants help the organization in selecting and setting up the right package of ERP system. They also help the organization in determining where the ERP system does not supply the organization's needs and help to customize ERP functionalities to meet them. Then the consultants suggest to the organization the vendors to choose the right one and make the contractual agreement, the different price models, and the analysis of returns on the investment (Esteves & Pastor, 1999; Chen et al, 2009).
2.2.3. Implementation
The implementation phase consists of customization, parameterization and adoption of the ERP suite required accordingly to meet the organizations needs. This phase is one of the most critical phases in ERP lifecycle. The implementation of ERP system process requires sufficient resources to install software, hardware and modeling business process, training employees or users, connect to legacy system and converting data from the old system. In this phase most of time organizations hire a consultant to help them in installing these tasks and in selecting the most adequate vendor or product. The time implementation period and the project team is another critical factor related to this phase. One of the main tasks in the implementation process is the adaption of ERP software to the specific requirements of the organization. But sometimes the adaption works the other way around with organizational business process being adapted to the ERP standard functionalities (Esteves & Pastor, 1999, pp. 5-8).
Risk management is one of the most important steps in this phase. Risk management is important in all life cycle phases but in this phase its analysis is crucial in the beginning of this phase for the next implementation steps. The basis for a successful implementation is the management of technical, business and organizational risks. One of the factors in the implementation phase that can cause failure is the lack of alignment between imbedded process and organizational business goals and priorities. Efficient and effective planning and execution of the implementation project will obviously improve the chance of success which will make a head start over the competition and become an important factors in achieving competitive advantage (Esteves & Pastor, 1999, p. 9).
2.2.4. Maintenance
The use and maintenance phase is the phase were the client use the product in a way that returns expected benefits and minimizes disruption. Once the system is implemented, the client must be aware of the aspects related to functionality, usability and adequate to organizational and business processes and maintain the system because malfunctions and bugs must be corrected in a special optimization requests to be meet and general system improvement have to be made. The managers who rely on ERP systems and believe that it is the backbone of their organization computing environments are finding that it affects all other technical decisions (Esteves & Pastor, 1999, pp. 5-9).
2.2.5. Evolution
"This phase corresponds to the integration of more capabilities into the ERP system, providing new benefits, such as advanced planning and scheduling, supply chain management, customer relationship and expanding the frontiers to external collaboration with other partners." Esteves & Pastor argues that despite the vendor's effort in introducing new technologies and features to expand the functionality of their products, ERP packages still does not satisfy the organizations need. The organizations are extending their ERP system to provide better business value, with tighter collaboration with customers, suppliers, and ultimately end users, both domestically and globally (Esteves & Pastor, 1999, pp. 5-10).
2.2.6. Retirement
The retirement phase is the final phase in the ERP life cycle; it arises with appearance of new technologies or inadequacy of the current ERP system or requiring new approaches to fulfill the business needs. This phase mostly appear in the implementation or in the use and maintenance phase. Esteves & Pastor (1999) argues that there are already many cases of organizations that for several reasons have abandoned their ERP implementation projects and are rapidly returning to their proprietary systems, further more other organizations have changed the ERP product to a different one in the middle of the implementation phase, and the last situation the organization returns back to the beginning of the adoption phase. The retirement phase is specifically related with the change in management dimensions, which leads the managers in deciding if they will replace the ERP software with other information system approach that is more adequate to the organizations needs at the current time (Esteves & Pastor, 1999, pp. 5-10).
2.3. ERP Selection
"The selection of a suitable ERP system is a challenging, time consuming process and that there is no one single ERP package that could provide all the functionalities required for the business". The important criteria that need to be taken into consideration when selecting a new ERP system, it is has to closely fit with most of the current business procedures, the system has to be flexible, user friendly, easy to implement, applicability, integration, adaptability and upgradeability are essential factors that have to be considered in ERP adoption (Al-Fawaz, Al-Salti, & Eldabi, 2008, p. 5).
Alanaby, (2005) affirmed that the choice of the best suited solution is a" semi structured decision problem" mainly due to the fact that only a part of the problem can be managed by an standardized procedure, for example the calculations of standard investments and provides help to all the decision makers' needs and allows ease in evaluating all the significant business aspects. Hence, next time this important task is performed, there is no fixed and formal procedure need to be used.
There are a variety of ERP packages in the market with similar functionality but different designs, these modules that are offered in ERP are the most important selection, it differs according to the organization needs. There are a certain criteria, which have to be followed, they are listed according to their priority in order to help the decision maker to know the modules or the package the organization needs (Alanaby, 2005, pp. 3-4).
The most important one is the "Customization", organizations have the need to get accustomed to the available software in the market and use it to their own advantages. So the organizations should face difficulties when they are updating to newer software release, hence comes the role of customizations
Each ERP have different requirements, so it is important to choose an implementable version. For example if the organization is commissioning an infrastructural change, implementation helps that the probability of the problem changing may be cause to not be ignored.
ERP systems is said to be the backbone of the organization, so the software should support the environments of the companies using it. Maintenance assists in making sure there are no limitations to the environments used, whether it is add on system or an available patch.
As previously mentioned the modules should work online in real time and that is the role of "Real Time Changes" as it makes sure that there are no errors that take place just because of an outdated system and to confirm the consistent information among all the departments.
Flexibility plays a vital role, as it confirms the system's' capability to provide support the requirements of the company's business over its lifetime. Company's businesses constantly change over time, hence they need to make sure that their systems are flexible enough to keep up and change in accordance to their preferences.
Last but definitely not least is that the company need to take into consideration that not all the people who use ERP systems are professionals, hence they need to make it "User Friendly: allowing people to use it without difficulty and trouble, as they are an important aspect to the company and it is their use of the system that affects the efficiency of the company.
2.3.1. Wrong planning for business process
Business Process Reengineering (BPR) is the ultimate thinking and major strategy of business process to achieve critical current measures of performance. Implementing ERP systems need to comprise reengineering the current business process to affiliate the best business standards (El Sawah, Tharwat, & Rasmy, 2008). Planning for ERP adoption mostly occurs when the organization recognizes that the current business process is inadequate for their current and future strategic needs. Some of the reasons that cause the organization to be motivated to change their current system or business process (Injazz J. Chen, p.378):
The current system is not sufficient and adequate to support the business needs.
The evolution of the enterprise and subsequent incompatibility of several information systems.
The employees are not being able to achieve their target by answering the questions or information requests asked by customers or suppliers.
The widespread and continue requests of maintenance and support.
The use of multiple points of inputs with duplicated effort in the existing system.
The consideration of reengineering business process.
Business plan and vision should be clear as needed to guide through ERP project's life cycle in order to adapt successful ERP project. Experts and project managements has defined that in the planning phase there are three main components: scope, time and cost. The organizations must set their goals toward these components and how will they achieve it and they should illustrate their goals specifically to indicate general directions of the project. One of the problems that ERP project leaders faced and resulted in failure of the project was not in the implementation, it was from the lack of planning and setting the goals for the project (Al-Fawaz et al, 2008;Momoh et al, 2010).
A case study was made by (Wong et al, 2005), stated that from three teams evaluating their implementation of ERP project, two of the teams disclosed that they didn't have a clear vision on how to conduct a BPR and their consultants didn't help them, they gave vague, unprofessional advice for conducting BPR. The two teams found it difficult to cooperate and contribute to BPR, which resulted in having poor quality in BPR led to incorrect system configuration problems. As a result of having a poor BPR, the business processes were not successfully reengineered to fit with ERP system. Through the process of BPR, the consultants did not organize a mapping analysis to illustrate the software functionalities and business requirements, which also led to a mismatch between ERP and business process. The ERP system could not provide support for the business, because the users and the business process were not ready for implementation (Wong et al, 2005).
2.3.2. Selection of wrong package and vendor
Vendor's credentials, market share, reputation, number of consultants, number of installations performed, support infrastructure and demonstration of pervious success implementations are the most essential factors showing the commitment of the vendor to the product. The vendor also should provide training and after sales support, since ERPs are sophisticated software the employees cannot learn it by themselves. In every department it should be considered that it has a specialized training that differs from the other departments (Alanaby, 2005, p. 3).
2.3.3. Over Customization
The average ERP implementation estimated around 23 months, the target is to finish the implementation within six months but the implementation exceeds more than three years. The adoption of ERP takes typically few months for organization to adapt the new business process, to years for the organization attempting to make major modifications. Experts emphasize that due to the non-flexibility nature of ERP solutions forces organizations to customize the package and abandon their way of doing business. This drawback affects organization and in some cases, has led to bankruptcy like FoxMeyer drugs (Momoh, Roy, & Shehab, 2010).
The failure of ERP customization means that the organization continues using their existing system and practices, where stability in organizational system and continuity over time. " Kholeif et al (2007) stated that, " programmers resulted in changes in the rigid environment and created market pressures. Which made an Egyptian company to be encountered with an organizational change as a result of institutional change and market competition that contributed to the ERP customization failure " (Kholeif, Abdel-Kader, & Sherer, 2007, pp. 251-252). Different organizations need different software; they need to customize the available software in the market for their own use. But, customization shouldn't cause difficulties in updating to future software release (Alanaby, 2005; Momoh, Roy, & Shehab, 2010). El Sawah et al (2008) agreed that the least customization makes refining to the package causes extra additional customization costs, inability to benefit from vendor software and maintenance and inability to benefit from the best standards encapsulated in the package (El Sawah, Tharwat, & Rasmy, 2008).
2.4. ERP Implementation
Once the project is selected, many companies tie their hands by underfunding their efforts or by restraining the scope through impossible project schedules. It has been a rule that an implementation budget should be a one to three times multiple of the list price of the software package. A budget varies based on the size of the organization and the package selected. A minimum of five to 10 percent of the implementation budget should be set-aside for a project management consultant. (Goldband, 2008).
2.4.1. Risk management
ERP implementation is a protracted and complex process, and there have been many cases of failure implementations, which have had major impacts on business performance (Wong, Chau, Scarbrough, & Davison, 2005, p. 1). ERP systems have problems of ambiguity in acquisition and hidden costs in implementation. Usually most organizations that install ERP solutions underestimate the hidden cost. The cost is the most critical part of an ERP implementation for both small and large organizations. The average of an ERP system ownership could cost around $15 million and it rewards the business with an average net present value of a negative $ 1.5 million (Momoh, Roy, & Shehab, 2010, p. 549).
The most types of hidden costs that may increase the implementation cost dramatically are (Momoh et al, 2010, p. 549; Mehrjerdi, 2010):
Training: The training cost is the most underrated hidden cost; the cost to train the entire staff on a new system is massive and often taken to grant.
Cost of data Conversion: The cost of data conversion is one of the hidden costs that the companies often does not recognize, this cost is associated with transferring data from the old to the new system. The cost includes hiring professionals in modifying the data to fit into the new system.
Integration & implementation: The cost of the integration is often ignored.
Consultation: The consultation fees may become unexpected as a consequence of many companies not budgeting the consultation fees properly.
2.4.1.1. Operational Risk
Operational Risk (OR) denotes to risks that may happen, as operational staff use ERPs to perform the daily business process. The OR is classified into three main processes (Peng & Nunes, 2009; Momoh et al, 2010):
Operational staffs are reluctant to use ERP system. The main objective of having ERP system is to integrate and automate transaction processing of the organization. The main users here are the operational staff, if the staff is unwilling to use the ERP system. This risk can be caused by a various factors, comprising unwillingness to change and fear of loosing their positions, initial failure in system implementation, poor data quality and user interface. Exports are expecting that this risk would have the highest probability of occurrence especially when the system goes live.
Operational staff input incorrect data into the system. In order to have a seamless working ERP system it requires high accurate data to work effective and efficient. The operational staff enters the data, if one of the staff entered falsification data it will cause disturbance in the system and it will affect the whole organization. This risk can be made due to lack in experience, information overloaded and insufficient training and in certain cases it is made in purpose of embezzlement and gaining illegitimate benefits from the company.
ERP system contains inaccurate bill of materials. Bill of material (BOM) is the most sophisticated and complex piece of information in ERP system, because it is a list of component parts required to gather information of products regarding their quantities and level of product structure. If BOM is not accurate it will cause increase in inventory and cost, reduce production efficiency and customer satisfaction.
2.4.1.2. Analytical Risk
Analytical Risk (AR) refers to the risk that mangers could make while using ERP system to perform analytical tasks. The AR is used by front-line-managers while using ERP system in generating forecast, plans and predicate uncertain future. The managers cannot retrieve the relevant and needed information from the ERP system, although the managers have different information requirements according to their personal decision, perspectives and the actual situations. To satisfy the manager's requirements, the format and content of the reports generated by the IS should be customizable, if it isn't customizable it will lead the mangers to be not able to retrieve the information needed. The result will lead to poor decision-making and reduce the system acceptance and usage (Peng & Nunes, 2009; Mehrjerdi, 2010).
The AR other risks are, fail to use the system to generate accurate sales forecasts will result in a falsification sales forecast which will give unreasonable sales and infeasible plans and financial budgets. System fails to generate appropriate master production schedule. Master production schedule (MPS) specifies the required finished products with it quantities in every planning period. Any mismatch in the data can cause shortage or excess in the materials and products, which have direct impact to cost, delivery time and customer satisfaction (Peng & Nunes, 2009).
2.4.1.3. Organization Wide Risk
Organization wide risk (OWR) is the risk that may have influence on the entire organization; this could be occurred while maintaining or using ERP through the post implementation phase. Organizations may confront some risks events in relation to various internal and external factors. The OWR have the highest risk, because it affects the entire organization, these are the three main types of OWR: Top managers make important IT decisions without consulting IT experts and system users, the top managers are not the users that uses ERP system in the daily bases and they aren't IT or IS expertise they lack sufficient experience with technology. If the top managers took a decision without involving the IT managers, this risk can lead to inappropriate ERP maintenance and upgrade. Top managers do not provide sufficient support to ERP post-implementation; will lead to conflicts and arguments in ERP issues that cannot be solved efficiency, missing IS improvement plan. Budgets and funds assigned to ERP post-implementation are insufficient; this risk will result in predictably impact for a long period of ERP success (Peng & Nunes, 2009).
2.4.1.4. Technical Risk
Technical risk (TR) is a set of risks preventing ERP system from meeting its intended functions and performance requirements, as a result of set of risks related to the system and technical factors. Different modules of the ERP system are not seamlessly integrated.
2.4.2. Return on Investment
Experts incline to discuss the impacts of failure in ERP projects in a sensing, referring to shut the down of the system, suffering the business loss, dropping market price and losing both market shares and both competitive advantage due to implementation failure. (Wong et al; Mehrjedi, 2010), has approved on ERP failure in implementation rages from 60% to 90%. Failure has been defined as an implementation that does not achieve at sufficient Return on Investment (ROI) identified in the project approval phase (Wong, Chau, Scarbrough, & Davison, 2005, p. 3).
2.4.3. Inadequate Training
ERP project failures are mostly assed by managers as technical failures, while 50% of the failures in fact related to people such as resistance to change, lack of appropriate training and awareness. Overloaded issues related to the ERP implementation is to sight ERP project as a business rather than technical solution. The reasons for failure have been notated to poor planning, lack of user involvement and training and lack of skills. Training for using ERP systems is an important thing, but it is usually neglected or cut when its come to budget, that happens when projects are overrun. These result leads to a challenge on training to find innovative ways, to be more effective and efficient. The training life cycle consists of five phases that demonstrates how to identify the required training and evaluate it (Albadri & Abdallah, 2009):
Identification of training needs. Is the process of identifying training necessities and end-user requirements? The primary output of this phase is to answer why the training is needed and what is expected outcome and its impacts.
Design of training solutions. Is the stage where planning, design and development of appropriate training required. The training solutions may include different techniques including conventional class training.
Delivery of training solutions. The process of training cycle is concerned with the effectiveness of the training delivery to ensure success of the learning process and knowledge transfer.
Application of training. In this phase the main consideration is with applying the learned outcomes and confirming learning reinforcement through practices.
Evaluation of training solutions. The last stage deals with the collection of data and analysis of information to establish improvement in performance. These steps are used in evaluating the training process and improving it.
There have been three approaches identified to solve the inadequate training (Albadri & Abdallah, 2009, pp. 19-29):
The traditional Human Resource Development (HRD) is the easiest approach, it is subjective, non-robust and conservative where users training expenditure. This approach is consistently limited in efficiency and appropriate for ERP projects. The target of this approach is mainly delivering certain knowledge aspects without taking into consideration to many users perceptions and attitudinal behavior.
ERP methodology training approach mainly concerns to prepare the end users with sum of training activities to be able to use and utilize the ERP applications and tools. Most of ERP implementation methodologies have end-user training, but it may varies in the scope management and details to include end user awareness. Albadri proved that methodologies such as SAP's ASAP and Oracle's AIM define the end- training as the core of the project deliverables and he also identified that there is strong evidence from existing ERP projects that have applied such training style that the vendor designed and delivered training tend to lack in business depth.
End-User characterization based competency building approach is the most creative and comprehensive approach in addressing end users competencies including knowledge perceptions and attitudinal behavior to ensure end-user awareness of the business value of the system understanding their role as end-users, and perceiving the system usefulness at both organizational and individual levels. The aim of this approach is user focused, flexible and diverse in terms of instructional design, role of users and usage of different technologies for delivery.
2.4.4. Out of date technology for competing
ERP modules should work in real time with online and batch-processing capabilities, so that no errors would occur because of the system being not up to date and information available to a department wouldn't be different than the other departments. The systems technology should have flexibility implies the capability of the system to support the needs of the business over its lifetime. As the business requirements of the organization changes, it should be flexible to suite business strategy, organizational cultures and add extra modules. System requirements are determined by its technology and durability of the product. The important thing when choosing an ERP system that it should be independent of hardware, operating system and database systems (Alanaby, 2005, pp. 2-3).
2.5. Research gap
3. Conclusion & Future Research
